NETBANK INC
S-3/A, 1999-06-02
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED
Previous: PRUDENTIAL HIGH YIELD TOTAL RETURN FUND INC, 497, 1999-06-02
Next: FIRSTAR SELECT FUNDS, NSAR-B, 1999-06-02



<PAGE>

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1999

                                                      REGISTRATION NO. 333-77969
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                                AMENDMENT NO. 2
                                       TO
                                    FORM S-3


                             REGISTRATION STATEMENT

                                     UNDER

                           THE SECURITIES ACT OF 1933
                            ------------------------
                                 NET.B@NK, INC.

             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                      <C>
                        GEORGIA                                                58-2224352
            (State or other jurisdiction of                                 (I.R.S. Employer
            incorporation or organization)                                 Identification No.)
</TABLE>

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

                            950 NORTH POINT PARKWAY
                           ALPHARETTA, GEORGIA 30005
                                 (770) 343-6006

              (Address, including zip code, and telephone number,
       including area code, of Registrant's principal executive offices)

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

                                  D. R. GRIMES
                            CHIEF EXECUTIVE OFFICER
                                 NET.B@NK, INC.
                            950 NORTH POINT PARKWAY
                                   SUITE 350
                           ALPHARETTA, GEORGIA 30005
                                 (770) 343-6006

           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                          COPIES OF COMMUNICATIONS TO:

<TABLE>
<S>                                                               <C>
                   WALTER G. MOELING IV, ESQ.                                        ALLEN L. WEINGARTEN, ESQ.
            POWELL, GOLDSTEIN, FRAZER & MURPHY, LLP                                   MORRISON & FOERSTER LLP
                        SIXTEENTH FLOOR                                             1290 AVENUE OF THE AMERICAS
                   191 PEACHTREE STREET, N.E.                                         NEW YORK, NEW YORK 10104
                     ATLANTA, GEORGIA 30303                                                (212) 468-8000
                         (404) 572-6600
</TABLE>

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

    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.

    If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

    If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

    If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

    If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

THIS REGISTRATION STATEMENT INCLUDES SEPARATE PROSPECTUSES FOR THE OFFERINGS OF
THE COMMON STOCK AND OF THE NOTES. NEITHER OFFERING DEPENDS ON THE OTHER.

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

                   SUBJECT TO COMPLETION, DATED JUNE 1, 1999

PRELIMINARY PROSPECTUS
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
                                3,000,000 SHARES
     (AFTER GIVING EFFECT TO A 3 FOR 1 STOCK SPLIT EFFECTIVE MAY 14, 1999)

                                     [LOGO]

                                  COMMON STOCK
                                ----------------

Net.B@nk, Inc. is offering 3,000,000 shares of its common stock. An underwriter
that is a foreign broker-dealer will purchase up to              of these shares
for sales outside of the United States.

The last reported sale price of our common stock, which is listed on the Nasdaq
National Market under the symbol "NTBK," was $186.00 ($62.00 after giving effect
to the May 14, 1999 3 for 1 stock split) per share on May 12, 1999.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

THE SHARES OF OUR COMMON STOCK OFFERED ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
                            ------------------------

<TABLE>
<CAPTION>
                                                                  PER
                                                                 SHARE            TOTAL
                                                            ---------------  ---------------
<S>                                                         <C>              <C>
Public offering price.....................................  $                $
Underwriting discounts and commissions....................  $                $
Proceeds, before expenses, to us..........................  $                $
</TABLE>

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

The underwriters may purchase up to an additional 450,000 shares of common stock
from Net.B@nk at the public offering price less the underwriting discount.

The underwriters are severally underwriting the shares offered by this
prospectus. The underwriters expect to deliver the shares against payment in New
York, New York on              , 1999.
                            ------------------------
BEAR, STEARNS & CO. INC.
          BANCBOSTON ROBERTSON STEPHENS
                     RAYMOND JAMES & ASSOCIATES, INC.
                               KELTON INTERNATIONAL LTD.

              The date of this prospectus is              , 1999.
<PAGE>
                              [INSIDE FRONT COVER]

    [Graphics appear here, with title "Banking for the 21st Century" and
photographs of computer screens displaying Net.B@nk's home page and its banking,
investment, lending, interest checking, electronic bill payment and account
statement pages. Four bar graphs also appear, showing growth in total customer
accounts, checking accounts, deposits and assets from December 31, 1997 to March
31, 1999.]
<PAGE>
                               PROSPECTUS SUMMARY


    THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
UNLESS STATED OTHERWISE, ALL SHARE DATA IN THIS PROSPECTUS REFLECTS OUR 3 FOR 1
STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND, WHICH HAD A RECORD DATE OF APRIL
23, 1999 AND A DISTRIBUTION DATE OF MAY 14, 1999. REFERENCES TO "WE," "US,"
"OUR" AND "NET.B@NK" GENERALLY REFER TO NET.B@NK, INC. AND ITS SOLE SUBSIDIARY,
NET.B@NK, ON A CONSOLIDATED BASIS, EXCEPT WHERE WE INDICATE THAT NET.B@NK, INC.
MEANS ONLY THE PARENT ENTITY AND NET.B@NK REFERS ONLY TO THE BANKING SUBSIDIARY.


OUR BUSINESS

    Net.B@nk, our sole subsidiary, is the largest federally-insured bank
operating exclusively on the internet. Our mission is to profitably provide a
broad range of banking and financial services to the growing number of internet
users. Our low cost branchless business model allowed us to attain profitability
within a year of acquiring our bank charter and to continue to maintain
profitability while passing along our operating cost savings to customers in the
form of attractive interest rates and low fees.

    Our unique, internet-based operating strategy has allowed us to experience
rapid growth. During 1998, our customer accounts grew from 4,755 to 17,408,
deposits grew from $58.7 million to $283.6 million and total assets grew from
$93.2 million to $388.4 million. During 1998, we added an average of 1,054 net
customer accounts per month. At March 31, 1999, we had 24,634 customer accounts,
$332.7 million in deposits and $526.5 million in total assets. During the four
months ended April 30, 1999, we added an average of over 2,900 net customer
accounts per month with 4,865 added in April alone.

    We offer a broad array of products and services that customers would
typically expect from a traditional bank. Our products and services include
checking and money market accounts, certificates of deposit, electronic bill
payment, debit cards, credit cards, mortgage loans, business equipment leases
and securities brokerage services. We plan to offer consumer loans, including
home equity and automobile loans, beginning in the third quarter of 1999. We
also intend to develop additional products and services such as insurance
products, electronic bill presentment and electronic document and image storage
in a virtual safe deposit box.

    Since our equity offering in February 1999, we have continued to experience
rapid growth in our business and have entered into several new programs to
expand and improve our operational and product capabilities. Since February
1999, we have initiated the following:

    - EXPANDED MARKETING PROGRAM. We embarked on a new marketing program that
      has been highly successful in reaching our targeted audience and has
      produced a significant increase in checking accounts. We believe this
      growth in our checking account base indicates growing customer willingness
      to move their everyday banking activities to Net.B@nk and will result in
      long-term customer relationships. Furthermore, we believe that our
      checking account customers will visit our Web site more frequently and
      spend more time on our Web site, allowing us to cross-sell a variety of
      other products and services.

    - SERVICING AGREEMENT WITH PNC BANK CORP. We entered into a consumer loan
      processing and servicing agreement with PNC Bank Corp. This agreement will
      allow us to offer consumer loan products on-line. PNC will provide
      origination and loan servicing for these consumer loans as well as
      substantially all consumer loans for which we retain servicing rights on a
      scalable basis at a favorable cost.

    - IMPROVED CUSTOMER SERVICE. We increased our customer support staff by over
      70% in order to maintain high-quality customer service. We have also
      invested in advanced technology and

                                       3
<PAGE>
      implemented new procedures in order to continually improve the quality and
      responsiveness of our customer service.

    - STRENGTHENED LENDING AND FINANCIAL OPERATIONS. We expanded our mortgage
      lending capabilities through a mortgage loan origination partnership with
      Virtuallender.com. We strengthened our lending and financial operations by
      adding several experienced individuals to our professional staff.
      Additionally, we have significantly increased our loan portfolio while
      continuing to maintain a conservative lending and investment strategy.

OUR MARKET OPPORTUNITY

    By offering a broad array of financial services via the internet, we are
well-positioned to capitalize on the internet's rapid growth. According to
International Data Corporation, the number of worldwide internet users is
projected to grow from an estimated 159.3 million in 1998 to an estimated 410.4
million by 2002. The internet is emerging rapidly as a means of providing
financial services. According to Jupiter Communications, the number of on-line
banking households in the United States is projected to grow from an estimated
6.6 million in 1998 to an estimated 17.1 million in 2002. A demographic study by
Jupiter Communications indicates that internet users tend to be young, mobile
professionals with relatively high incomes. We believe these demographics
suggest a growing market for the convenience, attractive interest rates and low
fees that characterize Net.B@nk.

    As the first federally-insured bank to operate solely on the internet, we
have a first mover advantage relative to on-line banks with less extensive
market presence and less established operating histories. In addition, we have a
competitive cost advantage over traditional banks.

OUR STRATEGY

    Our objective is to become the leading provider of a full range of on-line
financial services. To accomplish this objective, we intend to:

    - Build national brand awareness through increased marketing efforts.

    - Expand our customer base by offering attractive interest rates and low
      fees, a result of our low-cost, branchless business model.

    - Develop new products and services and enter into strategic alliances where
      appropriate.

    - Employ a conservative lending and investment strategy to maintain high
      asset quality.

    - Outsource operational functions to provide scalability and flexibility.

    - Generate noninterest income through cross-marketing initiatives.

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

    Our principal executive offices are located at 950 North Point Parkway,
Suite 350, Alpharetta, Georgia 30005, telephone (770) 343-6006. Our Web site is
located at www.netbank.com. Information contained on our Web site is not a part
of this prospectus.

                                       4
<PAGE>
                                  THE OFFERING

<TABLE>
<S>                                           <C>
Common stock offered by us..................  3,000,000 shares

Common stock to be outstanding after this
  offering..................................  28,805,085 shares

Use of proceeds.............................  We intend to invest the majority of the net
                                              proceeds from this offering in earning assets,
                                              including purchased loan portfolios, new loans
                                              that we originate and investment securities.
                                              We intend to use the earnings from these
                                              assets and the balance of the net proceeds
                                              from this offering for general corporate
                                              purposes, including increasing our budgeted
                                              marketing efforts to $11.0 million for the
                                              next twelve months. We also intend to hire
                                              additional personnel, to fund other costs
                                              related to our accelerated deposit growth and
                                              to pursue strategic partnerships and
                                              investments. See "Use of Proceeds."

Nasdaq National Market Symbol...............  NTBK

Concurrent notes offering...................  Concurrent with this common stock offering and
                                              by a separate prospectus, we are offering
                                              $100,000,000 aggregate principal amount of
                                                 % Convertible Subordinated Notes Due 2004.
                                              The completion of the concurrent notes
                                              offering and this common stock offering do not
                                              depend on one another.
</TABLE>

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

    The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of May 12, 1999. We are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock that will already be outstanding after this
offering. The following is a summary of these additional shares of common stock:

    - 1,792,875 shares that are issuable under our stock option plan upon the
      exercise of options outstanding as of April 30, 1999 at a weighted average
      exercise price of $9.16 per share;

    - 1,880,826 additional shares that could be issued under our stock option
      plan;

    - 450,000 shares that we will be required to issue if the underwriters
      exercise their over-allotment option in full; and

    -         shares subject to adjustment, that we will be required to issue,
      if we complete the concurrent notes offering, at a conversion price of
      $     per share.

                           OTHER INTRODUCTORY MATTERS

    Information regarding historical and projected growth in use of the internet
and electronic commerce or relating to the demographic profile of internet users
is derived from reports issued by Jupiter Communications and International Data
Corporation. The demographic profile of our customer base is derived from data
provided by John H. Harland Company, an independent firm that we retained. The
FDIC Institution Directory provides other statistical data relating to the
banking industry.

    Net.B@nk-TM- is a trademark of Net.B@nk, Inc. This prospectus also contains
product names and trademarks of other organizations.

                                       5
<PAGE>
                      SUMMARY CONSOLIDATED FINANCIAL DATA

    The summary historical financial information presented below is derived from
Net.B@nk's audited consolidated financial statements as of December 31, 1996,
1997 and 1998 and for the period from February 20, 1996 to December 31, 1996 and
for the years ended December 31, 1997 and 1998 and from Net.B@nk's unaudited
consolidated financial statements as of and for the three months ended March 31,
1998 and 1999. The summary historical financial information should be read in
conjunction with Net.B@nk's consolidated financial statements and related notes,
which are included elsewhere in this prospectus.


<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                  FEBRUARY 20,
                                                  1996 (DATE OF              YEAR ENDED              THREE MONTHS ENDED MARCH 31,
                                                INCORPORATION) TO           DECEMBER 31,
                                                  DECEMBER 31,       ---------------------------     -----------------------------
                                                      1996               1997           1998             1998             1999
                                               -------------------   -------------  ------------     ------------     ------------
<S>                                            <C>                   <C>            <C>              <C>              <C>
INCOME STATEMENT DATA:
Interest income..............................      $     7,709       $   2,223,165  $ 18,088,044     $  2,206,614     $  7,557,850
Interest expense.............................        --                  1,259,743    11,424,432        1,303,628        4,559,707
                                               -------------------   -------------  ------------     ------------     ------------
  Net interest income........................            7,709             963,422     6,663,612          902,986        2,998,143
Provision for loan losses....................        --                    471,706        20,132            3,661           49,806
                                               -------------------   -------------  ------------     ------------     ------------
Net interest income after provision for loan
  losses.....................................            7,709             491,716     6,643,480          899,325        2,948,337
Noninterest income...........................           60,000              62,607       683,092          122,495          245,715
Noninterest expense..........................        3,906,891           6,131,762     5,187,390        1,173,267        2,147,536
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss) before income taxes......       (3,839,182)         (5,577,439)    2,139,182         (151,447)       1,046,516
Income tax benefit (expense).................        --                   --           2,324,830          --              (355,000)
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss)..........................      $(3,839,182)      $  (5,577,439) $  4,464,012     $   (151,447)    $    691,516
                                               -------------------   -------------  ------------     ------------     ------------
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss) per common
    share--basic(1)..........................      $     (1.44)      $       (0.55) $       0.24(2)  $      (0.01)    $       0.03
                                               -------------------   -------------  ------------     ------------     ------------
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss) per common and potential
    common share--diluted(1).................      $     (1.44)      $       (0.55) $       0.23(2)  $      (0.01)    $       0.03
                                               -------------------   -------------  ------------     ------------     ------------
                                               -------------------   -------------  ------------     ------------     ------------
Weighted average shares
  outstanding--basic(1)......................        2,658,000          10,062,000    18,447,000       18,431,000       22,536,000
Weighted average shares
  outstanding--diluted(1)....................        2,658,000          10,062,000    19,152,000       18,431,000       23,424,000

BALANCE SHEET DATA--AT PERIOD END:
Total assets.................................      $ 1,246,449       $  93,219,809  $388,436,736     $163,463,431     $526,463,208
Total deposits...............................        --                 58,726,763   283,589,151      128,681,669      332,678,334
Shareholders' equity (deficit)...............         (386,073)         34,117,397    38,754,888       34,100,461      143,748,122
Book value per share(1)......................            (0.10)               1.85          2.10             1.85             5.57

FINANCIAL RATIOS AND ACCOUNT DATA:
Percentage of average shareholders' equity
  (deficit) to average total assets..........           (30.97)%            35.71%         15.13%           26.58%           19.95%
Percentage of allowance for loan losses to
  total loans................................               --                1.01%         1.24%            0.43%            1.05%
Percentage of charge-offs to average loans...               --                0.08%         0.36%            0.05%            0.12%
Percentage of nonperforming loans to total
  loans......................................               --                  --            --               --               --
Number of accounts at period end.............               --               4,755        17,408            8,416           24,634
</TABLE>


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

(1) On April 13, 1999, we declared a 3 for 1 split of our common stock to be
    effected in the form of a stock dividend payable on May 14, 1999 to
    shareholders of record as of the close of business on April 23, 1999. All
    references to share and per share amounts have been retroactively adjusted
    to reflect this split.

(2) Assuming no income tax benefit and a statutory income tax rate of 34% for
    the year, pro forma net income per common and potential common share for the
    year ended December 31, 1998 would have been $0.03 per share, basic, and
    $0.02 per share, diluted.

                                       6
<PAGE>
                                  RISK FACTORS

    AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE SPECIFIC FACTORS LISTED BELOW, TOGETHER WITH THE
CAUTIONARY STATEMENT THAT FOLLOWS THIS SECTION AND THE OTHER INFORMATION
INCLUDED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.

    THE SHARES OF OUR COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENTAL AGENCY.

WE COULD SUSTAIN LOSSES IF THE QUALITY OF OUR LOAN PORTFOLIO DETERIORATES

    If the quality of our loan portfolio deteriorates due to economic downturns
or our inaccurate assessment of borrower creditworthiness, our interest income
and net interest margin could decrease and our loan loss provision could
increase. This could result in losses that materially adversely affect our
business, financial condition, results of operations and cash flows. A
significant portion of our net income is derived from our loan portfolio. If an
economic downturn occurs either generally or in the Western or Southeastern
United States, the regions collectively representing the greatest concentration
of loans in our loan portfolio, borrowers may be less likely to repay their
loans as scheduled.

OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH IN USE AND COMMERCIAL VIABILITY OF
  THE INTERNET

    Our future success depends substantially on continued growth in use of the
internet. The internet is, however, a relatively new commercial marketplace and
may not continue to grow. If internet use does not continue to grow, our
business, financial condition, results of operations and cash flows could be
materially adversely affected.

    Additionally, to the extent the internet's technical infrastructure or
security concerns adversely affect its growth, our business, financial
condition, results of operations and cash flows could be materially adversely
affected. If the number of internet users and the level of use continues to
grow, the internet's technical infrastructure may become unable to support the
demands placed upon it. Furthermore, third-party vendors might not be able to
timely and adequately develop the necessary technical infrastructure for
significant increases in electronic commerce, such as a reliable network
backbone, or to introduce performance improvements, such as high-speed modems.
The internet could also lose its commercial viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of activity or due to increased governmental regulation.
Changes in or insufficient availability of telecommunication services could
produce slower response times and adversely affect use of the internet.
Furthermore, the general public's security concerns regarding the transmittal of
confidential information, such as credit card numbers, over the internet might
persist or even worsen. These security concerns could lead to resistance against
widespread acceptance of the internet as a viable commercial marketplace.

OUR OPERATIONS COULD BE INTERRUPTED IF OUR NETWORK OR COMPUTER SYSTEMS FAIL OR
  EXPERIENCE A SECURITY BREACH

    Interruptions in our operations resulting from damage or failure of our
network or computer system could materially adversely affect our business,
financial condition, results of operations and cash flows. Because we conduct
our business over the internet and outsource several critical functions to third
parties, our operations depend on our ability, as well as that of our
third-party service providers, to protect our computer systems and network
infrastructure against damage from fire, power loss, telecommunications failure,
physical break-ins or similar catastrophic events. Our computer systems and
network infrastructure could be vulnerable to unforeseen problems.

    In addition, any compromise or breach of our network or computer system
security could have a material adverse effect on our business, financial
condition, results of operations and cash flows. A

                                       7
<PAGE>
significant barrier to on-line financial transactions is the secure transmission
of confidential information over public networks. We rely on encryption and
authentication technology to provide the security and authentication necessary
for secure transmission of confidential information. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
could result in a compromise or breach of the algorithms Net.B@nk and its
third-party service providers use to protect customer transaction data. See
"Business--Security."

    We are part of a rapidly evolving electronic commerce market. Market
acceptance of internet banking depends substantially on widespread adoption of
the internet for general commercial and financial services transactions. If
another provider of commercial services through the internet were to suffer
damage from a physical break-in, security breach or other disruptive problem
caused by the internet or other users, the growth and public acceptance of the
internet for commercial transactions could suffer. Such an event could deter
potential customers or cause customers to leave us and thereby materially
adversely affect our business, financial condition, results of operations and
cash flows.

INDUSTRY COMPETITION MAY ADVERSELY AFFECT OUR SUCCESS

    The banking industry is highly competitive in general, and the market for
internet banking in particular has experienced a recent surge in new entrants.
Our future profitability depends on our ability to compete successfully. We
believe our ability to compete successfully depends on a number of factors,
including:

    - Market presence;

    - Customer service and satisfaction;

    - The capacity, reliability and security of our network infrastructure;

    - Ease of access to and navigation of the internet;

    - Our competitors' interest rates and service fees;

    - The scope of our products and services and the rate at which we and our
      competitors introduce them; and

    - Industry and general economic trends.

    If we experience difficulty in any of these areas, our business, financial
condition, results of operations and cash flows could be materially adversely
affected.

    In addition, many of our principal competitors, traditional banks and
thrifts, other internet banks and other financial service providers, such as
brokerage and insurance companies, have greater financial and other resources
than we do. Because there are few barriers to on-line market entry for existing
chartered financial institutions, our competitors could implement internet
banking operations with relative ease. Furthermore, brokerage companies and
other financial service providers may not be subject to the same degree of
regulation as we are. See "Business--Competition."

FAILURE TO IMPLEMENT OUR BUSINESS STRATEGY OR MANAGE OUR GROWTH EFFECTIVELY MAY
  ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE

    We may not succeed in implementing our business strategy and, even if we do
succeed, our strategy may not have the favorable impact on operations that we
anticipate. Our success depends on our ability to execute our marketing plan,
leverage our low cost structure, offer a broad array of products and services,
provide convenient, high-quality customer service and employ other elements of
our business strategy. We may not be able to manage effectively the expansion of
our operations or achieve the rapid execution necessary to exploit fully the
market for our services. If we are unable to manage growth effectively, or to
otherwise adequately implement our business strategy, our business,

                                       8
<PAGE>
financial condition, results of operations and cash flows could be materially
adversely affected. See "Business--Growth Strategy."

FAILURE TO INTRODUCE NEW PRODUCTS AND SERVICES SUCCESSFULLY MAY CAUSE US TO LOSE
  MARKET SHARE

    If we are unable to develop and bring additional products and services to
market in a timely manner, we could lose market share to competitors who are
able to offer these additional products and services, which could materially
adversely affect our business, financial condition, results of operations and
cash flows. Our success depends in part upon our ability to offer new products
and services that meet changing customer requirements. See "Business--Industry
Background," "--The Net.B@nk Solution" and "--Products and Services."

OUR PROFITABILITY AND GROWTH MAY BE ADVERSELY AFFECTED IF INTERNET BANKING DOES
  NOT BECOME WIDELY ACCEPTED

    If the internet banking market does not continue to develop, our business,
financial condition, results of operations and cash flows could be materially
adversely affected. The market for internet banking services is rapidly evolving
and the ultimate demand for and market acceptance of internet banking remains
uncertain. Market acceptance of internet banking depends on consumer willingness
to use the internet for general commercial and financial services transactions.
Other critical issues concerning the commercial use of the internet, including
reliability, cost, ease of use and access and quality of service, may also
impact the growth of internet use. Consequently, internet banking may not become
as widely accepted as traditional methods of banking and our profitability and
growth could be adversely affected. See "Business--Industry Background" and
"--The Net.B@nk Solution."

OUR COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY
  PERSONNEL

    Our success depends upon the continued service of our senior management team
and key technical personnel and upon our ability to attract and retain qualified
personnel. If we lose the services of our key personnel, or are unable to
attract additional qualified personnel, our business, financial condition,
results of operations and cash flows could be materially adversely affected. On
April 30, 1999, Donald S. Shapleigh, Jr. resigned as our President. We have not
yet hired anyone to replace him and cannot predict when this position will be
filled. To date, this vacancy has not adversely affected our operations;
however, we cannot predict the effect a continued vacancy in this position will
have on our operations. Our employees do not have employment agreements and may
voluntarily terminate their employment at any time. In the current market,
competition for qualified employees, particularly in technical fields, is
intense. In our experience, it can take a significant period of time to identify
and hire personnel with the combination of skills and attributes required to
carry out our strategy. We do not carry key person life insurance on any of our
executives. See "Management."

CHANGES IN INTEREST RATES MAY DECREASE OUR NET INTEREST INCOME

    An increase or decrease in interest rates could have a material adverse
effect on our net interest income, capital and liquidity. Our operations depend
substantially on our net interest income, which is the difference between the
interest income earned on our interest-earning assets, such as loans and
investments, and the interest expense paid on our interest-bearing liabilities,
such as deposits and other borrowings. Like most depository institutions, our
earnings are affected by changes in market interest rates and other economic
factors beyond our control. While we intend to continue to take measures to
decrease interest rate risk, these measures may not be effective in minimizing
the exposure to interest rate risk. The difference between the amount of
interest-earning assets and interest-bearing liabilities that mature within a
given period of time, or the interest rate sensitivity "gap," indicates the
extent to which an institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the amount of
interest rate-sensitive assets exceeds the amount of interest

                                       9
<PAGE>
rate-sensitive liabilities and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. In a rising interest rate environment, an institution
with a positive gap would be in a better position than an institution with a
negative gap to invest in higher yielding assets or have its asset yields
adjusted upward, which would result in the yield on its assets increasing at a
faster pace than the cost of its interest-bearing liabilities. During a period
of falling interest rates, however, an institution with a positive gap would
tend to have its assets maturing at a faster rate than one with a negative gap,
which would tend to reduce or restrain the growth of its net interest income. If
we are unsuccessful in managing interest rate fluctuations, our business,
financial condition, results of operations and cash flows could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Market Risk."

OUR OPERATIONS COULD BE INTERRUPTED IF OUR THIRD-PARTY SERVICE PROVIDERS
  EXPERIENCE DIFFICULTY OR TERMINATE THEIR SERVICES

    If our third-party service providers experience difficulties or terminate
their services and we are unable to replace them with another service provider,
our operations could be interrupted. If an interruption were to continue for a
significant period of time, our business, financial condition, results of
operations and cash flows could be materially adversely affected. We depend, and
will continue to depend, significantly on a number of relationships with
third-party service providers. Specifically, we receive essential Web hosting,
electronic bill payment and core systems processing services on an outsourced
basis from NCR Corporation, CheckFree Corporation and BISYS Group, Inc.,
respectively. See "Business--Operations."

OUR COMPUTER SYSTEMS, AND THOSE OF OTHERS ON WHOM WE RELY, MAY NOT OPERATE
  PROPERLY ON YEAR 2000-SENSITIVE DATES

    The year 2000 issue common to most corporations, including Net.B@nk,
concerns the inability of some computer software programs and databases to
recognize the year 2000 and other year 2000-sensitive dates. Computer programs
we or our service providers use that recognize a date using "00" as the year
1900 rather than the year 2000 could result in errors or system failures that
could ultimately cause us or our service providers to be unable to process
customer transactions. This would require us to cease operations pending
resolution of the problem. We believe our principal risk lies in the potential
inability of our outside vendors and service providers to process date-sensitive
information involving the year 2000. We also face risks relating to the
potential year 2000 noncompliance of other institutions that service our loans,
merchants receiving electronic transfers of funds from our customers, the
FedWire system governing electronic funds transfers, the ATM networks with which
we are is affiliated and the Federal Reserve system itself. Additionally, if any
of our borrowers encounter year 2000 computer malfunctions they may become
unable to repay their loans.

    Furthermore, if we are unable to achieve year 2000 readiness, our regulators
could suspend our operations. Although we are working to resolve the potential
impact of the year 2000 on the ability of the computerized information systems
we use to accurately process information that may be date-sensitive, if we or
any of our service providers or other entities cannot achieve year 2000
readiness, our business, financial condition, results of operations and cash
flows could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."

THE MARKET PRICE OF OUR COMMON STOCK HAS FLUCTUATED, AND COULD FLUCTUATE
  SIGNIFICANTLY IN THE FUTURE

    The market price of our common stock has been highly volatile since our
initial public offering, with closing prices ranging from a low of $2.92 per
share to a high of $78.34 per share. The market price of the common stock will
continue to fluctuate, and could fluctuate significantly, in response to

                                       10
<PAGE>
various factors and events, including the liquidity of the market for the common
stock, differences between our actual financial or operating results and those
expected by investors and analysts, changes in analysts' recommendations or
projections, new statutes or regulations or changes in the interpretation of
existing statutes and regulations affecting our business, changes in general
economic or market conditions and broad market fluctuations. See "Price Range of
Common Stock."

WE RELY ON INTELLECTUAL PROPERTY RIGHTS

    We regard the form and substance of our name as proprietary and attempt to
protect it by relying on intellectual property laws. We have submitted a United
States trademark registration for the Net.B@nk name and take active measures to
safeguard this name. Policing unauthorized use of proprietary information is
difficult, however, and we cannot assure you about the continued viability or
value of any of the intellectual property rights that we now have or may have in
the future. Litigation may be necessary in the future to enforce our
intellectual property rights.

    In addition, our business activities could infringe upon the proprietary
rights of others, and other parties could assert infringement claims against us.
Any litigation claims or counterclaims we might make could impair our business
because they could be time-consuming, result in costly litigation or divert
management's attention.

    We own the internet domain name "netbank.com". The regulation of domain
names in the United States and in foreign countries may change. Regulatory
bodies could establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names, any or all
of which may dilute the strength of our name. We may not acquire or maintain our
domain names in all of the countries in which our Web site may be accessed or
for any or all of the top-level domain names that may be introduced. The
relationship between regulations governing domain names and laws protecting
intellectual property rights is unclear. Therefore, we may not be able to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our trademarks and other intellectual property rights.

GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR ABILITY TO CONDUCT BUSINESS

    BANK REGULATION.  Revisions to existing or adoption of new laws or
regulations could subject us to more demanding regulatory compliance
requirements and could adversely affect our ability to conduct, or our cost of
conducting, business. Net.B@nk, Inc., the parent company, is regulated by the
Office of Thrift Supervision and the Georgia Department of Banking and Finance
and subject to certain restrictions imposed by the Board of Governors of the
Federal Reserve System. Net.B@nk, our banking subsidiary, is regulated by the
Office of Thrift Supervision and the FDIC. We are also subject to various laws
and regulations relating to commercial and consumer transactions generally, such
as the Uniform Commercial Code, as well as the electronic funds transfer rules
which are contained in Regulation E, issued by the Federal Reserve Board. Any of
these agencies, or other governmental or regulatory authorities, could revise
existing regulations or adopt new regulations at any time. Legislation and
regulatory initiatives containing wide-ranging proposals for altering the
structure, regulation and competitive relationships of financial institutions
are introduced regularly. We cannot predict whether or in what form a proposed
statute or regulation will be adopted or the extent to which it may affect our
business.

    Furthermore, given the rapid expansion of the electronic commerce market,
many regulatory bodies are adopting measures to ensure that their regulations
are keeping pace. For example, Congress has held hearings on whether to regulate
the electronic commerce market, while numerous states are considering adopting
their own laws to regulate internet banking. Furthermore, bank regulators are
considering proposing new laws relating to customer privacy. If enacted, these
laws, rules and regulations could force us to comply with more complex and
perhaps more burdensome regulatory

                                       11
<PAGE>
requirements, which could materially adversely affect our business, financial
condition, results of operations and cash flows. See "Business--Supervision and
Regulation."

    INTERNET REGULATION.  Our ability to conduct, and/or our cost of conducting,
business may also be adversely affected by a number of legislative and
regulatory proposals concerning other aspects of the internet, which are
currently under consideration by federal, state, local and foreign governmental
organizations. These proposals include, but are not limited to the following
matters: on-line content, user privacy, taxation, access charges, liability of
third-party activities and jurisdiction. Moreover, we do not know how existing
laws relating to these issues will be applied to the internet. The adoption of
new laws or the application of existing laws could decrease the growth in the
use of the internet, which could in turn decrease the demand for our products
and services, increase our cost of doing business or otherwise have a material
adverse effect on our business, financial condition, results of operations and
cash flows. Furthermore, government restrictions on internet content could slow
the growth of internet use and decrease acceptance of the internet as a
communications and commercial medium and thereby have a material adverse effect
on our business, financial condition and results of operations.

    Some local telephone carriers have asserted that the growing popularity and
use of the internet has burdened the existing telecommunications infrastructure
and caused interruptions in telephone service in areas with high internet use.
These carriers have petitioned the Federal Communications Commission to impose
access fees on internet service providers and commercial on-line service
providers. If the Federal Communications Commission imposes access fees, the
costs of transacting business over the internet could increase substantially,
potentially slowing the growth in use of the internet. This could in turn
decrease demand for our services or increase our cost of doing business, and
thus have a material adverse effect on our business, financial condition,
results of operations and cash flows.

    INTERNET PRIVACY.  Internet user privacy has become an issue both in the
United States and abroad. The Federal Trade Commission has proposed model
legislation that would force companies to comply with specified core information
practices. It is possible that Congress could adopt either legislation similar
to that proposed by the Federal Trade Commission or other privacy legislation
that could have a material adverse effect on the way in which we are allowed to
conduct our business, especially those aspects that involve the collection or
use of personal information. At the international level, the European Union has
adopted a directive that permits European Union member countries to impose
restrictions on the collection and use of personal data. This directive could,
among other things, affect United States companies that collect information over
the internet from individuals in European Union member countries and may impose
restrictions that are more stringent than current internet privacy standards in
the United States. In response to this directive, on November 4, 1998, the
United States Department of Commerce published for comment a set of safe harbor
principles regarding privacy protection for personally identifiable data. These
principles were revised on April 19, 1999.

OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT PORTION OF OUR
  OUTSTANDING COMMON STOCK AND COULD EXERCISE SIGNIFICANT INFLUENCE OVER
  NET.B@NK

    As of April 30, 1999, our directors and executive officers beneficially
owned 5,384,096 shares, representing approximately 20.0%, of the outstanding
common stock of Net.B@nk. As a result, our directors and executive officers
could exercise significant influence over matters requiring shareholder
approval, including the election of directors or a change in control of
Net.B@nk. See "Management" and "Principal Shareholders."

                                       12
<PAGE>
OUR ARTICLES OF INCORPORATION AND BYLAWS COULD DETER A CHANGE IN CONTROL AND
  DEPRIVE YOU OF AN OPPORTUNITY TO SELL YOUR COMMON STOCK AT A PREMIUM OVER
  MARKET PRICES

    Our Articles of Incorporation and Bylaws contain provisions that may deter
an attempt to change or gain control of Net.B@nk. As a result, you may be
deprived of opportunities to sell some or all of your shares at prices that
represent a premium over market prices. These provisions include the existence
of blank check preferred stock, staggered terms for the directors, restrictions
on the ability to change the number of directors or to remove a director and
supermajority voting requirements. See "Description of Capital Stock."

WE DO NOT INTEND TO PAY CASH DIVIDENDS

    We do not intend to pay cash dividends in the foreseeable future, as we
expect to apply any earnings to developing and expanding our business. See
"Dividend Policy."

THE MARKET PRICE OF THE COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR
  FUTURE SALE

    Future sales of substantial amounts of common stock in the public market or
the perception that such sales could occur could adversely affect the market
price of the common stock. Certain directors and executive officers of Net.B@nk,
who collectively hold 5,172,096 restricted shares of common stock, are precluded
under Office of Thrift Supervision requirements from selling any of these shares
of common stock without prior Office of Thrift Supervision approval until July
28, 2000. If all of these shares are sold when they first become eligible for
resale, the increase in the number of shares available for sale could adversely
affect the market price of the common stock.

WE HAVE BROAD DISCRETION IN ALLOCATING THE NET PROCEEDS FROM THIS OFFERING

    Our management will have broad discretion in allocating the net proceeds
from this offering. We have not yet determined the allocation of these funds to
the various purposes described in this prospectus. See "Use of Proceeds."

                                       13
<PAGE>
                         CAUTIONARY STATEMENT REGARDING
                           FORWARD-LOOKING STATEMENTS

    Some of the statements in this prospectus are forward-looking statements.
These forward-looking statements include statements in the "Business-Industry
Background" and "The Net.B@nk Solution" sections of this prospectus relating to
trends in internet use and electronic commerce. These forward-looking statements
also include statements relating to our performance in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations," "Use
of Proceeds" and "Business" sections of this prospectus. In addition, we may
make forward-looking statements in future filings with the Securities and
Exchange Commission and in written materials, press releases and oral statements
issued by us or on our behalf. Forward-looking statements include statements
regarding the intent, belief or current expectations of Net.B@nk or its officers
and can be identified by the use of forward-looking terms such as "may," "will,"
"should," "believe," "expect," "anticipate," "estimate," "continue" or the
negative of these words or comparable terminology. Forward-looking statements
relating to the following involve inherent risks and uncertainties:

    - The growth in the use of the internet;

    - Our business strategy;

    - Competitiveness in the banking industry;

    - Potential regulatory obligations; and

    - Other statements that are not historical facts.

    Our actual results could differ materially from those anticipated from the
forward-looking statements, depending on various important factors. These
factors include:

    - A possible decline in asset quality;

    - The evolving nature of the market for internet banking;

    - The possible adverse effects of unexpected changes in the interest rate
      environment; and

    - Increasing competition and regulatory changes.

    In addition, please note that matters set forth under the caption "Risk
Factors" constitute cautionary statements identifying important factors with
respect to the forward-looking statements, including risks and uncertainties,
that could cause actual results to differ materially from those in the
forward-looking statements.

    All forward-looking statements in this prospectus are based on information
available to us as of the date of this prospectus. We do not undertake to update
any forward-looking statements that may be made by us or on our behalf in this
prospectus or otherwise.

                                       14
<PAGE>
                                USE OF PROCEEDS

    We estimate that the net proceeds to us from our sale of 3,000,000 shares of
common stock in this offering, after payment of underwriting discounts and
commissions and estimated expenses of the offering, will be $176,200,000,
assuming an offering price of $62.00 per share. If the underwriters exercise
their over-allotment option in full, we estimate that the net proceeds to us
will be $202,705,000 after payment of underwriting discounts and commissions and
estimated expenses of the offering. We intend to invest the majority of the net
proceeds from this offering in earning assets, including purchased loan
portfolios, new loans that we originate and investment securities. We intend to
use the earnings from these assets and the balance of the net proceeds from this
offering for general corporate purposes, including increasing our budgeted
marketing efforts to $11.0 million for the next twelve months. We also intend to
hire additional personnel, to fund other costs related to our accelerated
deposit growth and to pursue strategic partnerships and investments. We have not
yet allocated the net proceeds to each of the proposed purposes. Although we
continually evaluate opportunities for strategic partnerships and investments,
we do not presently have an understanding or agreement relating to any such
arrangement that is material to our business or that we have not otherwise
disclosed in this prospectus.

    Concurrent with this offering and by means of a separate prospectus, we are
offering $100,000,000 aggregate principal amount of   % Convertible Subordinated
Notes Due 2004, plus an additional $15,000,000 aggregate principal amount of
notes, solely to cover the underwriters' over-allotment option. The notes are
convertible, at the option of the holder, into shares of common stock at a
conversion price of $            per share, which is equivalent to       shares
per $1,000 principal amount of the notes, subject to anti-dilution adjustments.
The notes rank junior in right of payment to substantially all of our senior
indebtedness in existence at the time of the issuance of the notes or incurred
by us in the future. In addition, the notes are subordinate to all existing and
future liabilities of our subsidiaries, including our obligations to depositors
and trade and other creditors. The completion of the notes offering and this
common stock offering do not depend upon one another. We intend to use the
proceeds from the notes offering for the same purposes as for the common stock
offering.

                                       15
<PAGE>
                                 CAPITALIZATION

    The following table sets forth our consolidated capitalization at March 31,
1999, the pro forma consolidated capitalization as adjusted to reflect the
completion of this offering and as further adjusted to reflect the concurrent
sale of the notes. This table should be read together with "Selected
Consolidated Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes, which are included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                                                  MARCH 31, 1999
                                                                  ----------------------------------------------
                                                                                        AS              AS
                                                                                     ADJUSTED        FURTHER
                                                                                    TO REFLECT       ADJUSTED
                                                                                       THIS       TO REFLECT THE
                                                                      ACTUAL         OFFERING     NOTES OFFERING
                                                                  --------------  --------------  --------------
<S>                                                               <C>             <C>             <C>
Indebtedness:
Other borrowed funds............................................  $   45,000,000  $   45,000,000  $   45,000,000
[    ]% Convertible Subordinated Notes Due 2004.................        --              --           100,000,000
                                                                  --------------  --------------  --------------
  Total indebtedness............................................      45,000,000      45,000,000     145,000,000
                                                                  --------------  --------------  --------------
Shareholders' Equity:
Preferred stock, no par value, 10,000,000 shares authorized; no
  shares outstanding............................................        --              --              --
Common stock, $0.01 par value, 100,000,000 shares authorized;
  25,795,485 shares outstanding and 28,795,485 shares
  outstanding, as adjusted and as further adjusted..............          85,985         115,985         115,985
Additional paid-in capital......................................     148,604,108     324,774,108     324,774,108
Unamortized stock plan expense..................................         (15,709)        (15,709)        (15,709)
Accumulated deficit.............................................      (4,261,093)     (4,261,093)     (4,261,093)
Accumulated other comprehensive loss, net of tax................        (665,169)       (665,169)       (665,169)
                                                                  --------------  --------------  --------------
  Total shareholders' equity....................................     143,748,122     319,948,122     319,948,122
                                                                  --------------  --------------  --------------
      Total capitalization......................................  $  188,748,122  $  364,948,122  $  464,948,122
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------

Book value per share............................................  $         5.57  $        11.11  $        11.11
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
</TABLE>

    The pro forma capitalization as adjusted to reflect this offering assumes
that the net proceeds to us, after deducting the estimated underwriting discount
and estimated offering expenses payable by us, are $176,200,000, assuming an
offering price of $62.00 per share. If the underwriters exercise their
over-allotment option in full, 3,450,000 shares of common stock would be sold by
us, resulting in total net proceeds of $202,705,000.

    The pro forma capitalization as further adjusted to reflect the notes
offering again assumes $176,200,000 of net proceeds from this common stock
offering and in addition assumes the offering of $100,000,000 aggregate
principal amount of notes and that there is no conversion of the notes. The
estimated underwriting discount and other fees and expenses related to the notes
are expected to total $3,290,000. If the underwriters exercise their
over-allotment option in full, $115,000,000 aggregate principal amount of the
notes would be sold by us, resulting in total net proceeds of $111,260,000.

                                       16
<PAGE>
                          PRICE RANGE OF COMMON STOCK


    Net.B@nk common stock was listed on the Nasdaq SmallCap Market under the
symbol "NTBK" from July 28, 1997 until February 5, 1999. Since February 5, 1999
Net.B@nk's common stock has been listed on the Nasdaq National Market. The
following table sets forth for the periods indicated the high and low sales
prices per share of common stock as reported on the Nasdaq SmallCap Market and
Nasdaq National Market. The market price has been adjusted for the 3 for 1 stock
split effected on May 14, 1999 in the form of a stock dividend to the
shareholders of record as of April 23, 1999. See note 14 of the notes to the
consolidated financial statements.



<TABLE>
<CAPTION>
                                                                                         HIGH        LOW
                                                                                       ---------  ---------
<S>                                                                                    <C>        <C>
NASDAQ SMALLCAP MARKET:
1997
  Third quarter (commencing July 28).................................................  $    4.42  $    2.88
  Fourth quarter.....................................................................  $    4.13  $    3.04

1998
  First quarter......................................................................  $    8.42  $    3.75
  Second quarter.....................................................................  $   10.54  $    7.33
  Third quarter......................................................................  $   12.13  $    5.25
  Fourth quarter.....................................................................  $   11.81  $    3.58

1999
  First quarter (through February 4).................................................  $   22.75  $    8.67

NASDAQ NATIONAL MARKET:
1999
  First quarter (from February 5)....................................................  $   25.00  $   11.67
  Second quarter (through May 12)....................................................  $   83.00  $   22.75
</TABLE>


    On May 12, 1999, there were approximately 139 holders of record of our
common stock. On May 12, 1999, the closing sales price of the common stock on
the Nasdaq National Market was $62.00 per share.

                                DIVIDEND POLICY


    We have not declared or paid any cash dividends on the common stock. On May
14, 1999, we effected a 3 for 1 stock split in the form of a stock dividend to
the shareholders of record as of April 23, 1999. See note 14 of the notes to the
consolidated financial statements. For the foreseeable future we do not intend
to declare cash dividends. We intend to retain earnings to grow our business and
strengthen our capital base. In addition, the Office of Thrift Supervision
regulates the dividends payable by our subsidiary, Net.B@nk. See
"Business--Supervision and Regulation--Capital Distributions."


                                       17
<PAGE>
                      SELECTED CONSOLIDATED FINANCIAL DATA

    The selected financial data set forth below as of December 31, 1996, 1997
and 1998 and with respect to the period from February 20, 1996 to December 31,
1996 and the years ended December 31, 1997 and 1998 is derived from the audited
consolidated financial statements of Net.B@nk. The selected financial data set
forth below as of and for the three months ended March 31, 1998 and 1999 is
derived from the unaudited consolidated financial statements of Net.B@nk, which
in our management's opinion, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information set forth in the financial statements. The results as of and for the
three months ended March 31, 1999 are not necessarily indicative of the results
for the full year ending December 31, 1999. The following selected historical
financial information should be read in conjunction with Net.B@nk's consolidated
financial statements and the related notes thereto included elsewhere in this
prospectus and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

<TABLE>
<CAPTION>
                                                             PERIOD FROM
                                                            FEBRUARY 20,
                                                            1996 (DATE OF             YEAR ENDED
                                                          INCORPORATION) TO          DECEMBER 31,
                                                            DECEMBER 31,       -------------------------
                                                                1996              1997          1998
                                                         -------------------   -----------  ------------
<S>                                                      <C>                   <C>          <C>
INCOME STATEMENT DATA:
Interest income........................................      $     7,709       $ 2,223,165  $ 18,088,044
Interest expense.......................................        --                1,259,743    11,424,432
                                                         -------------------   -----------  ------------
  Net interest income..................................            7,709           963,422     6,663,612
Provision for loan losses..............................        --                  471,706        20,132
                                                         -------------------   -----------  ------------
  Net interest income after provision for loan
    losses.............................................            7,709           491,716     6,643,480
Noninterest income.....................................           60,000            62,607       683,092
Noninterest expense....................................        3,906,891         6,131,762     5,187,390
                                                         -------------------   -----------  ------------
  Net income (loss) before income taxes................       (3,839,182)       (5,577,439)    2,139,182
Income tax benefit (expense)...........................        --                  --          2,324,830
                                                         -------------------   -----------  ------------
  Net income (loss)....................................      $(3,839,182)      $(5,577,439) $  4,464,012
                                                         -------------------   -----------  ------------
                                                         -------------------   -----------  ------------
  Net income (loss) per common share--basic(1).........      $     (1.44)      $     (0.55) $       0.24(2)
                                                         -------------------   -----------  ------------
                                                         -------------------   -----------  ------------
  Net income (loss) per common and potential common
    share--diluted(1)..................................      $     (1.44)      $     (0.55) $       0.23(2)
                                                         -------------------   -----------  ------------
                                                         -------------------   -----------  ------------
Weighted average shares outstanding--basic(1)..........        2,658,000        10,062,000    18,447,000
Weighted average shares outstanding--diluted(1)........        2,658,000        10,062,000    19,152,000

BALANCE SHEET DATA--AT PERIOD END:
Total assets...........................................      $ 1,246,449       $93,219,809  $388,436,736
Total deposits.........................................        --               58,726,763   283,589,151
Other borrowed funds...................................        --                  --         60,000,000
Shareholders' equity (deficit).........................         (386,073)       34,117,397    38,754,888
Book value per share(1)................................            (0.10)             1.85          2.10

FINANCIAL RATIOS AND ACCOUNT DATA:
Return on average total assets (ROA)...................              N/M            (11.81)%         1.85%(3)
Return on average shareholders' equity (ROE)...........              N/M            (33.07)%        12.25%(3)
Percentage of average shareholders' equity (deficit) to
  average total assets.................................           (30.97)%          35.71%         15.13%
Percentage of allowance for loan losses to total
  loans................................................               --              1.01%         1.24%
Percentage of charge-offs to average loans.............               --              0.08%         0.36%
Percentage of nonperforming loans to total loans.......               --                --            --
Number of accounts at period end.......................               --             4,755        17,408

<CAPTION>

                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                         --------------------------
                                                             1998          1999
                                                         ------------  ------------
<S>                                                      <C>           <C>
INCOME STATEMENT DATA:
Interest income........................................  $  2,206,614  $  7,557,850
Interest expense.......................................     1,303,628     4,559,707
                                                         ------------  ------------
  Net interest income..................................       902,986     2,998,143
Provision for loan losses..............................         3,661        49,806
                                                         ------------  ------------
  Net interest income after provision for loan
    losses.............................................       899,325     2,948,337
Noninterest income.....................................       122,495       245,715
Noninterest expense....................................     1,173,267     2,147,536
                                                         ------------  ------------
  Net income (loss) before income taxes................      (151,447)    1,046,516
Income tax benefit (expense)...........................       --           (355,000)
                                                         ------------  ------------
  Net income (loss)....................................  $   (151,447) $    691,516
                                                         ------------  ------------
                                                         ------------  ------------
  Net income (loss) per common share--basic(1).........  $      (0.01) $       0.03
                                                         ------------  ------------
                                                         ------------  ------------
  Net income (loss) per common and potential common
    share--diluted(1)..................................  $      (0.01) $       0.03
                                                         ------------  ------------
                                                         ------------  ------------
Weighted average shares outstanding--basic(1)..........    18,431,000    22,536,000
Weighted average shares outstanding--diluted(1)........    18,431,000    23,424,000
BALANCE SHEET DATA--AT PERIOD END:
Total assets...........................................  $163,463,431  $526,463,208
Total deposits.........................................   128,681,669   332,678,334
Other borrowed funds...................................       --         45,000,000
Shareholders' equity (deficit).........................    34,100,461   143,748,122
Book value per share(1)................................          1.85          5.57
FINANCIAL RATIOS AND ACCOUNT DATA:
Return on average total assets (ROA)...................         (0.48  (4)         0.60%(4)
Return on average shareholders' equity (ROE)...........         (1.76  (4)         3.04%(4)
Percentage of average shareholders' equity (deficit) to
  average total assets.................................         26.58%        19.95%
Percentage of allowance for loan losses to total
  loans................................................          0.43%         1.05%
Percentage of charge-offs to average loans.............          0.05%         0.12%
Percentage of nonperforming loans to total loans.......            --            --
Number of accounts at period end.......................         8,416        24,634
</TABLE>


- ------------------------------
(1) On April 13, 1999, we declared a 3 for 1 split of our common stock to be
    effected in the form of a stock dividend payable on May 14, 1999 to
    shareholders of record as of the close of business on April 23, 1999. All
    references to share and per share amounts have been retroactively adjusted
    to reflect this split.
(2) Assuming no income tax benefit and assuming a statutory income tax rate of
    34% for the year, pro forma net income per common and potential common share
    for the year ended December 31, 1998 would have been $0.03 per share, basic,
    and $0.02 per share, diluted.
(3) Assuming no income tax benefit and assuming a statutory income tax rate of
    34% for the year, pro forma return on average total assets and average
    shareholders' equity for the year ended December 31, 1998 would have been
    0.59% and 4.04%, respectively.
(4) As adjusted to reflect an annualized rate of return.

                                       18
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

    Net.B@nk, Inc. is a holding company that wholly owns Net.B@nk, a federal
savings bank. Net.B@nk, Inc. was incorporated as a Georgia corporation on
February 20, 1996, for the purpose of forming and, ultimately, operating a
wholly owned federal savings bank subsidiary. During the period from February
20, 1996 to July 31, 1997, pending regulatory approval and the acquisition of a
bank charter, we operated as a development stage enterprise under an agreement
with Carolina First Bank, a wholly owned subsidiary of Carolina First
Corporation. Carolina First Bank agreed to hold and service the deposit accounts
we generated in exchange for 3,975,000 shares of common stock, which were valued
at $3.8 million. In addition, during the period from February 20, 1996 to July
31, 1997, we were a party to an agreement with First Alliance/Premier
Bancshares, Inc. pursuant to which we agreed to purchase the charter of First
Alliance's subsidiary, Premier Bank, $5.0 million in loans, $5.0 million in
certificates of deposit and $2.0 million in unimpaired capital in exchange for
$2.2 million in cash, 124,218 shares of the common stock valued at $125,000 and
$75,000 in additional cash for reimbursement of direct out-of-pocket expenses.
On July 11, 1997, we received final regulatory approval from the Office of
Thrift Supervision to purchase the bank charter from First Alliance. On July 31,
1997, we received approximately $38.4 million in net proceeds from the sale of
10,500,000 shares of our common stock in our initial public offering and
consummated our agreements with both First Alliance and Carolina First Bank. As
a result, Net.B@nk became a wholly owned subsidiary of Net.B@nk, Inc. As of
March 31, 1999, we had 24,634 accounts and approximately $332.7 million in
deposits.


    On April 13, 1999, we declared a 3 for 1 split of our common stock effected
in the form of a stock dividend paid on May 14, 1999 to shareholders of record
as of the close of business on April 23, 1999. All references to share and per
share amounts have been retroactively adjusted to reflect this split.


FINANCIAL CONDITION

    Our assets were $526.5 million at March 31, 1999 compared to $388.4 million
and $93.2 million at December 31, 1998 and 1997, respectively. The increase of
$138.1 million from December 31, 1998 to March 31, 1999 was primarily the result
of approximately $105.0 million of net proceeds we received from an offering of
common stock in February 1999, as well as an increase in customer deposits of
approximately $49.1 million. We are using the proceeds from both the February
1999 offering of common stock and the increase in customer deposits for our
widespread marketing campaign to increase public awareness of the Net.B@nk name
and our products and services, and investing the excess in federal funds sold,
investment securities and loans.

    The increase in assets of $295.2 million from December 31, 1997 to December
31, 1998 was primarily due to growth in our loan portfolio resulting from our
purchase of approximately $257.5 million in home equity loans and first and
second mortgage loans and the purchase of approximately $41.4 million in
investment securities during the year ended December 31, 1998. In addition, we
recorded a $2.3 million deferred tax asset related primarily to previous net
operating loss carryforwards that we expect to realize for tax purposes. Because
we achieved profitability in 1998, we believe that it is more likely than not
that our deferred tax assets will be realized. We also had loan sale proceeds
receivable of $23.2 million related to loan origination agreements with third
parties at December 31, 1998.

    Total liabilities increased $33.0 million from $349.7 million at December
31, 1998 to $382.7 million at March 31, 1999. This increase was primarily due to
the rapid growth in our deposit portfolio of $49.1 million as a result of our
marketing campaign, offset by a $15.0 million decrease in other borrowed funds.
Total liabilities increased $290.6 million from $59.1 million at December 31,
1997 to

                                       19
<PAGE>
$349.7 million at December 31, 1998. This increase was primarily due to the
rapid growth of our deposit portfolio as a result of marketing programs we
introduced in the fourth quarter of 1997.

    Total shareholders' equity increased $105.0 million from December 31, 1998
to March 31, 1999 primarily due to our receipt of approximately $105.0 million
from the sale of 7,290,000 shares of our common stock in a public offering.
Total shareholders' equity increased $4.6 million from December 31, 1997 to
December 31, 1998 as a result of net income of $4.5 million and comprehensive
income of $82,000.

    AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID.  The
following table sets forth, for the periods subsequent to our formation,
information regarding our average balance sheet. The average yields and rates
represent the annualized rates. Information is based on average monthly balances
during the five months ended December 31, 1997 and the year ended December 31,
1998.

<TABLE>
<CAPTION>
                                                            FIVE MONTHS ENDED
                                                            DECEMBER 31, 1997
                                                    ----------------------------------
<S>                                                 <C>          <C>           <C>
                                                                  INTEREST     AVERAGE
                                                      AVERAGE      EARNED/     YIELD/
                                                      BALANCE       PAID        RATE
                                                    -----------  -----------   -------
Interest-earning assets:
  Short-term investments..........................  $43,800,000  $   944,743     5.34%
  Investment securities(1)........................    8,900,000      183,184     7.06%
  Loans receivable(2).............................   30,200,000    1,095,238     8.70%
                                                    -----------  -----------
      Total interest-earning assets...............   82,900,000    2,223,165     6.44%
Noninterest-earning assets........................    2,000,000
                                                    -----------
      Total assets................................  $84,900,000
                                                    -----------
                                                    -----------
Interest-bearing liabilities--deposits............  $48,700,000    1,259,743     5.17%
Noninterest-bearing liabilities...................    1,000,000
                                                    -----------
      Total liabilities...........................   49,700,000
Shareholders' equity..............................   35,200,000
                                                    -----------  -----------
      Total liabilities and shareholders'
        equity....................................  $84,900,000
                                                    -----------
                                                    -----------
Net interest earnings.............................               $   963,422
                                                                 -----------
                                                                 -----------
Net yield on interest-earning assets(3)...........                               2.79%
                                                                               -------
                                                                               -------
</TABLE>

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

(1) Based on amortized cost; changes in fair value are not considered.

(2) No separate treatment has been made for non-accrual loans.

(3) Net interest income divided by average interest-earning assets.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                            DECEMBER 31, 1998
                                                    ----------------------------------
<S>                                                 <C>           <C>          <C>
                                                                   INTEREST    AVERAGE
                                                      AVERAGE       EARNED/    YIELD/
                                                      BALANCE        PAID       RATE
                                                    ------------  -----------  -------
Interest-earning assets:
  Short-term investments..........................  $ 11,000,000  $   633,893    5.76%
  Investment securities(1)........................    48,300,000    2,905,404    6.01%
  Loans receivable(2).............................   182,500,000   14,548,747    7.97%
                                                    ------------  -----------  -------
      Total interest-earning assets...............   241,800,000   18,088,044    7.48%
Noninterest-earning assets........................     2,500,000
                                                    ------------
      Total assets................................  $244,300,000
                                                    ------------
                                                    ------------
Interest-bearing liabilities:
  Deposits........................................  $177,600,000  $10,249,533    5.77%
  Other borrowed funds............................    25,000,000    1,174,899    4.71%
                                                    ------------  -----------  -------
      Total interest-bearing liabilities..........   202,600,000   11,424,432    5.64%
Noninterest-bearing liabilities...................     5,700,000
                                                    ------------
      Total liabilities...........................   208,300,000
Shareholders' equity..............................    36,000,000
                                                    ------------  -----------
      Total liabilities and shareholders'
        equity....................................  $244,300,000
                                                    ------------
                                                    ------------
Net interest earnings.............................                $ 6,663,612
                                                                  -----------
                                                                  -----------
Net yield on interest-earning assets(3)...........                               2.76%
                                                                               -------
                                                                               -------
</TABLE>

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

(1) Based on amortized cost; changes in fair value are not considered.

(2) No separate treatment has been made for non-accrual loans.

(3) Net interest income divided by average interest-earning assets.

    The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in volume and rates for the periods
indicated:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31, 1998
                                                                            COMPARED TO THE FIVE MONTHS ENDED
                                                                                    DECEMBER 31, 1997
                                                                        -----------------------------------------
<S>                                                                     <C>            <C>          <C>
                                                                                          INCREASE (DECREASE)
                                                                             NET                 DUE TO
                                                                          INCREASE     --------------------------
                                                                         (DECREASE)      RATE(1)      VOLUME(1)
                                                                        -------------  -----------  -------------
Interest-bearing assets:
  Short-term investments..............................................  $    (310,850) $   (58,427) $    (252,423)
  Investment securities...............................................      2,722,220      (50,100)     2,772,320
  Loans, gross........................................................     13,453,509     (266,230)    13,719,739
                                                                        -------------  -----------  -------------
      Total interest income...........................................     15,864,879     (374,757)    16,239,636
Interest-bearing liabilities:
  NOW accounts........................................................         91,787        2,478         89,309
  Money market........................................................        757,639     (104,125)       861,764
  Certificates of deposit.............................................      8,140,364      (73,172)     8,213,536
  Other borrowed funds................................................      1,174,899      --           1,174,899
                                                                        -------------  -----------  -------------
      Total interest expense..........................................     10,164,689     (174,819)    10,339,508
                                                                        -------------  -----------  -------------
      Net interest income.............................................  $   5,700,190  $  (199,938) $   5,900,128
                                                                        -------------  -----------  -------------
                                                                        -------------  -----------  -------------
</TABLE>

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

(1) The changes in interest income and/or expense not due solely to rate or
    volume have been allocated to the rate component.

                                       21
<PAGE>
RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

    GENERAL.  Net income for the three months ended March 31, 1999 amounted to
$692,000, an increase of $843,000 compared to a $151,000 loss for the three
months ended March 31, 1998. The increase in net income was the result of the
growth of our operations from 1998 to 1999.

    INTEREST INCOME.  Interest income related to our loan and investment
portfolio for the three months ended March 31, 1999 was $7.6 million compared to
$2.2 million for the three months ended March 31, 1998. The increase in interest
income was a result of the growth of our loan portfolio of $258.3 million from
March 31, 1998 to March 31, 1999, offset partially by a decrease in the average
yield on loans from 8.02% for the three months ended March 31, 1998 to 7.55% for
the three months ended March 31, 1999. In addition, the investment portfolio
grew from $46.3 million at March 31, 1998 to $80.3 million at March 31, 1999.
The yield on the investment portfolio was 5.63% for the three months ended March
31, 1998 compared to 6.20% for the three months ended March 31, 1999.

    INTEREST EXPENSE.  For the three months ended March 31, 1999, we recorded
$4.0 million in interest expense on deposits compared to $1.3 million for the
three months ended March 31, 1998 as a result of our increase in customer
deposits from $128.7 million at March 31, 1998 to $332.7 million at March 31,
1999. In addition, interest paid on deposits decreased from 5.54% for the three
months ended March 31, 1998 to 5.29% for the three months ended March 31, 1999.
Also, during the three months ended March 31, 1999, we recorded approximately
$500,000 in interest expense associated with short-term borrowings under our
line of credit agreements and advances from the Federal Home Loan Bank.

    NET INTEREST INCOME.  Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. Net interest income was $3.0 million for the three months ended
March 31, 1999 compared to $903,000 for the three months ended March 31, 1998.
The increase in net interest income resulted from the increase in the amount of
loans and deposits from March 31, 1998 to March 31, 1999.

    PROVISION FOR LOAN LOSSES.  In connection with the purchase of loan
portfolios, we assess the inherent loss in the portfolios and record the
necessary allowance by adjusting the premium associated with each portfolio.
During the three months ended March 31, 1999, we recorded $1.2 million as an
addition to premiums related to allowance for loan losses for loans purchased
during the quarter. In addition, we also recorded a provision for loan losses of
$49,800 related primarily to a decline in credit quality of a specific pool of
automobile loans. This compared to a provision of $4,000 recorded during the
three months ended March 31, 1998. We periodically review the performance of our
loan portfolio by reviewing charge-offs, delinquency statistics and industry
statistics on a pool by pool basis for our purchased portfolio and a loan by
loan basis for our originated loans. If we note a decline in credit quality for
a specific pool or loan, we record an additional allowance through a charge to
the provision for loan losses. We maintain the allowance for loan losses at a
level that we estimate to be adequate to provide for probable losses in the loan
portfolio. We determine the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.

    NONINTEREST INCOME.  For the three months ended March 31, 1999, we recorded
approximately $246,000 in loan and deposit service charges and fees compared to
$123,000 recorded during the three months ended March 31, 1998. The significant
increase in service charges was a result of a significant increase in both the
loan and deposit portfolios.

                                       22
<PAGE>
    NONINTEREST EXPENSES.  Noninterest expenses include all operating expenses,
including salaries and benefits, marketing, general and administrative expenses
(excluding interest expense, provision for loan losses and income taxes).
Noninterest expense increased 83%, or $1.0 million, for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998. This increase
was primarily the result of increases in salaries and benefits, customer service
and data processing as we added additional employees and operational activities
to support additional customers, and an increase in marketing expense as we
expanded our marketing programs to build public awareness of the Net.B@nk name
and our products and services.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

    GENERAL.  Net income for the year ended December 31, 1998 amounted to $4.5
million, an increase of $10.1 million compared to the $5.6 million loss for the
year ended December 31, 1997. The statement of operations for the year ended
December 31, 1997 reflects our operations before and immediately following the
acquisition of our bank charter. Because we did not acquire the charter until
July 31, 1997, we had no earning assets prior to that date. A substantial
portion of the income for the year ended December 31, 1998 resulted from the
recognition of $2.3 million in tax benefits. The benefits resulted from the
reversal of a valuation allowance of $3.3 million previously associated with our
deferred tax assets offset by income tax expense for the year ended December 31,
1998. Because we achieved profitability during 1998, we now believe it is more
likely than not that the deferred tax assets will be realized.

    INTEREST INCOME.  Interest income related to our loan and investment
portfolio for the year ended December 31, 1998 was $18.1 million compared to
$2.2 million for the year ended December 31, 1997. The increase is a result of
the growth of our loan portfolio from $44.9 million at December 31, 1997 to
$280.4 million at December 31, 1998 offset by a decrease in average yield from
8.70% for the year ended December 31, 1997 to 7.97% for the year ended December
31, 1998. In addition, the investment security portfolio grew from $18.1 million
at December 31, 1997 to $59.5 million at December 31, 1998 as we invested cash
received from customer deposits. The yield on the investment portfolio was 7.06%
for the year ended December 31, 1997 compared to 6.01% for the year ended
December 31, 1998.

    INTEREST EXPENSE.  For the year ended December 31, 1998, we recorded $10.2
million in interest expense on deposits as a result of our increase in customer
deposits from $58.7 million at December 31, 1997 to $283.6 million at December
31, 1998. In addition, the average interest rate paid on deposits increased from
5.17% for the year ended December 31, 1997 to 5.77% for the year ended December
31, 1998. We recorded interest expense on deposits of $1.3 million during the
year ended December 31, 1997 as we transferred our deposits to our banking
subsidiary from Carolina First Bank and began paying interest on those deposits.
In addition, during the year ended December 31, 1998, we recorded approximately
$1.2 million of interest expense associated with other borrowed funds under our
line of credit agreements and Federal Home Loan Bank advances.

    NET INTEREST INCOME.  Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. With the growth in our operations, net interest income increased to
$6.7 million for the year ended December 31, 1998, compared to $963,000 for the
year ended December 31, 1997.

    PROVISION FOR LOAN LOSSES.  During 1998, we recorded $3.6 million as an
addition to premium related to allowance for loan losses for purchased loans. In
addition, we recorded a $20,000 provision for loan losses for the year ended
December 31, 1998, compared to $472,000 recorded during the year ended December
31, 1997 for declines in credit quality on a specific pool of automobile loans
and additional allowance related to originated loans.

                                       23
<PAGE>
    NONINTEREST INCOME.  For the year ended December 31, 1998, we recorded
approximately $683,000 in loan and deposit service charges and fees compared to
$63,000 recorded during the year ended December 31, 1997. The significant
increase in service charges was driven by the significant increase in both the
loan and deposit portfolios.

    NONINTEREST EXPENSES.  Noninterest expenses decreased approximately $944,000
for the year ended December 31, 1998 compared to the year ended December 31,
1997. The primary component of the decrease during the year ended December 31,
1998 was a $1.4 million decrease in the amortization of the service contract
with Carolina First Bank as the service contract was fully amortized during the
second quarter of 1997. In addition, salaries and benefits decreased $1.0
million as we outsourced certain services and paid $450,000 of bonuses to our
employees upon completion of our initial public offering in July 1997. These
decreases were partially offset by increases in marketing, customer service,
data processing, occupancy and other expenses as we moved to our new offices and
began soliciting and serving new deposit customers.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM FEBRUARY 20, 1996 TO
  DECEMBER 31, 1996

    GENERAL.  We did not have any earning assets until July 31, 1997, when we
acquired our bank charter. The net loss for the year ended December 31, 1997 was
$5.6 million, an increase of $1.8 million when compared to the period from
February 20, 1996 to December 31, 1996. The statement of operations for the
period from February 20, 1996 to December 31, 1996 reflects the initial phase of
our operations, including the acquisition, testing and implementation of the
internet banking platform, marketing expenses and the accrual of Carolina First
Bank's expense reimbursements. Under the servicing agreement with Carolina First
Bank, customer deposits and the related assets resulting from our marketing
efforts, which began in August 1996, were included in Carolina First Bank's
financial operations.

    INTEREST INCOME.  Interest income for the year ended December 31, 1997 was
$2.2 million. We did not record a significant amount of interest income for the
period from February 20, 1996 to December 31, 1996 because we had no investments
or loans during that period. On July 31, 1997, we received the net proceeds from
our initial public offering and customer deposits held by Carolina First Bank
and invested those funds in federal funds, mortgage-backed securities and loans
purchased from Carolina First Bank and an independent third party.

    INTEREST EXPENSE.  Because we did not begin soliciting deposit accounts
until October 1996, we did not record any interest expense for the period from
February 20, 1996 to December 31, 1996. On July 31, 1997, based on the terms of
the servicing agreement with Carolina First Bank and the charter purchase
agreement, Carolina First Bank and First Alliance transferred approximately
$47.8 million in customer deposits and related assets to Net.B@nk. We recorded
approximately $1.3 million of interest expense during the year ended December
31, 1997. This amount includes $163,479 of net interest expense, which
represents the difference between interest expense paid to customers and
interest income paid to Net.B@nk by Carolina First Bank at the contractual rates
in the servicing agreement prior to July 31, 1997.

    NET INTEREST INCOME.  Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. Net interest income was $963,000 for the year ended December 31,
1997. Because we did not receive our bank charter until July 31, 1997, we were
not allowed to hold investments, loans or customer deposits during the period
from February 20, 1996 to December 31, 1996, and therefore, no significant
amount of net interest income was recorded for the period from February 20, 1996
to December 31, 1996.

                                       24
<PAGE>
    PROVISION FOR LOAN LOSSES.  We purchased our first loans during the period
from July 31, 1997 to December 31, 1997. During this period, we recorded a
provision for loan losses of $472,000 for a decline in credit quality related to
a specific pool of automobile loans and an additional allowance related to
originated loans.

    NONINTEREST INCOME.  For the period from July 31, 1997 to December 31, 1997,
we recorded approximately $63,000 in loan and deposit service charges and fees.
We recorded only miscellaneous management fees received of $60,000 during the
period from February 20, 1996 to December 31, 1996.

    NONINTEREST EXPENSES.  Noninterest expenses increased $2.2 million from $3.9
million during the period from February 20, 1996 to December 31, 1996 to $6.1
million for the year ended December 31, 1997. The primary components of the
increase were an increase of $1.6 million in salaries and benefits, which
reflects the payment of approximately $450,000 in bonuses to employees; the
amortization of approximately $343,000 in stock plan expense; increases of
$305,000, $391,000 and $236,000 in customer service, data processing and
marketing, respectively, reflecting the growth of our deposit base and related
support functions; and an increase of approximately $260,000 in other operating
expenses consisting primarily of legal and accounting fees. These increases were
offset by a $960,000 decrease in the amortization of the service contract with
Carolina First Bank as the service contract was fully amortized during the
second quarter of 1997. The expenses for the period from February 20, 1996 to
December 31, 1996 reflect only the initial phase of our operations, including
the acquisition, testing and implementation of our internet banking platform,
marketing expenses and the accrual of Carolina First Bank's expense
reimbursements.

STOCK OPTIONS

    Our 1996 Stock Incentive Plan authorizes us to grant to our key employees,
officers, directors and consultants nonqualified and incentive stock options to
purchase shares of our common stock, derivative securities related to the value
of our common stock or cash awards. The total number of shares reserved for
issuance under the Stock Incentive Plan, as amended, is 3,750,000. Generally,
the options expire ten years from the date of the grant. A summary of the status
of the options granted under the Stock Incentive Plan as of December 31, 1996,
1997 and 1998 and the activity during such periods follows:

<TABLE>
<CAPTION>
                                            DECEMBER 31, 1996             DECEMBER 31, 1997              DECEMBER 31, 1998
                                        --------------------------  -----------------------------  -----------------------------
                                                      WEIGHTED                       WEIGHTED                       WEIGHTED
                                                       AVERAGE                        AVERAGE                        AVERAGE
                                                      EXERCISE                       EXERCISE                       EXERCISE
                                         NUMBER         PRICE          NUMBER          PRICE          NUMBER          PRICE
                                        ---------  ---------------  ------------  ---------------  ------------  ---------------
<S>                                     <C>        <C>              <C>           <C>              <C>           <C>
Outstanding at beginning of period....     --         $  --               49,686     $    0.40        1,099,368     $    1.99
Granted...............................     49,686          0.40        1,058,625          1.94          573,000          6.50
Exercised.............................     --            --              --             --              (33,588)         1.21
Terminated............................     --            --               (8,943)         1.21          (41,628)         2.19
                                        ---------                   ------------                   ------------
Outstanding at end of period..........     49,686     $    0.40        1,099,368     $    1.99        1,597,152     $    3.63
                                        ---------                   ------------                   ------------
                                        ---------                   ------------                   ------------
</TABLE>

    In connection with the issuance of some of the options during the year ended
December 31, 1997, we will recognize $390,484 of compensation expense over the
vesting period. Certain of those options vested immediately on July 28, 1997,
upon completion of the initial public offering, and we recognized $319,704 of
unamortized compensation expense. The other options vest one-third on the first
anniversary of the date of issuance, one-third on the second anniversary of the
date of issuance and one-third on the third anniversary of the date of issuance.
Of the vested options, 708,423 cannot be exercised and sold until July 28, 2000
in accordance with an agreement signed with the Office of Thrift Supervision. Of
the 1,597,152 options outstanding as of December 31, 1998, 837,063 were
exercisable.

                                       25
<PAGE>
    During the three months ended March 31, 1999, we granted 21,000 incentive
stock options at an exercise price of $11.67 per share on January 15, 1999,
30,000 incentive stock options at an exercise price of $13.00 per share on
February 25, 1999 and 30,000 incentive stock options at an exercise price of
$23.33 per share on March 29, 1999. Grant prices approximated fair value of the
stock at the grant date.

    During the three months ended March 31, 1999, 35,211 incentive stock options
were exercised at a price of $1.21. Also, 16,200 incentive stock options with an
exercise price of $5.25 and 3,366 incentive stock options with an exercise price
of $1.21 were terminated.

    In addition, effective April 22, 1999, we granted 177,000 nonqualified stock
options at an exercise price of $53.33 per share. Grant prices approximated the
fair value of the stock at the grant date. Also, during April 1999, 6,000 and
1,500 incentive stock options with an exercise price of $5.25 and $1.21,
respectively were exercised.

MARKET RISK

    ASSET AND LIABILITY MANAGEMENT.  Our principal business is the originating
and purchasing of loans, funded by customer deposits and, to the extent
necessary, other borrowed funds. Consequently, a significant portion of our
assets and liabilities are monetary in nature and fluctuations in interest
rates, specifically the prime rate, will affect our future net interest income
and cash flows. This interest rate risk is our primary market risk exposure. We
do not enter into derivative financial instruments such as futures, forwards,
swaps and options. Also, we have no market risk-sensitive instruments held for
trading purposes. Our exposure to market risk is reviewed on a regular basis by
our management.

    The following table sets forth the interest rate risk of our assets and
liabilities as of December 31, 1997.
<TABLE>
<CAPTION>
                                                                  TERM TO MATURITY
                      ---------------------------------------------------------------------------------------------------------
                                                               YEAR                                                OVER FIVE
                      ---------------------------------------------------------------------------------------      YEARS AND
                            ONE               TWO              THREE             FOUR              FIVE           INSENSITIVE
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                   <C>               <C>               <C>               <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       250,535
  Federal funds
    sold............       28,853,057
  Investment
    securities......        9,926,283                                                                           $     8,127,863
  Stock of Federal
    Home Loan Bank
    of Atlanta......          225,000
  Loans
    receivable......       16,407,989   $     6,369,393   $     2,924,749   $     1,462,375                          17,768,901
                      ---------------   ---------------   ---------------   ---------------                     ---------------
    Total interest-
      earning
      assets........       55,662,864         6,369,393         2,924,749         1,462,375                          25,896,764
Noninterest-earning
  assets............                                                                                                    903,664
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total assets........  $    55,662,864   $     6,369,393   $     2,924,749   $     1,462,375   $     --          $    26,800,428
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $    56,200,270                     $     2,233,439
Interest-free
  deposits..........          293,054
Other interest-free
  liabilities and
  equity............          375,649                                                                           $    34,117,397
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total liabilities
  and equity........  $    56,868,973   $     --          $     2,233,439   $     --          $     --          $    34,117,397
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Net interest rate
  sensitivity gap...  $      (537,406)  $     6,369,393   $       691,310   $     1,462,375                     $    25,896,764
Cumulative gap......         (537,406)        5,831,987         6,523,297         7,985,672   $     7,985,672        33,882,436
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....             (.97)%           100.0%            23.64%            100.0%                              100.0%
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............             (.97)%            9.40%            10.04%            12.02%            11.02%            36.70%

<CAPTION>
                                                           WEIGHTED
                                                            AVERAGE
                                                           INTEREST
                           TOTAL          FAIR VALUE         RATE
                      ---------------   ---------------   -----------
<S>                   <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       250,535   $       250,535
  Federal funds
    sold............       28,853,057        28,853,057         5.50%
  Investment
    securities......       18,054,146        18,054,146          7.0%
  Stock of Federal
    Home Loan Bank
    of Atlanta......          225,000           225,000
  Loans
    receivable......       44,933,407        46,109,296         8.70%
                      ---------------   ---------------
    Total interest-
      earning
      assets........       92,316,145        93,492,034
Noninterest-earning
  assets............          903,664           903,664
                      ---------------   ---------------
Total assets........  $    93,219,809   $    94,395,698
                      ---------------   ---------------
                      ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $    58,433,709   $    58,586,263         5.17%
Interest-free
  deposits..........          293,054           293,054
Other interest-free
  liabilities and
  equity............       34,493,046        34,493,046
                      ---------------   ---------------
Total liabilities
  and equity........  $    93,219,809   $    93,372,363
                      ---------------   ---------------
                      ---------------   ---------------
Net interest rate
  sensitivity gap...
Cumulative gap......
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............
</TABLE>

                                       26
<PAGE>
    The following table sets forth the interest rate risk of our assets and
liabilities as of December 31, 1998:
<TABLE>
<CAPTION>
                                                                  TERM TO MATURITY
                      ---------------------------------------------------------------------------------------------------------
                                                               YEAR                                                OVER FIVE
                      ---------------------------------------------------------------------------------------      YEARS AND
                            ONE               TWO              THREE             FOUR              FIVE           INSENSITIVE
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                   <C>               <C>               <C>               <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       446,940
  Federal funds
    sold............       12,013,243
  Investment
    securities......        --                                                                                  $    59,465,062
  Stock of Federal
    Home Loan Bank
    of Atlanta......                                                                                                  2,000,000
  Loan sale proceeds
    receivable......       23,202,679
  Loans
    receivable......       42,561,397   $     2,225,802   $     1,483,868   $       741,934                         233,414,601
                      ---------------   ---------------   ---------------   ---------------                     ---------------
    Total interest-
      earning
      assets........       78,224,259         2,225,802         1,483,868           741,934                         294,879,663
Noninterest-earning
  assets............                                                                                                 10,881,210
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total assets........  $    78,224,259   $     2,225,802   $     1,483,868   $       741,934   $     --          $   305,760,873
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   267,925,399   $     1,128,734   $     5,189,478   $        60,000
  Other borrowed
    funds...........       20,000,000                                                         $    20,000,000   $    20,000,000
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
    Total
    interest-bearing
      liabilities...      287,925,399         1,128,734         5,189,478            60,000        20,000,000        20,000,000
Interest-free
  deposits..........        9,285,540
Other interest-free
  liabilities and
  equity............                                                                                                 44,847,585
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total liabilities
  and
  equity............  $   297,210,939   $     1,128,734   $     5,189,478   $        60,000   $    20,000,000   $    64,847,585
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Net interest rate
  sensitivity gap...  $  (209,701,140)  $     1,097,068   $     3,705,610)  $       681,934   $   (20,000,000)  $   274,879,663
Cumulative gap......     (209,701,140)     (208,604,072)     (212,309,682)     (211,627,748)     (231,627,748)       43,251,915
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....          (268.08)%          49.29%           (249.73)%           91.9%               N/M             93.22%
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............          (268.08)%         (259.30)%         (259.12)%         (255.97)%         (280.16)%           11.46%

<CAPTION>
                                                           WEIGHTED
                                                            AVERAGE
                                                           INTEREST
                           TOTAL          FAIR VALUE         RATE
                      ---------------   ---------------   -----------
<S>                   <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       446,940   $       446,940
  Federal funds
    sold............       12,013,243        12,013,243         5.00%
  Investment
    securities......       59,465,062        59,465,062         6.71%
  Stock of Federal
    Home Loan Bank
    of Atlanta......        2,000,000         2,000,000
  Loan sale proceeds
    receivable......       23,202,679        23,202,679         6.70%
  Loans
    receivable......      280,427,602       278,607,376         7.54%
                      ---------------   ---------------
    Total interest-
      earning
      assets........      377,555,526       375,735,300
Noninterest-earning
  assets............       10,881,210        10,881,210
                      ---------------   ---------------
Total assets........  $   388,436,736   $   386,616,510
                      ---------------   ---------------
                      ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   274,303,611   $   274,709,385         5.54%
  Other borrowed
    funds...........       60,000,000        59,924,400         5.01%
                      ---------------   ---------------
    Total
    interest-bearing
      liabilities...      334,303,611       334,633,785
Interest-free
  deposits..........        9,285,540         9,285,540
Other interest-free
  liabilities and
  equity............       44,847,585        44,847,585
                      ---------------   ---------------
Total liabilities
  and
  equity............  $   388,436,736   $   388,766,910
                      ---------------   ---------------
                      ---------------   ---------------
Net interest rate
  sensitivity gap...
Cumulative gap......
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............
</TABLE>

                                       27
<PAGE>
    The following table sets forth the interest rate risk of our assets and
liabilities as of March 31, 1999:
<TABLE>
<CAPTION>
                                                                  TERM TO MATURITY
                      ---------------------------------------------------------------------------------------------------------
                                                               YEAR                                                OVER FIVE
                      ---------------------------------------------------------------------------------------      YEARS AND
                            ONE               TWO              THREE             FOUR              FIVE           INSENSITIVE
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                   <C>               <C>               <C>               <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $     1,576,102
  Federal fund
    sold............       33,416,433
  Investment
    securities......                                                                                            $    80,310,559
  Stock of Federal
    Home Loan Bank
    of Atlanta......                                                                                                  2,569,700
  Loan sale proceeds
    receivable......       35,003,385
  Loans
    receivable......       79,190,699   $    19,867,529   $    12,885,672   $     5,903,752                         246,204,980
                      ---------------   ---------------   ---------------   ---------------                     ---------------
    Total
    interest-earning
      assets........      149,186,619        19,867,529        12,885,672         5,903,752                         329,085,239
Noninterest-earning
  assets............                                                                                                  9,534,397
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total assets........  $   149,186,619   $    19,867,529   $    12,885,672   $     5,903,752   $     --          $   338,619,636
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   313,127,941   $     3,830,466   $     5,392,607
  Other borrowed
    funds...........                                                                          $    20,000,000   $    25,000,000
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
    Total
    interest-bearing
      liabilities         313,127,941         3,830,466         5,392,607                          20,000,000        25,000,000
Interest-free
  deposits..........       10,327,320
Other interest-free
  liabilities and
  equity............                                                                                                148,784,874
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total liabilities
  and equity........  $   323,455,261   $     3,830,466   $     5,392,607   $     --          $    20,000,000   $   173,784,874
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Net interest rate
  sensitivity gap...  $  (163,941,322)  $    16,037,063   $     7,493,065   $     5,903,752   $   (20,000,000)  $   304,085,239
Cumulative gap......     (163,941,322)     (147,904,259)     (140,411,194)     (134,507,442)     (154,507,442)      149,577,797
Net interest rate
  sensitivity gap as
  a percent of
  interest-earning
  assets............          (109.89)%           80.72%            58.15%           100.00%              N/M             92.40%
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............          (109.89)%          (87.49)%          (77.17)%          (71.61)%          (82.25)%           28.94%

<CAPTION>
                                                           WEIGHTED
                                                            AVERAGE
                                                           INTEREST
                           TOTAL          FAIR VALUE         RATE
                      ---------------   ---------------   -----------
<S>                   <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $     1,576,102   $     1,576,102
  Federal fund
    sold............       33,416,433        33,416,433         5.15%
  Investment
    securities......       80,310,559        80,310,559         6.20%
  Stock of Federal
    Home Loan Bank
    of Atlanta......        2,569,700         2,569,700
  Loan sale proceeds
    receivable......       35,003,385        35,003,385         6.50%
  Loans
    receivable......      364,052,632       364,052,632         7.55%
                      ---------------   ---------------
    Total
    interest-earning
      assets........      516,928,811       516,928,811
Noninterest-earning
  assets............        9,534,397         9,534,397
                      ---------------   ---------------
Total assets........  $   526,463,208   $   526,463,208
                      ---------------   ---------------
                      ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   322,351,014   $   322,351,014         5.29%
  Other borrowed
    funds...........       45,000,000   $    44,838,280         4.55%
                      ---------------   ---------------
    Total
    interest-bearing
      liabilities         367,351,014       367,189,294
Interest-free
  deposits..........       10,327,320        10,327,320
Other interest-free
  liabilities and
  equity............      148,784,874       148,784,874
                      ---------------   ---------------
Total liabilities
  and equity........  $   526,463,208   $   526,301,488
                      ---------------   ---------------
                      ---------------   ---------------
Net interest rate
  sensitivity gap...
Cumulative gap......
Net interest rate
  sensitivity gap as
  a percent of
  interest-earning
  assets............
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............
</TABLE>

    We measure interest rate sensitivity as the difference between the amount of
interest-earning assets and interest-bearing liabilities that mature within a
given period of time. The difference, or the interest rate sensitivity "gap,"
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. The above table does not
consider interest rate adjustments on our adjustable rate loans. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities and is considered negative
when the amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets. In a rising interest rate environment, an
institution with a positive gap would be in a better position than an
institution with a negative gap to invest in higher yielding assets or have its
asset yields adjusted upward, which would result in the yield on its assets
increasing at a faster pace than the cost of its interest-bearing liabilities.
During a period of falling interest rates, however, an institution with a
positive gap would tend to have its assets maturing at a faster rate than one
with a negative gap, which would tend to reduce or restrain the growth of its
net interest income.

LENDING ACTIVITIES

    GENERAL.  At March 31, 1999, our loans receivable portfolio totaled $364.1
million or 69.2% of total assets. At December 31, 1998 and 1997, our loans
receivable portfolio totaled $280.4 million and $44.9 million, or 72.2% and
48.2% of total assets, respectively. The majority of our loans were purchased
from other originating institutions. We have concentrated our purchasing
activities on one-

                                       28
<PAGE>
and three-year adjustable rate mortgage loans, home equity lines of credit,
fixed residential mortgages and auto loans. We also participate in construction
loans with other institutions.

    LOAN PORTFOLIO COMPOSITION.  The following table sets forth the composition
of our loan portfolio by type of loan as of December 31, 1997 and 1998 and March
31, 1999:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,                              MARCH 31,
                                          ---------------------------------------------------  -------------------------
                                                    1997                      1998                       1999
                                          ------------------------  -------------------------  -------------------------
                                             AMOUNT          %          AMOUNT          %          AMOUNT          %
                                          -------------  ---------  --------------  ---------  --------------  ---------
<S>                                       <C>            <C>        <C>             <C>        <C>             <C>
Residential mortgages...................  $  13,953,501       31.0% $  144,361,069       51.4% $  146,247,811       40.2%
Construction............................      5,399,624       12.0      27,996,691       10.0      25,750,375        7.1
Commercial..............................      4,478,053       10.0       8,556,264        3.1      77,736,501       21.4
Home equity lines.......................      4,412,013        9.8      89,053,532       31.8     103,483,066       28.5
Auto....................................     14,623,745       32.6       7,803,648        2.8       6,468,885        1.8
Personal and other......................      2,066,471        4.6       2,656,399        0.9       3,865,994        1.0
                                          -------------  ---------  --------------  ---------  --------------  ---------
    Total loans.........................  $  44,933,407      100.0% $  280,427,603      100.0% $  363,552,632      100.0%
                                          -------------  ---------  --------------  ---------  --------------  ---------
                                          -------------  ---------  --------------  ---------  --------------  ---------
</TABLE>

    CONTRACTUAL PRINCIPAL REPAYMENTS.  The following table sets forth certain
information at December 31, 1998 regarding the dollar amount of loans maturing
in our total loan portfolio, based on the contractual terms to maturity. Loans
having no stated schedule of repayments and no stated maturity are reported as
due in one year or less.

<TABLE>
<CAPTION>
                                              DUE 1                         DUE                         WEIGHTED
                                             YEAR OR       DUE 1-5        AFTER 5                        AVERAGE
                                              LESS          YEARS          YEARS           TOTAL          YIELD
                                          -------------  ------------  --------------  --------------  -----------
<S>                                       <C>            <C>           <C>             <C>             <C>
Residential mortgages...................  $    --        $    --       $  144,361,069  $  144,361,069        7.25%
Construction............................     27,996,691       --             --            27,996,691        7.75%
Commercial..............................      8,556,264       --             --             8,556,264        8.33%
Home equity loans.......................       --             --           89,053,532      89,053,532        7.75%
Auto and other loans....................      6,008,442     4,451,605        --            10,460,047        8.50%
                                          -------------  ------------  --------------  --------------         ---
    Total...............................  $  42,561,397  $  4,451,605  $  233,414,601  $  280,427,603        7.54%
                                          -------------  ------------  --------------  --------------         ---
                                          -------------  ------------  --------------  --------------         ---
</TABLE>

    The following table sets forth the dollar amount of total loans due after
one year from December 31, 1998, as shown in the preceding table, which have
fixed interest rates or which have floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                                   FLOATING OR
                                                                                    ADJUSTABLE
                                                                    FIXED RATE         RATE           TOTAL
                                                                   -------------  --------------  --------------
<S>                                                                <C>            <C>             <C>
Residential mortgages............................................  $  58,193,633   $ 86,167,436   $  144,361,069
Home equity lines................................................       --           89,053,532       89,053,532
Other loans......................................................      4,451,605        --             4,451,605
                                                                   -------------  --------------  --------------
    Total........................................................  $  62,645,238   $175,220,968   $  237,866,206
                                                                   -------------  --------------  --------------
                                                                   -------------  --------------  --------------
</TABLE>

    A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower and its related entities if the
loans are fully secured by readily marketable securities. At March 31, 1999, our
limit on loans to one borrower was approximately $21.6 million (15% unimpaired
capital and surplus). At March 31, 1999, we had not made any loans to any one
borrower, including persons or entities related to the borrower, exceeding the
limitation.

                                       29
<PAGE>
    ASSET QUALITY AND NONPERFORMING ASSETS.  During the years ended December 31,
1998 and 1997 and the three months ended March 31, 1999, we did not have any
significant loans on nonaccrual status, significant loans past due 90 days or
more or restructured loans.

    CONCENTRATIONS OF CREDIT RISK.  At December 31, 1998, a majority of our
loans were with customers residing in the Western and Southeastern United
States. At December 31, 1997, all of our loans were with customers residing in
the Southeastern United States.

    ALLOWANCE FOR LOAN LOSSES.  The allowance for loan losses is maintained at a
level management considers adequate to provide for probable losses in the loan
portfolio. As the majority of our portfolio is purchased, we make an estimate of
the loss inherent in the purchased portfolio based on industry statistics and
record an allowance for loan losses by adjusting the premium associated with the
purchased loans. We periodically review the adequacy of the allowance based upon
reviews of individual loans and loan pools, recent loss experience, current
economic conditions, the risk characteristics of the various pools of loans, or
individual loans, industry statistics and other pertinent factors. If we note a
decline in credit quality for a specific loan pool or a loan, we record an
additional allowance through a charge to the provision for loan losses. Loans
that we deem uncollectible are charged to the allowance. We also add provisions
for loan losses and recoveries on loans previously charged off to the allowance.

    Although we use the best information available to make determinations with
respect to the provisions for loan losses, additional provisions for loan losses
may be necessary in the future should economic or other conditions change
substantially. In addition, the Office of Thrift Supervision, as an integral
part of the examination process, periodically reviews our allowance for loan
losses. The agency may require us to recognize additions to the allowance based
on their judgments about the information available to them at the time of their
examination.

    The following table sets forth an analysis of our allowance for loan losses
during the years ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                       --------------------
                                                                         1997       1998
                                                                       ---------  ---------
<S>                                                                    <C>        <C>
Balance--Beginning of year...........................................  $  --      $ 453,444
                                                                       ---------  ---------
  Allowances recorded in connection with the purchase of loan
    pools............................................................     --      3,585,926
  Provision for loan losses..........................................    471,706     20,132
                                                                       ---------  ---------
  Loans charged off:
    Residential mortgages............................................     --       (326,852)
    Equipment leases.................................................     (8,477)   (31,492)
    Auto.............................................................     --       (171,006)
    Home equity lines................................................     --        (44,230)
    Other............................................................     (9,785)   (13,558)
                                                                       ---------  ---------
    Total loans charged off..........................................    (18,262)  (587,138)
                                                                       ---------  ---------
Balance--End of year.................................................  $ 453,444  $3,472,364
                                                                       ---------  ---------
                                                                       ---------  ---------
Allowances for loan losses as a percent of total loans outstanding...       1.01%      1.24%
                                                                       ---------  ---------
                                                                       ---------  ---------
</TABLE>

                                       30
<PAGE>
    The following table sets forth information concerning the allocation of our
allowance for loan losses by loan category at December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1997             DECEMBER 31, 1998
                                                          ---------------------------  -----------------------------
<S>                                                       <C>         <C>              <C>           <C>
                                                                        PERCENT OF                     PERCENT OF
                                                                       LOANS IN EACH                  LOANS IN EACH
                                                                        CATEGORY TO                    CATEGORY TO
                                                            AMOUNT      TOTAL LOANS       AMOUNT       TOTAL LOANS
                                                          ----------  ---------------  ------------  ---------------
Residential mortgages...................................  $   46,425          31.0%    $  1,844,473          51.4%
Construction............................................      52,400          12.0           38,000          10.0
Commercial..............................................     112,887          10.0           81,935           3.1
Home equity lines.......................................      48,951           9.8        1,484,221          31.8
Auto....................................................     179,984          32.6            8,978           2.8
Other...................................................      12,797           4.6           15,297           0.9
                                                          ----------         -----     ------------         -----
                                                          $  453,444         100.0%    $  3,472,364         100.0%
                                                          ----------         -----     ------------         -----
                                                          ----------         -----     ------------         -----
</TABLE>

    INVESTMENT SECURITIES.  Our investment policy, as established by the Board
of Directors, is designed primarily to provide and maintain liquidity and to
generate a favorable return on investments without incurring undue interest rate
risk, credit risk and investment portfolio asset concentrations. Our investment
policy is currently implemented by the investment committee within the
parameters set by the Board of Directors.

    We are authorized to invest in obligations issued or fully guaranteed by the
United States government, certain federal agency obligations, certain time
deposits, negotiable certificates of deposit issued by commercial banks and
other insured financial institutions, investment grade corporate debt securities
and other specified investments.

    Securities classified as available for sale are reported at fair value, with
unrealized gains and losses, net of tax, excluded from earnings and reported in
other comprehensive income. At March 31, 1999 and December 31, 1998 and 1997,
all of our investment securities were classified as available for sale. At March
31, 1999 and December 31, 1998 and 1997, investments in the debt and/or equity
securities of any one issuer did not exceed more than 10% of our shareholders'
equity.

    The following tables set forth certain information relating to our
available-for-sale securities at December 31, 1997 and 1998 and March 31, 1999:
<TABLE>
<CAPTION>
                                                                               DECEMBER 31, 1997
                                                             ------------------------------------------------------
<S>                                                          <C>            <C>          <C>          <C>
                                                                              GROSS
                                                             ---------------------------------------

<CAPTION>
                                                                                                        ESTIMATED
                                                               AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                                                 COST          GAINS       LOSSES         VALUE
                                                             -------------  -----------  -----------  -------------
<S>                                                          <C>            <C>          <C>          <C>
Collateralized mortgage obligations........................  $   8,127,863   $  --        $  --       $   8,127,863
U.S. government agencies obligations.......................     10,009,346      --           83,063       9,926,283
                                                             -------------  -----------  -----------  -------------
                                                             $  18,137,209   $  --        $  83,063   $  18,054,146
                                                             -------------  -----------  -----------  -------------
                                                             -------------  -----------  -----------  -------------
</TABLE>

                                       31
<PAGE>
<TABLE>
<CAPTION>
                                                                               DECEMBER 31, 1998
                                                             ------------------------------------------------------
<S>                                                          <C>            <C>          <C>          <C>
                                                                              GROSS
                                                             ---------------------------------------

<CAPTION>
                                                                                                        ESTIMATED
                                                               AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                                                 COST          GAINS       LOSSES         VALUE
                                                             -------------  -----------  -----------  -------------
<S>                                                          <C>            <C>          <C>          <C>
Collateralized mortgage obligations........................  $  58,330,285   $  --        $   2,045   $  58,328,240
U.S. government agencies obligations.......................        882,442      --              264         882,178
Habitat bonds and other....................................        254,644      --           --             254,644
                                                             -------------  -----------  -----------  -------------
                                                             $  59,467,371   $  --        $   2,309   $  59,465,062
                                                             -------------  -----------  -----------  -------------
                                                             -------------  -----------  -----------  -------------
</TABLE>
<TABLE>
<CAPTION>
                                                                               MARCH 31, 1999
                                                           -------------------------------------------------------
<S>                                                        <C>            <C>          <C>           <C>
                                                                            GROSS
                                                           ----------------------------------------

<CAPTION>
                                                                                                       ESTIMATED
                                                             AMORTIZED    UNREALIZED    UNREALIZED       FAIR
                                                               COST          GAINS        LOSSES         VALUE
                                                           -------------  -----------  ------------  -------------
<S>                                                        <C>            <C>          <C>           <C>
Collateralized mortgage obligations......................  $  80,400,316   $  --       $  1,010,503  $  79,389,813
U.S. government agencies obligations.....................        668,004      --              1,956        666,048
Habitat bonds and other..................................        254,698      --            --             254,698
                                                           -------------  -----------  ------------  -------------
                                                           $  81,323,018   $  --       $  1,012,459  $  80,310,559
                                                           -------------  -----------  ------------  -------------
                                                           -------------  -----------  ------------  -------------
</TABLE>

    The following table sets forth the amount of our investment securities,
which mature during each of the periods indicated, and the weighted average
yields for each range of maturities at December 31, 1998. The actual maturity of
our investment securities may differ from contractual maturity as certain of our
investment securities are subject to call provisions, which allow the issuer to
accelerate the maturity date of the security:

<TABLE>
<CAPTION>
                                                                               CONTRACTUALLY MATURING
                                                                 ---------------------------------------------------
<S>                                                              <C>           <C>        <C>            <C>
                                                                               WEIGHTED      GREATER      WEIGHTED
                                                                     5-10       AVERAGE       THAN         AVERAGE
                                                                    YEARS        YIELD      10 YEARS        YIELD
                                                                 ------------  ---------  -------------  -----------
Collateralized mortgage obligations............................  $  5,986,729       6.96% $  52,341,511        6.82%
U.S. government agencies obligations...........................       --          --            882,178        7.54
Habitat bonds and other........................................       --          --            254,644        3.50
                                                                 ------------  ---------  -------------  -----------
                                                                 $  5,986,729       6.96% $  53,478,333        6.71%
                                                                 ------------  ---------  -------------  -----------
                                                                 ------------  ---------  -------------  -----------
</TABLE>

SOURCES OF FUNDS

    GENERAL.  Our primary sources of funds are deposits, borrowings, prepayments
and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled loan payments and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. We invest excess funds in overnight deposits and
other short-term interest-earning assets. We can use cash generated through the
retail deposit market, our traditional funding source, to offset the cash
utilized in investing activities. Our available-for-sale securities and
short-term interest-earning assets can also be used to provide liquidity for
lending and other operational requirements. As an additional source of funds, we
had $40.0 million of availability under existing line of credit agreements at
March 31, 1999. See note 8 of the notes to our consolidated financial
statements.

    DEPOSITS.  Our deposit products include a broad selection of deposit
instruments, including commercial checking accounts, negotiable order of
withdrawal accounts, money market accounts and

                                       32
<PAGE>
term certificate accounts. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.

    We utilize nontraditional marketing methods to attract new customers and
savings deposits. Our target market includes internet users, on-line shoppers
and special niche customers. We market our products and services by placing
banner advertisements on portals and Web sites that we believe will attract our
target customers. We also derive a marketing benefit from media coverage.
Additionally, we continually seek to form product and marketing alliances with
other financial services providers to broaden our product and service offerings
and appeal to a broader customer base.

    We are competitive in the types of accounts and range of interest rates we
offer on our deposit products. Our deposit levels have increased during the
years ended December 31, 1998 and 1997, primarily as a result of competitive
rates we offer and internet advertising. The weighted average interest rate paid
during the years ended December 31, 1998 and 1997 was 5.77% and 5.17%,
respectively. Although market demand generally dictates which deposit maturities
and rates will be accepted by the public, we intend to continue to promote
checking and negotiable order of withdrawal accounts as well as longer term
certificates of deposit to the extent possible and consistent with asset and
liability management goals.

    The following table sets forth the dollar amount of deposits and weighted
average interest rates in the various types of deposit programs offered by us at
December 31, 1997 and 1998 and March 31, 1999, respectively:
<TABLE>
<CAPTION>
                                                                                                                    MARCH 31,
                                        DECEMBER 31, 1997                          DECEMBER 31, 1998                  1999
                             ----------------------------------------  -----------------------------------------  -------------
<S>                          <C>           <C>            <C>          <C>            <C>            <C>          <C>
                                                           WEIGHTED                                   WEIGHTED
                                                            AVERAGE                                    AVERAGE
                                                           INTEREST                                   INTEREST
                                AMOUNT      PERCENTAGE       RATE         AMOUNT       PERCENTAGE       RATE         AMOUNT
                             ------------  -------------  -----------  -------------  -------------  -----------  -------------
Demand checking accounts...  $    293,054          0.5%          N/A   $   9,285,540          3.3%          N/A   $  10,327,320
Interest bearing:
  NOW accounts.............     1,573,283          2.7          3.28%      6,090,704          2.1          3.49%      9,201,428
  Money market.............    36,534,967         62.2          5.51%     65,325,880         23.0          5.13%     98,162,882
Certificate of deposit
  under $100,000...........    16,662,365         28.4          6.22%    197,162,916         69.5          5.74%    199,370,410
Certificate of deposit over
  $100,000.................     3,663,094          6.2          6.22%      5,724,111          2.1          5.74%  $  15,616,294
                             ------------        -----                 -------------        -----                 -------------
    Total deposits.........  $ 58,726,763        100.0%                $ 283,589,151        100.0%                $ 332,678,334

<CAPTION>

<S>                          <C>            <C>
                                             WEIGHTED
                                              AVERAGE
                                             INTEREST
                              PERCENTAGE       RATE
                             -------------  -----------
Demand checking accounts...          3.1%          N/A
Interest bearing:
  NOW accounts.............          2.8          3.38%
  Money market.............         29.5          5.12%
Certificate of deposit
  under $100,000...........         59.9          5.44%
Certificate of deposit over
  $100,000.................          4.7          5.44%
                                   -----
    Total deposits.........        100.0%
</TABLE>

    The following table presents the average balance of each deposit type and
the average rate paid on each deposit type for the years ended December 31, 1997
and 1998, respectively:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED                  YEAR ENDED
                                                                    DECEMBER 31,                DECEMBER 31,
                                                                        1997                        1998
                                                             --------------------------  ---------------------------
<S>                                                          <C>            <C>          <C>             <C>
                                                                AVERAGE       AVERAGE       AVERAGE        AVERAGE
                                                                BALANCE      RATE PAID      BALANCE       RATE PAID
                                                             -------------  -----------  --------------  -----------
Demand checking accounts...................................  $     300,000         N/A   $    2,730,769         N/A
NOW accounts...............................................      1,728,571        3.28%       5,423,077        1.96%
Money market...............................................     33,328,571        5.51%      46,015,385        5.48%
Certificates of deposit under $100,000.....................     11,433,435        6.22%     122,354,337        6.04%
Certificates of deposit over $100,000......................      2,209,423        6.22%       3,814,894        6.04%
</TABLE>

                                       33
<PAGE>
    The following table shows maturity information for our certificates of
deposit at December 31, 1998:

<TABLE>
<CAPTION>
                                                               MATURITY DATE
                                           -----------------------------------------------------
<S>                                        <C>             <C>           <C>           <C>        <C>
                                              ONE YEAR        1 TO 2        2 TO 3      3 TO 4
                                              OR LESS         YEARS         YEARS        YEARS        TOTAL
                                           --------------  ------------  ------------  ---------  --------------
4.01--6.00%..............................  $  169,227,411  $  1,128,734  $  5,189,478  $  60,000  $  175,605,623
6.01--8.00%..............................      27,281,404       --            --          --          27,281,404
                                           --------------  ------------  ------------  ---------  --------------
    Total................................  $  196,508,815  $  1,128,734  $  5,189,478  $  60,000  $  202,887,027
                                           --------------  ------------  ------------  ---------  --------------
                                           --------------  ------------  ------------  ---------  --------------
</TABLE>

    The following table sets forth the maturities of our certificates of deposit
having principal amounts of $100,000 or more at December 31, 1998:

<TABLE>
<S>                                                               <C>
Within three months.............................................  $3,011,146
Over three months through six months............................    421,451
Over six months through one year................................  1,782,206
Over one year...................................................    509,308
                                                                  ---------
    Total certificates of deposit with balance of $100,000 or
      more......................................................  $5,724,111
                                                                  ---------
                                                                  ---------
</TABLE>

    CAPITAL RESOURCES.  We are subject to various regulatory capital
requirements administered by the federal banking agencies. Our failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on our consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
we must meet specific capital guidelines that involve quantitative measures of
our assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. Our capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors. In addition, under regulatory guidelines,
Net.B@nk, our banking subsidiary, may not pay a dividend to Net.B@nk, Inc., if
doing so would cause Net.B@nk to be less than adequately capitalized, as defined
below.

    Quantitative measures established by regulation to ensure capital adequacy
require Net.B@nk to maintain minimum amounts and ratios, as set forth in the
table below. Net.B@nk's primary regulatory agency, the Office of Thrift
Supervision, requires Net.B@nk to maintain minimum ratios of tangible capital to
tangible assets of 1.5%, core capital to tangible assets of 3.0% and total
risk-based capital to risk-weighted assets of 8.0%. We believe that as of
December 31, 1998 Net.B@nk met all the capital adequacy requirements to which it
was subject.

    As of December 31, 1998, the most recent notification from the Office of
Thrift Supervision categorized Net.B@nk as well capitalized under the regulatory
framework for prompt corrective action. To be well capitalized Net.B@nk must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. No conditions or events have occurred since that
notification that we believe would change Net.B@nk's category.

    On February 10, 1999, we received net proceeds of approximately $105.0
million from the sale of 7,290,000 shares of our common stock in a public
offering.

                                       34
<PAGE>
    Net.B@nk's actual capital amounts and ratios as of December 31, 1997 and
1998, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                     TO BE
                                                                                                 CATEGORIZED AS
                                                                            FOR CAPITAL        "WELL CAPITALIZED"
                                                         ACTUAL          ADEQUACY PURPOSES         BY THE OTS
                                                  --------------------  --------------------  --------------------
<S>                                               <C>        <C>        <C>        <C>        <C>        <C>
                                                   AMOUNT      RATIO     AMOUNT      RATIO     AMOUNT      RATIO
                                                  ---------  ---------  ---------  ---------  ---------  ---------
DECEMBER 31, 1997:
Total capital (to risk-weighted assets).........  $  23,652      47.8%  $   3,956       8.0%  $   4,948      10.0%
Core capital (to tangible assets)...............  $  23,735      28.3%  $   2,517       3.0%  $   4,196       5.0%
Tangible capital (to tangible assets)...........  $  23,735      28.3%  $   1,259       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)........  $  23,735      48.0%        N/A        N/A  $   2,969       6.0%

DECEMBER 31, 1998:
Total capital (to risk-weighted assets).........  $  38,297     15.36%  $  19,947       8.0%  $  24,934      10.0%
Core capital (to tangible assets)...............  $  35,996      9.31%  $  11,595       3.0%  $  19,325       5.0%
Tangible capital (to tangible assets)...........  $  35,996      9.31%  $   5,798       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)........  $  35,996     14.44%        N/A        N/A  $  14,960       6.0%
</TABLE>

    At March 31, 1999, Net.B@nk had total, core, tangible and Tier I capital
ratios of 35.81%, 24.64%, 24.64% and 35.24%, respectively.

    Under current Office of Thrift Supervision regulations, Net.B@nk may pay
dividends and make other capital distributions after giving notice to the Office
of Thrift Supervision.

    During the year ended December 31, 1998, Net.B@nk, Inc. and its sole
subsidiary, Net.B@nk, entered into line of credit agreements with The Bankers
Bank. Net.B@nk, Inc. is a party to one such agreement and its sole subsidiary,
Net.B@nk, is a party to two such agreements. Under the terms of our agreement
that expired on October 20, 1998, Net.B@nk, Inc. could borrow 50.0% of the
tangible equity of Net.B@nk, up to $17.0 million, using the stock of Net.B@nk as
collateral. Any amounts borrowed under this line had interest at a fixed rate of
8.0% per annum. During the year ended December 31, 1998, Net.B@nk borrowed and
repaid $12.0 million under the line. Under the terms of the other two
agreements, Net.B@nk may borrow $5.0 million under an unsecured general purpose
line and 99.0% of the value of its investment securities under another line.
Both of the lines bear interest at 25 basis points above the Federal Funds rate,
or 5.0%, at December 31, 1998. Under these agreements at December 31, 1998,
Net.B@nk had an outstanding borrowing of $20.0 million with no stated maturity
secured by investment securities.

    During the three months ended March 31, 1999, Net.B@nk repaid $20.0 million
of borrowings outstanding under its line of credit agreement with The Bankers
Bank and $20.0 million under one of its line of credit agreements with the
Federal Home Loan Bank.

    As of March 31, 1999, Net.B@nk had borrowed $20.0 million from the Federal
Home Loan Bank at a fixed rate of 4.43%. The borrowing is callable at the second
anniversary date. If not called at the second anniversary date, the borrowing
extends for an additional three years at 4.43%. Also, Net.B@nk has borrowed
$25.0 million from the Federal Home Loan Bank at a fixed rate of 4.64%. The
borrowing is callable at the second anniversary date. If not called at the
second anniversary date, the borrowing extends for an additional eight years at
4.64%. These borrowings are secured by Net.B@nk's investment securities.

NEW ACCOUNTING PRONOUNCEMENTS

    As of January 1, 1998, we adopted Statement of Financial Accounting
Standards 130, REPORTING COMPREHENSIVE INCOME, and restated prior periods to
conform to the presentation required by

                                       35
<PAGE>
SFAS 130. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses, net of tax, on our available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The adoption of SFAS 130 had no impact on our net
income or shareholders' equity.

    As of April 1, 1998, our adopted Statement of Position 98-1, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1
allows for the capitalization of costs related to the development and
implementation of software obtained for internal use including materials,
payroll and interest costs once the criteria of the SOP have been met. As of
December 31, 1998, $592,402 of these related costs had been capitalized.

    As of December 31, 1998, we adopted Statement of Financial Accounting
Standards 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS 131 establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers. The adoption of SFAS 131 had no
effect on our financial statements for the year ended December 31, 1998 because
we only had one reportable segment.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. SFAS 133 establishes standards for derivative instruments
and hedging activities and requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The adoption of SFAS 133 is not
expected to have a significant effect on our financial statements.

YEAR 2000

    We are working to resolve the potential impact of the year 2000 on the
ability of the computerized information systems we use to accurately process
information that may be date sensitive. Any of the programs we or our service
providers use that recognize a date using "00" as the year 1900 rather than the
year 2000 could result in errors or system failures that could ultimately cause
us or our service providers to become unable to process customer transactions.
This would require us to cease operations pending resolution of the problem.
Such an eventuality would materially adversely affect our business, financial
condition and results of operations. Accordingly, we are devoting significant
attention to identifying year 2000 issues and testing our in-house and external
systems for year 2000 compliance. To date, we have incurred year 2000
remediation costs of approximately $21,000 and have budgeted approximately
$35,000 for total remediation costs. We have been utilizing working capital to
fund our year 2000 compliance program and anticipate that we will continue to do
so.

    We began testing our in-house information technology systems during the
second quarter of 1998 and completed this testing during the third quarter of
1998. We have not identified, and do not anticipate, any significant risks or
issues relating to non-information technology systems.

    We are also assessing the year 2000 compliance of our outside vendors and
service providers. Because we primarily contract with outside vendors for our
computer application programs, we believe our principal risk relating to year
2000 issues lies in the potential inability of those vendors to process date
sensitive information involving the year 2000. We began testing the systems
provided by these vendors for year 2000 compliance in the third quarter of 1998
and have an Office of Thrift Supervision-mandated completion date of June 30,
1999. In addition, we are contacting each of our vendors to obtain a commitment
that they are or will timely be year 2000 compliant. If such assurances are not
forthcoming, or if we believe for any reason that any of our vendors will not be
year 2000 compliant when required, we plan to contract with other vendors that
would be able to provide similar services at

                                       36
<PAGE>
similar costs. Although we cannot offer any assurances, we believe that such
vendors are and will be available. Alternatively, we could bring the outsourced
services in-house by licensing the applicable software and converting it to run
on our platforms or form a correspondent relationship with an unaffiliated year
2000 compliant bank that could service our customers and accounts until we could
provide such services on a year 2000 compliant basis. We believe we could
implement any of the foregoing contingency plans without a material interruption
in our business and without a material adverse effect on our financial
condition, results of operations or cash flows.

QUARTERLY FINANCIAL DATA (UNAUDITED)

    Quarterly financial data for the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1999 is summarized as follows (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                                            FIRST     SECOND      THIRD      FOURTH
                                                                           QUARTER    QUARTER    QUARTER     QUARTER
                                                                          ---------  ---------  ---------  -----------
<S>                                                                       <C>        <C>        <C>        <C>
1997
Interest income.........................................................  $       6  $  --      $     902   $   1,315
Interest expense........................................................        103         37        465         655
                                                                          ---------  ---------  ---------  -----------
  Net interest income (loss)............................................        (97)       (37)       437         660
                                                                          ---------  ---------  ---------  -----------
Provision for loan losses...............................................     --         --            392          80
                                                                          ---------  ---------  ---------  -----------
  Net interest income (loss) after provision for loan losses............        (97)       (37)        45         580
Noninterest income......................................................     --         --             30          33
Noninterest expense.....................................................      1,703      1,383      1,593       1,452
                                                                          ---------  ---------  ---------  -----------
  Net loss..............................................................  $  (1,800) $  (1,420) $  (1,518)  $    (839)
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
Basic and diluted net loss per common and common equivalent share
  outstanding...........................................................  $   (0.48) $   (0.37) $   (0.11)  $   (0.05)
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------

1998
Interest income.........................................................  $   2,207  $   4,253  $   5,284   $   6,343
Interest expense........................................................      1,304      2,714      3,220       4,186
                                                                          ---------  ---------  ---------  -----------
  Net interest income...................................................        903      1,539      2,064       2,157
                                                                          ---------  ---------  ---------  -----------
Provision for loan losses...............................................          4          6          6           4
                                                                          ---------  ---------  ---------  -----------
  Net interest income after provision for loan losses...................        899      1,533      2,058       2,153
Noninterest income......................................................        123        104        190         266
Noninterest expense.....................................................      1,173      1,397      1,290       1,327
                                                                          ---------  ---------  ---------  -----------
  Income (loss) before income taxes.....................................       (151)       240        958       1,092
                                                                          ---------  ---------  ---------  -----------
Income tax benefit (expense)............................................     --          3,029       (345)       (359)
                                                                          ---------  ---------  ---------  -----------
  Net income (loss).....................................................  $    (151) $   3,269  $     613   $     733
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
Basic net income (loss) per common and common equivalent share
  outstanding...........................................................  $   (0.01) $    0.18  $    0.03   $    0.04
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
Diluted net income (loss) per common and common equivalent share
  outstanding...........................................................  $   (0.01) $    0.17  $    0.03   $    0.04
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
</TABLE>

                                       37
<PAGE>

<TABLE>
<CAPTION>
                                                                            FIRST
                                                                           QUARTER
                                                                          ---------
<S>                                                                       <C>        <C>        <C>        <C>

1999
Interest income.........................................................  $   7,558
Interest expense........................................................      4,560
                                                                          ---------
  Net interest income...................................................      2,998
                                                                          ---------
Provision for loan losses...............................................         50
                                                                          ---------
  Net interest income after provision for loan losses...................      2,948
Noninterest income......................................................        246
Noninterest expense.....................................................      2,147
                                                                          ---------
  Income before income taxes............................................  $   1,046
Income tax expense......................................................       (355)
                                                                          ---------
  Net income............................................................  $     692
                                                                          ---------
                                                                          ---------
Basic and diluted net income per common and common equivalent share
  outstanding...........................................................  $    0.03
                                                                          ---------
                                                                          ---------
</TABLE>


    Basic and diluted net income (loss) per common and common equivalent share
have been calculated based on the weighted average number of shares outstanding
during the quarter in accordance with SFAS 128. Potential common shares have not
been included in the calculation related to those quarters with a net loss
because they were antidilutive. All previously reported per share amounts have
been restated to conform to SFAS 128. The total for the quarters differs from
the net loss per share as shown on the statement of operations because of the
issuance of common shares during the year of 1997. On April 13, 1999, we
declared a 3 for 1 split of our common stock effected in the form of a stock
dividend paid on May 14, 1999 to shareholders of record as of the close of
business on April 23, 1999. All references to share and per share amounts have
been retroactively adjusted to reflect the split.


                                       38
<PAGE>
                                    BUSINESS

OVERVIEW

    Net.B@nk, our sole subsidiary, is the largest federally-insured bank
operating exclusively on the internet. Our mission is to profitably provide a
broad range of banking and financial services to the growing number of internet
users. Our low cost branchless business model allowed us to attain profitability
within a year of acquiring our bank charter and to continue to maintain
profitability while passing along our operating cost savings to customers in the
form of attractive interest rates and low fees. We strive to maintain high asset
quality by employing conservative credit policies. We plan to attract new
accounts through national awareness of the Net.B@nk brand name and to capitalize
on increasing consumer use of the internet.

    During 1998, our customer accounts grew from 4,755 to 17,408, deposits grew
from $58.7 million to $283.6 million and total assets grew from $93.2 million to
$388.4 million. During 1998, we added an average of 1,054 net customer accounts
per month. At March 31, 1999, we had 24,634 customer accounts, $332.7 million in
deposits and $526.5 million in total assets. During the four months ended April
30, 1999, we added an average of over 2,900 net customer accounts per month with
4,865 added in April alone. We believe our growth is attributable to our
expanded marketing program, increasing consumer use of the internet and our
ability to offer a broad array of convenient, cost-effective, secure banking
services to this growing customer base.

    The following charts demonstrate the growth in our total customer accounts,
checking accounts, deposits and assets:

<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
         NUMBER OF CUSTOMER ACCOUNTS
<S>                                            <C>

12/31/97 TO 3/31/99 GROWTH: 418%
12/97                                       4,755
3/98                                        8,416
6/98                                       11,823
9/98                                       14,634
12/98                                      17,408
3/99                                       24,634
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
     NUMBER OF CHECKING ACCOUNTS

<S>                                    <C>
12/31/97 tO 3/31/99 GROWTH: 403%
Date                                    Accounts
12/97                                      1,236
3/98                                       1,613
6/98                                       1,971
9/98                                       2,284
12/98                                      3,293
3/99                                       6,219
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
             DEPOSITS

<S>                                  <C>
(IN MILLIONS)
12/31/97 TO 3/31/99 GROWTH: 464%
12/97                                      $59
3/98                                      $129
6/98                                      $187
9/98                                      $241
12/98                                     $284
3/99                                      $333
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
           TOTAL ASSETS

<S>                                  <C>
(IN MILLIONS)
12/31/97 TO 3/31/99 GROWTH: 467%
12/97                                      $93
3/98                                      $164
6/98                                      $247
9/98                                      $283
12/98                                     $388
3/99                                      $527
</TABLE>

    Since our equity offering in February 1999, we have continued to experience
rapid growth in our business and have entered into several new programs to
expand and improve our operational and product capabilities. Since February
1999, we have initiated the following:

    - EXPANDED MARKETING PROGRAM. We embarked on a new marketing program that
      has been highly successful in reaching our targeted audience and has
      resulted in a significant increase in checking accounts. We believe this
      growth in our checking account base indicates growing customer willingness
      to move their everyday banking activities to Net.B@nk and will result in
      long-term customer relationships. Furthermore, we believe that our
      checking account customers

                                       39
<PAGE>
      will visit our Web site more frequently and spend more time on our Web
      site, allowing us to cross-sell a variety of other products and services.

    - SERVICING AGREEMENT WITH PNC BANK CORP. We entered into a consumer loan
      processing and servicing agreement with PNC Bank Corp. This agreement will
      allow us to offer consumer loan products on-line. PNC will provide
      origination and loan servicing for these consumer loans as well as
      substantially all consumer loans for which we retain servicing rights on a
      scalable basis and at a favorable cost.

    - IMPROVED CUSTOMER SERVICE. We increased our customer support staff by over
      70% in order to maintain high-quality customer service. We have also
      invested in advanced technology and implemented new procedures in order to
      continually improve the quality and responsiveness of our customer
      service.

    - STRENGTHENED LENDING AND FINANCIAL OPERATIONS. We expanded our mortgage
      lending capabilities through a mortgage loan origination partnership with
      Virtuallender.com. We strengthened our lending and financial operations by
      adding several individuals to our professional staff. Additionally, we
      have significantly increased our loan portfolio while continuing to
      maintain a conservative lending and investment strategy.

INDUSTRY BACKGROUND

    THE INTERNET.  The internet enables millions of people worldwide to access
news and information, communicate with each other and conduct business
electronically. According to International Data Corporation, the number of
worldwide internet users is projected to grow from an estimated 159.3 million in
1998 to an estimated 410.4 million by 2002. Additionally, Jupiter Communications
estimates that 37.6 million United States households were on-line in 1998 and
that an estimated 62.6 million households are expected to be on-line in 2002.
On-line households are those that have access to the Web, use a consumer on-line
service or send e-mail.

    The internet has become a significant marketplace for buying and selling
goods and services. International Data Corporation forecasts that total
worldwide commerce on the internet will grow from an estimated $50.4 billion in
1998 to an estimated $733.6 billion in 2002. With the emergence of the internet
as a globally accessible, fully interactive medium, many companies that have
traditionally conducted business in person, through the mail or over the
telephone are increasingly conducting business electronically. Many consumers
are showing strong preferences for transacting certain types of business, such
as paying bills, booking airline tickets, trading securities and purchasing
consumer products, electronically rather than in person or over the telephone.
Individuals can now conduct these transactions virtually anywhere at any time.
Many consumers have embraced self-directed on-line transactions because such
transactions can be faster, less expensive and more convenient than transactions
conducted through a teller or an ATM.

    In addition to its use as a general commercial medium, the internet has
rapidly emerged as an innovative means of providing financial services. As
finance-related Web sites continue to grow in popularity, many companies are
increasingly offering a variety of financial services, including credit cards,
brokerage services, insurance products and banking services, via the internet.

    ELECTRONIC BANKING.  The growth in internet commerce has prompted the
development of electronic banking delivery systems. These forms of electronic
delivery systems provide convenience for customers and allow financial
institutions to lower their overhead costs. The two types of electronic banking
currently available, PC-based home banking and internet banking, are very
different. The characteristics of each are as follows:

    - PC-BASED HOME BANKING. PC-based home banking requires PC-based financial
      services software products such as Intuit's QUICKEN, Microsoft's MONEY or
      a bank's proprietary software. Each

                                       40
<PAGE>
      product carries its own set of instructions that the customer must learn
      before commencing any banking transactions. The software resides on the
      customer's PC along with his or her account data and requires a dial-up
      modem and manual downloading. Consequently, customers must conduct
      PC-based home banking from the PC containing the customer's software and
      account data. Customers generally must back up their account data at
      frequent intervals to counteract the risk of losing data. Because the
      customer must connect with the financial institution via modem and
      download his or her account data, real-time transactions are not generally
      possible.

    - INTERNET BANKING. Unlike PC-based home banking, internet banking requires
      only a secure Web browser for access to the internet and the financial
      institution. Internet banking requires no particular software and does not
      restrict the customer's operations to the location of his or her PC.
      Instead, the customer accesses the financial institution through the
      internet and deposits or transfers funds, pays bills or transacts other
      business on a real-time basis. In contrast, account data remains stored on
      Net.B@nk's secure server at all times, protected by technology designed
      specifically to safeguard such information. No downloading or back-up is
      required, as our server backs up all data and transactions on a continuous
      basis. With internet banking, the information presented to the customer
      remains current at all times.

    The use of electronic banking delivery systems, and particularly internet
banking, is growing as consumers find that electronic banking is both convenient
and cost-effective. According to Jupiter Communications, the number of on-line
banking households in the United States is projected to grow from an estimated
6.6 million in 1998 to an estimated 17.1 million in 2002.

    INTERNET DEMOGRAPHICS. Demographic surveys indicate that internet users
represent an ideal target market for internet banking. Recent studies by Jupiter
Communications revealed that, in the United States, approximately 47% of on-line
users are college graduates and that approximately 37% are engaged in
professional or managerial occupations. The survey also indicated that the
largest group on-line is adults aged 19 to 34, that approximately 86% of on-line
users are under the age of 50 and that 43% of the on-line audience earns over
$60,000 per year. The attractive demographics of internet users facilitate the
growth of internet banking. Internet users tend to be young and mobile and thus
more inclined to be comfortable with and receptive to the convenience of on-line
commercial transactions. We believe that as internet users enter their prime
earnings and savings years, there will be an increased demand for high-yielding
savings products. Additionally, internet users tend to be professionals with
limited amounts of discretionary time and are attracted to the convenience of
"one-stop shopping" for a full range of financial services.

THE NET.B@NK SOLUTION

    As the first federally-insured bank to operate solely on the internet, we
believe we have a first mover advantage relative to on-line banks with less
extensive market presence and less established operating histories. In addition,
we have a competitive cost advantage over traditional banks. We also believe our
established position in the marketplace provides us with a competitive advantage
in view of the lead time required for new competitors to obtain a charter and
start an internet bank. We intend to continue to capitalize on this advantage by
aggressively seeking new customers in order to further build market share.

    Our customer demographics parallel those of the general internet population
and illustrate Net.B@nk's appeal to households with relatively high incomes.
According to John H. Harland Company, as of September 1998, our customers had an
average age of 44 and a median annual household income in excess of $50,000. We
are ideally positioned to participate in the rapid growth of the internet and
on-line banking based on our:

    - ATTRACTIVE INTEREST RATES AND LOW FEES. Our operating costs are generally
      lower than those of traditional "bricks and mortar" banks because we do
      not require a traditional branch network to

                                       41
<PAGE>
      generate deposits and conduct operations. We pass our savings in operating
      costs on to customers by offering attractive interest rates and low fees
      in order to generate deposits without sacrificing profit margins. We
      believe our unique business model differentiates Net.B@nk from traditional
      banks offering internet banking services because traditional banks
      frequently offset the incremental expense of their internet banking
      services by charging additional fees or imposing minimum account balances.

    - CONVENIENCE AND EASE OF ACCESS. We believe we provide customers with a
      higher level of convenience than can be achieved in a traditional bank
      branch or through PC-based home banking. The internet allows our customers
      to conduct banking activities on a real-time, 7-day-a-week, 24-hour-a-day
      basis from any PC, wherever located, using a secure Web browser. In
      addition, our Web site is designed to be user-friendly and to expedite
      customer transactions with Net.B@nk.

    - BROAD SELECTION OF PRODUCTS AND SERVICES. We offer a broad array of
      products and services that customers would typically expect from a
      traditional bank. These products and services include checking and money
      market accounts, certificates of deposit, electronic bill payment, debit
      cards, credit cards, mortgage loans, business equipment leases and
      securities brokerage services. We plan to offer consumer loans, including
      home equity and automobile loans, beginning in the third quarter of 1999.
      We intend to continue to develop additional products and services such as
      insurance products, electronic bill presentment and electronic document
      and image storage in a virtual safe deposit box.

    - HIGH-QUALITY SERVICE AND CUSTOMER SATISFACTION. We continually seek ways
      to enhance customer satisfaction. In an effort to serve the needs of our
      customers, we offer services such as electronic bill payment and ATM cards
      without service charges. We also emphasize responsive, courteous customer
      service and utilize a fully-trained dedicated staff who respond to
      inquiries from existing and potential customers and process new accounts.
      Our customers can access account data and information regarding products
      and services 24 hours a day and can currently reach our customer service
      representatives by telephone or e-mail. We strive for the highest level of
      customer satisfaction and believe the significant growth in our customer
      base illustrates our ability to meet our customers' needs.

    - ADVANCED SECURITY. A significant barrier to on-line financial transactions
      has been the secure transmission of confidential information over public
      networks. We use sophisticated technology to provide what we believe to be
      among the most advanced security measures currently available in the
      internet banking industry. All banking transactions are encrypted and all
      transactions are routed from the internet server through a "firewall" that
      limits access to the Net.B@nk server. Our systems automatically detect
      attempts by third parties to access other users' accounts and feature a
      high degree of physical security, secure modem access, service continuity
      and transaction monitoring. See "--Security."

GROWTH STRATEGY

    Our objective is to become the leading provider of a full range of on-line
financial services. We intend to accomplish this objective by implementing the
following strategies:

    - BUILD NATIONAL BRAND AWARENESS THROUGH INCREASED MARKETING EFFORTS. We
      have significantly expanded our marketing program and are working with
      nationally known advertising and public relations agencies to build
      national awareness of the Net.B@nk name through a variety of marketing
      initiatives. These initiatives include expanding our advertising media to
      include print and direct mail campaigns; continued advertisement on
      targeted portals such as Yahoo!, Alta Vista, Infoseek, Lycos, AOL and
      Excite and Web sites such as Bank Rate Monitor, iVillage and Motley Fool;
      and the pursuit of strategic alliances with other internet financial
      service providers.

                                       42
<PAGE>
      To fund these initiatives, we have increased our marketing expenditures
      from approximately $695,000 for 1998 to a budgeted $6.6 million for 1999.
      During the first quarter of 1999, we applied approximately $400,000 to our
      marketing program and added 7,226 new accounts. We plan to increase our
      print and on-line advertising and continue to explore opportunities in
      broadcast advertising during the course of the year. Our experience
      indicates that by expanding our marketing efforts further, we can heighten
      brand awareness of Net.B@nk on a national scale and significantly increase
      our customer base. See "--Marketing."

    - LEVERAGE LOW COST STRUCTURE. Our operating costs are generally lower than
      those of traditional "bricks and mortar" banks because we do not require a
      traditional branch network to generate deposits and conduct operations.
      This is demonstrated by our low ratio of annualized fourth quarter 1998
      noninterest expenses to average earning assets of 1.7% compared to 4.2%
      for commercial banks with $300 million to $500 million in assets, as
      calculated by the FDIC Institution Directory by multiplying the
      noninterest expenses for the quarter divided by the average earning assets
      for the quarter by four. Additionally, our ratio of total assets per
      full-time equivalent employee was $13.9 million as of December 31, 1998
      compared to $2.6 million for commercial banks with $300 million to $500
      million in assets, based on data provided by the FDIC Institution
      directory. We pass our operating cost savings on to customers by offering
      more attractive interest rates on deposit accounts and lower fees than
      those offered generally by traditional banks. We believe this strategy
      attracts deposits without sacrificing profit margins. We intend to
      continue to leverage the fixed-cost aspect of our branchless business
      model to enhance profitability.

    - OFFER A BROAD ARRAY OF PRODUCTS AND SERVICES. Our objective is to attract
      customers seeking to combine the convenience of internet banking with the
      broad array of products and services typically offered by traditional
      banks. Toward this end, our product and service offerings include checking
      and money market accounts, certificates of deposit, electronic bill
      payment, debit cards, credit cards, mortgage loans, business equipment
      leases and securities brokerage services. We plan to offer consumer loans,
      including home equity and automobile loans, beginning in the third quarter
      of 1999. We also intend to continue to develop additional products and
      services such as insurance products, electronic bill presentment and
      electronic document and image storage in a virtual safe deposit box. See
      "--Products and Services."

    - MAINTAIN HIGH ASSET QUALITY. Our loan portfolio strategy is to maintain a
      conservative loan mix consisting of home mortgage, home equity, consumer,
      commercial and construction loans with an emphasis on high credit quality.
      At our current stage of development, it is more cost-effective for us to
      purchase most of our loans or act as a participating lender with other
      banks rather than originate our own loans. This strategy decreases our
      expenses and allows us to reduce our loan loss exposure by diversifying
      our portfolio. We also emphasize a conservative securities investment
      strategy by investing in fixed income securities such as United States
      Treasury obligations, collateralized mortgage obligations and
      mortgage-backed securities issued by agencies such as Federal National
      Mortgage Association and Federal Home Loan Mortgage Corporation. See
      "--Lending and Investment Activities."

    - OUTSOURCE OPERATIONAL FUNCTIONS. To enhance the flexibility and
      scalability of our operations, we outsource certain principal operational
      functions to leading service providers such as NCR, BISYS and CheckFree.
      NCR provides a secure server for the electronic banking software licensed
      to us by Edify Corporation. CheckFree provides electronic bill payment
      systems for us and BISYS processes our transactions and interfaces with
      NCR's secure server. In each of these relationships, we benefit from the
      service provider's expertise and economies of scale while retaining the
      flexibility to take advantage of changes in available technology without
      affecting customer service. We can also respond easily to growth because
      these third-party service

                                       43
<PAGE>
      providers have the capacity to process a high volume of transactions. See
      "--Operations-- Service Providers."

    - GENERATE NONINTEREST INCOME THROUGH CROSS-MARKETING INITIATIVES. To
      generate additional noninterest income and enhance customer loyalty, we
      cross-market a variety of non-deposit products. We offer credit cards,
      mortgage loans, business equipment leases, securities brokerage services
      and other noninterest income-generating products. We offer these products
      to existing and potential depositors through various marketing techniques,
      such as our Web site, e-mail, on-line advertising and direct mailings.
      This strategy enables us to generate additional earning assets and fee
      income from a growing customer base.

PRODUCTS AND SERVICES

    DEPOSIT PRODUCTS AND SERVICES.  In order to build our customer base, we
offer a variety of deposit products at attractive interest rates. We are able to
offer attractive interest rates as a result of our low operating costs. We also
attract customers by offering convenient services such as free electronic bill
payment, overdraft protection and ATM cards. Our deposit products and services
include:

    - DEPOSIT PRODUCTS. We offer two types of interest-bearing checking
      accounts, a money market account and 6-, 12- and 30-month certificates of
      deposit. We have consistently offered interest rates on our deposit
      accounts that are higher than the national average.

    - BILL PAYMENT SERVICE. Through services provided by CheckFree, customers
      can pay their bills on-line through electronic funds transfer or a written
      draft prepared and sent to the creditor. We do not charge a fee for this
      service.

    - OVERDRAFT PROTECTION. Overdraft protection is available to all interest
      checking customers who qualify. Customers with interest checking accounts
      may apply for overdraft protection on-line for amounts up to $5,000. If a
      customer has both a money market and an interest checking account, we
      automatically establish overdraft protection between those accounts.

    - ATM CARDS. Each customer automatically receives a free ATM card when he or
      she opens an account. Customers can access their accounts at ATMs
      affiliated with the Cirrus, Honor and Avail networks. We do not charge our
      own fee for ATM usage, but the operator of the ATM generally imposes fees.

    LENDING PROGRAMS.  To generate fee income and provide a convenient service
to our customers, we offer on-line loans and credit cards as described below.

    - MORTGAGE LOANS. Our Web site enables customers to obtain interest rate
      quotes and apply for mortgage loans on-line. We have an agreement with
      mortgage.com (formerly known as First Mortgage Network), under which we
      act as a loan originator on their behalf. We have similar agreements with
      E-loan, Inc., Virtuallender.com and Fidelity Mortgage Services, Inc. under
      which they forward mortgage applications to us. Applications received
      directly through our Web site are processed and closed by mortgage.com.
      Applications received indirectly from mortgage.com, E-loan,
      Virtuallender.com or Fidelity Mortgage Services are processed by the
      respective lender, which in turn receives funding from us and closes the
      loans. We fund each loan that meets our underwriting criteria and sell the
      loans received directly through our Web site to mortgage.com or, in the
      case of loans received indirectly, to the lender from which it was
      received, in each case with the servicing rights released. The loans are
      presold to the same sources at the time of closing so that we do not bear
      any material risk of loss. We generally carry loans receivable on our
      books for an average of approximately 30 days while we await receipt of
      sale proceeds. During this time, we receive interest income on the
      outstanding balance at the rate stated in the mortgage note. We also
      receive a portion of the loan origination fee for providing these funding
      services. We plan to expand our loan offerings to include home equity

                                       44
<PAGE>
      loans, home equity lines of credit and automobile loans. We also originate
      and retain a small number of home mortgage loans for our own portfolio.
      See "--Lending and Investment Activities."

    - CREDIT CARDS. We offer our customers Visa and MasterCard credit cards
      issued by The Bankers Bank for no annual fee. The Bankers Bank carries the
      credit card loans on its books and we have an income-sharing arrangement
      with The Bankers Bank. Customers can apply for these credit cards on-line.
      The cards prominently display the Net.B@nk logo with the Visa or
      MasterCard emblem appearing in the lower right corner of the card.

    NON-BANKING FINANCIAL SERVICES.  To serve as a sole source for the financial
services needs of internet users and to generate additional noninterest income,
we offer a full range of non-banking financial services designed to attract and
retain customers. These services currently include securities brokerage and
business equipment leasing services and in the future will include several new
services such as insurance products.

    - SECURITIES BROKERAGE SERVICES. We have contracted with UVEST Investment
      Services, a discount broker, to provide our customers with access to a
      full line of financial services and investment products. We have a
      fee-sharing agreement with UVEST Investment Services. Customers can
      purchase securities without writing checks to their brokers, as trading
      fees are automatically deducted from their Net.B@nk checking or money
      market accounts. Investment proceeds are automatically deposited into the
      customer's Net.B@nk deposit account. Customers enjoy 24-hour on-line
      access, real-time quotes, low commissions and a professional brokerage
      staff.

    - BUSINESS EQUIPMENT LEASING. In October 1998, we entered into an agreement
      with Republic Leasing Company that allows our customers, many of whom are
      independent business owners or managers, to lease small business equipment
      through Republic Leasing. We have a fee-sharing agreement with Republic
      Leasing. Lease amounts range from $5,000 to $500,000 and cover virtually
      all types of business equipment. Republic Leasing provides advice,
      comparison quotes and immediate equipment lease financing and holds and
      services all of its leases.

    FUTURE PRODUCTS AND SERVICES.  To generate additional interest and fee
income and enhance customer convenience, Net.B@nk plans to introduce a variety
of new products and services. We plan to offer consumer loans, including home
equity and automobile loans, beginning in the third quarter of 1999. Other
future products and services may include insurance products, electronic bill
presentment and electronic document and image storage in a virtual safe deposit
box.

LENDING AND INVESTMENT ACTIVITIES

    Our loan portfolio strategy is to maintain a conservative loan mix
consisting of home mortgage, home equity, consumer and construction loans with
an emphasis on high credit quality. At our current stage of development, it is
more cost-effective for us to purchase most of our loans or act as a
participating lender with other banks rather than originating our own loans.
This strategy decreases our expenses and allows us to diversify our portfolio.
As we grow, we will continue to develop our portfolio through purchases,
participations and direct originations.

    We build our loan portfolio in the following ways:

    - PURCHASES. We acquire most of our loans by purchasing packages of specific
      types of loans, such as mortgage, home equity and consumer loans, with
      each package consisting of loans with similar principal amounts, interest
      rates and asset quality. We also purchase portions of commercial loan
      pools, with the seller retaining a portion of the loans to decrease our
      risk. As of March 31, 1999, purchased loans accounted for approximately
      $259.6 million, or 71.3%, of our loan portfolio.

                                       45
<PAGE>
    - PARTICIPATIONS. We act as a participating lender in commercial and large
      construction loans with varying banks in the Southeast, including The
      Bankers Bank. We anticipate expanding our participations in construction
      loans to include loans originated nationwide in order to take advantage of
      lower prices for these loans in less competitive geographic areas. As of
      March 31, 1999, participations accounted for approximately $81.2 million,
      or 22.3%, of our loan portfolio.

    - DIRECT ORIGINATION. We originate a small number of loans directly with our
      customers. As of March 31, 1999, these loans accounted for approximately
      $23.3 million, or 6.4%, of our loan portfolio.

    In addition, as described in "--Products and Services," "-- Lending
Programs" and "--Mortgage Loans," we have agreements with each of mortgage.com,
E-loan, Virtuallender.com, BancMortgage and Fidelity Mortgage Services that
provide that we act as a loan originator on their behalf. From May 1998, when we
began providing services under the first of these agreements, to March 31, 1999,
we funded $258.2 million of loans for third parties. As of March 31, 1999, we
had $35.0 million in loan sale proceeds receivable relating to these agreements.
In the future, we may retain a portion of such loans for our own portfolio.

    Our loan committee establishes underwriting standards and criteria for our
loan portfolio and monitors the portfolio on an ongoing basis. The loan
committee applies the same underwriting standards to all of our loans,
regardless of how they are originated. We have also retained an outside
consulting firm to assist the loan committee in its review of the loan portfolio
and to conduct due diligence on purchased loans.

    In addition to loans, we invest deposit funds in various fixed income
securities. Our philosophy of high credit quality also guides our investment
decisions. Our fixed income securities portfolio is comprised primarily of
United States Treasury obligations, collateralized mortgage obligations and
mortgage-backed securities issued by agencies such as Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation.

CUSTOMER SATISFACTION

    We continually seek ways to enhance customer satisfaction. Offering our
customers a high-level of customer service is a top priority of ours and we
believe that it is critical to our success. In an effort to serve the needs of
our customers, we offer services such as electronic bill payment and ATM cards
without service charges. Our customers can access account data and information
regarding products and services 24 hours a day and can currently reach our
customer service representatives by telephone and e-mail.

    We are committed to investing in customer service. We recently created a
managerial position dedicated to customer service and hired an individual with
approximately 20 years of experience in customer service and call center
management. We have also expanded our customer support staff by over 70% in
order to maintain high-quality customer service. We have also invested in
technology and implemented new procedures in order to continually improve the
quality and responsiveness of our customer service. To optimize our customer
service resources, we have designed a user-friendly Web site with a goal of
achieving customer self-support. For example, customers can find answers to
their "frequently asked questions" and intuitively navigate our Web site.

                                       46
<PAGE>
MARKETING

    The goal of our marketing strategy is to make Net.B@nk the leading brand in
the internet financial services market. Our marketing strategy is designed to
grow our customer base and includes targeted advertising on the internet and
other media, developing strategic partnerships that will enhance our product and
service offerings, cross-marketing initiatives to existing customers and
fostering public relations. Our marketing campaign launched after our February
1999 offering has been highly successful, and we plan to significantly increase
our marketing expenses from $695,000 in 1998 to a budgeted $6.6 million for
1999.

    During the first quarter of 1999, we applied approximately $400,000 to our
marketing program and added 7,226 new accounts. We plan to increase our print
and on-line advertising and continue to explore opportunities in broadcast
advertising during the course of the year. We have recently hired additional
marketing support staff and believe that a significant increase in our marketing
initiatives will enable us to increase our name recognition and grow our
customer and deposit base on a national scale.

    ADVERTISING STRATEGIES.  We have allocated the majority of our advertising
budget to on-line advertising because we believe it is a rapidly growing medium
that best reaches our target audience. We currently market our products and
services by placing banner ads on portals such as Yahoo!, Alta Vista, Infoseek,
Lycos, AOL and Excite and Web sites such as Bank Rate Monitor, iVillage and
Motley Fool that our experience indicates will attract our target customers. We
have enhanced our ability to monitor the audience that we reach as well as the
results of our on-line advertising campaign. For example, we track the number of
hits on our Web site that result from a particular advertisement and incorporate
our findings into our subsequent marketing efforts.

    We also utilize traditional advertisement media. We have a national print
media campaign aimed at increasing brand awareness. Our print media campaign has
included a series of advertisements in national newspaper and magazines such as
THE WALL STREET JOURNAL, FORBES, PC WORLD, and INTERNET LIFE. We added direct
mail marketing to our marketing activities and we are evaluating opportunities
in broadcast advertising.

    STRATEGIC PARTNERSHIPS.  We continually seek to form product and marketing
alliances with other internet financial services providers such as
Virtuallender.com and E-loan to broaden our product and service offerings and
attract a broader customer base. We plan to pursue other marketing alliances
such as co-branded credit cards. We believe these alliances provide us with the
opportunity to cross-market our products and services to the customers of these
financial service providers and to our existing customers.

    PUBLIC RELATIONS.  We also derive a marketing benefit from media coverage
that we generate through our public relations campaign. We believe this coverage
increases the general public's awareness of Net.B@nk and attracts new customers.

COMPETITION

    We believe that the principal competitive factors in the banking industry
are market presence, customer service, convenience, product offerings and
deposit and loan rates and associated account fees. While the banking industry
is highly competitive, we believe we compete effectively with our principal
competitors, which are traditional banks, internet banks and other financial
services providers. We believe our low cost structure, which allows us to offer
attractive interest rates and low fees, gives us a competitive advantage over
traditional banks, which must support a physical branch structure. We also
believe our operating history and name recognition give us an advantage over
other independent internet banks, most of which are still in a relatively early
stage of operation. Furthermore, we are able to offer a broader array of
products and services than many non-bank financial services providers. However,
many of our competitors have larger customer bases, greater name recognition and
brand awareness, greater financial and other resources and longer operating
histories. Additionally, new

                                       47
<PAGE>
competitors and competitive factors are likely to emerge, particularly in view
of the rapid development of internet commerce. See "Risk Factors--Industry
competition may adversely affect our success."

OPERATIONS

    ACCOUNT ACTIVITY.  Customers can access Net.B@nk through any internet
service provider by means of an acceptable secure Web browser. In doing so,
customers can apply for loans, review account activity, enter transactions into
an on-line account register, pay bills electronically, conduct brokerage
transactions, receive statements by mail and print bank statement reports from
any PC with a secure Web browser, regardless of its location. To open a new
account, the customer completes the on-line enrollment form on our Web site,
prints the signature card, signs it and mails it to us. Customers can make
deposits into an open account at Net.B@nk via direct deposit programs, by
transferring funds between Net.B@nk accounts, by wire transfer, by mail or in
person at our principal executive offices. No teller line is maintained,
however, and we do not have or intend to establish a physical branch system.
Customers can also make withdrawals and have access to their accounts at ATMs
that are affiliated with the Cirrus, Honor and Avail networks, which provides
added customer convenience.

    SERVICE PROVIDERS.  We have negotiated relationships with a select group of
service providers who not only provide us with significant quality, security,
reliability, performance and marketing capabilities, but also play an integral
role in implementing our full financial services strategy. Because we outsource
our principal operational functions to experienced third-party service providers
that have the capacity to process a high volume of transactions, we can respond
easily to growth. Moreover, we have preserved a degree of flexibility that
enables us to assess and evaluate our product offerings and delivery structure
on an ongoing basis and to incorporate other alliance opportunities as they
present themselves. Should any of these relationships terminate, however, we
believe we could secure the required services from an alternative source without
material interruption of our operations. Our principal service providers are
described below:

    - NCR. NCR provides operational support for our internet banking and bill
      payment applications. Specifically, NCR provides a secure Web site,
      software that performs services relating to our infrastructure and other
      electronic banking services. NCR also hosts Edify's electronic banking
      software on its secure server and provides the interface necessary to link
      our servers with those used by BISYS and CheckFree.

    - BISYS. We receive core systems processing services, such as deposit
      account, loan and year-end processing services, from BISYS. The BISYS
      server interfaces with NCR's secure server and verifies customer passwords
      and identification. BISYS also operates our ATM and debit card systems.

    - EDIFY. Edify licenses its Electronic Banking System and Electronic
      Workforce software, a suite of internet banking applications, to us. Edify
      also maintains the software and provides consulting services as needed.

    - CHECKFREE. CheckFree provides electronic bill paying services to our
      customers. Customers can pay their bills on-line through electronic funds
      transfer or a written draft prepared and sent to the creditor.

    - UVEST INVESTMENT SERVICES. UVEST Investment Services provides discount
      brokerage services to our customers. UVEST Investment Services executes
      the trades and receives a commission that is automatically deducted from
      our customer's deposit account.

    - MORTGAGE.COM. mortgage.com processes mortgage loan applications submitted
      through our Web site. It reviews the application, contacts the customer
      and closes the loan for us.

    - PNC BANK CORP. We plan to offer consumer loans, including home equity and
      automobile loans, in the third quarter of 1999. PNC will originate and
      service these loans and will service other consumer loans on a servicing
      released basis.

                                       48
<PAGE>
    As part of our outsourcing strategy, we will continue to explore the
outsourcing of a variety of our operations, including customer service, new
product offerings and certain lending and portfolio management activities.

SECURITY

    Our ability to provide our customers with secure financial services over the
internet is of paramount importance. We continually evaluate the internet
systems, services and software used in our operations to ensure that they meet
the highest standards of security. The following are among the security measures
that are in place:

    ENCRYPTED TRANSACTIONS.  All banking transactions and internet
communications are encrypted so that sensitive information is not transmitted
over the internet in a form that can be read or easily deciphered. Encryption of
internet communications is accomplished through the use of the Netscape Secure
Sockets Layer technology. This technology is the standard for encryption on the
internet and is currently used by Netscape's NAVIGATOR (Version 2.0 or higher)
and Microsoft's INTERNET EXPLORER (Version 3.0 or higher). Messages between our
server and BISYS are encrypted using DES encryption, which is described in
"--Isolated Bank Server" below.

    SECURE LOGON.  To eliminate the possibility that a third party may download
Net.B@nk's or a customer's password file, user identification and passwords are
not stored on the internet or the Web server. Furthermore, passwords are strings
of six to eight alpha-numeric characters, which makes the chance that a password
can be randomly guessed less than one in one trillion.

    ISOLATED BANK SERVER.  The computer used to provide our services cannot be
accessed directly through the internet. It is on a private connection, or
intranet, that provides two-way communication between the isolated bank server
and the NCR internet server. Consequently, an internet user cannot directly
access the computer that actually provides our services.

    All banking services are routed from the NCR server through a firewall. The
firewall is a combined software and hardware product that precisely defines,
controls and limits the access to "internal" computers from "outside" computers
across a network. Use of this firewall means that only authenticated bank
customers or administrators may send or receive transactions through it, and the
firewall itself is immune to penetration from the network. In other words, the
firewall is a mechanism used to protect our server from the freely accessible
internet.

    Furthermore, all messages sent or received between the NCR server and our
server are encrypted using DES encryption. This is a symmetric key algorithm and
is highly secure because it is not susceptible to standard ciphertext attacks.
Thus, even if a perpetrator were able to route a message to our server through
the firewall, the message could not be encrypted in a way that would be
considered valid by the server. As a result, our server would reject the
message.

    AUTHENTICATED SESSION INTEGRITY.  An authenticated user is any user who
signs onto our Web site with a valid user ID and password. Although the vast
majority of authenticated users are legitimate bank customers, our server is
programmed to limit exposure to an authenticated user who is attempting to
defraud Net.B@nk. If the authenticated user alters the URL, which is the command
or request that is sent from the browser to the server, in any way in an attempt
to gain access to other users' accounts, our server immediately detects that the
session integrity variables have been violated. Our server will immediately stop
the session and record the attempt in a log so that our staff can investigate.

    PHYSICAL SECURITY.  All servers and network computers reside in secure NCR
facilities. Currently, computer operations supporting our internet access are
based in Columbia, Maryland with backup facilities in Dayton, Ohio. Only
employees with proper photographic identification may enter the primary
building. The computer operations are located in a secure area, with admission
only by key card. Access to our server console requires further password
identification.

                                       49
<PAGE>
    SECURE MODEM ACCESS. A private line that is not accessible from the public
network connects our server and BISYS. Our server is connected to CheckFree by a
similar private connection. A dial-up maintenance port also permits access to
our server. The modem that provides the only access to this port is specially
protected and is only enabled on an as-needed basis.

    SERVICE CONTINUITY.  NCR and BISYS each provide a fully redundant network
with no single point of failure. Our server is also "mirrored" so that hardware
failures or software bugs should cause no more than a few minutes of service
outage. "Mirroring" means that our server is backed up continuously so that all
data is stored in two physical locations. This network and server redundancy
ensures that access to Net.B@nk will be reliable. However, if customers are not
able to access Net.B@nk over the internet, customers retain access to their
funds through several means, including paper checks, ATM cards, customer service
and an automated telephone response system.

    MONITORING.  All customer transactions on our server using services provided
by BISYS and CheckFree produce one or more entries into transactional logs. We
and NCR recognize that it is critical to monitor these logs for unusual or
fraudulent activity. As mentioned previously, any attempt by an authenticated
user to modify the command or request that is sent from the browser to the
server is logged. Additionally, all financial transactions are logged. Bank
personnel review these logs regularly, and we or NCR will note any abnormal or
unusual activity and take appropriate action. Ultimately, vigilant monitoring is
the best defense against fraud.

    The preceding security measures are designed to ensure that Net.B@nk is set
up in a secure manner. However, over the long term, our security depends upon
the procedures and standards used for administration of the internet site. Both
NCR and BISYS are required to obtain SAS 70 certification from a national
accounting firm. This is a certification by independent auditors that the NCR
and BISYS computer systems are being managed and operated in a manner consistent
with accepted practices. Both BISYS and NCR have received this certification.

    We believe the risk of fraud presented by internet banking is not materially
different from the risk of fraud inherent in any banking relationship. We
believe the three principal reasons for a breach in bank security are:

    - Misappropriation from the user of the user's account number or password;

    - Penetration of our server by an outside "hacker"; and

    - Fraud committed by one of our employees or an employee of one of our
      service providers.

Both traditional banks and internet banks are vulnerable to these types of
fraud. By establishing the security measures described above, we believe we have
reduced our vulnerability to the first two types of fraud. To counteract fraud
by employees, associates and consultants, we have established internal
procedures and policies designed to ensure that, as in any bank, proper control
and supervision is exercised over employees, associates and consultants. We also
counteract all types of fraud through daily examination of our transactional
logs.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

    We regard the form and substance of our name and other intellectual property
we have developed as proprietary and attempt to protect them by relying on
intellectual property laws. We have submitted a United States trademark
registration for the Net.B@nk name and take active measures to safeguard our
name and other proprietary intellectual property. Policing unauthorized use of
proprietary information is difficult, however, and litigation may be necessary
to enforce our intellectual property rights.

    We own the internet domain name "netbank.com." Domain names in the United
States and in foreign countries are regulated, by the laws and regulations
governing the internet are continually evolving. Additionally, the relationship
between regulations governing domain names and laws protecting intellectual
property rights is unclear. As a result, we may not be able to prevent third

                                       50
<PAGE>
parties from acquiring domain names that infringe or otherwise decrease the
value of our trademark and other intellectual property rights.

SUPERVISION AND REGULATION

    References to "we," "us," "our" and "Net.B@nk" generally refer to Net.B@nk,
Inc. and its sole subsidiary, Net.B@nk, on a consolidated basis, except where we
indicate that Net.B@nk, Inc. means only the parent entity and Net.B@nk refers
only to the banking subsidiary.

    BACKGROUND.  In connection with its approval of the July 31, 1997
acquisition of our bank charter, the Office of Thrift Supervision required us to
make certain commitments with respect to our ongoing operations. These
commitments included:

    - Until July 28, 2000, receiving prior approval from the Office of Thrift
      Supervision before making any changes to our senior management team or
      board of directors;

    - Operating within the parameters of our business plan as submitted to the
      Office of Thrift Supervision;

    - Obtaining from an independent computer security specialist an independent
      review of, and written report regarding, the internet banking security
      measures we employ;

    - Complying with the Office of Thrift Supervision policy statement regarding
      on-line banking;

    - Ensuring that our directors and certain executive officers and
      shareholders refrain from disposing of their restricted shares of common
      stock without the prior consent of the Office of Thrift Supervision until
      July 28, 2000;

    - Obtaining the approval of the Regional Director of the Office of Thrift
      Supervision with respect to any changes in our stock benefit plans
      effected on or before July 28, 2000;

    - Complying with Office of Thrift Supervision directives, if any, that
      require the exercise or forfeiture of participants' rights under our stock
      benefit plans in the event our capital falls below minimum Office of
      Thrift Supervision requirements; and

    - Submitting to the Office of Thrift Supervision a structured project plan
      describing the steps and timing required to replace the Web hosting
      services that were previously provided by AT&T Corp. and are now provided
      by NCR.

    We and our directors, executive officers and shareholders have complied with
these conditions to date.

    On January 8, 1999, the Office of Thrift Supervision granted Carolina First
Corporation permission to sell a portion of its shares of common stock in
Net.B@nk's February 1999 public offering. As a condition to its approval, the
Office of Thrift Supervision required that two of the four directors initially
nominated by Carolina First Corporation resign following completion of the
offering and that those directors be replaced with two outside directors within
six months of the resignations. The Office of Thrift Supervision also required
Carolina First Corporation to refrain from disposing of its remaining shares of
common stock without the prior consent of the Office of Thrift Supervision. We
do not believe that these commitments have or will materially affect our
operations.

    Carolina First Corporation currently owns more than five percent of our
outstanding common stock. As a result, Carolina First Corporation is subject to
certain Federal Reserve Board regulations regarding its relationship with
Net.B@nk. Until Carolina First Corporation owns less than five percent of our
outstanding common stock, we will not engage in any activities that are not
permissible under applicable Federal Reserve Board regulations.

    SAVINGS AND LOAN HOLDING COMPANY REGULATION.  Savings and loan holding
companies and federal savings banks are extensively regulated under both federal
and state law. The following is a brief summary of certain statutes, rules and
regulations that affect Net.B@nk, Inc. and its banking subsidiary. This summary
is qualified in its entirety by reference to the particular statutory and

                                       51
<PAGE>
regulatory provisions referred to below. This summary is not intended to be an
exhaustive description of the statutes or regulations applicable to our
business. Supervision, regulation and examination of Net.B@nk by regulatory
agencies is intended primarily for the protection of our depositors rather than
our shareholders. The terms bank, savings institution, savings association,
federal savings bank and thrift are used interchangeably in this section to
refer to savings associations such as Net.B@nk, Inc.'s banking subsidiary that
are subject to supervision and regulation by the Office of Thrift Supervision.
The terms savings and loan holding company and holding company are used
interchangeably to refer to holding companies, such as Net.B@nk, Inc., that are
subject to supervision and regulation by the Office of Thrift Supervision.

    Net.B@nk, Inc. is registered as a holding company under both the Savings and
Loan Holding Company Act set forth in Section 10 of the Home Owners Loan Act and
the Financial Institutions Code of Georgia. Net.B@nk, Inc. is currently
regulated under these acts by the Office of Thrift Supervision and by the
Georgia Department of Banking and Finance. As a savings and loan holding
company, Net.B@nk, Inc. is required to file with the Office of Thrift
Supervision an annual report and any additional information that the Office of
Thrift Supervision may require under the Savings and Loan Holding Company Act.
The Office of Thrift Supervision also conducts examinations of Net.B@nk, Inc.
and its banking subsidiary.

    Generally, savings and loan holding companies and their subsidiaries may not
engage in activities or render any services for or on behalf of their savings
institution subsidiaries for the purpose or with the effect of evading any law
or regulation applicable to the institution. This restriction is designed to
prevent savings and loan holding companies and their affiliates from evading
requirements of the Savings and Loan Holding Company Act that were enacted to
protect a holding company's savings institution subsidiaries. A unitary thrift
holding company, that is, a holding company that owns only one insured
institution whose subsidiary institution satisfies the qualified thrift lender
test (discussed below), however, is not restricted to any statutorily prescribed
list of permissible activities, and the Savings and Loan Holding Company Act and
the Financial Institutions Code of Georgia impose no limits on direct or
indirect non-savings institution subsidiary operations. Net.B@nk, Inc. is a
unitary thrift holding company and qualifies for this exception. However, as
discussed above, we have committed that Net.B@nk, Inc. will not engage in any
activity that is impermissible for bank holding companies under Federal Reserve
Board regulations.

    The Savings and Loan Holding Company Act and the Financial Institutions Code
of Georgia make it unlawful for any savings and loan holding company to acquire
control of another savings association or savings and loan holding company
without prior approval from the Office of Thrift Supervision and the Georgia
Department of Banking and Finance. These statutes also prohibit a savings
institution or holding company from merging with, consolidating with or
purchasing all or substantially all of the assets of another institution or
holding company without prior approval. The Office of Thrift Supervision and the
Georgia Department of Banking and Finance take into consideration the financial
and managerial resources and future prospects of the institutions involved when
considering an application for these transactions. This includes consideration
of the competence, experience and integrity of the officers, directors and
principal shareholders of the companies. In addition, the agencies consider the
effect of the transaction on the institution, the insurance risk to the Savings
Association Insurance Fund and the convenience and needs of the community to be
served.

    The Office of Thrift Supervision may not approve an acquisition that would
result in the formation of certain types of interstate banking networks. The
Office of Thrift Supervision is precluded from approving an acquisition that
would result in the formation of a holding company that controls savings
institutions in more than one state. If, however, the acquiring company or one
of its savings institution subsidiaries is authorized to acquire control of an
institution or to operate an office in the additional state under a supervisory
acquisition authorized under Section 13(k) of the Federal Deposit Insurance Act
or the statutes of the state in which the institution to be acquired is located
permits the acquisition, then the acquisition may be approved.

                                       52
<PAGE>
    Savings and loan holding companies are generally allowed to acquire or to
retain as much as 5% of the voting shares of a savings institution or savings
and loan holding company without regulatory approval.

SAVINGS BANK REGULATION

    GENERAL.  Net.B@nk is chartered by the Office of Thrift Supervision, a
bureau of the United States Treasury, and is subject to examination by the
Office of Thrift Supervision and the FDIC. The Office of Thrift Supervision
regulates all areas of our banking operations including reserves, lending,
mergers, payment of dividends, interest rates, establishment of branches and
other aspects of our operations. Federal savings banks with assets greater than
or equal to $250 million, like Net.B@nk, must be examined no less frequently
than every 12 months. Federal savings banks with assets less than $250 million
may be examined no less frequently than 18 months, if they are well capitalized
and meet other regulatory requirements. Additionally, the Office of Thrift
Supervision may assess the federal savings bank with the cost of the
examination.

    The FDIC insures Net.B@nk's deposits to the maximum extent provided by law.
The major functions of the FDIC with respect to insured federal savings banks
include:

    - Paying depositors to the extent provided by law in the event an insured
      federal savings bank is closed without adequately providing for payment of
      depositors' claims; and

    - Preventing the continuance or development of unsound and unsafe banking
      practices.

    CAPITAL REQUIREMENTS.  Net.B@nk is required to comply with the capital
adequacy standards established by the Office of Thrift Supervision. The Office
of Thrift Supervision has established three basic measures of capital adequacy
for federal savings banks--a risk-based measure, a leverage measure and a
tangible capital measure.

    The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among savings
associations, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.

    Under risk-based capital standards, the minimum guideline for the ratio of
total capital to risk-weighted assets is 8%. Net.B@nk's risk-based capital ratio
at December 31, 1998 was 15.36%.

    Under leverage-based capital standards, the minimum guideline for the ratio
of core capital to tangible assets is 3%. Net.B@nk's leverage ratio at December
31, 1998 was 9.31%. This leverage-based capital guideline, however, is the
minimum requirement. The guidelines provide that federal savings banks which are
not granted the highest regulatory rating shall maintain a core capital to total
adjusted assets ratio of 4%. A higher ratio may be required if warranted by the
risk profile of the federal savings bank.

    Under Office of Thrift Supervision regulations, core capital generally
includes:

    - Common stockholders' equity;

    - Noncumulative perpetual preferred stock and related surplus; and

    - Minority interests in the equity accounts of consolidated subsidiaries,

    LESS:

    - Unidentifiable intangible assets, other than certain amounts of
      supervisory goodwill; and

                                       53
<PAGE>
    - Certain investments in certain subsidiaries plus 90% of the fair market
      value of readily marketable purchased mortgage servicing rights and
      purchased credit card relationships, subject to certain conditions.

    Total capital, for purposes of the risk-based capital requirement equals the
sum of core capital plus supplementary capital. Supplementary capital includes
the sum of, among other items, perpetual preferred stock not counted as core
capital, limited life preferred stock, subordinated debt and general loan and
lease loss allowances up to 1.25% of risk-weighted assets less certain
deductions. The amount of supplementary capital that may be counted towards
satisfaction of the total capital requirement may not exceed 100% of core
capital, and Office of Thrift Supervision regulations require the maintenance of
a minimum ratio of core capital to total risk-weighted assets of 4%.

    Under tangible capital standards, the minimum guideline for the ratio of
tangible capital to tangible assets is 1.5%. Net.B@nk's tangible capital ratio
at December 31, 1998 was 9.31%. Generally, tangible capital is defined as core
capital minus intangible assets and investments in certain subsidiaries and does
not include purchased mortgage servicing rights.

    Office of Thrift Supervision regulations have been amended to include an
interest-rate risk component to the risk-based capital requirement. This new
requirement is not expected to have any material effect on our ability to meet
the risk-based capital requirement. The Office of Thrift Supervision also
revised its risk-based capital standards to ensure that its standards provide
adequately for concentration of credit risk, risk from nontraditional activities
and actual performance and expected risk of loss on multi-family mortgages.

    Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings association if the
Office of Thrift Supervision determines that the institution's capital was or
may become inadequate in view of its particular circumstances.

    Additionally, the Georgia Department of Banking and Finance requires savings
and loan holding companies, such as Net.B@nk, Inc., to maintain a 5% Tier 1
capital ratio on a consolidated basis. Tier 1 capital is substantially the same
as core capital. As of December 31, 1998, Net.B@nk's Tier 1 capital ratio was
14.44%.

    PROMPT CORRECTIVE ACTION.  The Federal Deposit Insurance Corporation
Improvement Act of 1991 established a system of prompt corrective action to
resolve the problems of undercapitalized institutions. Under this system, the
federal banking regulators, which include the Office of Thrift Supervision, the
FDIC, the Office of the Comptroller of the Currency and the Federal Reserve
Board, established five capital categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized), and are required to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, relating to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the federal banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital levels for each category.

    An institution that is categorized as undercapitalized, significantly
undercapitalized or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
savings and loan holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The controlling holding company's obligation to fund a capital restoration plan
is limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC
approval. In addition, the appropriate federal banking

                                       54
<PAGE>
agency may treat an undercapitalized institution in the same manner as it treats
a significantly undercapitalized institution, if it determines that those
actions are necessary. The appropriate federal banking agency may also treat an
institution in the well capitalized, adequately capitalized or undercapitalized
categories as if it was in the next lower category based on safety and soundness
considerations relating to factors other than capital levels.

    At December 31, 1998, our capital level placed us in the well capitalized
category.

    CAPITAL DISTRIBUTIONS.  Office of Thrift Supervision regulations govern the
payment of dividends and other capital distributions of savings associations
such as Net.B@nk. Under new regulations effective April 1, 1999, savings
associations that meet specified criteria must file a notice or an application
with the Office of Thrift Supervision before making a "capital distribution,"
which is defined to include dividends as well as stock repurchases and cash-out
mergers. Savings associations that do not meet these criteria are permitted to
make distributions without prior notice or application. The Office of Thrift
Supervision may deny distribution notices or applications under specified
circumstances.

    A savings association must file an application with the Office of Thrift
Supervision and receive the Office of Thrift Supervision's approval of the
application before making the distribution if:

    - The association is not eligible for expedited treatment under the agency's
      application processing guidelines;

    - The total amount of all of the association's capital distributions,
      including the proposed capital distribution, for the applicable calendar
      year exceeds the association's net income for that year to date plus the
      association's retained net income for the preceding two years;

    - The association would not be at least adequately capitalized under the
      Office of Thrift Supervision's prompt corrective action regulations,
      following the distribution; or

    - The proposed capital distribution would violate a prohibition contained in
      any applicable statute, regulation or agreement between the association
      and the Office of Thrift Supervision or the FDIC, or violate a condition
      imposed on the association in an application or notice approved by the
      Office of Thrift Supervision.

    A savings association is not eligible for expedited treatment if the
association does not have a composite rating of 1 or 2, does not have a
Community Reinvestment Act rating of satisfactory or better, does not have a
compliance rating of 1 or 2, does not meet its minimum capital requirements or
has been notified by Office of Thrift Supervision personnel that it is a problem
or troubled association.

    A savings association must file a notice 30 days before a capital
distribution if the association is not required to file an application but:

    - The association would not be well capitalized under the prompt corrective
      action regulations following the distribution;

    - The proposed capital distribution would reduce the amount of or retire any
      part of the association's common or preferred stock or retire any part of
      debt instruments such as notes or debentures included in capital under the
      Office of Thrift Supervision's capital regulations (other than regular
      payments required under certain debt instruments); or

    - The association is a subsidiary of a savings and loan holding company.

                                       55
<PAGE>
    The Office of Thrift Supervision may disapprove a notice or deny an
application, in whole or in part, if the Office of Thrift Supervision determines
that:

    - The association will be undercapitalized, significantly undercapitalized
      or critically undercapitalized as set forth in the prompt corrective
      action regulations, following the distribution;

    - The proposed distribution raises safety or soundness concerns; or

    - The proposed distribution violates a prohibition contained in any statute,
      regulation, agreement between the association and the Office of Thrift
      Supervision or the FDIC or a condition imposed in an application or notice
      approved by the Office of Thrift Supervision, unless the Office of Thrift
      Supervision decides to permit the proposed distribution notwithstanding
      the prohibition or condition.

    Net.B@nk does not currently meet the criteria for an application. However,
because Net.B@nk is a subsidiary of a savings and loan holding company, it must
file a notice with the Office of Thrift Supervision at least 30 days before it
makes any capital distribution.

    LIQUIDITY.  Under Office of Thrift Supervision regulations, savings
associations must maintain an average daily balance of liquid assets in each
calendar quarter of not less than 4% of: (1) the amount of its liquidity base at
the end of the preceding calendar quarter or (2) the average daily balance of
its liquidity base during the preceding quarter. Liquid assets include cash,
certain time deposits, certain bankers' acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual funds
and specified United States government, state or federal agency obligations. The
liquidity base is the amount of the savings association's net withdrawable
accounts plus its short-term borrowings.

    The Office of Thrift Supervision may, to the extent and under conditions it
may prescribe, permit a savings association to reduce its liquid assets below
the minimum amount to meet withdrawals or pay obligations. In addition, the
Office of Thrift Supervision may suspend part or all of the minimum liquidity
requirements whenever it determines that conditions of national emergency or
unusual economic stress exist. Savings institutions also are required to
maintain short-term liquid assets to satisfy Federal Reserve Board requirements.

    QUALIFIED THRIFT LENDER REQUIREMENT. A federal savings bank is deemed to be
a qualified thrift lender if: (1) the savings association qualifies as a
domestic building and loan association, as defined in section 7701(a)(19) of the
Internal Revenue Code of 1986 or (2) the savings association's qualified thrift
investments equal or exceed 65% of its portfolio assets on a monthly average
basis in nine out of every 12 months.

    Qualified thrift investments generally consist of (1) various
housing-related loans and investments such as residential construction and
mortgage loans, home improvement loans, mobile home loans, home equity loans and
mortgage-backed securities, (2) certain obligations of the FDIC and (3) shares
of stock issued by any Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association.

    In addition, the following assets may be categorized as qualified thrift
investments in an amount not to exceed 20% in the aggregate of portfolio assets:

    - 50% of the dollar amount of residential mortgage loans originated and sold
      within 90 days of origination;

    - Investments in securities of a service corporation that derives at least
      80% of its income from residential housing finance;

                                       56
<PAGE>
    - 200% of loans and investments made to acquire, develop or construct
      starter homes or homes in credit needy areas (subject to certain
      conditions);

    - Loans for the purchase or construction of churches, schools, nursing homes
      and hospitals; and

    - Consumer loans.

    The term portfolio assets means the savings institution's total assets minus
goodwill and other intangible assets, the value of property used by the savings
institution to conduct its business and liquid assets held by the savings
institution in an amount up to 20% of its total assets.

    A savings association that fails to meet the definition of a qualified
thrift lender must either convert to a national bank charter or limit its future
investments and activities, including branching and payments of dividends, to
those permitted for both savings associations and national banks. Further,
within one year of the loss of qualified thrift lender status, a holding company
of a savings association that does not convert to a bank charter must register
as a bank holding company and will be subject to all statutes applicable to bank
holding companies. In order to exercise the powers granted to federally
chartered savings associations and maintain full access to Federal Home Loan
Bank advances, Net.B@nk must continue to meet the definition of a qualified
thrift lender. In addition, Net.B@nk must continue to meet this definition for
Net.B@nk, Inc. to maintain its status as a unitary savings and loan holding
company.

    LOANS TO ONE BORROWER LIMITATIONS.  The Home Owners Loan Act generally
requires savings associations to comply with the loans to one borrower
limitations applicable to national banks. National banks generally may make
loans to a single borrower in amounts up to 15% of their unimpaired capital and
surplus, plus an additional 10% of capital and surplus for loans secured by
readily marketable collateral. The Home Owners Loan Act provides exceptions
under which a savings association may make loans to one borrower in excess of
the generally applicable national bank limits. A savings association may make
loans to one borrower in excess of the limits under the following circumstances:
(1) for any purpose, in any amount not to exceed $500,000 or (2) to develop
domestic residential housing units, in an amount not to exceed the lesser of $30
million or 30% of the savings association's unimpaired capital and unimpaired
surplus, provided other conditions are satisfied.

    The Federal Institutions Reform, Recovery, and Enforcement Act of 1989
provided that a savings association could make loans to one borrower to finance
the sale of real property which the savings association acquired in satisfaction
of debts previously contracted in good faith, in amounts up to 50% of the
savings association's unimpaired capital and unimpaired surplus. The Office of
Thrift Supervision, however, has modified this standard by limiting loans to one
borrower to finance the sale of real property acquired in satisfaction of debts
to 15% of unimpaired capital and surplus. That rule provides, however, that
purchase money mortgages received by a savings association to finance those
sales that do not constitute "loans" if no new funds are advanced and the
savings association is not placed in a more detrimental position holding the
note than holding the real estate. Therefore, these purchase money mortgages are
not subject to the loans to one borrower limitations.

    COMMERCIAL REAL PROPERTY LOANS.  The Home Owners Loan Act limits the
aggregate amount of commercial real estate loans that a federal savings
association may make to an amount not in excess of 20% of the savings
association's assets. Also, the amount in excess of 10% of total assets must be
devoted to small business real property loans.

    COMMUNITY REINVESTMENT.  Under the Community Reinvestment Act and the
implementing Office of Thrift Supervision regulations, federal savings banks
have a continuing and affirmative obligation to help meet the credit needs of
their local communities, including low and moderate-income neighborhoods,
consistent with the safe and sound operation of the institution. The Community
Reinvestment Act requires the boards of directors of financial institutions to
adopt a Community

                                       57
<PAGE>
Reinvestment Act statement for each assessment area that, among other things,
describes its efforts to help meet community credit needs and the specific types
of credit that the institution is willing to extend. The Office of Thrift
Supervision has established the following three tests to evaluate a federal
savings bank's compliance with the Community Reinvestment Act:

    - A lending test which will compare the institution's market share of loans
      in low- and moderate-income areas to its market share of loans in its
      entire service area and the percentage of a bank's outstanding loans to
      low- and moderate-income areas or individuals;

    - A services test which will evaluate the provision of services that promote
      the availability of credit to low- and moderate-income areas; and

    - An investment test, which will evaluate an institution's record of
      investments in organizations designed to foster community development,
      small- and minority-owned businesses and affordable housing lending,
      including state and local government housing or revenue bonds.

    FAIR LENDING.  Congress and various federal agencies, including bank
regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice, which are responsible
for implementing fair lending laws in the United States, have been increasingly
concerned that prospective home buyers and other borrowers are experiencing
discrimination in their efforts to obtain loans. In recent years, the Department
of Justice has filed suit against financial institutions that it determined had
discriminated, seeking fines and restitution for borrowers who allegedly
suffered from discriminatory practices. Most, if not all, of these suits have
been settled, some for substantial sums, without a full adjudication on the
merits.

    On March 8, 1994, these federal agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified:

    - Overt evidence of discrimination, when a lender blatantly discriminates on
      a prohibited basis;

    - Evidence of disparate treatment, when a lender treats applicants
      differently based on a prohibited factor even where there is no showing
      that the treatment was motivated by prejudice or a conscious intention to
      discriminate against a person; and

    - Evidence of disparate impact, when a lender applies a practice uniformly
      to all applicants, but the practice has a discriminatory effect, even
      where the practices are neutral on their face and are applied equally,
      unless the practice can be justified on the basis of business necessity.

    FDIC INSURANCE ASSESSMENTS.  Federal deposit insurance is required for all
federally chartered savings associations. Net.B@nk's deposits are insured to a
maximum of $100,000 for each depositor by the Savings Association Insurance Fund
of the FDIC. Net.B@nk is therefore subject to regulation and supervision by the
FDIC to the extent deemed necessary by the FDIC to ensure the safety and
soundness of the Savings Association Insurance Fund. The FDIC is entitled to
have access to reports of examination of Net.B@nk made by the Office of Thrift
Supervision and all reports of condition filed by Net.B@nk with the Office of
Thrift Supervision. The FDIC also may require Net.B@nk to file additional
reports that determines to be advisable for insurance purposes. Additionally,
the FDIC may determine by regulation or order that a specific activity poses a
threat to the Savings Association Insurance Fund and that no Savings Association
Insurance Fund member may engage in the activity directly.

    Insurance premiums are paid in semiannual assessments. Under a risk-based
assessment system, the FDIC is required to calculate on a semi-annual basis a
savings association's semiannual assessment based on (1) the probability that
the insurance fund will incur a loss with respect to the institution,

                                       58
<PAGE>
taking into account the institution's asset and liability concentration, (2) the
potential magnitude of any such loss and (3) the revenue and reserve needs of
the insurance fund. The semiannual assessment imposed on the Net.B@nk may
increase depending on the Savings Association Insurance Fund revenue and expense
levels, and the risk classification applied to Net.B@nk.

    The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns an
institution to one of three supervisory subgroups within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation that the Office of Thrift Supervision provides to the
FDIC and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. The FDIC determines an institution's insurance assessment rate based on
the institution's capital category and supervisory category.

    Since January 1, 1997, Savings Association Insurance Fund members and Bank
Insurance Fund members have the same risk-based assessment schedule which is
$0.00 to $0.27 per $100 of deposits. Beginning January 1, 1997, financing
corporate bond debt service assessments of $0.013 for Bank Insurance Fund
deposits and $0.064 per $100 of deposits for Savings Association Insurance Fund
deposits were added to the Bank Insurance Fund assessable base and Savings
Association Insurance Fund assessable base, respectively. These rates will be in
effect until December 31, 1999. Thereafter, approximately $0.024 per $100 of
deposits will be added to each regular assessment for all insured depositors.

    The Deposit Insurance Funds Act of 1996 provided that the Bank Insurance
Fund and the Savings Association Insurance Fund were to be merged, creating the
"Deposit Insurance Fund," on January 1, 1999, provided that bank and savings
association charters were combined by that date. The Treasury Department has
submitted a report to Congress on the development of a common charter for all
insured depository institutions, but as of January 1, 1999, Congress had not
passed any legislation to combine the charters. See "--Elimination of Federal
Savings Association Charter."

    The FDIC may terminate an institution's deposit insurance if it finds that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operation, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.

    FEDERAL HOME LOAN BANK SYSTEM.  The Federal Home Loan Bank System consists
of 12 regional Federal Home Loan Banks, each subject to supervision and
regulation by the Federal Housing Finance Board. The Federal Home Loan Banks
provide a central credit facility for member savings associations. Collateral is
required. The maximum amount that the Federal Home Loan Bank of Atlanta will
advance fluctuates from time to time in accordance with changes in policies of
the Federal Housing Finance Board and the Federal Home Loan Banks, and the
maximum amount generally is reduced by borrowings from any other source. In
addition, the amount of advances that a savings association may obtain from the
Federal Home Loan Banks will be restricted in the event the institution fails to
constitute a qualified thrift lender. Net.B@nk is a member of the Federal Home
Loan Bank of Atlanta.

    FEDERAL RESERVE SYSTEM.  The Federal Reserve Board has adopted regulations
that require savings associations to maintain non-earning reserves against their
transaction accounts, primarily NOW and regular checking accounts. These
reserves may also be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision. Because required reserves must be maintained in
the form of cash or a non-interest-bearing account at a Federal Reserve Bank,
the effect of this reserve requirement is to reduce the amount of our
interest-earning assets.

                                       59
<PAGE>
    Savings institutions also have the authority to borrow from the Federal
Reserve discount window. Collateral is required. Federal Reserve Board
regulations, however, require savings associations to exhaust all Federal Home
Loan Bank sources before borrowing from a Federal Reserve Bank.

    TRANSACTIONS WITH AFFILIATES RESTRICTIONS.  Net.B@nk is subject to the
provisions of Section 23A of the Federal Reserve Act and the Office of Thrift
Supervision's implementing regulation. Section 23A places limits on:

    - The amount of loans or extensions of credit to affiliates;

    - The amount of investment in affiliates;

    - The amount of the purchase of assets from affiliates, except for real and
      personal property exempted by the Federal Reserve Board;

    - The amount of loans or extensions of credit to third parties
      collateralized by the securities or obligations of affiliates; and

    - The amount of any guarantee, acceptance or letter of credit issued on
      behalf of an affiliate.

    The aggregate of all of the above transactions is limited in amount, as to
any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each transaction must also meet
specified collateral requirements. Net.B@nk must also comply with certain
provisions designed to avoid transactions with affiliates involving low-quality
assets.

    Net.B@nk is also subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibits an institution from engaging in
the above transactions with affiliates unless the transactions are on terms
substantially the same, or at least as favorable to the institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliated companies.

    Net.B@nk is also subject to certain restrictions on extensions of credit to
its executive officers, directors, certain principal shareholders and their
related interests. These extensions of credit (1) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with third parties, and (2) must not
involve more than the normal risk of repayment or present other unfavorable
features.

    The Home Owners Loan Act and Office of Thrift Supervision regulations
contain additional restrictions on loans and extension of credit to affiliates,
and the Office of Thrift Supervision is authorized to impose additional
restrictions on transactions with affiliates if it determines restrictions are
necessary to ensure the safety and soundness of any savings association.

    FUTURE REQUIREMENTS.  Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions. We cannot predict
whether or what form any proposed statute or regulation will be adopted or the
extent to which our business may be affected by such statute or regulation.

    ELIMINATION OF FEDERAL SAVINGS ASSOCIATION CHARTER.  In recent years,
Congress has considered legislation that would eliminate the federal savings
association charter. If this legislation is enacted, Net.B@nk likely would be
required to convert its federal savings bank charter to either a national bank
charter or to a state depository institution charter and Net.B@nk, Inc. would
become a bank holding company subject to regulation by the Federal Reserve Board
and the Georgia Department of Banking and Finance. Congress has also considered
various legislative proposals that would result in the restructuring of federal
regulatory oversight, including, for example, consolidation of the Office of

                                       60
<PAGE>
Thrift Supervision into another agency, or creation of a new Federal banking
agency to replace the various agencies which presently exist.

PROPERTIES

    We lease 7,480 square feet of office space for our headquarters at 950 North
Point Parkway, Suite 350, Alpharetta, Georgia 30005. The office space is subject
to a lease that expires on January 31, 2005. We have entered into a lease for
approximately 19,615 square feet of office space for a new headquarters located
at Royal Centre Three, Suite 100, 11475 Great Oaks Way, Alpharetta, Georgia
30022. We plan to move our offices to this location in the summer of 1999.

EMPLOYEES

    As of April 30, 1999, we employed 40 persons on a full-time basis and one
person on a part-time basis. None of our employees is covered by a collective
bargaining agreement. We believe our relations with our employees are excellent.


LEGAL PROCEEDINGS



    On May 5, 1999, Net.B@nk, Inc. and Net.B@nk filed suit in the United States
District Court for the Southern District of Florida against Net1Bank, N.A.,
f/k/a Boca Raton First National Bank, N.A., First Telebanc Corp., Equitex, Inc.,
Keith Duffy and Henry Fong. The suit is based on the defendants' use and planned
use of the "Net1Bank" name and related domain names and marks in connection with
their Internet banking services and includes claims for false designation of
origin, trademark dilution, false advertising, unfair competition and trademark
infringement. In the lawsuit, we seek a variety of forms of relief, including
declaratory and injunctive relief, damages, a destruction order requiring that
the defendants deliver and destroy all materials bearing the Net1Bank mark and
an order directing defendants to cancel their domain names or to assign those
domain names to us. The defendants have not yet filed a response to the
complaint. Although we cannot state with certainty what the outcome of the
litigation will be, we believe that it is unlikely that the outcome will have a
material adverse effect on our business, financial condition or results of
operations.


    None of our properties is subject to a material legal proceeding, and we are
not aware of any material proceeding involving Net.B@nk that may be contemplated
by any governmental authority. We are also unaware of any pending or
contemplated material proceeding in which any Net.B@nk director, officer,
affiliate or principal shareholder is a party or has a direct or indirect
interest adverse to Net.B@nk.

                                       61
<PAGE>
                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

    The following table sets forth certain information concerning each of our
executive officers and directors:

<TABLE>
<CAPTION>
NAME                                           AGE               POSITION AND OFFICES HELD
- -----------------------------------------      ---      -------------------------------------------
<S>                                        <C>          <C>
T. Stephen Johnson.......................          49   Chairman of the Board
D. R. Grimes.............................          52   Vice Chairman, Chief Executive Officer and
                                                          Director
Robert E. Bowers.........................          42   Chief Financial Officer and Director
Thomas L. Cable..........................          42   Chief Technology Officer
Jeffrey B. Watson........................          39   Chief Lending Officer
Ward H. Clegg............................          47   Director
J. Stephen Heard.........................          56   Director
Robin C. Kelton..........................          64   Director
Thomas H. Muller, Jr.....................          57   Director
J. Joe Ricketts..........................          57   Director
Donald S. Shapleigh, Jr..................          50   Director
W. James Stokes..........................          40   Director
Mack I. Whittle, Jr......................          50   Director
</TABLE>

    T. STEPHEN JOHNSON is President of T. Stephen Johnson & Associates, a bank
consulting firm located in Roswell, Georgia. The firm specializes in mergers,
acquisitions and regulatory consulting. T. Stephen Johnson & Associates has
served as advisor and consultant in the formation of approximately 70 banks in
the southeastern United States. Mr. Johnson served in a management capacity for
two large Atlanta banks before forming T. Stephen Johnson & Associates in 1987.
Mr. Johnson also serves as Vice Chairman of Florida Banks, Inc., a bank holding
company. In addition, he is principal owner of Bank Assets Inc., a provider of
benefit programs for directors and officers of banks.

    D. R. GRIMES has served as Vice Chairman and Chief Executive Officer of
Net.B@nk, Inc. since January 1997. From March 1996 to January 1997, he was an
independent management consultant, and from 1978 to March 1996, he served in
various capacities with Servantis Systems, Inc., which provides electronic funds
transfer and home banking software to the financial services industry, including
Executive Vice President of Technology and Chief Information Officer
(1995-1996); Executive Vice President of Technology and Marketing (1993-1995);
President, Treasury Products Division (1994); and President, Financial
Productions Division (1988-1993). Prior to joining Servantis Systems, Mr. Grimes
served in various technology positions with Trust Company Bank of Georgia, now
SunTrust Bank.

    ROBERT E. BOWERS has served as Chief Financial Officer of Net.B@nk, Inc.
since February 1997. Prior to joining Net.B@nk, Inc., Mr. Bowers, a certified
public accountant, was the Chief Financial Officer of CheckFree Corporation,
which provides electronic bill payment processing for the financial services
industry, from January 1996 through August 1996. From September 1984 until
January 1996, he served as the Chief Financial Officer and a director of
Servantis Systems, which was acquired by CheckFree Corporation in January 1996.
His experience includes initial public offerings, strategic business planning
and investor relations.

    THOMAS L. CABLE has served as Chief Technology Officer of Net.B@nk, Inc. and
Net.B@nk since May 1997. From May 1996 to May 1997, he served as Vice President,
Retail Financial Services of CheckFree Corporation, and from February 1996 to
May 1996, he was responsible for CheckFree's Retail Direct Bank Product. From
1985 to February 1996, Mr. Cable served in various capacities with Servantis
Systems, including Senior Vice President and Business Unit Manager for Home
Banking Products and Services, Vice President and Product Manager for Delivery
Systems and Associate and Product Manager for Servantis Systems's licensed bill
payment software product. From 1978 to 1985, he

                                       62
<PAGE>
was employed by First National Bank, Louisville, Kentucky as a Programmer and
Programming Team Leader responsible for the implementation and support of
Servantis Systems's bill payment product and other bank application systems.

    JEFFREY B. WATSON has served as the Net.B@nk's Chief Lending Officer since
November 1997. From 1996 to November 1997, he served as Product
Manager--Internet Financial Software for Security First Technologies, and in the
summer of 1995, he coordinated consultation projects with Fortune 500 companies
for Coopers & Lybrand. Mr. Watson served in various capacities at Tracy Federal
Bank from 1987 to 1994, including Senior Vice President from 1993 to 1994, Loan
Production Manager from 1989 to 1992 and Loan Officer from 1987 to 1988.

    WARD H. CLEGG has served as a director of Resource Bancshares Corporation
since September 1986 and has also worked with Net.B@nk, Inc. on a consulting
basis. Resource Bancshares was acquired by Resource Bancshares Mortgage in
December 1997. Mr. Clegg also served as Executive Vice President of Bankers
Trust of South Carolina, where he had responsibility for approximately $1.2
billion in securities processing assets as well as Advanced Systems.

    J. STEPHEN HEARD has served as Area Vice President, Hartford Computer Group,
Inc. since August 1998. From October 1997 to August 1998, he served as Product
Sales Executive of Vanstar Corporation, a technology services company and
value-added reseller of computer products to Fortune 1,000 companies, since
October 1997. He has also served as President of Heard Systems, Inc., which
provides information systems consulting services and ATM services to the retail
industry, since January 1, 1994. In 1995 he retired from IBM after a 30-year
career in marketing, sales and systems engineering.

    ROBIN C. KELTON is Chairman of Kelton International Ltd., an investment
banking firm formed in January 1996 specializing in the banking and insurance
industries. Mr. Kelton is a founder and former Chairman and Chief Executive
Officer of Fox-Pitt, Kelton Ltd. and the Fox-Pitt, Kelton Group, and President
of Fox-Pitt, Kelton, Inc. These companies were formed in 1970 and comprise an
international investment banking and brokerage group based in London and New
York. See "Underwriting."

    THOMAS H. MULLER, JR. has served as the Chief Financial Officer of SpectRx,
Inc., a medical device company, since December 1996. Mr. Muller has also served
as President of Muller & Associates, a firm providing financial management
services to entrepreneurial enterprises, since 1992 and Chief Financial Officer
of Nurse On Call, Inc., a healthcare software company, from 1993 to 1996. From
1993 to 1995, Mr. Muller also served as Chief Financial Officer of Amstel, Inc.,
a beverage manufacturing and marketing company. From 1984 to 1992, Mr. Muller
served as Chief Financial Officer of HBO & Company, a leading healthcare
information systems company.

    J. JOE RICKETTS has served as a director and as Chairman and Chief Executive
Officer of Ameritrade Holding Corp. since 1981. From 1975 to 1981, Mr. Ricketts
served in various capacities with predecessors to Ameritrade Holding Corp. Prior
to 1975, Mr. Ricketts was a registered representative with a national brokerage
firm, an investment advisor with Ricketts & Co., and a branch manager with Dun &
Bradstreet. Mr. Ricketts is a director of CSS Management and is on the Advisory
Committee of Roundtable. Mr. Ricketts currently serves as a member of the
District Committee for District 4 of the National Association of Securities
Dealers, Inc. Mr. Ricketts is a member of the Board of Trustees for Father
Flanagan's Boy's Home (Boys Town).

    DONALD S. SHAPLEIGH, JR. served as President of Net.B@nk, Inc. and Net.B@nk
from January 1996 through April 1999 and has served as a director of Net.B@nk.
Inc. since its incorporation. He resigned as President of Net.B@nk, Inc. and
Net.B@nk effective April 30, 1999 in order to serve as Executive Vice President
and Director of Sales of Directo, Inc., a debit card marketing and management
organization. Mr. Shapleigh has been involved in banking since 1971, having
spent 23 years in various senior positions with BankSouth, N.A. and SouthTrust
Bank. From November 1994 to December 1995, Mr. Shapleigh served as Director of
Sales for Creative Solutions Group/A BISYS Company, an

                                       63
<PAGE>
Atlanta-based company that sells its patented automated voice response
technology to retail financial service companies.

    W. JAMES STOKES has served as Senior Vice President of T. Stephen Johnson &
Associates since 1987. He served as Head of Analysis, with a focus on bank
mergers and acquisitions, stock valuations, fairness opinions and regulatory
assistance. Mr. Stokes also serves as the Managing Director for the Southeast
Bank Fund, Inc.

    MACK I. WHITTLE, JR. has served as President and Chief Executive Officer of
Carolina First since 1986. Mr. Whittle is also a director of Carolina First and
of Carolina First Bank. Mr. Whittle began his banking career in 1969 with
Bankers Trust of South Carolina. From 1969 to 1986, he served in several
capacities including Trust Officer, Vice President of Commercial Business
Development, City Executive for Myrtle Beach, and Senior Vice President and
Regional Officer. In January 1986, Bankers Trust of South Carolina merged with
NCNB Corp. Mr. Whittle resigned from NCNB Corp. in May 1986 to form Carolina
First.

    The Board of Directors is divided into three classes with three directors in
Class I and four directors in Classes II and III. One class of directors is
elected each year for a three-year term and until their successors are selected
and qualified or until their earlier resignation or removal. Messrs. Kelton,
Muller, Ricketts and Shapleigh will serve until our 2000 Annual Meeting of
Shareholders; Messrs. Grimes, Johnson, and Whittle will serve until our 2001
Annual Meeting of Shareholders; and Messrs. Bowers, Clegg, Heard and Stokes will
serve until our 2002 Annual Meeting of Shareholders.


    Except for Messrs. Kelton and Ricketts, who are only directors of Net.B@nk,
Inc., all of our directors are directors of both Net.B@nk, Inc. and its banking
subsidiary. Except for Mr. Ricketts, who was elected to fill a vacancy on the
Board of Directors on April 22, 1999, and Messrs. Johnson and Shapleigh, who
were elected as directors in February 1996, all of our directors have served on
our Board of Directors since April 1997.


COMMITTEES OF THE BOARD OF DIRECTORS

    The Board of Directors has established a Compensation Committee, which sets
the compensation for officers of Net.B@nk, reviews management organization and
development, reviews significant employee benefit programs and establishes and
administers executive compensation programs. The Compensation Committee consists
of Messrs. Johnson, Heard and Muller.

    The Board of Directors has also established an Audit Committee, which
recommends to the Board of Directors the independent public accountants to be
selected to audit Net.B@nk's annual financial statements and approves any
special assignments given to the accountants. The Audit Committee also reviews
the planned scope of the annual audit, any changes in accounting principles and
the effectiveness and efficiency of Net.B@nk's internal accounting staff. The
Audit Committee currently consists of Messrs. Muller, Stokes and Clegg.

    The Board of Directors may from time to time establish other committees to
facilitate the management of Net.B@nk.

                  RELATIONSHIP WITH CAROLINA FIRST CORPORATION

    Carolina First Corporation owns more than five percent of our outstanding
common stock. As a result, Carolina First Corporation is subject to Federal
Reserve Board regulations regarding its relationship with Net.B@nk. Therefore,
we have agreed with Carolina First Corporation that until they own less than
five percent of our outstanding common stock, we will not engage in any
activities that are not permissible banking or non-banking activities under
applicable Federal Reserve Board regulations. These regulations limit the
activities of bank holding companies and their affiliates to those that are
determined to be closely related to banking or to the management or control of
banks. We do not believe that these limitations will impose any material
constraints on our activities.

                                       64
<PAGE>
                             PRINCIPAL SHAREHOLDERS

    The following table lists, as of April 30, 1999, the number of shares of
common stock beneficially owned by (a) each current director, (b) our chief
executive officer and our next three most highly compensated executive officers
for 1998, (c) each person or entity known to us to be the beneficial owner of
more than five percent of our outstanding common stock and (d) all current
executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                                                                PERCENT OF CLASS
                                                                                        --------------------------------
<S>                                                               <C>                   <C>              <C>
                                                                    NUMBER OF SHARES
                                                                      BENEFICIALLY          BEFORE            AFTER
NAME OF BENEFICIAL OWNER                                                OWNED(1)         THIS OFFERING    THIS OFFERING
- ----------------------------------------------------------------  --------------------  ---------------  ---------------
T. Stephen Johnson..............................................            883,779(2)           3.4%             3.1%
D. R. Grimes....................................................            537,186              2.0%             1.8%
Robert E. Bowers................................................            397,814              1.5%             1.4%
Thomas L. Cable.................................................             15,000                *                *
Jeffrey B. Watson...............................................              9,000                *                *
Ward H. Clegg...................................................            155,064                *                *
J. Stephen Heard................................................             35,814                *                *
Robin C. Kelton.................................................            433,314              1.7%             1.5%
Thomas H. Muller, Jr............................................             35,814                *                *
J. Joe Ricketts.................................................              6,000                *                *
Donald S. Shapleigh, Jr.........................................            347,811              1.3%             1.2%
W. James Stokes.................................................            106,500                *                *
Mack I. Whittle, Jr.............................................          2,421,000(3)           9.4%             8.4%
Carolina First Corporation(4)...................................          2,415,000              9.4%             8.4%
Lord, Abbett & Co.(5)...........................................          1,831,449              7.1%             6.4%
All current Executive Officers and Directors
  as a Group (13 persons).......................................          5,384,096(6)          20.0%            18.0%
</TABLE>

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

*   Indicates less than one percent of the shares of common stock outstanding as
    of April 30, 1999.

(1) Includes the following number of shares subject to options exercisable on or
    before June 30, 1999 for the indicated reporting person:

<TABLE>
<S>                    <C>
Mr. Johnson..........      6,000
Mr. Grimes...........    537,186
Mr. Bowers...........    397,814
Mr. Cable............     15,000
Mr. Watson...........      9,000
Mr. Clegg............      6,000
Mr. Heard............      6,000
Mr. Kelton...........      6,000
Mr. Muller, Jr.......      6,000
Mr. Ricketts.........      6,000
Mr. Shapleigh, Jr....    149,061
Mr. Stokes...........      6,000
Mr. Whittle, Jr. ....      6,000
</TABLE>

(2) Includes 438,840 shares owned of record by Mr. Johnson's spouse, Mary E.
    Johnson.

(3) Mr. Whittle serves as Chairman of the Board of Carolina First Corporation.
    As a result, he may be deemed to beneficially own any shares owned by
    Carolina First Corporation.

(4) Carolina First Corporation is located at 102 South Main Street, Greenville,
    South Carolina 29601.

(5) Lord, Abbett & Co. is located at 767 Fifth Avenue, New York, New York 10153
    and is an investment advisor registered under Section 203 of the Investment
    Company Act of 1940, as amended. This information is based on a Report on
    Schedule 13G filed by Lord, Abbett & Co. with the Securities and Exchange
    Commission on February 12, 1999.

(6) Includes 1,156,061 shares subject to options exercisable on or before June
    30, 1999.

                                       65
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

    Our authorized capital stock consists of 100,000,000 shares of common stock,
$.01 par value, and 10,000,000 shares of preferred stock, no par value. The
following summary is qualified by reference to our Articles of Incorporation and
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement of which this prospectus is a part.

COMMON STOCK

    Holders of our common stock are entitled to one vote per share in the
election of directors and on all other matters submitted to a vote of the
holders of common stock and do not have cumulative voting rights. The holders of
common stock are entitled to receive dividends, if any, as may be declared from
time to time by the Board of Directors out of legally available funds, and in
the event of liquidation, dissolution or winding-up of Net.B@nk, to share
ratably in all assets available for distribution.

PREFERRED STOCK

    The authorized preferred stock may be issued from time to time in one or
more designated series or classes. The Board of Directors, without approval of
the shareholders, is authorized to establish the voting, dividend, redemption,
conversion, liquidation and other relative provisions as may be provided in a
particular series or class. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of common stock and, under certain circumstances, make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of our outstanding voting stock. We have no present intention to issue
any series or class of preferred stock.

SPECIAL MEETINGS OF SHAREHOLDERS

    Our Bylaws provide that special meetings of the shareholders may be called
at any time for any purpose by the Chief Executive Officer or by the presiding
officer of the Board of Directors. Either our Chief Executive Officer or the
Secretary is required to call a special meeting when (1) requested in writing by
any two or more of the directors or (2) requested in writing by shareholders
owning shares representing at least 25% of all the votes entitled to be cast on
any issue proposed to be considered at such meeting.

SUPERMAJORITY APPROVAL OF CERTAIN TRANSACTIONS

    Our Articles of Incorporation require the affirmative vote of the holders of
two-thirds of the voting stock to approve certain mergers, share exchanges and
dispositions of our assets unless at least two-thirds of the members of the
Board of Directors approve the proposed transaction. If such approval by the
Board of Directors is obtained, approval by the vote of a majority of the
outstanding shares entitled to vote is required. This provision may tend to
discourage attempts by third parties to acquire Net.B@nk in a hostile takeover
effort. It may also permit a minority of directors and shareholders to prevent a
business combination regardless of the terms of the proposed transaction.

CLASSIFIED BOARD AND REMOVAL OF DIRECTORS

    Our Articles of Incorporation also provide that the Board of Directors will
be divided into three classes serving staggered three-year terms and that a
director may only be removed by the vote of two-thirds of the outstanding shares
entitled to vote in an election of directors. These provisions could enable a
minority of our shareholders to prevent the removal of a director sought to be
removed by a

                                       66
<PAGE>
majority of the shareholders and may tend to enhance management's ability to
retain control over our affairs and to preserve the director's present position
on the Board.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

    Our Bylaws contain indemnification provisions providing that our directors,
officers and employees or agents will be indemnified against expenses actually
and reasonably incurred by them if they are successful on the merits of a claim
or proceeding.

    When a case or dispute is not ultimately determined on its merits (i.e., it
is settled), the indemnification provisions provide that Net.B@nk will indemnify
directors when they meet the applicable standard of conduct. The applicable
standard of conduct is met if the director acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
Net.B@nk, and with respect to an employee benefit plan, for a purpose the
director believed in good faith to be in the interests of the participants and
beneficiaries of the plan. The standard of conduct with respect to any criminal
action or proceeding is met if the director had no reasonable cause to believe
his or her conduct was unlawful. Whether the applicable standard of conduct has
been met is determined by the Board of Directors, the shareholders or
independent legal counsel in each specific case.

    We can also provide for greater indemnification than that set forth in our
Bylaws if we choose to do so, subject to approval by our shareholders. We may
not, however, indemnify a director for liability arising out of circumstances
which constitute exceptions to limitation of a director's liability for monetary
damages. See "--Limitation of Liability."

    The indemnification provisions of the Bylaws specifically provide that we
may purchase and maintain insurance on behalf of any director against any
liability asserted against such person and incurred by him or her in any such
capacity, whether or not we would have had the power to indemnify against such
liability.

    We are not aware of any pending or threatened action, suit or proceeding
involving any of our directors or officers for which indemnification from
Net.B@nk may be sought.

LIMITATION OF LIABILITY

    Article X of our Articles of Incorporation, subject to certain exceptions,
eliminates the potential personal liability of a director for monetary damages
to Net.B@nk and to the shareholders of Net.B@nk for breach of a duty as a
director. There is no elimination of liability for:

    - A breach of duty involving appropriation of a business opportunity of
      Net.B@nk;

    - An act or omission not in good faith or involving intentional misconduct
      or a knowing violation of law;

    - A transaction from which the director derives an improper material
      tangible personal benefit; or

    - As to any payment of a dividend or approval of a stock repurchase that is
      illegal under the Georgia Business Corporation Code, our Articles of
      Incorporation do not eliminate or limit the right of Net.B@nk or its
      shareholders to seek injunctive or other equitable relief not involving
      monetary damages.

    We adopted Article X pursuant to the Georgia Business Corporation Code which
allows Georgia corporations, with the approval of their shareholders, to include
in their articles of incorporation a provision eliminating or limiting the
liability of directors, except in the circumstances described above. We included
Article X in our Articles of Incorporation to encourage qualified individuals to
serve and remain as directors of Net.B@nk. Article X was also included to
enhance our ability to secure liability

                                       67
<PAGE>
insurance for its directors at a reasonable cost. We maintain liability
insurance covering actions taken by its directors in their capacities as
directors. The Board of Directors believes that Article X will enable us to
secure such insurance on terms more favorable than if such a provision were not
included in the Articles of Incorporation.

TRANSFER AGENT AND REGISTRAR

    The transfer agent and registrar for the common stock is SunTrust Bank,
N.A., 58 Edgewood Avenue, Atlanta, Georgia 30303.

                                       68
<PAGE>
                                  UNDERWRITING

    Subject to the terms and conditions of an underwriting agreement, dated
        , 1999, the underwriters named below have severally agreed to purchase
from us the respective number of shares of common stock listed opposite its name
below.


<TABLE>
<CAPTION>
                                                                                                 NUMBER OF SHARES
NAME OF UNDERWRITER                                                                               OF COMMON STOCK
- -----------------------------------------------------------------------------------------------  -----------------
<S>                                                                                              <C>
Bear, Stearns & Co. Inc. ......................................................................
BancBoston Robertson Stephens Inc. ............................................................
Raymond James & Associates, Inc. ..............................................................
Kelton International Ltd. .....................................................................
                                                                                                 -----------------
    Total......................................................................................
                                                                                                 -----------------
                                                                                                 -----------------
</TABLE>


    The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of certain
legal matters and to other conditions customary in a firm commitment public
offering. The underwriters are required to purchase and pay for all the shares
of common stock offered by this prospectus, except for shares covered by the
over-allotment option described below, if any are purchased.

    The underwriters propose to offer the shares of common stock to the public
at the offering price listed on the cover page of this prospectus and to
securities dealers, including the underwriters, at the same price less a
concession of not more than $            per share. The underwriters may allow,
and the selected dealers may reallow, a concession not in excess of
$            per share to other brokers and dealers. After the consummation of
this offering, the offering price and other selling terms may be changed by the
underwriters. However, no change shall alter the amount of proceeds, as listed
on the cover page of this prospectus, to be received by us.

    We have granted the underwriters an option, exercisable within 30 days after
the date of this prospectus, to purchase from time to time, in whole or in part,
up to an aggregate of 450,000 additional shares of common stock. The
underwriters may exercise the option only to cover over-allotments, if any, made
in connection with this offering. To the extent that the underwriters exercise
the option, each underwriter will become obligated to purchase its pro rata
portion of the additional shares based on the underwriter's percentage
underwriting commitment in the offering, which is indicated in the preceding
table. If purchased, the additional shares will be sold by the underwriters on
the same terms as those on which they are selling the shares.

    We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments that the underwriters may be required to make in connection with these
liabilities.

    Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction which requires action for that
purpose. The shares of common stock offered by this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements be distributed or published in any
jurisdiction, except under circumstances that will ensure compliance with the
applicable rules and regulations of the jurisdiction. Persons holding this
prospectus are advised to inform themselves about and to observe any
restrictions relating to this offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of common stock offered by this prospectus in any
jurisdiction in which an offer or a solicitation is unlawful.

                                       69
<PAGE>

    We and certain of our executive officers, directors and existing
shareholders have agreed that during the period beginning from the date of this
prospectus and continuing to and including the date 90 days after the date of
this prospectus, they will not, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, pledge, make any short sale,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934 or otherwise dispose of any shares of
Net.B@nk common stock (or securities which are convertible into, exercisable for
or exchangeable for common stock), without the prior written consent of Bear,
Stearns & Co. Inc., except under limited circumstances.


    Certain persons participating in this offering may engage in passive market
making transactions in the common stock in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934. Rule 103 permits, upon
the satisfaction of certain conditions, underwriting and selling group members
participating in a distribution that are also registered Nasdaq market makers in
the security being distributed, or a related security, to engage in limited
passive market making transactions during the period when Regulation M would
otherwise prohibit the activity. In general, a passive market maker may not bid
for or purchase a security at a price that exceeds the highest independent bid
for those securities by a person that is not participating in the distribution
and must identify its passive market making bids on the Nasdaq electronic
inter-dealer reporting system. In addition, the net daily purchases made by a
passive market maker generally may not exceed 30% of the market maker's average
daily trading volume in the security for the two full consecutive calendar
months, or any 60 consecutive days ending within 10 days, immediately preceding
the date of filing of the registration statement of which this prospectus is a
part.

    In connection with this offering, the underwriters may purchase and sell
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions, and purchases to cover short positions created by
the underwriters in connection with this offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the common stock. Short positions involve an
underwriter's sale of a greater number of shares of common stock than it is
required to purchase from us in the offering. These activities may stabilize,
maintain or otherwise affect the market price of the common stock, which may be
higher than the price that might otherwise prevail in the open market. The
underwriter may effect these transactions on the Nasdaq National Market or
otherwise and may discontinue them at any time.

    In addition, the underwriters may maintain or stabilize the price of the
common stock by bidding for or purchasing shares of the common stock in the open
markets, and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares previously distributed in this offering are repurchased in
connection with stabilization transactions or otherwise. The imposition of
penalty bid may also affect the price of the common stock to the extent that it
discourages resales of the common stock. The underwriters can make no
representation as to the magnitude, duration or effect of any stabilization or
other transactions.

    The notes offered by the concurrent prospectus are a new issue of securities
with no established trading market. We have been advised by the underwriters
that they intend to make a market in the notes but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the notes.

    Each underwriter has represented and agreed that:

    - It has not offered or sold, and for up to six months following the
      consummation of this offering, will not offer or sell, any shares of
      common stock in the United Kingdom except to persons whose ordinary
      activities involve them in acquiring, holding, managing or disposing of
      investments (as principal or agent) for the purposes of their businesses
      or otherwise in

                                       70
<PAGE>
      circumstances which do not constitute an offer to the public in the United
      Kingdom for the purposes of the Public Offers of Securities Regulations
      1995;

    - It has complied and will comply with all applicable provisions of the
      Financial Services Act 1986 with respect to anything done by it in
      relation to the common stock in, from or otherwise involving the United
      Kingdom; and

    - It has only issued or passed on and will only issue or pass on, in the
      United Kingdom, any document received by it in connection with the issue
      or sale of the common stock to a person who is of a kind described in
      Article 11(3) of the Financial Services Act 1986 (Investment
      Advertisements)(Exemptions) Order 1996 or to a person to whom the document
      may otherwise lawfully be issued or passed on.

    Kelton International Ltd., one of the underwriters:

    - Is a foreign broker-dealer with a principal place of business in the
      United Kingdom;

    - Is not registered with the Securities and Exchange Commission as a
      broker-dealer;

    - Is not a member of the National Association of Securities Dealers, Inc.;

    - Has agreed not to sell any of the shares of common stock offered by this
      prospectus within the United States, its territories or possessions or to
      nationals or residents of the United States, other than certain
      underwriting syndicate sales; and

    - Has agreed to comply with certain rules of the National Association of
      Securities Dealers Regulation, Inc. as if it were a member of the National
      Association of Securities Dealers.

    Certain of the underwriters may from time to time perform investment banking
and other financial services for us for which they may receive advisory or
transaction fees, as applicable, plus out-of-pocket expenses, of the nature and
in amounts customary in the industry for these services. Bear, Stearns & Co.
Inc., Raymond James & Associates, Inc. and Kelton International Ltd.
participated in the public offering of our common stock on February 5, 1999 in
which we sold 7,290,000 shares.

    Concurrent with this offering we are offering by means of a separate
prospectus $100,000,000 aggregate principal amount of   % Convertible
Subordinated Notes Due 2004, plus an additional $15,000,000 principal amount of
notes to cover over-allotments by the underwriters of that offering. The
completion of this offering and of the notes offering do not depend upon one
another. The underwriters for the notes offering are also the underwriters for
this offering. The underwriters will receive customary compensation in
connection with the notes offering.

                                 LEGAL MATTERS

    Certain legal matters in connection with the shares of common stock offered
by this prospectus will be passed upon for Net.B@nk by Powell, Goldstein, Frazer
& Murphy, LLP, Atlanta, Georgia. Certain legal matters in connection with the
offering will be passed upon by Morrison & Foerster LLP, New York, New York,
counsel to the underwriters listed on the cover page of this prospectus.

                                    EXPERTS

    The Consolidated Financial Statements as of December 31, 1997 and 1998 and
for the period February 20, 1996 (date of incorporation) to December 31, 1996
and for the years ended December 31, 1997 and 1998 included in this prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, appearing in this prospectus, and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

                                       71
<PAGE>
               WHERE YOU CAN FIND MORE INFORMATION ABOUT NET.B@NK

    We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can receive copies
of such reports, proxy and information statements, and other information, at
prescribed rates, from the Securities and Exchange Commission by addressing
written requests to the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
In addition, you can read such reports, proxy and information statements, and
other information at the public reference facilities and at the regional offices
of the Securities and Exchange Commission, Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
Securities and Exchange Commission also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as Net.B@nk that file electronically with the Securities and
Exchange Commission. The address of the Securities and Exchange Commission Web
site is http://www.sec.gov.

    We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 to register the shares that we will issue in this
offering. This prospectus is a part of the Registration Statement. This
prospectus does not include all of the information contained in the Registration
Statement. For further information about us and the securities offered in this
prospectus, you should review the Registration Statement. You can inspect or
copy the Registration Statement, at prescribed rates, at the Securities and
Exchange Commission's public reference facilities at the addresses listed above.

    The Securities and Exchange Commission allows us to "incorporate by
reference" information into the prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered part of this prospectus, except for any
information superseded by information contained directly in this prospectus or
in later filed documents incorporated by reference in this prospectus.

    This prospectus incorporates by reference the documents listed below that we
previously filed with the Securities and Exchange Commission. These documents
contain important information about us and our finances.

    (1) Annual Report on Form 10-K for the fiscal year ended December 31, 1998
       (Commission File No. 0-22361) except for Item 8, "Financial Statements
       and Supplementary Data," which has been updated and is included elsewhere
       in this prospectus;

    (2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
       (Commission File No. 0-22361); and

    (3) Registration Statement on Form 8-A filed April 18, 1997 (Commission No.
       File 0-22361).

    We also incorporate by reference additional documents that it may file with
the Securities and Exchange Commission between the date of this prospectus and
the completion of the offering. These additional documents include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.

    You can obtain documents incorporated by reference in this prospectus by
requesting them from:

        Net.B@nk, Inc.
       950 North Point Parkway
       Suite 350
       Alpharetta, Georgia 30005
       Telephone: (770) 343-6066
       www.netbank.com
       Attn: Investor Relations

                                       72
<PAGE>
                                 NET.B@NK, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----

<S>                                                                                                          <C>
Independent Auditors' Report...............................................................................         F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998 and (unaudited) March 31, 1999................         F-3

Consolidated Statements of Operations for the period from February 20, 1996 (date of incorporation) to
December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the three-month periods
ended March 31, 1998 and 1999..............................................................................         F-4

Consolidated Statements of Shareholders' Equity (Deficit) for the period from February 20, 1996 (date of
incorporation) to December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the
three-month period ended March 31, 1999....................................................................         F-6

Consolidated Statements of Cash Flows for the period from February 20, 1996 (date of incorporation) to
December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the three-month periods
ended March 31, 1998 and 1999..............................................................................         F-7

Notes to Consolidated Financial Statements as of December 31, 1997, 1998, and (unaudited) March 31, 1999,
and for the period from February 20, 1996 (date of incorporation) to December 31, 1996, the years ended
December 31, 1997 and 1998, and (unaudited) the three months ended March 31, 1998 and 1999.................         F-8
</TABLE>

                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders

Net.B@nk, Inc.

    We have audited the consolidated balance sheets of Net.B@nk, Inc. and its
subsidiary ("Net.B@nk") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the years ended December 31, 1998 and 1997 and the period from
February 20, 1996 (date of incorporation) to December 31, 1996. These financial
statements are the responsibility of Net.B@nk's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Net.B@nk as of December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997 and the period from February 20, 1996
(date of incorporation) to December 31, 1996 in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

Atlanta, Georgia

February 16, 1999
(April 13, 1999 as to
the third paragraph
of Note 14)

                                      F-2
<PAGE>
                                 NET.B@NK, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,             MARCH 31,
                                                                  ------------------------------  --------------
                                                                       1997            1998            1999
                                                                  --------------  --------------  --------------
<S>                                                               <C>             <C>             <C>
                                                                                                   (UNAUDITED)
ASSETS
Cash and cash equivalents:
  Cash..........................................................  $      250,535  $      446,940  $    1,576,102
  Federal funds sold............................................      28,853,057      12,013,243      33,416,433
                                                                  --------------  --------------  --------------
    Total cash and cash equivalents.............................      29,103,592      12,460,183      34,992,535
                                                                  --------------  --------------  --------------
Securities available for sale--At fair value
  (amortized cost of $18,137,209, $59,467,371 and $81,323,018,
  respectively).................................................      18,054,146      59,465,062      80,310,559
Stock of Federal Home Loan Bank of Atlanta--At cost.............         225,000       2,000,000       2,569,700
Loans receivable--Net of allowance for loan losses of $453,444,
  $3,472,364 and $4,312,285, respectively.......................      44,479,963     276,955,239     359,740,347
Accrued interest receivable.....................................         372,237       2,582,627       3,085,716
Furniture and equipment--Net....................................         388,508       1,321,918       1,734,680
Bank charter....................................................         344,167         330,167         326,667
Deferred income taxes...........................................              --       2,297,125       2,643,631
Loan sale proceeds receivable...................................              --      23,202,679      35,003,385
Other assets....................................................         252,196       7,821,736       6,055,988
                                                                  --------------  --------------  --------------
                                                                  $   93,219,809  $  388,436,736  $  526,463,208
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits......................................................  $   58,726,763  $  283,589,151  $  332,678,334
  Other borrowed funds..........................................              --      60,000,000      45,000,000
  Accounts payable and accrued liabilities......................         375,649       6,092,697       5,036,752
                                                                  --------------  --------------  --------------
                                                                      59,102,412     349,681,848     382,715,086
Commitments and contingencies (Note 18)

Shareholders' Equity:
  Preferred stock, no par (10,000,000 shares authorized, none
  outstanding)..................................................              --              --              --
  Common stock, $.01 par (100,000,000 shares authorized,
  18,436,686, 18,470,274 and 25,795,485 shares issued and
  outstanding, respectively)....................................          61,456          61,568          85,985
  Additional paid-in capital....................................      43,631,314      43,671,732     148,604,108
  Unamortized stock plan expense................................         (75,689)        (24,279)        (15,709)
  Accumulated deficit...........................................      (9,416,621)     (4,952,609)     (4,261,093)
  Accumulated other comprehensive loss, net of tax..............         (83,063)         (1,524)       (665,169)
                                                                  --------------  --------------  --------------
    Total shareholders' equity..................................      34,117,397      38,754,888     143,748,122
                                                                  --------------  --------------  --------------
                                                                  $   93,219,809  $  388,436,736  $  526,463,208
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>
                                 NET.B@NK, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                           PERIOD FROM
                                          FEBRUARY 20,
                                              1996
                                            (DATE OF              YEAR ENDED                  THREE MONTHS
                                         INCORPORATION)          DECEMBER 31,               ENDED MARCH 31,
                                         TO DECEMBER 31,  ---------------------------  --------------------------
                                              1996            1997          1998           1998          1999
                                         ---------------  ------------  -------------  ------------  ------------
<S>                                      <C>              <C>           <C>            <C>           <C>
                                                                                       (UNAUDITED)   (UNAUDITED)
Interest Income:
  Loans................................   $          --   $  1,095,238  $  14,548,747  $  1,358,235  $  6,011,818
  Investment securities................              --        183,184      2,905,404       453,376     1,214,914
  Short-term investments...............           7,709        944,743        633,893       395,003       331,118
                                         ---------------  ------------  -------------  ------------  ------------
    Total interest income..............           7,709      2,223,165     18,088,044     2,206,614     7,557,850
                                         ---------------  ------------  -------------  ------------  ------------

Interest Expense:
  Deposits.............................              --      1,259,743     10,249,533     1,303,628     4,023,760
  Other borrowed funds.................              --             --      1,174,899            --       535,947
                                         ---------------  ------------  -------------  ------------  ------------
    Total interest expense.............              --      1,259,743     11,424,432     1,303,628     4,559,707
                                         ---------------  ------------  -------------  ------------  ------------

Net interest income....................           7,709        963,422      6,663,612       902,986     2,998,143

Provision for loan losses..............              --        471,706         20,132         3,661        49,806
                                         ---------------  ------------  -------------  ------------  ------------

Net interest income after provision for
  loan losses..........................           7,709        491,716      6,643,480       899,325     2,948,337
                                         ---------------  ------------  -------------  ------------  ------------

Noninterest Income:
  Service charges and fees.............              --         62,607        683,092       122,495       245,715
  Management fees......................          60,000             --             --            --            --
                                         ---------------  ------------  -------------  ------------  ------------
    Total noninterest income...........          60,000         62,607        683,092       122,495       245,715
                                         ---------------  ------------  -------------  ------------  ------------

Noninterest Expenses:
  Salaries and benefits................         836,427      2,396,347      1,429,675       434,353       506,921
  Amortization of service contract with
    affiliate..........................       2,400,000      1,440,000             --            --            --
  Customer services....................           4,951        310,285      1,377,635       191,661       593,897
  Marketing............................         288,584        524,494        694,631       240,018       387,158
  Data processing......................         148,159        539,013        316,590        91,226       228,980
  Depreciation and amortization........          18,934        217,440        272,354        40,037       141,268
  Office expenses......................          56,765        177,054        175,019        47,566        84,424
  Occupancy............................          19,330        107,304        147,169        26,093        39,485
  Travel and entertainment.............          38,794         64,759         88,341        15,441        22,092
  Other................................          94,947        355,066        685,976        86,872       143,311
                                         ---------------  ------------  -------------  ------------  ------------
    Total noninterest expenses.........       3,906,891      6,131,762      5,187,390     1,173,267     2,147,536
                                         ---------------  ------------  -------------  ------------  ------------
</TABLE>

                                                                     (Continued)

                                      F-4
<PAGE>
                                 NET.B@NK, INC.

               CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
                                       PERIOD FROM
                                      FEBRUARY 20,
                                          1996
                                        (DATE OF               YEAR ENDED                    THREE MONTHS
                                     INCORPORATION)           DECEMBER 31,                 ENDED MARCH 31,
                                     TO DECEMBER 31,  -----------------------------  ----------------------------
                                          1996             1997           1998           1998           1999
                                     ---------------  --------------  -------------  -------------  -------------
<S>                                  <C>              <C>             <C>            <C>            <C>
                                                                                      (UNAUDITED)    (UNAUDITED)
Income (loss) before income
  taxes............................      (3,839,182)      (5,577,439)     2,139,182       (151,447)     1,046,516

Income tax benefit (expense).......              --               --      2,324,830             --       (355,000)
                                     ---------------  --------------  -------------  -------------  -------------
Net income (loss)..................   $  (3,839,182)  $   (5,577,439) $   4,464,012  $    (151,447) $     691,516
                                     ---------------  --------------  -------------  -------------  -------------
                                     ---------------  --------------  -------------  -------------  -------------

Net income (loss) per common share
  and potential common share:
    Basic..........................   $       (1.44)  $        (0.55) $        0.24  $       (0.01) $        0.03
    Diluted........................   $       (1.44)  $        (0.55) $        0.23  $       (0.01) $        0.03

Weighted average common and
  potential common shares
  outstanding:
    Basic..........................       2,658,000       10,062,000     18,447,000     18,431,000     22,536,000
    Diluted........................       2,658,000       10,062,000     19,152,000     18,431,000     23,424,000
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>
NET.B@NK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                                                       COMMON      ADDITIONAL     COMMON
                                                                          COMMON        STOCK       PAID-IN        STOCK
                                                                          SHARES     ($.01 PAR)     CAPITAL     SUBSCRIBED
                                                                        -----------  -----------  ------------  -----------
<S>                                                                     <C>          <C>          <C>           <C>
BALANCE--February 19, 1996
  Comprehensive loss--
    Net loss, including amortization of service contract for the
      period from February 20, 1996 (date of incorporation) to
      December 31, 1996...............................................           --  $        --  $         --  $        --
  Proceeds from issuance of common stock:
    Incorporation, February 20, 1996..................................    2,277,282        7,591        (7,362)          --
    March 31, 1996....................................................      149,064          497          (482)          --
    April 1, 1996.....................................................      427,314        1,424        18,571           --
    September 17, 1996................................................      894,366        2,981       997,129           --
  Contribution of services from affiliate.............................                                  31,232           --
  Issuance of 4,064,442 shares of common stock subscriptions..........           --           --            --    3,844,185
  Issuance of 49,686 compensatory stock options.......................           --           --        30,000           --
  Amortization of stock plan expense..................................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--December 31, 1996............................................    3,748,026       12,493     1,069,088    3,844,185
  Comprehensive loss:
    Net loss for the year ended December 31, 1997.....................           --           --            --           --
    Unrealized holding losses on securities arising during the year,
      net of taxes of ($42,790).......................................           --           --            --           --
      Comprehensive loss..............................................           --           --            --           --
  Proceeds from issuance of common stock:
    March 31, 1997....................................................       59,628          199         2,591       (2,790)
    April 2, 1997.....................................................       29,814          100         1,295       (1,395)
    July 28, 1997.....................................................   10,500,000       35,000    38,216,520           --
    July 31, 1997.....................................................    4,099,218       13,664     3,951,336   (3,840,000)
  Issuance of 491,910 compensatory stock options......................           --           --       390,484           --
  Amortization of service contract....................................           --           --            --           --
  Amortization of stock plan expense..................................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--December 31, 1997............................................   18,436,686       61,456    43,631,314           --
  Comprehensive income:
    Net income for the year ended December 31, 1998...................           --           --            --           --
    Unrealized holding gains on securities arising during the year,
      net of taxes of $45,454.........................................           --           --            --           --
    Less reclassification adjustment for gains included in net income,
      net of taxes of $3450...........................................           --           --            --           --
      Comprehensive income............................................           --           --            --           --
  Exercised stock options.............................................       33,588          112        40,418           --
  Amortization of stock plan expense..................................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--December 31, 1998............................................   18,470,274       61,568    43,671,732           --
  Comprehensive income:
    Net income for three months ended March 31, 1999 (unaudited)......           --           --            --           --
    Unrealized losses on securities, net of taxes of $348,814
      (unaudited).....................................................           --           --            --           --
      Comprehensive income (unaudited)................................           --           --            --           --
  Proceeds from the issuance of common stock (unaudited)..............    7,290,000       24,300   104,889,977           --
  Exercised stock options (unaudited).................................       35,211          117        42,399           --
  Amortization of stock plan expense (unaudited)......................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--March 31, 1999 (unaudited)...................................   25,795,485  $    85,985  $148,604,108  $        --
                                                                        -----------  -----------  ------------  -----------
                                                                        -----------  -----------  ------------  -----------

<CAPTION>
                                                                                      UNAMORTIZED
                                                                                       AFFILIATE
                                                                                        SERVICE     UNAMORTIZED
                                                                           STOCK        CONTRACT       STOCK
                                                                        SUBSCRIPTIONS   EXPENSE         PLAN      ACCUMULATED
                                                                         RECEIVABLE    NET OF TAX     EXPENSE       DEFICIT
                                                                        ------------  ------------  ------------  ------------
<S>                                                                     <C>             <C>
BALANCE--February 19, 1996
  Comprehensive loss--
    Net loss, including amortization of service contract for the
      period from February 20, 1996 (date of incorporation) to
      December 31, 1996...............................................   $       --    $2,400,000    $       --    $(3,839,182)
  Proceeds from issuance of common stock:
    Incorporation, February 20, 1996..................................           --            --            --            --
    March 31, 1996....................................................           --            --            --            --
    April 1, 1996.....................................................           --            --            --            --
    September 17, 1996................................................           --            --            --            --
  Contribution of services from affiliate.............................           --            --            --            --
  Issuance of 4,064,442 shares of common stock subscriptions..........       (4,185)   (3,840,000)           --            --
  Issuance of 49,686 compensatory stock options.......................           --            --       (30,000)           --
  Amortization of stock plan expense..................................           --            --         1,528            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--December 31, 1996............................................       (4,185)   (1,440,000)      (28,472)   (3,839,182)
  Comprehensive loss:
    Net loss for the year ended December 31, 1997.....................           --            --            --    (5,577,439)
    Unrealized holding losses on securities arising during the year,
      net of taxes of ($42,790).......................................           --            --            --            --

      Comprehensive loss..............................................           --            --            --            --
  Proceeds from issuance of common stock:
    March 31, 1997....................................................        2,790            --            --            --
    April 2, 1997.....................................................        1,395            --            --            --
    July 28, 1997.....................................................           --            --            --            --
    July 31, 1997.....................................................           --            --            --            --
  Issuance of 491,910 compensatory stock options......................           --            --      (390,484)           --
  Amortization of service contract....................................           --     1,440,000            --            --
  Amortization of stock plan expense..................................           --            --       343,267            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--December 31, 1997............................................           --            --       (75,689)   (9,416,621)
  Comprehensive income:
    Net income for the year ended December 31, 1998...................           --            --            --     4,464,012
    Unrealized holding gains on securities arising during the year,
      net of taxes of $45,454.........................................           --            --            --            --
    Less reclassification adjustment for gains included in net income,
      net of taxes of $3450...........................................           --            --            --            --

      Comprehensive income............................................           --            --            --            --
  Exercised stock options.............................................           --            --            --            --
  Amortization of stock plan expense..................................           --            --        51,410            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--December 31, 1998............................................           --            --       (24,279)   (4,952,609)
  Comprehensive income:
    Net income for three months ended March 31, 1999 (unaudited)......           --            --            --       691,516
    Unrealized losses on securities, net of taxes of $348,814
      (unaudited).....................................................           --            --            --            --

      Comprehensive income (unaudited)................................           --            --            --            --
  Proceeds from the issuance of common stock (unaudited)..............           --            --            --            --
  Exercised stock options (unaudited).................................           --            --            --            --
  Amortization of stock plan expense (unaudited)......................           --            --         8,570            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--March 31, 1999 (unaudited)...................................   $       --    $       --    $  (15,709)   $(4,261,093)
                                                                        ------------  ------------  ------------  ------------
                                                                        ------------  ------------  ------------  ------------

<CAPTION>
                                                                         ACCUMULATED
                                                                            OTHER
                                                                        COMPREHENSIVE
                                                                            INCOME
                                                                           (LOSS),
                                                                          NET OF TAX       TOTAL
                                                                        --------------  ------------
BALANCE--February 19, 1996
  Comprehensive loss--
    Net loss, including amortization of service contract for the
      period from February 20, 1996 (date of incorporation) to
      December 31, 1996...............................................    $       --    $ (1,439,182)
  Proceeds from issuance of common stock:
    Incorporation, February 20, 1996..................................            --             229
    March 31, 1996....................................................            --              15
    April 1, 1996.....................................................            --          19,995
    September 17, 1996................................................            --       1,000,110
  Contribution of services from affiliate.............................            --          31,232
  Issuance of 4,064,442 shares of common stock subscriptions..........            --              --
  Issuance of 49,686 compensatory stock options.......................            --              --
  Amortization of stock plan expense..................................            --           1,528
                                                                        --------------  ------------
BALANCE--December 31, 1996............................................            --        (386,073)
  Comprehensive loss:
    Net loss for the year ended December 31, 1997.....................            --      (5,577,439)
    Unrealized holding losses on securities arising during the year,
      net of taxes of ($42,790).......................................       (83,063)        (83,063)
                                                                                        ------------
      Comprehensive loss..............................................            --      (5,660,502)
  Proceeds from issuance of common stock:
    March 31, 1997....................................................            --           2,790
    April 2, 1997.....................................................            --           1,395
    July 28, 1997.....................................................            --      38,251,520
    July 31, 1997.....................................................            --         125,000
  Issuance of 491,910 compensatory stock options......................            --
  Amortization of service contract....................................            --       1,440,000
  Amortization of stock plan expense..................................            --         343,267
                                                                        --------------  ------------
BALANCE--December 31, 1997............................................       (83,063)     34,117,397
  Comprehensive income:
    Net income for the year ended December 31, 1998...................            --       4,464,012
    Unrealized holding gains on securities arising during the year,
      net of taxes of $45,454.........................................        88,235          88,235
    Less reclassification adjustment for gains included in net income,
      net of taxes of $3450...........................................        (6,696)         (6,696)
                                                                                        ------------
      Comprehensive income............................................            --       4,545,551
  Exercised stock options.............................................            --          40,530
  Amortization of stock plan expense..................................            --          51,410
                                                                        --------------  ------------
BALANCE--December 31, 1998............................................        (1,524)     38,754,888
  Comprehensive income:
    Net income for three months ended March 31, 1999 (unaudited)......            --         691,516
    Unrealized losses on securities, net of taxes of $348,814
      (unaudited).....................................................      (663,645)       (663,645)
                                                                                        ------------
      Comprehensive income (unaudited)................................            --          27,871
  Proceeds from the issuance of common stock (unaudited)..............            --     104,914,277
  Exercised stock options (unaudited).................................            --          42,516
  Amortization of stock plan expense (unaudited)......................            --           8,570
                                                                        --------------  ------------
BALANCE--March 31, 1999 (unaudited)...................................    $ (665,169)   $143,748,122
                                                                        --------------  ------------
                                                                        --------------  ------------
</TABLE>

See notes to consolidated financial statements.

                                      F-6
<PAGE>
                                 NET.B@NK, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                  FEBRUARY 20,
                                                      1996
                                                    (DATE OF             YEAR ENDED
                                                 INCORPORATION)         DECEMBER 31,
                                                 TO DECEMBER 31,  -------------------------
                                                      1996           1997          1998
                                                 ---------------  -----------  ------------         THREE MONTHS
                                                                                                       ENDED
                                                                                                     MARCH 31,
                                                                                             --------------------------
                                                                                                 1998          1999
                                                                                             ------------  ------------
                                                                                             (UNAUDITED)   (UNAUDITED)
<S>                                              <C>              <C>          <C>           <C>           <C>
Operating Activities:
  Net income (loss)............................    $(3,839,182)   $(5,577,439) $  4,464,012  $   (151,447) $    691,516
  Adjustments to reconcile net income (loss) to
    net cash used in operating activities:
    Depreciation...............................         17,406        211,607       251,147        36,537       137,768
    Amortization of service contract...........      2,400,000      1,440,000            --            --            --
    Amortization of stock plan expense.........          1,528        343,267        51,410        23,564         8,570
    Amortization of premiums on investment
      securities...............................             --         49,331       237,040        73,062        42,768
    Amortization of premiums on purchased
      loans....................................             --        116,509     2,541,016       152,038       970,511
    Amortization of trademark..................             --             --         6,417            --            --
    Amortization of bank charter...............             --          5,833        14,790         3,500         3,500
    Amortization of start-up costs.............             --          2,280            --            --            --
    Provision for loan losses..................             --        471,706        20,132         3,661        49,806
    Contribution of services from affiliate....         31,232             --            --            --            --
    Changes in assets and liabilities which
      provide (use) cash:
      Increase in accrued interest
        receivable.............................             --       (372,237)   (2,210,390)     (526,066)     (503,089)
      Decrease (increase) in other assets......       (311,799)      (142,363)   (7,569,540)       49,296     1,765,748
      Loans originated for sale................        --             --       (142,189,154)      --        (95,779,910)
      Proceeds from loan sales.................        --             --        118,986,475       --         83,979,204
      Increase (decrease) in payables and
        accrued liabilities....................        748,916       (373,267)    5,717,048       305,652    (1,055,945)
      Increase (decrease) in deferred income
        taxes..................................             --             --    (2,297,125)                      2,308
                                                 ---------------  -----------  ------------  ------------  ------------
        Net cash used in operating
          activities...........................       (951,899)    (3,824,773)  (21,976,722)      (30,203)   (9,687,245)
Investing Activities:
  Purchases of securities available for sale...             --    (19,347,623)  (52,502,591)  (30,443,211)  (24,852,142)
  Purchase of Federal Home Loan Bank stock.....             --       (225,000)   (1,775,000)      (26,500)     (569,700)
  Principal repayments on investment
    securities.................................             --      1,161,085    11,104,635     2,202,455     2,951,418
  Purchase of Habitat bonds....................             --             --      (250,000)           --            --
  Origination and purchase of loans............             --    (52,909,291) (352,665,802)  (70,683,033) (123,425,611)
  Principal payments on loans..................             --      7,838,834   117,703,710    10,195,800    39,620,186
  Purchase of Premier Bank charter.............             --       (350,000)           --            --            --
  Capital expenditures.........................       (183,390)      (249,906)     (592,065)     (178,874)     (318,005)
  Captitalized software costs..................             --             --      (592,492)           --      (232,525)
  Proceeds from return of equipment............             --         17,738            --            --            --
                                                 ---------------  -----------  ------------  ------------  ------------
        Net cash used in investing
          activities...........................       (183,390)   (64,064,163) (279,569,605)  (88,933,363) (106,826,379)
Financing Activities:
  Assumption of Premier deposits...............             --      5,000,000            --            --            --
  Transfer of deposits from affiliate..........             --     42,977,650            --            --            --
  Proceeds from other borrowed funds...........             --             --    72,000,000            --    25,000,000
  Repayments of other borrowed funds...........                                 (12,000,000)                (40,000,000)
  Increase in deposits.........................             --     10,749,113   224,862,388    69,954,906    49,089,183
  Advances from (repayments to) affiliate......        883,606       (883,606)           --            --            --
  Net proceeds from the sale of stock..........      1,020,349     38,380,705        40,530            --   104,956,793
                                                 ---------------  -----------  ------------  ------------  ------------
        Net cash provided by financing
          activities...........................      1,903,955     96,223,862   284,902,918    69,954,906   139,045,976
                                                 ---------------  -----------  ------------  ------------  ------------
Net Increase (Decrease) in Cash and Cash
  Equivalents..................................        768,666     28,334,926   (16,643,409)  (19,008,660)   22,532,352
Cash and Cash Equivalents:
  Beginning of period..........................             --        768,666    29,103,592    29,103,592    12,460,183
                                                 ---------------  -----------  ------------  ------------  ------------
  End of period................................    $   768,666    $29,103,592  $ 12,460,183  $ 10,094,932  $ 34,992,535
                                                 ---------------  -----------  ------------  ------------  ------------
                                                 ---------------  -----------  ------------  ------------  ------------
Supplemental Disclosures of Cash Flow
  Information--
  Cash paid during the period for interest.....    $        --    $ 1,184,549  $  5,694,481  $    808,000  $  5,830,309
                                                 ---------------  -----------  ------------  ------------  ------------
                                                 ---------------  -----------  ------------  ------------  ------------
  Cash paid during the period for income
    taxes......................................                                $     30,000  $         --  $     12,000
                                                 ---------------  -----------  ------------  ------------  ------------
                                                 ---------------  -----------  ------------  ------------  ------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-7
<PAGE>
                                 NET.B@NK, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         AS OF DECEMBER 31, 1997, 1998, AND (UNAUDITED) MARCH 31, 1999,
                   AND FOR THE PERIOD FROM FEBRUARY 20, 1996
                 (DATE OF INCORPORATION) TO DECEMBER 31, 1996,
        THE YEARS ENDED DECEMBER 31, 1997 AND 1998, AND (UNAUDITED) THE
                   THREE MONTHS ENDED MARCH 31, 1998 AND 1999

1. ORGANIZATION AND BASIS OF PRESENTATION

    Net.B@nk, Inc. ("Net.B@nk") is a bank holding company that wholly owns the
outstanding stock of Net.B@nk, formerly Atlanta Internet Bank, a federal savings
bank. Net.B@nk, Inc. was incorporated as a Georgia corporation on February 20,
1996, for the primary purpose of forming and, ultimately, operating Net.B@nk.
During the period from February 20, 1996 to July 31,1997, pending regulatory
approval and the acquisition of a bank charter, Net.B@nk was operating as a
development stage enterprise under an agreement with Carolina First Bank
("CFB"), a wholly owned subsidiary of Carolina First Corporation ("CFC"),
whereby CFB agreed to hold and service the deposit accounts generated by the
Internet banking operations of Net.B@nk in exchange for 3,975,000 shares of
Net.B@nk's common stock valued at $3,840,000. In addition, during the period
from February 20, 1996 to July 31, 1997, Net.B@nk was a party to an agreement
with First Alliance/Premier Bancshares, Inc. ("First Alliance") pursuant to
which Net.B@nk had agreed to purchase the charter of First Alliance's
subsidiary, Premier Bank, $5 million of loans, $5 million of certificates of
deposit and $2 million in unimpaired capital for $2,150,000 in cash, 124,218
shares of Net.B@nk's common stock valued at $125,000 and $75,000 in additional
cash for reimbursement of direct out-of-pocket expenses.

    On July 11, 1997, the final regulatory approval from the Office of Thrift
Supervision ("OTS") was received. On July 31, 1997, Net.B@nk received
approximately $38.4 million in net proceeds from the sale of 10,500,000 shares
of its common stock in an Initial Public Offering (the "IPO") and consummated
its agreements with both First Alliance and CFB. As a result, Net.B@nk, a
federal savings bank, became a wholly owned subsidiary of Net.B@nk, Inc. On
February 10, 1999, Net.B@nk received net proceeds of approximately $105,000,000
from the sale of an additional 7,290,000 shares of its common stock in a public
offering.

2. ACCOUNTING POLICIES

    The accounting and reporting policies of Net.B@nk conform with generally
accepted accounting principles and with general practice within the banking
industry. The following is a summary of the more significant policies:

    CONSOLIDATION--The consolidated financial statements of Net.B@nk, Inc.
include the financial statements of Net.B@nk, Net.B@nk, Inc.'s wholly owned
subsidiary. All intercompany balances and transactions have been eliminated in
consolidation.

    USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

    INTEREST RATE RISK--Net.B@nk's assets and liabilities are generally monetary
in nature and interest rate changes have an impact on Net.B@nk's performance.
Net.B@nk decreases the effect of interest rate changes on its performance by
striving to match maturities and interest sensitivity between loans,

                                      F-8
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
investment securities, deposits, and other borrowings. However, a significant
change in interest rates, specifically the prime rate, could have a material
effect on Net.B@nk's results of operations.

    CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, demand deposits due from banks, and
federal funds sold to banks.

    INVESTMENT SECURITIES AVAILABLE FOR SALE--Investment securities classified
as available-for-sale are carried at fair value. Unrealized holding gains or
losses, net of tax, on available-for-sale securities are reported as a net
amount in other comprehensive income. Gains and losses from dispositions are
based on the net proceeds and the adjusted carrying amounts of the securities
sold using the specific identification method. Any decreases in investment value
other than temporary declines would be recognized in operations. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.

    DEFERRED FEES AND COSTS--Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
of the related loans.

    ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is maintained at a
level estimated to be adequate to provide for probable losses in the loan
portfolio. As the majority of Net.B@nk's portfolio is purchased, an estimate of
the loss inherent in the purchased portfolio is made and an allowance for loan
losses is recorded by adjusting the premium associated with the purchased loans.
Management determines the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.
Loans deemed uncollectible are charged to the allowance. Provisions for loan
losses and recoveries on loans previously charged off are added to the
allowance.

    FURNITURE AND EQUIPMENT--Furniture and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful life of each asset. Net.B@nk evaluates the
estimated useful lives of assets on a periodic basis to determine whether events
or circumstances warrant revised estimated useful lives or whether any
impairment exists. Management believes no impairment existed at December 31,
1998.

    BANK CHARTER--The value of the charter is being amortized on a straight-line
basis over 25 years. The carrying value of the charter is periodically reviewed
to assess recoverability based on expected undiscounted cash flows and operating
income of Net.B@nk. Impairment would be recognized in operating results if a
permanent diminution in value was expected. Net.B@nk also evaluates the
amortization period of the bank charter to determine whether events or
circumstances warrant revised estimates of the useful life. Management believes
that no impairment of the bank charter existed at December 31, 1998.

    INTEREST INCOME ON LOANS--Interest on loans is generally recorded over the
term of the loan based on the unpaid principal balance. Accrual of interest is
discontinued when either principal or interest becomes 90 days past due or when,
in management's opinion, collectibility of such interest is doubtful. In
addition, any previously accrued interest is reversed when the loan becomes 90
days past due.

    PREMIUM ON LOANS PURCHASED--Premiums on loans purchased from third parties
are capitalized and amortized over the average life of the loan as an adjustment
to yield. Such premiums are classified with the loan balance to which they
relate for financial reporting purposes.

                                      F-9
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
    INCOME TAXES--Provisions for income taxes are based upon amounts reported in
the statements of income and include deferred taxes for net operating loss
carryforwards and temporary differences between financial statement and tax
bases of assets and liabilities using enacted tax rates for the year in which
the temporary differences are expected to reverse. Net.B@nk records a valuation
allowance when management believes it is more likely than not that deferred tax
assets will not be realized.

    NET INCOME (LOSS) PER SHARE--In February 1997, Statement of Financial
Accounting Standards 128, EARNINGS PER SHARE ("SFAS 128") was issued. SFAS 128
establishes standards for computing and presenting earnings per share
information for entities with publicly held common stock. In accordance with
SFAS 128, basic net income per share is computed based on the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed based on the weighted average number of common and potential
dilutive common shares outstanding during the period. All previously reported
per share amounts have been restated to conform to SFAS 128.

    RECLASSIFICATIONS--Certain reclassifications have been made to the 1996 and
1997 financial statements to conform to the 1998 presentation.

    UNAUDITED INTERIM FINANCIAL STATEMENTS--The financial statements as of March
31, 1998 and 1999 and for the three months ended March 31, 1998 and 1999, were
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. Certain information and
note disclosures normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations relating to interim
financial statements. Operating results for the interim periods included herein
are not necessarily indicative of the results that may be expected for the
entire year.

    NEW ACCOUNTING PRONOUNCEMENTS--As of January 1, 1998, Net.B@nk adopted
Statement of Financial Accounting Standards 130, REPORTING COMPREHENSIVE INCOME
("SFAS 130"), and restated prior periods to conform to the presentation required
by SFAS 130. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses, net of tax, on Net.B@nk's available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The adoption of SFAS 130 had no impact on Net.B@nk's
net income or shareholders' equity.

    As of April 1, 1998, Net.B@nk adopted Statement of Position 98-1, ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP
98-1"). SOP 98-1 allows for the capitalization of costs related to the
development and implementation of software obtained for internal use including
materials, payroll, and interest costs once the criteria of the SOP have been
met. As of December 31, 1998, $592,402 of these related costs had been
capitalized.

    As of December 31, 1998, Net.B@nk adopted SFAS 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 establishes annual
and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas, and major
customers. The adoption of SFAS 131 had no effect on Net.B@nk's financial
statements for the year ended December 31, 1998 because Net.B@nk only has one
reportable segment-banking.

                                      F-10
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
    In June 1998, Statement of Financial Accounting Standards 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), was issued. SFAS
133 establishes standards for derivative instruments and hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The adoption of SFAS 133 is not expected to have
a significant effect on Net.B@nk's financial statements.

3. ACQUISITION

    Effective July 31, 1997, Net.B@nk acquired all of the outstanding stock of
Premier Bank, FSB for $2,150,000 in cash, 124,218 shares of Net.B@nk's common
stock valued at $125,000 and $75,000 in additional cash for reimbursement of
direct out-of-pocket expenses. The acquisition was accounted for as a purchase
and the bank charter was recorded at $350,000. This amount is being amortized
over 25 years. Revenues, net loss, and basic and diluted net loss per common
share and potential dilutive common share for Net.B@nk for the period from
February 20, 1996 to December 31, 1996 or for the year ended December 31, 1997
would not have been materially affected assuming the transaction had occurred on
February 20, 1996 and January 1, 1997, respectively.

4. INVESTMENT SECURITIES AVAILABLE FOR SALE

    The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities available for sale are as follows:

<TABLE>
<CAPTION>
                                                                            GROSS
                                                          -----------------------------------------    ESTIMATED
                                                            AMORTIZED    UNREALIZED    UNREALIZED        FAIR
                                                              COST          GAINS        LOSSES          VALUE
                                                          -------------  -----------  -------------  -------------
<S>                                                       <C>            <C>          <C>            <C>
AT DECEMBER 31, 1997
Collateralized mortgage obligations.....................  $   8,127,863   $      --   $          --  $   8,127,863
Unites States government agencies.......................     10,009,346          --          83,063      9,926,283
                                                          -------------  -----------  -------------  -------------
                                                          $  18,137,209   $      --   $      83,063  $  18,054,146
                                                          -------------  -----------  -------------  -------------
                                                          -------------  -----------  -------------  -------------
AT DECEMBER 31, 1998
Collateralized mortgage obligations.....................  $  58,330,285   $      --   $       2,045  $  58,328,240
United States government agencies.......................        882,442          --             264        882,178
Habitat bonds and other.................................        254,644          --              --        254,644
                                                          -------------  -----------  -------------  -------------
                                                          $  59,467,371   $      --   $       2,309  $  59,465,062
                                                          -------------  -----------  -------------  -------------
                                                          -------------  -----------  -------------  -------------
</TABLE>

                                      F-11
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
    The amortized cost and estimated fair value of these securities at December
31, 1998, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because the borrower may have the right to call or
prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                   AMORTIZED      ESTIMATED
                                                                     COST        FAIR VALUE
                                                                 -------------  -------------
<S>                                                              <C>            <C>
AT DECEMBER 31, 1998
Due after five years through ten years.........................  $   5,983,682  $   5,986,729
Due after ten years............................................     53,483,689     53,478,333
                                                                 -------------  -------------
                                                                 $  59,467,371  $  59,465,062
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>

    There were no significant sales, or calls of securities, for the period from
February 20, 1996 (date of incorporation) to December 31, 1996, or for the years
ended December 31, 1997 and 1998.

5. LOANS

    Net.B@nk's primary loan strategy is to originate or purchase high credit
quality packages of loans from other financial institutions. The servicing on
all loan purchases is retained by the selling institutions. As of December 31,
1998, fees paid for servicing range from .25% to 3.75%. A summary of loans
purchased during the years ended December 31, 1997 and 1998 follows:
<TABLE>
<CAPTION>
                               TYPES OF LOANS               PRINCIPAL        PREMIUM     RANGE OF STATED
                                 PURCHASED                    AMOUNT         AMOUNT      INTEREST RATES
                    ------------------------------------  --------------  -------------  ---------------
<S>                 <C>                                   <C>             <C>            <C>
1997                First and second mortgages, auto and
                    unsecured loans                       $   36,804,000  $     808,832         6.0--12%
                    Automobile leases...................       6,100,000             --            11.5%
                                                          --------------  -------------
                                                          $   42,904,000  $     808,832
                                                          --------------  -------------
                                                          --------------  -------------

<CAPTION>

                               TYPES OF LOANS               PRINCIPAL        PREMIUM     RANGE OF STATED
                                 PURCHASED                    AMOUNT         AMOUNT      INTEREST RATES
                    ------------------------------------  --------------  -------------  ---------------
<S>                 <C>                                   <C>             <C>            <C>
1998                First and second mortgages            $  134,789,041  $   5,002,363     6.12--16.99%
                    Home equity lines                        122,746,433      7,247,263     7.25--13.00%
                                                          --------------  -------------
                                                          $  257,535,474  $  12,249,626
                                                          --------------  -------------
                                                          --------------  -------------
</TABLE>

    There were no loans purchased during the year ended December 31, 1996.

                                      F-12
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LOANS (CONTINUED)
    Loans are summarized as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                -----------------------------
<S>                                                             <C>            <C>
                                                                    1997            1998
                                                                -------------  --------------
Residential mortgages.........................................  $  13,953,501  $  144,361,069
Construction..................................................      5,399,624      27,996,691
Commercial....................................................      4,478,053       8,556,264
Home equity lines.............................................      4,412,013      89,053,532
Auto..........................................................     14,623,745       7,803,648
Personal and other............................................      2,066,471       2,656,399
                                                                -------------  --------------
                                                                   44,933,407     280,427,603
Less allowance for loan losses................................        453,444       3,472,364
                                                                -------------  --------------
      Total...................................................  $  44,479,963  $  276,955,239
                                                                -------------  --------------
                                                                -------------  --------------
</TABLE>

    Net.B@nk provides lines of credit and overdraft protection to its banking
customers on a nationwide basis. At December 31, 1997 and 1998, outstanding
lines of credit totaled $29,000 and $200,000, respectively, and unused
commitments totaled $353,000 and $937,000, respectively. Net.B@nk's home equity
lines are secured by residential property. At December 31, 1997, all of
Net.B@nk's loans were with customers residing in the Southeastern United States.
At December 31, 1998, a majority of Net.B@nk's loans were with customers
residing in the Western and Southeastern United States.

    Net.B@nk had unearned income of $351,202 and $29,776, at December 31, 1997
and 1998, respectively.

                                      F-13
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. ALLOWANCE FOR LOAN LOSS

    An analysis of the allowance for loan losses for the years ended December
31, 1997 and 1998 follows:

<TABLE>
<CAPTION>
                                                                         1997         1998
                                                                      ----------  ------------
<S>                                                                   <C>         <C>
Balance--Beginning of year..........................................  $       --  $    453,444
Allowance recorded in connection with the purchase of loan pools....          --     3,585,926
Provision for loan losses...........................................     471,706        20,132
Loans charged off...................................................     (18,262)     (587,138)
                                                                      ----------  ------------
Balance--End of year................................................  $  453,444  $  3,472,364
                                                                      ----------  ------------
                                                                      ----------  ------------
</TABLE>

    Net.B@nk considers a loan to be impaired when it is probable that it will be
unable to collect all amounts due according to the original terms of the loan
agreement. Net.B@nk measures impairment of a loan on a loan by loan basis.
Amounts of impaired loans that are not probable of collection are charged off
immediately. During the years ended December 31, 1997 and 1998, Net.B@nk had no
significant amount of impaired loans or nonaccrual loans. The amount of impaired
loans written off during the years ended December 31, 1997 and 1998 was $18,262
and $587,138, respectively. Net.B@nk had no restructured loans as of either
December 31, 1997 or 1998.

    Net.B@nk is a party to financial instruments with off-balance-sheet risk in
the normal course of its lending activities to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
lines of credit. Net.B@nk's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. Net.B@nk uses the same credit policies in making
these commitments as it does for on-balance-sheet instruments and evaluates each
customer's creditworthiness on a case-by-case basis. At December 31, 1997 and
1998, Net.B@nk had outstanding loan commitments of $8,332,568 and $47,617,700,
respectively.

    The amount of collateral obtained by Net.B@nk, if deemed necessary, for
these commitments, upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held, if any, varies but may include
inventory, equipment, real estate, or other property. The accounting loss
Net.B@nk would incur if the borrower failed completely to perform according to
the terms of the contract and the collateral proved to be of no value is equal
to the face amount of the commitment.

7. LOAN ORIGINATION AGREEMENTS

    During the year ended December 31, 1998, Net.B@nk entered into separate
agreements with three unrelated third parties whereby Net.B@nk acts as a loan
originator on behalf of the third parties. Under the terms of the agreements,
the third parties are required to purchase all loans, including the related
servicing of these loans, originated by Net.B@nk, unless Net.B@nk elects to
retain the loans. As a result of the agreements, loans originated for the third
parties for which the purchase price has not yet been received are accounted for
as receivables.

                                      F-14
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. DEPOSITS AND OTHER BORROWINGS

    The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by Net.B@nk:

<TABLE>
<CAPTION>
                                                   1997                         1998
                                       ----------------------------  ---------------------------
<S>                                    <C>            <C>            <C>             <C>
                                          AMOUNT       PERCENTAGE        AMOUNT      PERCENTAGE
                                       -------------  -------------  --------------  -----------
Demand checking accounts.............  $     293,054          0.5%   $    9,285,540         3.3%
Interest bearing:
  NOW accounts.......................      1,573,283          2.7%        6,090,704         2.1%
  Money markets......................     36,534,967         62.2%       65,325,880        23.0%
  Certificates of deposit under
    $100,000.........................     16,662,365         28.4%      197,162,916        69.5%
  Certificates of deposit over
    $100,000.........................      3,663,094          6.2%        5,724,111         2.1%
                                       -------------          ---    --------------       -----
    Total deposits...................  $  58,726,763          100%   $  283,589,151       100.0%
                                       -------------          ---    --------------       -----
                                       -------------          ---    --------------       -----
</TABLE>

    At December 31, 1998, the scheduled maturities of certificates of deposit
were as follows:

<TABLE>
<S>                                                             <C>
Within three months...........................................  $76,566,728
Over three months through six months..........................   48,393,173
Over six months through one year..............................   71,548,914
Over one year.................................................    6,378,212
                                                                -----------
    Total.....................................................  $202,887,027
                                                                -----------
                                                                -----------
</TABLE>

    During the year ended December 31, 1998, Net.B@nk, Inc. and its subsidiary,
Net.B@nk, entered into line of credit agreements with The Bankers Bank.
Net.B@nk, Inc. is a party to one such agreement and its subsidiary, Net.B@nk, is
a party to two such agreements. Under the terms of Net.B@nk, Inc.'s agreement
which expired on October 20, 1998, Net.B@nk, Inc. could borrow 50% of the
tangible equity of Net.B@nk, up to $17 million, using the stock of Net.B@nk as
collateral. Any amounts borrowed under this line had interest at a fixed rate of
8.00% per annum. During the year ended December 31, 1998, Net.B@nk, Inc.
borrowed and repaid $12 million under the line. Under the terms of the other two
agreements, the subsidiary, Net.B@nk, may borrow $5 million under an unsecured
general purpose line and 99% of the value of its investment securities under
another line. Both of the lines bear interest at 25 basis points above the
Federal Funds rate (5.00% at December 31, 1998). Under these agreements at
December 31, 1998, the subsidiary, Net.B@nk, had an outstanding borrowing of $20
million with no stated maturity secured by investment securities.

    As of March 31, 1999, the subsidiary, Net.B@nk, has borrowed $20 million
from the Federal Home Loan Bank ("FHLB") at a fixed rate of 4.43%. The borrowing
is callable at the two-year anniversary date. If not called at the two-year
date, the borrowing extends for an additional three years at 4.435%. Also, the
subsidiary, Net.B@nk, has borrowed $25 million from the Federal Home Loan Bank
at a fixed rate of 4.64%. The borrowing is callable at the two-year anniversary
date. If not called at the two-year date, the borrowing extends for an
additional eight years at 4.64%. These borrowings are secured by Net.B@nk's
investment securities.

                                      F-15
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. FURNITURE AND EQUIPMENT

    Furniture and equipment as of December 31, 1997 and 1998, are summarized as
follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                      ------------------------
<S>                                                                   <C>         <C>
                                                                         1997         1998
                                                                      ----------  ------------
Furniture and fixtures..............................................  $   56,145  $    234,440
Equipment...........................................................     190,483       284,388
Software............................................................     428,306     1,340,663
                                                                      ----------  ------------
  Total.............................................................     674,934     1,859,491
Less accumulated depreciation.......................................     286,426       537,573
                                                                      ----------  ------------
    Furniture and equipment, net....................................  $  388,508  $  1,321,918
                                                                      ----------  ------------
                                                                      ----------  ------------
</TABLE>

10. LEASES

    Net.B@nk leases its facilities and certain other equipment under operating
lease agreements. Future minimum payments as of December 31, 1998 under these
leases follow:

<TABLE>
<S>                                                                 <C>
1999..............................................................  $ 128,028
2000..............................................................    130,872
2001..............................................................    133,788
2002..............................................................    136,788
2003 and beyond...................................................    295,156
</TABLE>

    Rent expense for the period from February 20, 1996 (date of incorporation)
to December 31, 1996, and for the years ended December 31, 1997 and 1998, was
$17,850, $91,868, and $110,011, respectively.

11. INCOME TAXES

    Net.B@nk provides deferred income taxes for net operating loss carryforwards
and for temporary differences between financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse. As of December 31, 1998,
Net.B@nk had state and federal net operating loss carryforwards of $6,182,993
which will expire in 2012 and 2011, if not utilized.

    Net.B@nk did not incur any income taxes during 1996 and 1997. For the year
ended December 31, 1998, Net.B@nk's income tax benefit results from the reversal
of the valuation allowance as of December 31, 1997, relating to net operating
loss carryforwards offset by taxable income for the period. As Net.B@nk achieved
profitability in 1998, management now believes that it is more likely than not
that such assets will be realized, and thus, reversed the valuation allowance in
accordance with SFAS 109, ACCOUNTING OF INCOME TAXES.

                                      F-16
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
    As of December 31, 1997 and 1998, Net.B@nk had deferred tax assets and
deferred tax liabilities as follows:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                    --------------------------
<S>                                                                 <C>           <C>
                                                                        1997          1998
                                                                    ------------  ------------
Net operating loss carryforwards..................................  $  2,962,303  $  2,102,218
Allowance for loan losses.........................................       165,369      (244,089)
Start-up costs....................................................       170,761       112,043
Loan premium amortization.........................................            --       357,348
Other, net........................................................       (38,402)      (30,395)
                                                                    ------------  ------------
                                                                       3,260,031     2,297,125
Less valuation allowance..........................................     3,260,031            --
                                                                    ------------  ------------
Net deferred tax asset............................................  $         --  $  2,297,125
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>

    Net.B@nk's income tax benefit consists of current and deferred income tax
benefit as follows:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                                                 DECEMBER 31,
                                                                                     1998
                                                                                 -------------
<S>                                                                              <C>
Current........................................................................  $     (58,490)
Deferred.......................................................................     (2,266,340)
                                                                                 -------------
  Income tax benefit...........................................................  $  (2,324,830)
                                                                                 -------------
                                                                                 -------------
</TABLE>

    The benefit for income taxes is reconciled to the tax computed by applying
the federal statutory rate of 34% to income before income taxes as follows:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                                                 DECEMBER 31,
                                                                                     1998
                                                                                 -------------
<S>                                                                              <C>
Income tax at statutory rate...................................................  $     727,322
Reversal of valuation allowance................................................     (3,260,031)
Other..........................................................................        207,879
                                                                                 -------------
  Income tax benefit...........................................................  $  (2,324,830)
                                                                                 -------------
                                                                                 -------------
</TABLE>

                                      F-17
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. OTHER EXPENSE

    Items comprising other expense:

<TABLE>
<CAPTION>
                                                                        FEBRUARY 20,
                                                                          1996 TO      YEAR ENDED    YEAR ENDED
                                                                        DECEMBER 31,  DECEMBER 31,  DECEMBER 31,
                                                                            1996          1997          1998
                                                                        ------------  ------------  ------------
<S>                                                                     <C>           <C>           <C>
Accounting, legal and professional services...........................   $   84,183    $  238,650    $  423,290
Consultants...........................................................           --        52,739            --
Annual report.........................................................           --            --        93,395
Investor relations....................................................           --         6,946        40,011
Other.................................................................       10,764        56,731       129,280
                                                                        ------------  ------------  ------------
                                                                         $   94,947    $  355,066    $  685,976
                                                                        ------------  ------------  ------------
                                                                        ------------  ------------  ------------
</TABLE>

13. EMPLOYEE BENEFIT PLAN

    Effective December 31, 1997, Net.B@nk adopted a 401(k) plan (the "Plan")
which covers substantially all of its employees. Net.B@nk, at its discretion,
matches 25% of employee contributions to the Plan, up to a maximum Company
contribution of 1% of an employee's compensation. Net.B@nk expensed $10,100
during 1998 related to the plan.

14. SHAREHOLDERS' EQUITY

    On March 17, 1997, Net.B@nk declared a 33.125 for one split of its common
stock effected in the form of a stock dividend payable on the effective date of
the initial public offering. All references to share and per share amounts
reflect the split. Also, additional paid-in capital has been charged and common
stock has been credited retroactively with $12,116 to reflect the stock split.

    On February 10, 1999, Net.B@nk received net proceeds of approximately
$105,000,000 from the sale of 7,290,000 shares of its common stock in a public
offering.

    On April 13, 1999, Net.B@nk declared a three-for-one split of its common
stock effected in the form of a stock dividend payable on May 14, 1999 to
shareholders of record as of the close of business on April 23, 1999. All
references to share and per share amounts have been retroactively adjusted to
reflect the split.

    Under current OTS regulations, Net.B@nk may pay dividends and make other
capital distributions after giving notice to the Office of Thrift Supervision.

15. STOCK OPTIONS

    Net.B@nk has a 1996 Stock Incentive Plan (the "Plan"), which provides that
key employees, officers, directors, and consultants of Net.B@nk may be granted
nonqualified and incentive stock options to purchase shares of common stock of
Net.B@nk, derivative securities related to the value of the common stock, or
cash awards. Previously, the Plan limited the number of shares which could be
awarded to 1,800,000. Effective with shareholder approval on April 22, 1999, the
Plan was amended to increase the total number of shares reserved for the Plan to
3,750,000. Generally, the options expire ten years from the date of the grant.

                                      F-18
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
    A summary of the status of the Plan and activity follows:

<TABLE>
<CAPTION>
                                                                WEIGHTED                   WEIGHTED                   WEIGHTED
                                                                 AVERAGE                    AVERAGE                    AVERAGE
                                                DECEMBER 31,    EXERCISE    DECEMBER 31,   EXERCISE    DECEMBER 31,   EXERCISE
                                                    1996          PRICE         1997         PRICE         1998         PRICE
                                                -------------  -----------  ------------  -----------  ------------  -----------
<S>                                             <C>            <C>          <C>           <C>          <C>           <C>
Outstanding at beginning of period............           --     $      --        49,686    $    0.40     1,099,368    $    1.99
  Granted.....................................       49,686     $    0.40     1,058,625         1.94       573,000         6.50
  Exercised...................................           --            --                                  (33,588)        1.21
  Terminated..................................           --            --        (8,943)        1.21       (41,628)        2.19
                                                     ------                 ------------               ------------
Outstanding at end of period..................       49,686          0.40     1,099,368         1.99     1,597,152         3.63
                                                     ------                 ------------               ------------
                                                     ------                 ------------               ------------
</TABLE>

    In connection with the issuance of some of the options during the year ended
December 31, 1997, $390,484 of compensation expense will be recognized over the
vesting period. Certain of those options vested immediately on July 28, 1997,
upon completion of the Initial Public Offering, and $319,704 of unamortized
compensation expense was recognized. The other options vest one-third on the
first anniversary of the date of issuance, one-third on the second anniversary
of the date of issuance, and one-third on the third anniversary of the date of
issuance. Of the vested options, 708,423 cannot be exercised and sold until July
28, 2000 in accordance with an agreement signed with the OTS. As such, of the
1,597,152 options outstanding as of December 31, 1998, 837,063 are exercisable.

    During the three-month period ended March 31, 1999, Net.B@nk awarded 21,000
incentive stock options at an exercise price of $11.67 per share on January 15,
1999, 30,000 incentive stock options at an exercise price of $13.00 per share on
February 25, 1999 and 30,000 incentive stock options at an exercise price of
$23.33 per share on March 29, 1999. Grant prices approximated the fair value of
the stock at the grant date. Additionally, during the three-month period ended
March 31, 1999, 35,211 incentive stock options were exercised at a price of
$1.21 per share, and 16,200 and 3,366 incentive stock options with an exercise
price of $5.25 and $1.21, respectively, were terminated.

    In addition, effective April 22, 1999, 177,000 nonqualified stock options
were granted at an exercise price of $53.33 per share. Grant prices approximated
the fair value of the stock at the grant date. Also, during April 1999, 6,000
and 1,500 incentive stock options with an exercise price of $5.25 and $1.21,
respectively, were exercised.

                                      F-19
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
    The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
                NUMBER        WEIGHTED
             OUTSTANDING       AVERAGE      EXERCISABLE
                  AT          REMAINING          AT
 EXERCISE    DECEMBER 31,    CONTRACTUAL    DECEMBER 31,
   PRICE         1998           LIFE            1998
- -----------  ------------  ---------------  ------------
<S>          <C>           <C>              <C>
 $     .40       422,343            8.0         422,343
      1.21        48,591            8.2          21,870
      3.33       521,718            8.2         260,850
      3.67        45,000            8.6          15,000
      3.75        60,000            9.0              --
      5.58         9,000            9.1              --
      5.25       187,500            9.7          27,000
      7.94       303,000           10.0          90,000
</TABLE>

    Net.B@nk accounts for its stock-based compensation plan under Accounting
Principles Board 25. Net.B@nk has adopted SFAS 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), for disclosure purposes. For SFAS 123 purposes, the
fair value of each option granted under Net.B@nk's stock option plan during the
period from February 20, 1996 to December 31, 1996 and during the years ended
December 31, 1997 and 1998, was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used:

<TABLE>
<CAPTION>
                                                                            OPTIONS        OPTIONS
                                                                            GRANTED        GRANTED
                                                                         FEBRUARY 20,       AS OF
                                                                            1996 TO     JULY 30, 1997    YEAR ENDED
                                                                           JULY 29,         (IPO        DECEMBER 31,
                                                                             1997           DATE)           1998
                                                                         -------------  -------------  ---------------
<S>                                                                      <C>            <C>            <C>
Fair value.............................................................    $    0.32      $    2.51       $    4.02
Expected life (years)..................................................            5              5               5
Risk-free interest rate................................................          6.2%          5.95%           4.96%
Dividend rate..........................................................          0.0%           0.0%            0.0%
Expected volatility....................................................          0.0%          75.0%           70.0%
Forfeiture rate........................................................          0.0%           1.0%            1.0%
</TABLE>

    Had compensation cost for Net.B@nk's stock options granted been determined
based on the fair value at the grant dates for awards under the plan consistent
with a method prescribed in SFAS 123 utilizing the assumptions described above,
Net.B@nk's net income (loss) and net income (loss) per common share and
potential dilutive common share for the period from February 20, 1996 to

                                      F-20
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
December 31, 1996, and the years ended December 31, 1997 and 1998, would have
changed to the proforma amounts indicated below:

<TABLE>
<CAPTION>
                                                                    PERIOD FROM
                                                                   FEBRUARY 20,
                                                                       1996
                                                                        TO           YEAR ENDED      YEAR ENDED
                                                                   DECEMBER 31,     DECEMBER 31,    DECEMBER 31,
                                                                       1996             1997            1998
                                                                   -------------  ----------------  -------------
<S>                                                                <C>            <C>               <C>
Net income (loss):
As reported......................................................  $  (3,839,182)  $   (5,577,439)  $   4,464,012
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Pro forma........................................................  $  (4,012,534)  $   (5,504,245)  $   3,959,813
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Net income (loss) per share:
As reported:
Basic............................................................  $       (1.44)  $        (0.55)  $        0.24
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Diluted..........................................................  $       (1.44)  $        (0.55)  $        0.23
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Pro forma:
Basic............................................................  $       (1.51)  $        (0.55)  $        0.21
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Diluted..........................................................  $       (1.51)  $        (0.55)  $        0.21
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
</TABLE>

16. EARNINGS PER SHARE

    Basic and diluted net income (loss) per common and potential common share
have been calculated based on the weighted average number of shares outstanding
in accordance with SFAS 128. In accordance with SFAS 128, the following schedule
reconciles the numerators and denominators of the basic and diluted net income
per common and potential common share. The only periods presented relate to
those with net income as diluted securities would be anti-dilutive to periods
with a net loss. Net.B@nk had options to purchase common stock outstanding of
49,686 and 1,099,368 at December 31, 1996 and 1997, respectively.

<TABLE>
<CAPTION>
                                                                                      FOR THE YEAR ENDED
                                                                                      DECEMBER 31, 1998
                                                                           ----------------------------------------
<S>                                                                        <C>           <C>            <C>
                                                                              INCOME        SHARES       PER SHARE
                                                                           (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                                                           ------------  -------------  -----------
Net income...............................................................  $  4,464,012
Basic EPS................................................................     4,464,012    18,446,652    $    0.24
                                                                                                             -----
                                                                                                             -----
Effect of Dilutive Securities-Options to purchase common shares..........                     704,466
                                                                           ------------  -------------
Diluted EPS..............................................................  $  4,464,012    19,151,118    $    0.23
                                                                           ------------  -------------       -----
                                                                           ------------  -------------       -----
</TABLE>

                                      F-21
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. CAPITAL ADEQUACY

    Net.B@nk is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure of Net.B@nk to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on Net.B@nk's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Net.B@nk must meet specific capital guidelines that involve quantitative
measures of Net.B@nk's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. Net.B@nk's capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. In addition, under
regulatory guidelines, Net.B@nk may not pay a dividend to Net.B@nk, Inc. if
doing so would cause Net.B@nk to be less than adequately capitalized, as defined
below.

    Quantitative measures established by regulation to ensure capital adequacy
require Net.B@nk to maintain minimum amounts and ratios set forth in the table
below. Net.B@nk's regulatory agency, the OTS, requires Net.B@nk to maintain
minimum ratios of tangible capital to tangible assets of 1.5%, core capital to
tangible assets of 3.0%, and total risk-based capital to risk-weighted assets of
8.0%. Management believes, as of December 31, 1998, that Net.B@nk meets all the
capital adequacy requirements to which it is subject.

    As of December 31, 1998, the most recent notification from the OTS
categorized Net.B@nk as well capitalized under the regulatory framework for
prompt corrective action. To be well capitalized Net.B@nk must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes would have changed the institution's category.

    Net.B@nk's actual capital amounts and ratios as of December 31, 1997 and
1998, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                                 TO BE
                                                                                                              CATEGORIZED
                                                                                                                AS WELL
                                                                                                              CAPITALIZED
                                                                                        FOR CAPITAL           UNDER PROMPT
                                                                                     ADEQUACY PURPOSES         CORRECTIVE
                                                                     ACTUAL                                   ACTION PLAN
                                                              --------------------  --------------------  --------------------
                                                               AMOUNT      RATIO     AMOUNT      RATIO     AMOUNT      RATIO
                                                              ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                           <C>        <C>        <C>        <C>        <C>        <C>

DECEMBER 31, 1997
Total capital (to risk-weighted assets).....................  $  23,652      47.8%  $   3,956       8.0%  $   4,948      10.0%
Core capital (to tangible assets)...........................     23,735      28.3%      2,517       3.0%      4,196       5.0%
Tangible capital (to tangible assets).......................     23,735      28.3%      1,259       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)....................     23,735      48.0%        N/A        N/A      2,969       6.0%
DECEMBER 31, 1998
Total capital (to risk-weighted assets).....................  $  38,297     15.36%  $  19,947       8.0%  $  24,934      10.0%
Core capital (to tangible assets)...........................     35,996      9.31%     11,595       3.0%     19,325       5.0%
Tangible capital (to tangible assets).......................     35,996      9.31%      5,798       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)....................     35,996     14.44%        N/A        N/A     14,960       6.0%
</TABLE>

    As of March 31, 1999, Net.Bank had total, core, tangible and tier I capital
ratios of 35.81%, 24.64%, 24.64% and 35.24%, respectively.

                                      F-22
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENCIES

    As of December 31, 1998, Net.B@nk was a party to a three year agreement with
BISYS Corporation ("BISYS") who provides Net.B@nk with core bank processing
services. Net.B@nk also receives professional programming services from Edify
Corporation, item processing services from Intercept (formerly NOVA Financial
Corporation), and electronic bill payment processing services from CheckFree
Corporation. Under the terms of the agreements, Net.B@nk pays ongoing monthly
payments for customer support and processing services.

    During the three months ended March 31, 1999, Net.B@nk entered into an
agreement effective June 1, 1999 and extending to May 31, 2004 with an unrelated
third party to act as a loan originator and servicer on behalf of Net.B@nk.
Under the terms of the agreement, loans originated through Net.B@nk's website
which meet Net.B@nk's pre-established credit criteria will be retained by
Net.B@nk with the third party receiving a portion of the origination fee charged
to the customer. Loans which do not meet Net.B@nk's pre-established credit
criteria may be retained by the third party, who in turn will pay Net.B@nk a
flat fee per loan originated. The third party will also perform servicing on
Net.B@nk's portfolio for a monthly fee. In addition, Net.B@nk will also pay the
third party a $300,000 setup fee for reimbursement of out-of-pocket expenses
incurred by the third party in conjunction with certain setup services, as
defined in the agreement.

19. RELATED PARTY TRANSACTIONS

    TRANSACTIONS WITH CFB--Certain of Net.B@nk's cash accounts and time deposits
were on deposit with CFB until July 31, 1997. Net.B@nk received $7,709 and $0 in
interest income related to these accounts during the period from February 20,
1996 to December 31, 1996 and the year ended December 31, 1997, respectively.
For the period from February 20, 1996 to December 31, 1996, Net.B@nk received
$60,000 in management fees from CFB. Net.B@nk expensed $883,606, $1,217,459, and
$0 for the period from February 20, 1996 (date of incorporation) to December 31,
1996, and for the years ended December 31, 1997 and 1998, respectively, for fees
paid to CFB for various advisory, consulting, custodial services, and net
interest expense. Net.B@nk recorded $31,232 in consulting expense and
contributed capital for consulting services contributed by CFB during the period
from February 20, 1996 to December 31, 1996. In addition, during the year ended
December 31, 1997, Net.B@nk purchased $36.8 million in loans from CFB. The
purchase price included a premium of $808,832. CFB continues to service these
loans for a fee ranging from .375% to 2% of the loan balance. During the year
ended December 31, 1998, Net.B@nk was included in a loan participation with CFB
in the amount of $246,600. This loan is serviced by CFB.

    OTHER TRANSACTIONS--Net.B@nk paid $67,032, $104,958, and $60,000 for the
period from February 20, 1996 (date of incorporation) to December 31, 1996, and
for the years ended December 31, 1997 and 1998, respectively, in consulting fees
to a director. In addition, Net.B@nk expensed $278,418 and $246,265 for amounts
paid to a company owned by the Chairman of the Board of Net.B@nk for accounting
and management services provided to Net.B@nk during the period from February 20,
1996 to December 31, 1996 and for the year ended December 31, 1997,
respectively.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

    The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS 107, DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have
been determined by Net.B@nk using available market information and

                                      F-23
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts Net.B@nk could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
                                                                        DECEMBER 31, 1997
                                                                       --------------------
                                                                       CARRYING     FAIR
                                                                        AMOUNT      VALUE
                                                                       ---------  ---------
<S>                                                                    <C>        <C>
Assets:
  Cash...............................................................  $ 250,535  $ 250,535
  Federal funds sold.................................................  28,853,057 28,853,057
  Securities available for sale......................................  18,054,146 18,054,146
  Loans..............................................................  44,933,407 46,109,296
Liabilities:
  Noninterest bearing deposits.......................................    293,054    293,054
  Interest bearing deposits--certificates of deposit.................  20,325,459 20,478,013
  Interest bearing deposits--other...................................  38,108,250 38,108,250
</TABLE>

<TABLE>
<CAPTION>
                                                                       DECEMBER 31, 1998
                                                                     ----------------------
                                                                      CARRYING      FAIR
                                                                       AMOUNT      VALUE
                                                                     ----------  ----------
<S>                                                                  <C>         <C>
Assets:
  Cash.............................................................  $  446,940  $  446,940
  Federal funds sold...............................................  12,013,243  12,013,243
  Securities available for sale....................................  59,465,062  59,465,062
  Loans............................................................  280,427,603 278,607,376
  Loan sale proceeds receivable....................................  23,202,679  23,202,679
Liabilities:
  Noninterest bearing deposits.....................................   9,285,540   9,285,540
  Interest bearing deposits--certificates of deposit...............  202,887,027 203,292,801
  Interest bearing deposits--other.................................  71,416,584  71,416,584
  Other borrowed funds.............................................  60,000,000  59,924,400
</TABLE>

    The carrying amounts of cash and due from banks and federal funds sold are a
reasonable estimate of their fair value due to the short-term nature of these
financial instruments. The fair value of investment securities and loans is
based on quoted market prices and dealer quotes. The fair value of time deposits
and other borrowed funds is estimated by discounting the future cash flows using
Net.B@nk's current interest rates for such financial instruments.

    As required by SFAS 107, demand deposits are shown at their face value. No
additional value has been ascribed to core deposits, which generally bear a low
rate of or no interest and do not fluctuate in response to changes in interest
rates.

                                      F-24
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

    The fair value estimates presented herein are based on pertinent information
available to management at December 31, 1998 and 1997. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.

21. CONDENSED FINANCIAL STATEMENTS OF NET.B@NK, INC. (PARENT ONLY)

    As of December 31, 1996, Net.B@nk was not a subsidiary of Net.B@nk, Inc.
Therefore, Net.B@nk, Inc.'s financial statements as of December 31, 1996 include
only parent company amounts.

    The condensed balance sheets of Net.B@nk, Inc. (parent only) as of December
31, 1997 and 1998 follow:

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                     ----------------------------
CONDENSED BALANCE SHEET                                                                  1997           1998
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
Assets:
    Cash...........................................................................  $  10,122,666  $      44,398
    Investment in subsidiary.......................................................     23,734,818     38,426,644
    Other assets...................................................................        269,357        283,846
                                                                                     -------------  -------------
        Total assets...............................................................  $  34,126,841  $  38,754,888
                                                                                     -------------  -------------
                                                                                     -------------  -------------

Liabilities........................................................................  $       9,444  $          --

Shareholders' equity:
    Common stock...................................................................         61,456         61,568
    Additional paid-in capital.....................................................     43,631,314     43,671,732
    Unamortized stock plan expense.................................................        (75,689)       (24,279)
    Accumulated deficit............................................................     (9,416,621)    (4,952,609)
    Accumulated other comprehensive loss, net of tax...............................        (83,063)        (1,524)
                                                                                     -------------  -------------
        Total shareholders' equity.................................................     34,117,397     38,754,888
                                                                                     -------------  -------------
                                                                                     $  34,126,841  $  38,754,888
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</TABLE>

                                      F-25
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. CONDENSED FINANCIAL STATEMENTS OF NET.B@NK, INC. (PARENT ONLY) (CONTINUED)
    The condensed statements of operations and comprehensive income and cash
flows for years ended December 31, 1997 and 1998 follow:

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED     YEAR ENDED
                                                                                      DECEMBER 31,   DECEMBER 31,
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)                        1997           1998
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
Net interest income.................................................................  $      87,984  $     162,006
Expenses............................................................................     (4,150,859)       (58,281)
                                                                                      -------------  -------------
Income (loss) before income (loss) of subsidiary....................................     (4,062,875)       103,725
Income (loss) of subsidiary.........................................................     (1,514,564)     4,360,287
                                                                                      -------------  -------------
Net income (loss)...................................................................  $  (5,577,439) $   4,464,012
                                                                                      -------------  -------------
Other comprehensive income (loss) of subsidiary.....................................        (83,063)        81,539
                                                                                      -------------  -------------
Comprehensive income (loss).........................................................  $  (5,660,502) $   4,545,551
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED     YEAR ENDED
                                                                                      DECEMBER 31,   DECEMBER 31,
CONDENSED STATEMENT OF CASH FLOWS                                                         1997           1998
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
Operating activities:
    Net income (loss)...............................................................  $  (5,577,439) $   4,464,012
    Adjustments to reconcile net income (loss) to net cash used by operating
      activities:
    Amortization....................................................................      1,783,266         51,410
    (Income) loss of subsidiary.....................................................      1,514,564     (4,360,287)
    Changes in assets and liabilities:
    (Increase) decrease in other assets.............................................        125,363        (14,489)
    Decrease in other liabilities...................................................     (1,623,078)        (9,444)
                                                                                      -------------  -------------
        Net cash used by operating activities.......................................     (3,777,324)       131,202
Investing activities--investment in subsidiary......................................    (25,249,381)   (10,250,000)
Financing activities--net proceeds from sale of stock...............................     38,380,705         40,530
                                                                                      -------------  -------------
(Decrease) increase in cash and cash equivalents....................................      9,354,000    (10,078,268)
Cash:
    Beginning of year...............................................................        768,666     10,122,666
                                                                                      -------------  -------------
    End of year.....................................................................  $  10,122,666  $      44,398
                                                                                      -------------  -------------
                                                                                      -------------  -------------
Supplemental disclosure of cash flow information:
    Cash paid during the year for:
        Interest....................................................................  $     163,479  $      23,111
                                                                                      -------------  -------------
                                                                                      -------------  -------------
        Income taxes................................................................  $          --  $      30,000
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>

                                      F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER NET.B@NK, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.

NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT
A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES AND CANADA ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION
RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS.

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

                               TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Prospectus Summary........................................................    3
Risk Factors..............................................................    7
Cautionary Statement Regarding
  Forward-Looking Statements..............................................   14
Use of Proceeds...........................................................   15
Capitalization............................................................   16
Price Range of Common Stock...............................................   17
Dividend Policy...........................................................   17
Selected Consolidated Financial Data......................................   18
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations..............................................................   19
Business..................................................................   39
Management................................................................   62
Relationship with Carolina First Corporation..............................   64
Principal Shareholders....................................................   65
Description of Capital Stock..............................................   66
Underwriting..............................................................   69
Legal Matters.............................................................   71
Experts...................................................................   71
Where You Can Find More Information About Net.B@nk........................   72
Index to Consolidated Financial Statements................................  F-1
</TABLE>

                                3,000,000 SHARES

                                 NET.B@NK, INC.

                                     [LOGO]

                                  COMMON STOCK

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

                                   PROSPECTUS

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

                            BEAR, STEARNS & CO. INC.

                         BANCBOSTON ROBERTSON STEPHENS

                                RAYMOND JAMES &
                                ASSOCIATES, INC.

                           KELTON INTERNATIONAL LTD.

                                           , 1999

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

                   SUBJECT TO COMPLETION, DATED JUNE 1, 1999

PRELIMINARY PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OF SALE IS NOT PERMITTED.
<PAGE>
                                  $100,000,000

                                     [LOGO]
                     % CONVERTIBLE SUBORDINATED NOTES DUE 2004
                               ------------------


    Net.B@nk, Inc. is offering its   % Convertible Subordinated Notes Due 2004.
The notes will mature on June 1, 2004 unless previously redeemed. We will pay
interest on the notes semi-annually on June 1 and December 1 of each year,
beginning December 1, 1999.


    Holders may convert any notes or portions of the notes into shares of our
common stock at a conversion price of $  .  per share, subject to adjustment.
This is equivalent to   shares of common stock per $1,000 principal amount of
notes. Our common stock is quoted on the Nasdaq National Market under the symbol
"NTBK." On May 12, 1999, the last reported sale price of the common stock was
$186.00 ($62.00 after giving effect to our May 14, 1999 3 for 1 stock split) per
share.


    We may redeem the notes, in whole or in part, before June   , 2002 at a
redemption price equal to $1,000 per $1,000 principal amount of notes, plus
accrued interest, if any, to the redemption date, if the closing price for our
common stock has exceeded 150% of the conversion price for at least 20 trading
days within a period of 30 consecutive trading days ending on the trading day
prior to the date of the mailing of the notice of redemption. We will make an
additional payment in cash with respect to the notes called for such redemption
of $  per $1,000 principal amount of notes, less the amount of interest actually
paid on such note before the call for redemption.



    We may redeem the notes, in whole or in part, at any time on or after June
  , 2002, at the declining redemption prices listed in this prospectus plus
accrued interest.


    In the event of a "Change of Control," under certain circumstances, holders
may require us to repurchase their notes in whole or in part at a repurchase
price of 100% of the principal amount plus accrued interest.

    The notes are unsecured and rank junior to all of our existing and future
senior indebtedness.

    An underwriter that is a foreign broker-dealer will purchase up to
$      principal amount of the notes for sales outside the United States.

    Concurrently with this notes offering, and by a separate prospectus, we are
offering 3,000,000 shares of our common stock, plus up to an additional 450,000
shares to cover over-allotments by the underwriters for that offering. The
completion of this notes offering and of the common stock offering do not depend
on one another.

    SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN RISKS
THAT YOU SHOULD CONSIDER BEFORE PURCHASING THE NOTES.

    NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

    THE NOTES ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR OTHER OBLIGATIONS OF A BANK
OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
                            ------------------------


<TABLE>
<S>                                                              <C>              <C>
                                                                    PER NOTE           TOTAL
                                                                 ---------------  ---------------
Initial public offering price..................................         %                $
Underwriting discounts and commissions.........................         %                $
Proceeds, before expenses, to us...............................         %                $
</TABLE>


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

    The initial public offering price set forth above does not include accrued
interest, if any. Interest on the notes will accrue from   , 1999 and must be
paid by the purchaser if the notes are purchased after that date.

    The underwriters may purchase up to an additional $15,000,000 aggregate
principal amount of notes from us at the initial public offering price less the
underwriting discount.

    The underwriters expect to deliver the notes in book-entry form only through
the facilities of The Depository Trust Company against payment in New York, New
York on       , 1999.
                            ------------------------
BEAR, STEARNS & CO. INC.
           BANCBOSTON ROBERTSON STEPHENS
                       RAYMOND JAMES & ASSOCIATES, INC.
                                  KELTON INTERNATIONAL LTD.

                 The date of this prospectus is              , 1999
<PAGE>
                              [INSIDE FRONT COVER]

    [Graphics appear here, with title "Banking for the 21st Century" and
photographs of computer screens displaying Net.B@nk's home page and its banking,
investment, lending, interest checking, electronic bill payment and account
statement pages. Four bar graphs also appear, showing growth in total customer
accounts, checking accounts, deposits and assets from December 31, 1997 to March
31, 1999.]
<PAGE>
                               PROSPECTUS SUMMARY


    THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE NOTES. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY. UNLESS
STATED OTHERWISE, ALL SHARE DATA IN THIS PROSPECTUS REFLECTS OUR 3 FOR 1 STOCK
SPLIT IN THE FORM OF A STOCK DIVIDEND, WHICH HAD A RECORD DATE OF APRIL 23, 1999
AND A DISTRIBUTION DATE OF MAY 14, 1999. REFERENCES TO "WE," "US," "OUR" AND
"NET.B@NK" GENERALLY REFER TO NET.B@NK, INC. AND ITS SOLE SUBSIDIARY, NET.B@NK,
ON A CONSOLIDATED BASIS, EXCEPT WHERE WE INDICATE THAT NET.B@NK, INC. MEANS ONLY
THE PARENT ENTITY AND NET.B@NK REFERS ONLY TO THE BANKING SUBSIDIARY.


OUR BUSINESS

    Net.B@nk, our sole subsidiary, is the largest federally-insured bank
operating exclusively on the internet. Our mission is to profitably provide a
broad range of banking and financial services to the growing number of internet
users. Our low cost branchless business model allowed us to attain profitability
within a year of acquiring our bank charter and to continue to maintain
profitability while passing along our operating cost savings to customers in the
form of attractive interest rates and low fees.

    Our unique, internet-based operating strategy has allowed us to experience
rapid growth. During 1998, our customer accounts grew from 4,755 to 17,408,
deposits grew from $58.7 million to $283.6 million and total assets grew from
$93.2 million to $388.4 million. During 1998, we added an average of 1,054 net
customer accounts per month. At March 31, 1999, we had 24,634 customer accounts,
$332.7 million in deposits and $526.5 million in total assets. During the four
months ended April 30, 1999, we added an average of over 2,900 net customer
accounts per month with 4,865 added in April alone.

    We offer a broad array of products and services that customers would
typically expect from a traditional bank. Our products and services include
checking and money market accounts, certificates of deposit, electronic bill
payment, debit cards, credit cards, mortgage loans, business equipment leases
and securities brokerage services. We plan to offer consumer loans, including
home equity and automobile loans, beginning in the third quarter of 1999. We
also intend to develop additional products and services such as insurance
products, electronic bill presentment and electronic document and image storage
in a virtual safe deposit box.

    Since our equity offering in February 1999, we have continued to experience
rapid growth in our business and have entered into several new programs to
expand and improve our operational and product capabilities. Since February
1999, we have initiated the following:

    - EXPANDED MARKETING PROGRAM. We embarked on a new marketing program that
      has been highly successful in reaching our targeted audience and has
      produced a significant increase in checking accounts. We believe this
      growth in our checking account base indicates growing customer willingness
      to move their everyday banking activities to Net.B@nk and will result in
      long-term customer relationships. Furthermore, we believe that our
      checking account customers will visit our Web site more frequently and
      spend more time on our Web site, allowing us to cross-sell a variety of
      other products and services.

    - SERVICING AGREEMENT WITH PNC BANK CORP. We entered into a consumer loan
      processing and servicing agreement with PNC Bank Corp. This agreement will
      allow us to offer consumer loan products on-line. PNC will provide
      origination and loan servicing for these consumer loans as well as
      substantially all consumer loans for which we retain servicing rights on a
      scalable basis at a favorable cost.

    - IMPROVED CUSTOMER SERVICE. We increased our customer support staff by over
      70% in order to maintain high-quality customer service. We have also
      invested in advanced technology and

                                       3
<PAGE>
      implemented new procedures in order to continually improve the quality and
      responsiveness of our customer service.

    - STRENGTHENED LENDING AND FINANCIAL OPERATIONS. We expanded our mortgage
      lending capabilities through a mortgage loan origination partnership with
      Virtuallender.com. We strengthened our lending and financial operations by
      adding several experienced individuals to our professional staff.
      Additionally, we have significantly increased our loan portfolio while
      continuing to maintain a conservative lending and investment strategy.

OUR MARKET OPPORTUNITY

    By offering a broad array of financial services via the internet, we are
well-positioned to capitalize on the internet's rapid growth. According to
International Data Corporation, the number of worldwide internet users is
projected to grow from an estimated 159.3 million in 1998 to an estimated 410.4
million by 2002. The internet is emerging rapidly as a means of providing
financial services. According to Jupiter Communications, the number of on-line
banking households in the United States is projected to grow from an estimated
6.6 million in 1998 to an estimated 17.1 million in 2002. A demographic study by
Jupiter Communications indicates that internet users tend to be young, mobile
professionals with relatively high incomes. We believe these demographics
suggest a growing market for the convenience, attractive interest rates and low
fees that characterize Net.B@nk.

    As the first federally-insured bank to operate solely on the internet, we
have a first mover advantage relative to on-line banks with less extensive
market presence and less established operating histories. In addition, we have a
competitive cost advantage over traditional banks.

OUR STRATEGY

    Our objective is to become the leading provider of a full range of on-line
financial services. To accomplish this objective, we intend to:

    - Build national brand awareness through increased marketing efforts.

    - Expand our customer base by offering attractive interest rates and low
      fees, a result of our low-cost, branchless business model.

    - Develop new products and services and enter into strategic alliances where
      appropriate.

    - Employ a conservative lending and investment strategy to maintain high
      asset quality.

    - Outsource operational functions to provide scalability and flexibility.

    - Generate noninterest income through cross-marketing initiatives.

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

    Our principal executive offices are located at 950 North Point Parkway,
Suite 350, Alpharetta, Georgia 30005, telephone (770) 343-6006. Our Web site is
located at www.netbank.com. Information contained on our Web site is not a part
of this prospectus.

                                       4
<PAGE>
                                  THE OFFERING


<TABLE>
<S>                            <C>
Securities offered...........  $100,000,000 ($115,000,000 if the over-allotment option is
                               exercised in full) of    % Convertible Subordinated Notes
                               Due 2004.

Offering price...............  100% of the principal amount plus accrued interest, if any,
                               from            , 1999.

Interest payment dates.......  June 1 and December 1 of each year, beginning December 1,
                               1999.

Maturity.....................  June 1, 2004.

Conversion price.............  The notes are convertible into our common stock at $
                               per share, which is equivalent to a rate of       shares per
                               $1,000 principal amount of notes, subject to adjustment in
                               certain events.

                               The notes will be convertible at any time through the close
                               of business on the business day immediately preceding the
                               maturity date, unless previously redeemed or repurchased.
                               Holders of notes called for redemption or repurchase may
                               convert the notes up to the close of business on the
                               business day immediately preceding the date fixed for
                               redemption or repurchase.

Provisional redemption by
  Net.B@nk...................  We may redeem the notes (the "Provisional Redemption"), in
                               whole or in part, at any time prior to June   , 2002, at a
                               redemption price equal to $1,000 per $1,000 principal amount
                               of notes to be redeemed plus accrued and unpaid interest, if
                               any, to the date of redemption (the "Provisional Redemption
                               Date") if the closing price of our common stock has exceeded
                               150% of the conversion price then in effect for at least 20
                               trading days within a period of 30 consecutive trading days
                               ending on the trading day prior to the date of mailing of
                               the notice of Provisional Redemption (the "Notice Date").
                               Upon any Provisional Redemption, Net.B@nk will make an
                               additional payment in cash (the "Make-Whole Payment") with
                               respect to the notes called for redemption in an amount
                               equal to $      per $1,000 principal amount of notes, less
                               the amount of any interest actually paid on the note before
                               the call for redemption. WE WILL BE OBLIGATED TO MAKE THE
                               MAKE-WHOLE PAYMENT ON ALL NOTES CALLED FOR PROVISIONAL
                               REDEMPTION, INCLUDING ANY NOTES CONVERTED AFTER THE NOTICE
                               DATE AND BEFORE THE PROVISIONAL REDEMPTION DATE.

Optional redemption by
  Net.B@nk...................  We may redeem the notes, in whole or in part, at any time on
                               or after June   , 2002, at the declining redemption prices
                               listed in this prospectus plus accrued and unpaid interest.

Repurchase at option of
  holders upon a Change of
  Control....................  In the event of a "Change of Control," as defined in the
                               indenture for the notes, holders of the notes may require
                               that we repurchase the notes, in whole or in part, at a
                               redemption price of 100% of the principal amount of the
                               notes plus accrued and unpaid interest.

Ranking......................  The notes will be unsecured. The notes will rank junior in
                               right of payment to all of our existing and future "Senior
                               Indebtedness," as
</TABLE>


                                       5
<PAGE>

<TABLE>
<S>                            <C>
                               that term is defined in the indenture for the notes. As of
                               March 31, 1999, Net.B@nk, Inc. had no Senior Indebtedness
                               outstanding. The notes are effectively subordinated to all
                               existing and future liabilities of our subsidiaries,
                               including our banking subsidiary's obligations to its
                               depositors and to its trade and other creditors. At March
                               31, 1999, our banking subsidiary's liabilities, including
                               deposits, were approximately $383.0 million. The indenture
                               for the notes will not limit the amount of additional
                               indebtedness that we or any of our subsidiaries can create,
                               incur, assume or guarantee.

Certain covenants............  The indenture for the notes contains covenants concerning,
                               among other things, our banking subsidiary's continuing
                               status as an insured depository institution and our
                               consolidation or merger or the sale of our assets.

Events of default............  Events of default include:

                                   (1) Failure to pay the principal of or premium, if any,
                                       on the notes when due, including our failure to
                                       purchase the notes when required upon a Change of
                                       Control, regardless of whether payment is prohibited
                                       by the subordination provisions of the indenture for
                                       the notes;

                                   (2) Default for 30 days in payment of any installment of
                                       interest on the notes, regardless of whether payment
                                       is prohibited by the subordination provisions of the
                                       indenture for the notes;

                                   (3) Failure to provide notice of a Change of Control,
                                       regardless of whether the notice or related payment
                                       is prohibited by the subordination provisions of the
                                       indenture for the notes;

                                   (4) Failure to perform any other covenant in the
                                       indenture for the notes continuing for 90 days after
                                       written notice by the trustee for the notes or the
                                       holders of 25% in aggregate principal amount of
                                       notes; or

                                   (5) Certain events involving our bankruptcy, insolvency
                                       or reorganization.

Global note; book entry
  system.....................  The notes will be issued only in fully registered form
                               without coupons and in minimum denominations of $1,000 and
                               integral multiples of $1,000. The notes will be evidenced by
                               a global note deposited with the trustee for the notes, as
                               custodian for The Depository Trust Company. Beneficial
                               interests in the global note will be shown on, and transfers
                               of those interests will be effected only through, records
                               maintained by The Depository Trust Company and its
                               participants and indirect participants.
</TABLE>

                                       6
<PAGE>

<TABLE>
<S>                            <C>
Listing......................  The notes will not be listed on any securities exchange or
                               quoted on the Nasdaq National Market. The underwriters have
                               advised Net.B@nk that they intend to make a market in the
                               notes. The underwriters are not obligated, however, to make
                               a market in the notes, and any such market making may be
                               discontinued at any time at the sole discretion of the
                               underwriters without notice.

Nasdaq National Market Symbol
  for our common stock.......  NTBK

Use of proceeds..............  We intend to invest the majority of the net proceeds from
                               this offering in earning assets, including purchased loan
                               portfolios, new loans that we originate and investment
                               securities. We intend to use the earnings from these assets
                               and the balance of the net proceeds from this offering for
                               general corporate purposes, including increasing our
                               budgeted marketing efforts to $11.0 million for the next
                               twelve months. We also intend to hire additional personnel,
                               to fund other costs related to our accelerated deposit
                               growth and to pursue strategic partnerships and investments.
                               See "Use of Proceeds."

Concurrent common stock
  offering...................  Concurrent with this notes offering and by means of a
                               separate prospectus, we are offering 3,000,000 shares of our
                               common stock, plus an additional 450,000 shares to cover
                               over-allotments by the underwriters for that offering. The
                               completion of this notes offering and the common stock
                               offering do not depend on one another.
</TABLE>

                           OTHER INTRODUCTORY MATTERS

    Information regarding historical and projected growth in use of the internet
and electronic commerce or relating to the demographic profile of internet users
is derived from reports issued by Jupiter Communications and International Data
Corporation. The demographic profile of our customer base is derived from data
provided by John H. Harland Company, an independent firm that we retained. The
FDIC Institution Directory provides other statistical data relating to the
banking industry.

    Net.B@nk-TM- is a trademark of Net.B@nk, Inc. This prospectus also contains
product names and trademarks of other organizations.

                                       7
<PAGE>
                      SUMMARY CONSOLIDATED FINANCIAL DATA

    The summary historical financial information presented below is derived from
Net.B@nk's audited consolidated financial statements as of December 31, 1996,
1997 and 1998 and for the period from February 20, 1996 to December 31, 1996 and
for the years ended December 31, 1997 and 1998 and from Net.B@nk's unaudited
consolidated financial statements as of and for the three months ended March 31,
1998 and 1999. The summary historical financial information should be read in
conjunction with Net.B@nk's consolidated financial statements and related notes,
which are included elsewhere in this prospectus.


<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                  FEBRUARY 20,
                                                  1996 (DATE OF              YEAR ENDED              THREE MONTHS ENDED MARCH 31,
                                                INCORPORATION) TO           DECEMBER 31,
                                                  DECEMBER 31,       ---------------------------     -----------------------------
                                                      1996               1997           1998             1998             1999
                                               -------------------   -------------  ------------     ------------     ------------
<S>                                            <C>                   <C>            <C>              <C>              <C>
INCOME STATEMENT DATA:
Interest income..............................      $     7,709       $   2,223,165  $ 18,088,044     $  2,206,614     $  7,557,850
Interest expense.............................        --                  1,259,743    11,424,432        1,303,628        4,559,707
                                               -------------------   -------------  ------------     ------------     ------------
  Net interest income........................            7,709             963,422     6,663,612          902,986        2,998,143
Provision for loan losses....................        --                    471,706        20,132            3,661           49,806
                                               -------------------   -------------  ------------     ------------     ------------
Net interest income after provision for loan
  losses.....................................            7,709             491,716     6,643,480          899,325        2,948,337
Noninterest income...........................           60,000              62,607       683,092          122,495          245,715
Noninterest expense..........................        3,906,891           6,131,762     5,187,390        1,173,267        2,147,536
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss) before income taxes......       (3,839,182)         (5,577,439)    2,139,182         (151,447)       1,046,516
Income tax benefit (expense).................        --                   --           2,324,830          --              (355,000)
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss)..........................      $(3,839,182)      $  (5,577,439) $  4,464,012     $   (151,447)    $    691,516
                                               -------------------   -------------  ------------     ------------     ------------
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss) per common
    share--basic(1)..........................      $     (1.44)      $       (0.55) $       0.24(2)  $      (0.01)    $       0.03
                                               -------------------   -------------  ------------     ------------     ------------
                                               -------------------   -------------  ------------     ------------     ------------
  Net income (loss) per common and potential
    common share--diluted(1).................      $     (1.44)      $       (0.55) $       0.23(2)  $      (0.01)    $       0.03
                                               -------------------   -------------  ------------     ------------     ------------
                                               -------------------   -------------  ------------     ------------     ------------
Weighted average shares
  outstanding--basic(1)......................        2,658,000          10,062,000    18,447,000       18,431,000       22,536,000
Weighted average shares
  outstanding--diluted(1)....................        2,658,000          10,062,000    19,152,000       18,431,000       23,424,000

Ratio of earnings to fixed charges...........           (644.8)(3)            (3.3 (3)          1.2          (0.9)(3)          1.2

BALANCE SHEET DATA--AT PERIOD END:
Total assets.................................      $ 1,246,449       $  93,219,809  $388,436,736     $163,463,431     $526,463,208
Total deposits...............................        --                 58,726,763   283,589,151      128,681,669      332,678,334
Shareholders' equity (deficit)...............         (386,073)         34,117,397    38,754,888       34,100,461      143,748,122
Book value per share(1)......................            (0.10)               1.85          2.10             1.85             5.57

FINANCIAL RATIOS AND ACCOUNT DATA:
Percentage of average shareholders' equity
  (deficit) to average total assets..........           (30.97)%            35.71%         15.13%           26.58%           19.95%
Percentage of allowance for loan losses to
  total loans................................               --                1.01%         1.24%            0.43%            1.05%
Percentage of charge-offs to average loans...               --                0.08%         0.36%            0.05%            0.12%
Percentage of nonperforming loans to total
  loans......................................               --                  --            --               --               --
Number of accounts at period end.............               --               4,755        17,408            8,416           24,634
</TABLE>


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

(1) On April 13, 1999, we declared a 3 for 1 split of our common stock to be
    effected in the form of a stock dividend payable on May 14, 1999 to
    shareholders of record as of the close of business on April 23, 1999. All
    references to share and per share amounts have been retroactively adjusted
    to reflect this split.

(2) Assuming no income tax benefit and a statutory income tax rate of 34% for
    the year, pro forma net income per common and potential common share for the
    year ended December 31, 1998 would have been $0.03 per share, basic, and
    $0.02 per share, diluted.


(3) For purposes of computing this ratio, earnings available for fixed charges
    consist of earnings (loss) before provision for income taxes and fixed
    charges. Fixed charges consist of interest expense plus such portion of
    rental expense as is representative of the interest factor. Deficiencies in
    earnings to fixed charges for the period from February 20, 1996 to December
    31, 1996, the year ended December 31, 1997 and the three months ended March
    31, 1998 were $3,839,182, $5,577,439 and $151,447, respectively.


                                       8
<PAGE>
                                  RISK FACTORS

    AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE SPECIFIC FACTORS LISTED BELOW, TOGETHER WITH THE
CAUTIONARY STATEMENT THAT FOLLOWS THIS SECTION AND THE OTHER INFORMATION
INCLUDED IN THIS PROSPECTUS BEFORE PURCHASING THE NOTES.

    THE NOTES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK
OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL
AGENCY.

WE COULD SUSTAIN LOSSES IF THE QUALITY OF OUR LOAN PORTFOLIO DETERIORATES

    If the quality of our loan portfolio deteriorates due to economic downturns
or our inaccurate assessment of borrower creditworthiness, our interest income
and net interest margin could decrease and our loan loss provision could
increase. This could result in losses that materially adversely affect our
business, financial condition, results of operations and cash flows. A
significant portion of our net income is derived from our loan portfolio. If an
economic downturn occurs either generally or in the Western or Southeastern
United States, the regions collectively representing the greatest concentration
of loans in our loan portfolio, borrowers may be less likely to repay their
loans as scheduled.

OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH IN USE AND COMMERCIAL VIABILITY OF
  THE INTERNET

    Our future success depends substantially on continued growth in use of the
internet. The internet is, however, a relatively new commercial marketplace and
may not continue to grow. If internet use does not continue to grow, our
business, financial condition, results of operations and cash flows could be
materially adversely affected.

    Additionally, to the extent the internet's technical infrastructure or
security concerns adversely affect its growth, our business, financial
condition, results of operations and cash flows could be materially adversely
affected. If the number of internet users and the level of use continues to
grow, the internet's technical infrastructure may become unable to support the
demands placed upon it. Furthermore, third-party vendors might not be able to
timely and adequately develop the necessary technical infrastructure for
significant increases in electronic commerce, such as a reliable network
backbone, or to introduce performance improvements, such as high-speed modems.
The internet could also lose its commercial viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of activity or due to increased governmental regulation.
Changes in or insufficient availability of telecommunication services could
produce slower response times and adversely affect use of the internet.
Furthermore, the general public's security concerns regarding the transmittal of
confidential information, such as credit card numbers, over the internet might
persist or even worsen. These security concerns could lead to resistance against
widespread acceptance of the internet as a viable commercial marketplace.

OUR OPERATIONS COULD BE INTERRUPTED IF OUR NETWORK OR COMPUTER SYSTEMS FAIL OR
  EXPERIENCE A SECURITY BREACH

    Interruptions in our operations resulting from damage or failure of our
network or computer system could materially adversely affect our business,
financial condition, results of operations and cash flows. Because we conduct
our business over the internet and outsource several critical functions to third
parties, our operations depend on our ability, as well as that of our
third-party service providers, to protect our computer systems and network
infrastructure against damage from fire, power loss, telecommunications failure,
physical break-ins or similar catastrophic events. Our computer systems and
network infrastructure could be vulnerable to unforeseen problems.

    In addition, any compromise or breach of our network or computer system
security could have a material adverse effect on our business, financial
condition, results of operations and cash flows. A

                                       9
<PAGE>
significant barrier to on-line financial transactions is the secure transmission
of confidential information over public networks. We rely on encryption and
authentication technology to provide the security and authentication necessary
for secure transmission of confidential information. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
could result in a compromise or breach of the algorithms Net.B@nk and its
third-party service providers use to protect customer transaction data. See
"Business--Security."

    We are part of a rapidly evolving electronic commerce market. Market
acceptance of internet banking depends substantially on widespread adoption of
the internet for general commercial and financial services transactions. If
another provider of commercial services through the internet were to suffer
damage from a physical break-in, security breach or other disruptive problem
caused by the internet or other users, the growth and public acceptance of the
internet for commercial transactions could suffer. Such an event could deter
potential customers or cause customers to leave us and thereby materially
adversely affect our business, financial condition, results of operations and
cash flows.

INDUSTRY COMPETITION MAY ADVERSELY AFFECT OUR SUCCESS

    The banking industry is highly competitive in general, and the market for
internet banking in particular has experienced a recent surge in new entrants.
Our future profitability depends on our ability to compete successfully. We
believe our ability to compete successfully depends on a number of factors,
including:

    - Market presence;

    - Customer service and satisfaction;

    - The capacity, reliability and security of our network infrastructure;

    - Ease of access to and navigation of the internet;

    - Our competitors' interest rates and service fees;

    - The scope of our products and services and the rate at which we and our
      competitors introduce them; and

    - Industry and general economic trends.

    If we experience difficulty in any of these areas, our business, financial
condition, results of operations and cash flows could be materially adversely
affected.

    In addition, many of our principal competitors, traditional banks and
thrifts, other internet banks and other financial service providers, such as
brokerage and insurance companies, have greater financial and other resources
than we do. Because there are few barriers to on-line market entry for existing
chartered financial institutions, our competitors could implement internet
banking operations with relative ease. Furthermore, brokerage companies and
other financial service providers may not be subject to the same degree of
regulation as we are. See "Business--Competition."

FAILURE TO IMPLEMENT OUR BUSINESS STRATEGY OR MANAGE OUR GROWTH EFFECTIVELY MAY
  ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE

    We may not succeed in implementing our business strategy and, even if we do
succeed, our strategy may not have the favorable impact on operations that we
anticipate. Our success depends on our ability to execute our marketing plan,
leverage our low cost structure, offer a broad array of products and services,
provide convenient, high-quality customer service and employ other elements of
our business strategy. We may not be able to manage effectively the expansion of
our operations or achieve the rapid execution necessary to exploit fully the
market for our services. If we are unable to manage growth effectively, or to
otherwise adequately implement our business strategy, our business,

                                       10
<PAGE>
financial condition, results of operations and cash flows could be materially
adversely affected. See "Business--Growth Strategy."

FAILURE TO INTRODUCE NEW PRODUCTS AND SERVICES SUCCESSFULLY MAY CAUSE US TO LOSE
  MARKET SHARE

    If we are unable to develop and bring additional products and services to
market in a timely manner, we could lose market share to competitors who are
able to offer these additional products and services, which could materially
adversely affect our business, financial condition, results of operations and
cash flows. Our success depends in part upon our ability to offer new products
and services that meet changing customer requirements. See "Business--Industry
Background," "--The Net.B@nk Solution" and "--Products and Services."

OUR PROFITABILITY AND GROWTH MAY BE ADVERSELY AFFECTED IF INTERNET BANKING DOES
  NOT BECOME WIDELY ACCEPTED

    If the internet banking market does not continue to develop, our business,
financial condition, results of operations and cash flows could be materially
adversely affected. The market for internet banking services is rapidly evolving
and the ultimate demand for and market acceptance of internet banking remains
uncertain. Market acceptance of internet banking depends on consumer willingness
to use the internet for general commercial and financial services transactions.
Other critical issues concerning the commercial use of the internet, including
reliability, cost, ease of use and access and quality of service, may also
impact the growth of internet use. Consequently, internet banking may not become
as widely accepted as traditional methods of banking and our profitability and
growth could be adversely affected. See "Business--Industry Background" and
"--The Net.B@nk Solution."

OUR COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY
  PERSONNEL

    Our success depends upon the continued service of our senior management team
and key technical personnel and upon our ability to attract and retain qualified
personnel. If we lose the services of our key personnel, or are unable to
attract additional qualified personnel, our business, financial condition,
results of operations and cash flows could be materially adversely affected. On
April 30, 1999, Donald S. Shapleigh, Jr. resigned as our President. We have not
yet hired anyone to replace him and cannot predict when this position will be
filled. To date, this vacancy has not adversely affected our operations;
however, we cannot predict the effect a continued vacancy in this position will
have on our operations. Our employees do not have employment agreements and may
voluntarily terminate their employment at any time. In the current market,
competition for qualified employees, particularly in technical fields, is
intense. In our experience, it can take a significant period of time to identify
and hire personnel with the combination of skills and attributes required to
carry out our strategy. We do not carry key person life insurance on any of our
executives. See "Management."

CHANGES IN INTEREST RATES MAY DECREASE OUR NET INTEREST INCOME

    An increase or decrease in interest rates could have a material adverse
effect on our net interest income, capital and liquidity. Our operations depend
substantially on our net interest income, which is the difference between the
interest income earned on our interest-earning assets, such as loans and
investments, and the interest expense paid on our interest-bearing liabilities,
such as deposits and other borrowings. Like most depository institutions, our
earnings are affected by changes in market interest rates and other economic
factors beyond our control. While we intend to continue to take measures to
decrease interest rate risk, these measures may not be effective in minimizing
the exposure to interest rate risk. The difference between the amount of
interest-earning assets and interest-bearing liabilities that mature within a
given period of time, or the interest rate sensitivity "gap," indicates the
extent to which an institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the amount of
interest rate-sensitive assets exceeds the amount of interest

                                       11
<PAGE>
rate-sensitive liabilities and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. In a rising interest rate environment, an institution
with a positive gap would be in a better position than an institution with a
negative gap to invest in higher yielding assets or have its asset yields
adjusted upward, which would result in the yield on its assets increasing at a
faster pace than the cost of its interest-bearing liabilities. During a period
of falling interest rates, however, an institution with a positive gap would
tend to have its assets maturing at a faster rate than one with a negative gap,
which would tend to reduce or restrain the growth of its net interest income. If
we are unsuccessful in managing interest rate fluctuations, our business,
financial condition, results of operations and cash flows could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Market Risk."

OUR OPERATIONS COULD BE INTERRUPTED IF OUR THIRD-PARTY SERVICE PROVIDERS
  EXPERIENCE DIFFICULTY OR TERMINATE THEIR SERVICES

    If our third-party service providers experience difficulties or terminate
their services and we are unable to replace them with another service provider,
our operations could be interrupted. If an interruption were to continue for a
significant period of time, our business, financial condition, results of
operations and cash flows could be materially adversely affected. We depend, and
will continue to depend, significantly on a number of relationships with
third-party service providers. Specifically, we receive essential Web hosting,
electronic bill payment and core systems processing services on an outsourced
basis from NCR Corporation, CheckFree Corporation and BISYS Group, Inc.,
respectively. See "Business--Operations."

OUR COMPUTER SYSTEMS, AND THOSE OF OTHERS ON WHOM WE RELY, MAY NOT OPERATE
  PROPERLY ON YEAR 2000-SENSITIVE DATES

    The year 2000 issue common to most corporations, including Net.B@nk,
concerns the inability of some computer software programs and databases to
recognize the year 2000 and other year 2000-sensitive dates. Computer programs
we or our service providers use that recognize a date using "00" as the year
1900 rather than the year 2000 could result in errors or system failures that
could ultimately cause us or our service providers to be unable to process
customer transactions. This would require us to cease operations pending
resolution of the problem. We believe our principal risk lies in the potential
inability of our outside vendors and service providers to process date-sensitive
information involving the year 2000. We also face risks relating to the
potential year 2000 noncompliance of other institutions that service our loans,
merchants receiving electronic transfers of funds from our customers, the
FedWire system governing electronic funds transfers, the ATM networks with which
we are is affiliated and the Federal Reserve system itself. Additionally, if any
of our borrowers encounter year 2000 computer malfunctions they may become
unable to repay their loans.

    Furthermore, if we are unable to achieve year 2000 readiness, our regulators
could suspend our operations. Although we are working to resolve the potential
impact of the year 2000 on the ability of the computerized information systems
we use to accurately process information that may be date-sensitive, if we or
any of our service providers or other entities cannot achieve year 2000
readiness, our business, financial condition, results of operations and cash
flows could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."

THE NOTES WILL RANK BELOW OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS AND WE MAY
  BE UNABLE TO REPAY OUR OBLIGATIONS UNDER THE NOTES

    The notes will be unsecured and subordinated in right of payment to all of
our existing and future Senior Indebtedness. The notes are effectively
subordinated to all existing and future liabilities of our

                                       12
<PAGE>
subsidiaries, including our banking subsidiary's obligations to its depositors
and to its trade and other creditors. Because the notes are subordinate to our
Senior Indebtedness, (1) in the event of our bankruptcy, liquidation or
reorganization, (2) upon the acceleration of the notes due to an event of
default under the notes indenture or (3) in certain other events described in
the notes indenture, we will make payments on the notes only after we have
satisfied all of our senior obligations. As a result, we may not have sufficient
assets remaining to pay amounts on any or all of the notes.

    The notes indenture does not limit our ability to incur other indebtedness
and liabilities. We may have difficulty paying our obligations under the notes
if we incur additional indebtedness or liabilities. As of March 31, 1999, before
giving effect to the use of proceeds from this notes offering and the concurrent
common stock offering, we had no Senior Indebtedness outstanding. At March 31,
1999, our banking subsidiary's liabilities, including deposits, were
approximately $383.0 million. We anticipate that from time to time we may incur
additional indebtedness, including Senior Indebtedness, which could adversely
affect our ability to pay our obligations under the notes.

WE MAY BE UNABLE TO REPURCHASE THE NOTES

    There is no sinking fund with respect to the notes, and at maturity the
entire outstanding principal amount of the notes will become due and payable by
Net.B@nk. If a Change of Control of Net.B@nk occurs, under certain circumstances
a holder of the notes may require that we repurchase all or a portion of its
notes. At maturity or if a Change of Control does occur, we might not have
sufficient funds or be able to arrange for additional financing to pay the
repurchase price for all the notes tendered to us or due at maturity. Future
borrowing arrangements or agreements relating to Senior Indebtedness to which we
become a party may contain restrictions on, or prohibitions against, our
repurchase of the notes. If the maturity date or a Change of Control occurs when
we are prohibited from repurchasing the notes, we could try to obtain the
consent of the lenders under those arrangements to purchase the notes or we
could attempt to refinance the borrowings that contain the restrictions. If we
do not obtain the necessary consents or refinance these borrowings, we will be
unable to repurchase the notes. In that case, our failure to repurchase any
tendered notes or notes due upon maturity would constitute an event of default
under the notes indenture. This could, in turn, cause a default under the terms
of our then existing Senior Indebtedness. As a result, in these circumstances,
the subordination provisions of the notes indenture would, absent a waiver,
prohibit any repurchase of the notes until we pay in full the senior debt.

THERE MAY BE NO PUBLIC MARKET FOR THE NOTES

    The notes will be a new issue of securities with no established trading
market. Although the underwriters for this notes offering have advised us that
they intend to make a market in the notes, they have no obligation to do so and
may discontinue their market making at any time without notice. In addition,
their market making activity will be subject to limits imposed under the federal
securities laws. Accordingly, a market for the notes may not develop and, if it
does develop, it may not be maintained. Various factors could have a material
adverse effect on the trading price of the notes, including (1) the failure of
an active market to develop and (2) fluctuations in prevailing interest rates.
In addition, our operating results and prospects could from time to time fall
below the expectations of public market analysts and investors, which could
adversely affect public perception of our creditworthiness and therefore the
trading price of the notes.

THE MARKET PRICE OF OUR COMMON STOCK HAS FLUCTUATED, AND COULD FLUCTUATE
  SIGNIFICANTLY IN THE FUTURE

    The market price of our common stock has been highly volatile since our
initial public offering, with closing prices ranging from a low of $2.92 per
share to a high of $78.34 per share. The market price of the common stock will
continue to fluctuate, and could fluctuate significantly, in response to various
factors and events, including the liquidity of the market for the common stock,
differences

                                       13
<PAGE>
between our actual financial or operating results and those expected by
investors and analysts, changes in analysts' recommendations or projections, new
statutes or regulations or changes in the interpretation of existing statutes
and regulations affecting our business, changes in general economic or market
conditions and broad market fluctuations. See "Price Range of Common Stock."

WE RELY ON INTELLECTUAL PROPERTY RIGHTS

    We regard the form and substance of our name as proprietary and attempt to
protect it by relying on intellectual property laws. We have submitted a United
States trademark registration for the Net.B@nk name and take active measures to
safeguard this name. Policing unauthorized use of proprietary information is
difficult, however, and we cannot assure you about the continued viability or
value of any of the intellectual property rights that we now have or may have in
the future. Litigation may be necessary in the future to enforce our
intellectual property rights.

    In addition, our business activities could infringe upon the proprietary
rights of others, and other parties could assert infringement claims against us.
Any litigation claims or counterclaims we might make could impair our business
because they could be time-consuming, result in costly litigation or divert
management's attention.

    We own the internet domain name "netbank.com". The regulation of domain
names in the United States and in foreign countries may change. Regulatory
bodies could establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names, any or all
of which may dilute the strength of our name. We may not acquire or maintain our
domain names in all of the countries in which our Web site may be accessed or
for any or all of the top-level domain names that may be introduced. The
relationship between regulations governing domain names and laws protecting
intellectual property rights is unclear. Therefore, we may not be able to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our trademarks and other intellectual property rights.

GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR ABILITY TO CONDUCT BUSINESS

    BANK REGULATION.  Revisions to existing or adoption of new laws or
regulations could subject us to more demanding regulatory compliance
requirements and could adversely affect our ability to conduct, or our cost of
conducting, business. Net.B@nk, Inc., the parent company, is regulated by the
Office of Thrift Supervision and the Georgia Department of Banking and Finance
and subject to certain restrictions imposed by the Board of Governors of the
Federal Reserve System. Net.B@nk, our banking subsidiary, is regulated by the
Office of Thrift Supervision and the FDIC. We are also subject to various laws
and regulations relating to commercial and consumer transactions generally, such
as the Uniform Commercial Code, as well as the electronic funds transfer rules
which are contained in Regulation E, issued by the Federal Reserve Board. Any of
these agencies, or other governmental or regulatory authorities, could revise
existing regulations or adopt new regulations at any time. Legislation and
regulatory initiatives containing wide-ranging proposals for altering the
structure, regulation and competitive relationships of financial institutions
are introduced regularly. We cannot predict whether or in what form a proposed
statute or regulation will be adopted or the extent to which it may affect our
business.

    Furthermore, given the rapid expansion of the electronic commerce market,
many regulatory bodies are adopting measures to ensure that their regulations
are keeping pace. For example, Congress has held hearings on whether to regulate
the electronic commerce market, while numerous states are considering adopting
their own laws to regulate internet banking. Furthermore, bank regulators are
considering proposing new laws relating to customer privacy. If enacted, these
laws, rules and regulations could force us to comply with more complex and
perhaps more burdensome regulatory

                                       14
<PAGE>
requirements, which could materially adversely affect our business, financial
condition, results of operations and cash flows. See "Business--Supervision and
Regulation."

    INTERNET REGULATION.  Our ability to conduct, and/or our cost of conducting,
business may also be adversely affected by a number of legislative and
regulatory proposals concerning other aspects of the internet, which are
currently under consideration by federal, state, local and foreign governmental
organizations. These proposals include, but are not limited to the following
matters: on-line content, user privacy, taxation, access charges, liability of
third-party activities and jurisdiction. Moreover, we do not know how existing
laws relating to these issues will be applied to the internet. The adoption of
new laws or the application of existing laws could decrease the growth in the
use of the internet, which could in turn decrease the demand for our products
and services, increase our cost of doing business or otherwise have a material
adverse effect on our business, financial condition, results of operations and
cash flows. Furthermore, government restrictions on internet content could slow
the growth of internet use and decrease acceptance of the internet as a
communications and commercial medium and thereby have a material adverse effect
on our business, financial condition and results of operations.

    Some local telephone carriers have asserted that the growing popularity and
use of the internet has burdened the existing telecommunications infrastructure
and caused interruptions in telephone service in areas with high internet use.
These carriers have petitioned the Federal Communications Commission to impose
access fees on internet service providers and commercial on-line service
providers. If the Federal Communications Commission imposes access fees, the
costs of transacting business over the internet could increase substantially,
potentially slowing the growth in use of the internet. This could in turn
decrease demand for our services or increase our cost of doing business, and
thus have a material adverse effect on our business, financial condition,
results of operations and cash flows.

    INTERNET PRIVACY.  Internet user privacy has become an issue both in the
United States and abroad. The Federal Trade Commission has proposed model
legislation that would force companies to comply with specified core information
practices. It is possible that Congress could adopt either legislation similar
to that proposed by the Federal Trade Commission or other privacy legislation
that could have a material adverse effect on the way in which we are allowed to
conduct our business, especially those aspects that involve the collection or
use of personal information. At the international level, the European Union has
adopted a directive that permits European Union member countries to impose
restrictions on the collection and use of personal data. This directive could,
among other things, affect United States companies that collect information over
the internet from individuals in European Union member countries and may impose
restrictions that are more stringent than current internet privacy standards in
the United States. In response to this directive, on November 4, 1998, the
United States Department of Commerce published for comment a set of safe harbor
principles regarding privacy protection for personally identifiable data. These
principles were revised on April 19, 1999.

OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT PORTION OF OUR
  OUTSTANDING COMMON STOCK AND COULD EXERCISE SIGNIFICANT INFLUENCE OVER
  NET.B@NK

    As of April 30, 1999, our directors and executive officers beneficially
owned 5,384,096 shares, representing approximately 20.0%, of the outstanding
common stock of Net.B@nk. As a result, our directors and executive officers
could exercise significant influence over matters requiring shareholder
approval, including the election of directors or a change in control of
Net.B@nk. See "Management" and "Principal Shareholders."

                                       15
<PAGE>
OUR ARTICLES OF INCORPORATION AND BYLAWS COULD DETER A CHANGE IN CONTROL AND
  DEPRIVE YOU OF AN OPPORTUNITY TO SELL YOUR COMMON STOCK UNDERLYING THE NOTES
  AT A PREMIUM OVER MARKET PRICES

    Our Articles of Incorporation and Bylaws contain provisions that may deter
an attempt to change or gain control of Net.B@nk. As a result, you may be
deprived of opportunities to sell some or all of your shares of the common stock
underlying the notes at prices that represent a premium over market prices.
These provisions include the existence of blank check preferred stock, staggered
terms for the directors, restrictions on the ability to change the number of
directors or to remove a director and supermajority voting requirements.

WE DO NOT INTEND TO PAY CASH DIVIDENDS

    We do not intend to pay cash dividends in the foreseeable future, as we
expect to apply any earnings to developing and expanding our business. See
"Dividend Policy."

THE MARKET PRICE OF THE COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR
  FUTURE SALE

    Future sales of substantial amounts of common stock in the public market or
the perception that such sales could occur could adversely affect the market
price of the common stock. Certain directors and executive officers of Net.B@nk,
who collectively hold 5,172,096 restricted shares of common stock, are precluded
under Office of Thrift Supervision requirements from selling any of these shares
of common stock without prior Office of Thrift Supervision approval until July
28, 2000. If all of these shares are sold when they first become eligible for
resale, the increase in the number of shares available for sale could adversely
affect the market price of the common stock.

WE HAVE BROAD DISCRETION IN ALLOCATING THE NET PROCEEDS FROM THIS OFFERING

    Our management will have broad discretion in allocating the net proceeds
from this offering. We have not yet determined the allocation of these funds to
the various purposes described in this prospectus. See "Use of Proceeds."

                                       16
<PAGE>
                         CAUTIONARY STATEMENT REGARDING
                           FORWARD-LOOKING STATEMENTS

    Some of the statements in this prospectus are forward-looking statements.
These forward-looking statements include statements in the "Business-Industry
Background" and "The Net.B@nk Solution" sections of this prospectus relating to
trends in internet use and electronic commerce. These forward-looking statements
also include statements relating to our performance in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations," "Use
of Proceeds" and "Business" sections of this prospectus. In addition, we may
make forward-looking statements in future filings with the Securities and
Exchange Commission and in written materials, press releases and oral statements
issued by us or on our behalf. Forward-looking statements include statements
regarding the intent, belief or current expectations of Net.B@nk or its officers
and can be identified by the use of forward-looking terms such as "may," "will,"
"should," "believe," "expect," "anticipate," "estimate," "continue" or the
negative of these words or comparable terminology. Forward-looking statements
relating to the following involve inherent risks and uncertainties:

    - The growth in the use of the internet;

    - Our business strategy;

    - Competitiveness in the banking industry;

    - Potential regulatory obligations; and

    - Other statements that are not historical facts.

    Our actual results could differ materially from those anticipated from the
forward-looking statements, depending on various important factors. These
factors include:

    - A possible decline in asset quality;

    - The evolving nature of the market for internet banking;

    - The possible adverse effects of unexpected changes in the interest rate
      environment; and

    - Increasing competition and regulatory changes.

    In addition, please note that matters set forth under the caption "Risk
Factors" constitute cautionary statements identifying important factors with
respect to the forward-looking statements, including risks and uncertainties,
that could cause actual results to differ materially from those in the
forward-looking statements.

    All forward-looking statements in this prospectus are based on information
available to us as of the date of this prospectus. We do not undertake to update
any forward-looking statements that may be made by us or on our behalf in this
prospectus or otherwise.

                                       17
<PAGE>
                                USE OF PROCEEDS

    We estimate that we will receive net proceeds from the sale of the notes of
approximately $96,710,000. If the underwriters exercise their over-allotment
option in full, $115,000,000 aggregate principal amount of the notes would be
sold by us, resulting in net proceeds of $111,260,000.

    We intend to invest the majority of the net proceeds from this notes
offering in earning assets, including purchased loan portfolios, new loans that
we originate and investment securities. We intend to use the earnings from these
assets and the balance of the net proceeds from this offering for general
corporate purposes, including increasing our budgeted marketing efforts to $11.0
million for the next twelve months. We also intend to hire additional personnel,
to fund other costs related to our accelerated deposit growth and to pursue
strategic partnerships and investments. We have not yet allocated the net
proceeds to each of the proposed purposes. Although we continually evaluate
opportunities for strategic partnerships and investments, we do not presently
have an understanding or agreement relating to any such arrangement that is
material to our business or that we have not otherwise disclosed in this
prospectus.

    Concurrent with this offering and by means of a separate prospectus, we are
offering 3,000,000 shares of our common stock. We estimate that the net proceeds
to us from the sale of this common stock, after payment of underwriting
discounts and commissions and estimated expenses of the offering, will be
$176,200,000, assuming an offering price of $62.00 per share. If the
underwriters exercise their over-allotment option in full, we estimate that the
net proceeds to us will be $202,705,000 after payment of underwriting discounts
and commissions and estimated expenses of the offering. The completion of the
common stock offering and this notes offering do not depend on one another. We
intend to use the proceeds from the common stock offering for the same purposes
as for the notes offering.

                                       18
<PAGE>
                                 CAPITALIZATION

    The following table sets forth our consolidated capitalization at March 31,
1999, the pro forma consolidated capitalization as adjusted to reflect the
completion of this notes offering and as further adjusted to reflect the
concurrent sale of the common stock. This table should be read together with
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes, which are included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                                                MARCH 31, 1999
                                                               -------------------------------------------------
                                                                                                      AS
                                                                                     AS             FURTHER
                                                                                  ADJUSTED         ADJUSTED
                                                                                 TO REFLECT       TO REFLECT
                                                                                    THIS       THE COMMON STOCK
                                                                   ACTUAL      NOTES OFFERING      OFFERING
                                                               --------------  --------------  -----------------
<S>                                                            <C>             <C>             <C>
Indebtedness:
Other borrowed funds.........................................  $   45,000,000  $   45,000,000   $    45,000,000
    % Convertible Subordinated Notes Due 2004................        --           100,000,000       100,000,000
                                                               --------------  --------------  -----------------
  Total indebtedness.........................................  $   45,000,000  $  145,000,000   $   145,000,000
                                                               --------------  --------------  -----------------
Shareholders' Equity:
Preferred stock, no par value, 10,000,000 shares authorized;
  no shares outstanding......................................        --              --               --
Common stock, $0.01 par value, 100,000,000 shares authorized;
  25,795,485 shares outstanding actual and as adjusted and
  28,795,485 shares outstanding as further adjusted..........          85,985          85,985           115,985
Additional paid-in capital...................................     148,604,108     148,604,108       324,774,108
Unamortized stock plan expense...............................         (15,709)        (15,709)          (15,709)
Accumulated deficit..........................................      (4,261,093)     (4,261,093)       (4,261,093)
Accumulated other comprehensive loss, net of tax.............        (665,169)       (665,169)         (665,169)
                                                               --------------  --------------  -----------------
  Total shareholders' equity.................................     143,748,122     143,748,122       319,948,122
                                                               --------------  --------------  -----------------
      Total capitalization...................................  $  188,748,122  $  288,748,122   $   464,948,122
                                                               --------------  --------------  -----------------
                                                               --------------  --------------  -----------------

Book value per share.........................................  $         5.57  $         5.57   $         11.11
                                                               --------------  --------------  -----------------
                                                               --------------  --------------  -----------------
</TABLE>


    The pro forma capitalization as adjusted to reflect this offering assumes
the offering of $100,000,000 aggregate principal amount of notes. The estimated
underwriting discounts and commissions and other fees and expenses related to
the notes are expected to total $3,290,000. If the underwriters exercise their
over-allotment option in full, $115,000,000 aggregate principal amount of notes
would be sold by us, resulting in total net proceeds of $111,260,000.



    The pro forma capitalization as further adjusted to reflect the common
offering again assumes the offering of $100,000,000 aggregate principal amount
of notes, assuming no conversion of the notes and in addition, assumes that the
net proceeds from the common stock offering, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, are $176,200,000, assuming an offering price of $62.00 per share. If the
underwriters exercise their over-allotment option in full, 3,450,000 shares of
common stock would be sold by us, resulting in total net proceeds of
$202,705,000.


                                       19
<PAGE>
                          PRICE RANGE OF COMMON STOCK


    Net.B@nk common stock, the security underlying the notes, was listed on the
Nasdaq SmallCap Market under the symbol "NTBK" from July 28, 1997 until February
5, 1999. Since February 5, 1999 Net.B@nk's common stock has been listed on the
Nasdaq National Market. The notes will not be listed on any securities exchange
or quoted on the Nasdaq National Market. The following table sets forth for the
periods indicated the high and low sales prices per share of common stock as
reported on the Nasdaq SmallCap Market and Nasdaq National Market. The market
price has been adjusted for the 3 for 1 stock split effected on May 14, 1999 in
the form of a stock dividend to the shareholders of record as of April 23, 1999.
See note 14 of the notes to the consolidated financial statements.



<TABLE>
<CAPTION>
                                                                                         HIGH        LOW
                                                                                       ---------  ---------
<S>                                                                                    <C>        <C>
NASDAQ SMALLCAP MARKET:
1997
  Third quarter (commencing July 28).................................................  $    4.42  $    2.88
  Fourth quarter.....................................................................  $    4.13  $    3.04

1998
  First quarter......................................................................  $    8.42  $    3.75
  Second quarter.....................................................................  $   10.54  $    7.33
  Third quarter......................................................................  $   12.13  $    5.25
  Fourth quarter.....................................................................  $   11.81  $    3.58

1999
  First quarter (through February 4).................................................  $   22.75  $    8.67

NASDAQ NATIONAL MARKET:
1999
  First quarter (from February 5)....................................................  $   25.00  $   11.67
  Second quarter (through May 12)....................................................  $   83.00  $   22.75
</TABLE>


    On May 12, 1999, there were approximately 139 holders of record of our
common stock. On May 12, 1999, the closing sales price of the common stock on
the Nasdaq National Market was $62.00 per share.

                                DIVIDEND POLICY


    We have not declared or paid any cash dividends on the common stock. On May
14, 1999, we effected a 3 for 1 stock split in the form of a stock dividend to
the shareholders of record as of April 23, 1999. See note 14 of the notes to the
consolidated financial statements. For the foreseeable future we do not intend
to declare cash dividends. We intend to retain earnings to grow our business and
strengthen our capital base. In addition, the Office of Thrift Supervision
regulates the dividends payable by our subsidiary, Net.B@nk. See
"Business--Supervision and Regulation--Capital Distributions."


                                       20
<PAGE>
                      SELECTED CONSOLIDATED FINANCIAL DATA

    The selected financial data set forth below as of December 31, 1996, 1997
and 1998 and with respect to the period from February 20, 1996 to December 31,
1996 and the years ended December 31, 1997 and 1998 is derived from the audited
consolidated financial statements of Net.B@nk. The selected financial data set
forth below as of and for the three months ended March 31, 1998 and 1999 is
derived from the unaudited consolidated financial statements of Net.B@nk, which
in our management's opinion, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information set forth in the financial statements. The results as of and for the
three months ended March 31, 1999 are not necessarily indicative of the results
for the full year ending December 31, 1999. The following selected historical
financial information should be read in conjunction with Net.B@nk's consolidated
financial statements and the related notes thereto included elsewhere in this
prospectus and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

<TABLE>
<CAPTION>
                                                             PERIOD FROM
                                                            FEBRUARY 20,
                                                            1996 (DATE OF             YEAR ENDED
                                                          INCORPORATION) TO          DECEMBER 31,
                                                            DECEMBER 31,       -------------------------
                                                                1996              1997          1998
                                                         -------------------   -----------  ------------
<S>                                                      <C>                   <C>          <C>
INCOME STATEMENT DATA:
Interest income........................................      $     7,709       $ 2,223,165  $ 18,088,044
Interest expense.......................................        --                1,259,743    11,424,432
                                                         -------------------   -----------  ------------
  Net interest income..................................            7,709           963,422     6,663,612
Provision for loan losses..............................        --                  471,706        20,132
                                                         -------------------   -----------  ------------
  Net interest income after provision for loan
    losses.............................................            7,709           491,716     6,643,480
Noninterest income.....................................           60,000            62,607       683,092
Noninterest expense....................................        3,906,891         6,131,762     5,187,390
                                                         -------------------   -----------  ------------
  Net income (loss) before income taxes................       (3,839,182)       (5,577,439)    2,139,182
Income tax benefit (expense)...........................        --                  --          2,324,830
                                                         -------------------   -----------  ------------
  Net income (loss)....................................      $(3,839,182)      $(5,577,439) $  4,464,012
                                                         -------------------   -----------  ------------
                                                         -------------------   -----------  ------------
  Net income (loss) per common share--basic(1).........      $     (1.44)      $     (0.55) $       0.24(2)
                                                         -------------------   -----------  ------------
                                                         -------------------   -----------  ------------
  Net income (loss) per common and potential common
    share--diluted(1)..................................      $     (1.44)      $     (0.55) $       0.23(2)
                                                         -------------------   -----------  ------------
                                                         -------------------   -----------  ------------
Weighted average shares outstanding--basic(1)..........        2,658,000        10,062,000    18,447,000
Weighted average shares outstanding--diluted(1)........        2,658,000        10,062,000    19,152,000
Ratio of earnings to fixed charges.....................           (644.8)(3)          (3.3 (3)          1.2

BALANCE SHEET DATA--AT PERIOD END:
Total assets...........................................      $ 1,246,449       $93,219,809  $388,436,736
Total deposits.........................................        --               58,726,763   283,589,151
Other borrowed funds...................................        --                  --         60,000,000
Shareholders' equity (deficit).........................         (386,073)       34,117,397    38,754,888
Book value per share(1)................................            (0.10)             1.85          2.10

FINANCIAL RATIOS AND ACCOUNT DATA:
Return on average total assets (ROA)...................              N/M            (11.81)%         1.85%(4)
Return on average shareholders' equity (ROE)...........              N/M            (33.07)%        12.25%(4)
Percentage of average shareholders' equity (deficit) to
  average total assets.................................           (30.97)%          35.71%         15.13%
Percentage of allowance for loan losses to total
  loans................................................               --              1.01%         1.24%
Percentage of charge-offs to average loans.............               --              0.08%         0.36%
Percentage of nonperforming loans to total loans.......               --                --            --
Number of accounts at period end.......................               --             4,755        17,408

<CAPTION>

                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                         --------------------------
                                                             1998          1999
                                                         ------------  ------------
<S>                                                      <C>           <C>
INCOME STATEMENT DATA:
Interest income........................................  $  2,206,614  $  7,557,850
Interest expense.......................................     1,303,628     4,559,707
                                                         ------------  ------------
  Net interest income..................................       902,986     2,998,143
Provision for loan losses..............................         3,661        49,806
                                                         ------------  ------------
  Net interest income after provision for loan
    losses.............................................       899,325     2,948,337
Noninterest income.....................................       122,495       245,715
Noninterest expense....................................     1,173,267     2,147,536
                                                         ------------  ------------
  Net income (loss) before income taxes................      (151,447)    1,046,516
Income tax benefit (expense)...........................       --           (355,000)
                                                         ------------  ------------
  Net income (loss)....................................  $   (151,447) $    691,516
                                                         ------------  ------------
                                                         ------------  ------------
  Net income (loss) per common share--basic(1).........  $      (0.01) $       0.03
                                                         ------------  ------------
                                                         ------------  ------------
  Net income (loss) per common and potential common
    share--diluted(1)..................................  $      (0.01) $       0.03
                                                         ------------  ------------
                                                         ------------  ------------
Weighted average shares outstanding--basic(1)..........    18,431,000    22,536,000
Weighted average shares outstanding--diluted(1)........    18,431,000    23,424,000
Ratio of earnings to fixed charges.....................          (0.9      )          1.2
BALANCE SHEET DATA--AT PERIOD END:
Total assets...........................................  $163,463,431  $526,463,208
Total deposits.........................................   128,681,669   332,678,334
Other borrowed funds...................................       --         45,000,000
Shareholders' equity (deficit).........................    34,100,461   143,748,122
Book value per share(1)................................          1.85          5.57
FINANCIAL RATIOS AND ACCOUNT DATA:
Return on average total assets (ROA)...................         (0.48  (5)         0.60%(5)
Return on average shareholders' equity (ROE)...........         (1.76  (5)         3.04%(5)
Percentage of average shareholders' equity (deficit) to
  average total assets.................................         26.58%        19.95%
Percentage of allowance for loan losses to total
  loans................................................          0.43%         1.05%
Percentage of charge-offs to average loans.............          0.05%         0.12%
Percentage of nonperforming loans to total loans.......            --            --
Number of accounts at period end.......................         8,416        24,634
</TABLE>


- ------------------------------
(1) On April 13, 1999, we declared a 3 for 1 split of our common stock to be
    effected in the form of a stock dividend payable on May 14, 1999 to
    shareholders of record as of the close of business on April 23, 1999. All
    references to share and per share amounts have been retroactively adjusted
    to reflect this split.
(2) Assuming no income tax benefit and assuming a statutory income tax rate of
    34% for the year, pro forma net income per common and potential common share
    for the year ended December 31, 1998 would have been $0.03 per share, basic,
    and $0.02 per share, diluted.

(3) For purposes of computing this ratio, earnings available for fixed charges
    consist of earnings (loss) before provision for income taxes and fixed
    charges. Fixed charges consist of interest expense plus such portion of
    rental expense as is representative of the interest factor. Deficiencies in
    earnings to fixed charges for the period from February 20, 1996 to December
    31, 1996, the year ended December 31, 1997 and the three months ended March
    31, 1998 were $3,839,182, $5,577,439 and $151,447, respectively.

(4) Assuming no income tax benefit and assuming a statutory income tax rate of
    34% for the year, pro forma return on average total assets and average
    shareholders' equity for the year ended December 31, 1998 would have been
    0.59% and 4.04%, respectively.
(5) As adjusted to reflect an annualized rate of return.

                                       21
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

    Net.B@nk, Inc. is a holding company that wholly owns Net.B@nk, a federal
savings bank. Net.B@nk, Inc. was incorporated as a Georgia corporation on
February 20, 1996, for the purpose of forming and, ultimately, operating a
wholly owned federal savings bank subsidiary. During the period from February
20, 1996 to July 31, 1997, pending regulatory approval and the acquisition of a
bank charter, we operated as a development stage enterprise under an agreement
with Carolina First Bank, a wholly owned subsidiary of Carolina First
Corporation. Carolina First Bank agreed to hold and service the deposit accounts
we generated in exchange for 3,975,000 shares of common stock, which were valued
at $3.8 million. In addition, during the period from February 20, 1996 to July
31, 1997, we were a party to an agreement with First Alliance/Premier
Bancshares, Inc. pursuant to which we agreed to purchase the charter of First
Alliance's subsidiary, Premier Bank, $5.0 million in loans, $5.0 million in
certificates of deposit and $2.0 million in unimpaired capital in exchange for
$2.2 million in cash, 124,218 shares of the common stock valued at $125,000 and
$75,000 in additional cash for reimbursement of direct out-of-pocket expenses.
On July 11, 1997, we received final regulatory approval from the Office of
Thrift Supervision to purchase the bank charter from First Alliance. On July 31,
1997, we received approximately $38.4 million in net proceeds from the sale of
10,500,000 shares of our common stock in our initial public offering and
consummated our agreements with both First Alliance and Carolina First Bank. As
a result, Net.B@nk became a wholly owned subsidiary of Net.B@nk, Inc. As of
March 31, 1999, we had 24,634 accounts and approximately $332.7 million in
deposits.


    On April 13, 1999, we declared a 3 for 1 split of our common stock effected
in the form of a stock dividend paid on May 14, 1999 to shareholders of record
as of the close of business on April 23, 1999. All references to share and per
share amounts have been retroactively adjusted to reflect this split.


FINANCIAL CONDITION

    Our assets were $526.5 million at March 31, 1999 compared to $388.4 million
and $93.2 million at December 31, 1998 and 1997, respectively. The increase of
$138.1 million from December 31, 1998 to March 31, 1999 was primarily the result
of approximately $105.0 million of net proceeds we received from an offering of
common stock in February 1999, as well as an increase in customer deposits of
approximately $49.1 million. We are using the proceeds from both the February
1999 offering of common stock and the increase in customer deposits for our
widespread marketing campaign to increase public awareness of the Net.B@nk name
and our products and services, and investing the excess in federal funds sold,
investment securities and loans.

    The increase in assets of $295.2 million from December 31, 1997 to December
31, 1998 was primarily due to growth in our loan portfolio resulting from our
purchase of approximately $257.5 million in home equity loans and first and
second mortgage loans and the purchase of approximately $41.4 million in
investment securities during the year ended December 31, 1998. In addition, we
recorded a $2.3 million deferred tax asset related primarily to previous net
operating loss carryforwards that we expect to realize for tax purposes. Because
we achieved profitability in 1998, we believe that it is more likely than not
that our deferred tax assets will be realized. We also had loan sale proceeds
receivable of $23.2 million related to loan origination agreements with third
parties at December 31, 1998.

    Total liabilities increased $33.0 million from $349.7 million at December
31, 1998 to $382.7 million at March 31, 1999. This increase was primarily due to
the rapid growth in our deposit portfolio of $49.1 million as a result of our
marketing campaign, offset by a $15.0 million decrease in other borrowed funds.
Total liabilities increased $290.6 million from $59.1 million at December 31,
1997 to

                                       22
<PAGE>
$349.7 million at December 31, 1998. This increase was primarily due to the
rapid growth of our deposit portfolio as a result of marketing programs we
introduced in the fourth quarter of 1997.

    Total shareholders' equity increased $105.0 million from December 31, 1998
to March 31, 1999 primarily due to our receipt of approximately $105.0 million
from the sale of 7,290,000 shares of our common stock in a public offering.
Total shareholders' equity increased $4.6 million from December 31, 1997 to
December 31, 1998 as a result of net income of $4.5 million and comprehensive
income of $82,000.

    AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID.  The
following table sets forth, for the periods subsequent to our formation,
information regarding our average balance sheet. The average yields and rates
represent the annualized rates. Information is based on average monthly balances
during the five months ended December 31, 1997 and the year ended December 31,
1998.

<TABLE>
<CAPTION>
                                                            FIVE MONTHS ENDED
                                                            DECEMBER 31, 1997
                                                    ----------------------------------
<S>                                                 <C>          <C>           <C>
                                                                  INTEREST     AVERAGE
                                                      AVERAGE      EARNED/     YIELD/
                                                      BALANCE       PAID        RATE
                                                    -----------  -----------   -------
Interest-earning assets:
  Short-term investments..........................  $43,800,000  $   944,743     5.34%
  Investment securities(1)........................    8,900,000      183,184     7.06%
  Loans receivable(2).............................   30,200,000    1,095,238     8.70%
                                                    -----------  -----------
      Total interest-earning assets...............   82,900,000    2,223,165     6.44%
Noninterest-earning assets........................    2,000,000
                                                    -----------
      Total assets................................  $84,900,000
                                                    -----------
                                                    -----------
Interest-bearing liabilities--deposits............  $48,700,000    1,259,743     5.17%
Noninterest-bearing liabilities...................    1,000,000
                                                    -----------
      Total liabilities...........................   49,700,000
Shareholders' equity..............................   35,200,000
                                                    -----------  -----------
      Total liabilities and shareholders'
        equity....................................  $84,900,000
                                                    -----------
                                                    -----------
Net interest earnings.............................               $   963,422
                                                                 -----------
                                                                 -----------
Net yield on interest-earning assets(3)...........                               2.79%
                                                                               -------
                                                                               -------
</TABLE>

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

(1) Based on amortized cost; changes in fair value are not considered.

(2) No separate treatment has been made for non-accrual loans.

(3) Net interest income divided by average interest-earning assets.

                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                            DECEMBER 31, 1998
                                                    ----------------------------------
<S>                                                 <C>           <C>          <C>
                                                                   INTEREST    AVERAGE
                                                      AVERAGE       EARNED/    YIELD/
                                                      BALANCE        PAID       RATE
                                                    ------------  -----------  -------
Interest-earning assets:
  Short-term investments..........................  $ 11,000,000  $   633,893    5.76%
  Investment securities(1)........................    48,300,000    2,905,404    6.01%
  Loans receivable(2).............................   182,500,000   14,548,747    7.97%
                                                    ------------  -----------  -------
      Total interest-earning assets...............   241,800,000   18,088,044    7.48%
Noninterest-earning assets........................     2,500,000
                                                    ------------
      Total assets................................  $244,300,000
                                                    ------------
                                                    ------------
Interest-bearing liabilities:
  Deposits........................................  $177,600,000  $10,249,533    5.77%
  Other borrowed funds............................    25,000,000    1,174,899    4.71%
                                                    ------------  -----------  -------
      Total interest-bearing liabilities..........   202,600,000   11,424,432    5.64%
Noninterest-bearing liabilities...................     5,700,000
                                                    ------------
      Total liabilities...........................   208,300,000
Shareholders' equity..............................    36,000,000
                                                    ------------  -----------
      Total liabilities and shareholders'
        equity....................................  $244,300,000
                                                    ------------
                                                    ------------
Net interest earnings.............................                $ 6,663,612
                                                                  -----------
                                                                  -----------
Net yield on interest-earning assets(3)...........                               2.76%
                                                                               -------
                                                                               -------
</TABLE>

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

(1) Based on amortized cost; changes in fair value are not considered.

(2) No separate treatment has been made for non-accrual loans.

(3) Net interest income divided by average interest-earning assets.

    The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in volume and rates for the periods
indicated:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31, 1998
                                                                            COMPARED TO THE FIVE MONTHS ENDED
                                                                                    DECEMBER 31, 1997
                                                                        -----------------------------------------
<S>                                                                     <C>            <C>          <C>
                                                                                          INCREASE (DECREASE)
                                                                             NET                 DUE TO
                                                                          INCREASE     --------------------------
                                                                         (DECREASE)      RATE(1)      VOLUME(1)
                                                                        -------------  -----------  -------------
Interest-bearing assets:
  Short-term investments..............................................  $    (310,850) $   (58,427) $    (252,423)
  Investment securities...............................................      2,722,220      (50,100)     2,772,320
  Loans, gross........................................................     13,453,509     (266,230)    13,719,739
                                                                        -------------  -----------  -------------
      Total interest income...........................................     15,864,879     (374,757)    16,239,636
Interest-bearing liabilities:
  NOW accounts........................................................         91,787        2,478         89,309
  Money market........................................................        757,639     (104,125)       861,764
  Certificates of deposit.............................................      8,140,364      (73,172)     8,213,536
  Other borrowed funds................................................      1,174,899      --           1,174,899
                                                                        -------------  -----------  -------------
      Total interest expense..........................................     10,164,689     (174,819)    10,339,508
                                                                        -------------  -----------  -------------
      Net interest income.............................................  $   5,700,190  $  (199,938) $   5,900,128
                                                                        -------------  -----------  -------------
                                                                        -------------  -----------  -------------
</TABLE>

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

(1) The changes in interest income and/or expense not due solely to rate or
    volume have been allocated to the rate component.

                                       24
<PAGE>
RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

    GENERAL.  Net income for the three months ended March 31, 1999 amounted to
$692,000, an increase of $843,000 compared to a $151,000 loss for the three
months ended March 31, 1998. The increase in net income was the result of the
growth of our operations from 1998 to 1999.

    INTEREST INCOME.  Interest income related to our loan and investment
portfolio for the three months ended March 31, 1999 was $7.6 million compared to
$2.2 million for the three months ended March 31, 1998. The increase in interest
income was a result of the growth of our loan portfolio of $258.3 million from
March 31, 1998 to March 31, 1999, offset partially by a decrease in the average
yield on loans from 8.02% for the three months ended March 31, 1998 to 7.55% for
the three months ended March 31, 1999. In addition, the investment portfolio
grew from $46.3 million at March 31, 1998 to $80.3 million at March 31, 1999.
The yield on the investment portfolio was 5.63% for the three months ended March
31, 1998 compared to 6.20% for the three months ended March 31, 1999.

    INTEREST EXPENSE.  For the three months ended March 31, 1999, we recorded
$4.0 million in interest expense on deposits compared to $1.3 million for the
three months ended March 31, 1998 as a result of our increase in customer
deposits from $128.7 million at March 31, 1998 to $332.7 million at March 31,
1999. In addition, interest paid on deposits decreased from 5.54% for the three
months ended March 31, 1998 to 5.29% for the three months ended March 31, 1999.
Also, during the three months ended March 31, 1999, we recorded approximately
$500,000 in interest expense associated with short-term borrowings under our
line of credit agreements and advances from the Federal Home Loan Bank.

    NET INTEREST INCOME.  Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. Net interest income was $3.0 million for the three months ended
March 31, 1999 compared to $903,000 for the three months ended March 31, 1998.
The increase in net interest income resulted from the increase in the amount of
loans and deposits from March 31, 1998 to March 31, 1999.

    PROVISION FOR LOAN LOSSES.  In connection with the purchase of loan
portfolios, we assess the inherent loss in the portfolios and record the
necessary allowance by adjusting the premium associated with each portfolio.
During the three months ended March 31, 1999, we recorded $1.2 million as an
addition to premiums related to allowance for loan losses for loans purchased
during the quarter. In addition, we also recorded a provision for loan losses of
$49,800 related primarily to a decline in credit quality of a specific pool of
automobile loans. This compared to a provision of $4,000 recorded during the
three months ended March 31, 1998. We periodically review the performance of our
loan portfolio by reviewing charge-offs, delinquency statistics and industry
statistics on a pool by pool basis for our purchased portfolio and a loan by
loan basis for our originated loans. If we note a decline in credit quality for
a specific pool or loan, we record an additional allowance through a charge to
the provision for loan losses. We maintain the allowance for loan losses at a
level that we estimate to be adequate to provide for probable losses in the loan
portfolio. We determine the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.

    NONINTEREST INCOME.  For the three months ended March 31, 1999, we recorded
approximately $246,000 in loan and deposit service charges and fees compared to
$123,000 recorded during the three months ended March 31, 1998. The significant
increase in service charges was a result of a significant increase in both the
loan and deposit portfolios.

                                       25
<PAGE>
    NONINTEREST EXPENSES.  Noninterest expenses include all operating expenses,
including salaries and benefits, marketing, general and administrative expenses
(excluding interest expense, provision for loan losses and income taxes).
Noninterest expense increased 83%, or $1.0 million, for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998. This increase
was primarily the result of increases in salaries and benefits, customer service
and data processing as we added additional employees and operational activities
to support additional customers, and an increase in marketing expense as we
expanded our marketing programs to build public awareness of the Net.B@nk name
and our products and services.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

    GENERAL.  Net income for the year ended December 31, 1998 amounted to $4.5
million, an increase of $10.1 million compared to the $5.6 million loss for the
year ended December 31, 1997. The statement of operations for the year ended
December 31, 1997 reflects our operations before and immediately following the
acquisition of our bank charter. Because we did not acquire the charter until
July 31, 1997, we had no earning assets prior to that date. A substantial
portion of the income for the year ended December 31, 1998 resulted from the
recognition of $2.3 million in tax benefits. The benefits resulted from the
reversal of a valuation allowance of $3.3 million previously associated with our
deferred tax assets offset by income tax expense for the year ended December 31,
1998. Because we achieved profitability during 1998, we now believe it is more
likely than not that the deferred tax assets will be realized.

    INTEREST INCOME.  Interest income related to our loan and investment
portfolio for the year ended December 31, 1998 was $18.1 million compared to
$2.2 million for the year ended December 31, 1997. The increase is a result of
the growth of our loan portfolio from $44.9 million at December 31, 1997 to
$280.4 million at December 31, 1998 offset by a decrease in average yield from
8.70% for the year ended December 31, 1997 to 7.97% for the year ended December
31, 1998. In addition, the investment security portfolio grew from $18.1 million
at December 31, 1997 to $59.5 million at December 31, 1998 as we invested cash
received from customer deposits. The yield on the investment portfolio was 7.06%
for the year ended December 31, 1997 compared to 6.01% for the year ended
December 31, 1998.

    INTEREST EXPENSE.  For the year ended December 31, 1998, we recorded $10.2
million in interest expense on deposits as a result of our increase in customer
deposits from $58.7 million at December 31, 1997 to $283.6 million at December
31, 1998. In addition, the average interest rate paid on deposits increased from
5.17% for the year ended December 31, 1997 to 5.77% for the year ended December
31, 1998. We recorded interest expense on deposits of $1.3 million during the
year ended December 31, 1997 as we transferred our deposits to our banking
subsidiary from Carolina First Bank and began paying interest on those deposits.
In addition, during the year ended December 31, 1998, we recorded approximately
$1.2 million of interest expense associated with other borrowed funds under our
line of credit agreements and Federal Home Loan Bank advances.

    NET INTEREST INCOME.  Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. With the growth in our operations, net interest income increased to
$6.7 million for the year ended December 31, 1998, compared to $963,000 for the
year ended December 31, 1997.

    PROVISION FOR LOAN LOSSES.  During 1998, we recorded $3.6 million as an
addition to premium related to allowance for loan losses for purchased loans. In
addition, we recorded a $20,000 provision for loan losses for the year ended
December 31, 1998, compared to $472,000 recorded during the year ended December
31, 1997 for declines in credit quality on a specific pool of automobile loans
and additional allowance related to originated loans.

                                       26
<PAGE>
    NONINTEREST INCOME.  For the year ended December 31, 1998, we recorded
approximately $683,000 in loan and deposit service charges and fees compared to
$63,000 recorded during the year ended December 31, 1997. The significant
increase in service charges was driven by the significant increase in both the
loan and deposit portfolios.

    NONINTEREST EXPENSES.  Noninterest expenses decreased approximately $944,000
for the year ended December 31, 1998 compared to the year ended December 31,
1997. The primary component of the decrease during the year ended December 31,
1998 was a $1.4 million decrease in the amortization of the service contract
with Carolina First Bank as the service contract was fully amortized during the
second quarter of 1997. In addition, salaries and benefits decreased $1.0
million as we outsourced certain services and paid $450,000 of bonuses to our
employees upon completion of our initial public offering in July 1997. These
decreases were partially offset by increases in marketing, customer service,
data processing, occupancy and other expenses as we moved to our new offices and
began soliciting and serving new deposit customers.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM FEBRUARY 20, 1996 TO
  DECEMBER 31, 1996

    GENERAL.  We did not have any earning assets until July 31, 1997, when we
acquired our bank charter. The net loss for the year ended December 31, 1997 was
$5.6 million, an increase of $1.8 million when compared to the period from
February 20, 1996 to December 31, 1996. The statement of operations for the
period from February 20, 1996 to December 31, 1996 reflects the initial phase of
our operations, including the acquisition, testing and implementation of the
internet banking platform, marketing expenses and the accrual of Carolina First
Bank's expense reimbursements. Under the servicing agreement with Carolina First
Bank, customer deposits and the related assets resulting from our marketing
efforts, which began in August 1996, were included in Carolina First Bank's
financial operations.

    INTEREST INCOME.  Interest income for the year ended December 31, 1997 was
$2.2 million. We did not record a significant amount of interest income for the
period from February 20, 1996 to December 31, 1996 because we had no investments
or loans during that period. On July 31, 1997, we received the net proceeds from
our initial public offering and customer deposits held by Carolina First Bank
and invested those funds in federal funds, mortgage-backed securities and loans
purchased from Carolina First Bank and an independent third party.

    INTEREST EXPENSE.  Because we did not begin soliciting deposit accounts
until October 1996, we did not record any interest expense for the period from
February 20, 1996 to December 31, 1996. On July 31, 1997, based on the terms of
the servicing agreement with Carolina First Bank and the charter purchase
agreement, Carolina First Bank and First Alliance transferred approximately
$47.8 million in customer deposits and related assets to Net.B@nk. We recorded
approximately $1.3 million of interest expense during the year ended December
31, 1997. This amount includes $163,479 of net interest expense, which
represents the difference between interest expense paid to customers and
interest income paid to Net.B@nk by Carolina First Bank at the contractual rates
in the servicing agreement prior to July 31, 1997.

    NET INTEREST INCOME.  Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. Net interest income was $963,000 for the year ended December 31,
1997. Because we did not receive our bank charter until July 31, 1997, we were
not allowed to hold investments, loans or customer deposits during the period
from February 20, 1996 to December 31, 1996, and therefore, no significant
amount of net interest income was recorded for the period from February 20, 1996
to December 31, 1996.

                                       27
<PAGE>
    PROVISION FOR LOAN LOSSES.  We purchased our first loans during the period
from July 31, 1997 to December 31, 1997. During this period, we recorded a
provision for loan losses of $472,000 for a decline in credit quality related to
a specific pool of automobile loans and an additional allowance related to
originated loans.

    NONINTEREST INCOME.  For the period from July 31, 1997 to December 31, 1997,
we recorded approximately $63,000 in loan and deposit service charges and fees.
We recorded only miscellaneous management fees received of $60,000 during the
period from February 20, 1996 to December 31, 1996.

    NONINTEREST EXPENSES.  Noninterest expenses increased $2.2 million from $3.9
million during the period from February 20, 1996 to December 31, 1996 to $6.1
million for the year ended December 31, 1997. The primary components of the
increase were an increase of $1.6 million in salaries and benefits, which
reflects the payment of approximately $450,000 in bonuses to employees; the
amortization of approximately $343,000 in stock plan expense; increases of
$305,000, $391,000 and $236,000 in customer service, data processing and
marketing, respectively, reflecting the growth of our deposit base and related
support functions; and an increase of approximately $260,000 in other operating
expenses consisting primarily of legal and accounting fees. These increases were
offset by a $960,000 decrease in the amortization of the service contract with
Carolina First Bank as the service contract was fully amortized during the
second quarter of 1997. The expenses for the period from February 20, 1996 to
December 31, 1996 reflect only the initial phase of our operations, including
the acquisition, testing and implementation of our internet banking platform,
marketing expenses and the accrual of Carolina First Bank's expense
reimbursements.

STOCK OPTIONS

    Our 1996 Stock Incentive Plan authorizes us to grant to our key employees,
officers, directors and consultants nonqualified and incentive stock options to
purchase shares of our common stock, derivative securities related to the value
of our common stock or cash awards. The total number of shares reserved for
issuance under the Stock Incentive Plan, as amended, is 3,750,000. Generally,
the options expire ten years from the date of the grant. A summary of the status
of the options granted under the Stock Incentive Plan as of December 31, 1996,
1997 and 1998 and the activity during such periods follows:

<TABLE>
<CAPTION>
                                            DECEMBER 31, 1996             DECEMBER 31, 1997              DECEMBER 31, 1998
                                        --------------------------  -----------------------------  -----------------------------
                                                      WEIGHTED                       WEIGHTED                       WEIGHTED
                                                       AVERAGE                        AVERAGE                        AVERAGE
                                                      EXERCISE                       EXERCISE                       EXERCISE
                                         NUMBER         PRICE          NUMBER          PRICE          NUMBER          PRICE
                                        ---------  ---------------  ------------  ---------------  ------------  ---------------
<S>                                     <C>        <C>              <C>           <C>              <C>           <C>
Outstanding at beginning of period....     --         $  --               49,686     $    0.40        1,099,368     $    1.99
Granted...............................     49,686          0.40        1,058,625          1.94          573,000          6.50
Exercised.............................     --            --              --             --              (33,588)         1.21
Terminated............................     --            --               (8,943)         1.21          (41,628)         2.19
                                        ---------                   ------------                   ------------
Outstanding at end of period..........     49,686     $    0.40        1,099,368     $    1.99        1,597,152     $    3.63
                                        ---------                   ------------                   ------------
                                        ---------                   ------------                   ------------
</TABLE>

    In connection with the issuance of some of the options during the year ended
December 31, 1997, we will recognize $390,484 of compensation expense over the
vesting period. Certain of those options vested immediately on July 28, 1997,
upon completion of the initial public offering, and we recognized $319,704 of
unamortized compensation expense. The other options vest one-third on the first
anniversary of the date of issuance, one-third on the second anniversary of the
date of issuance and one-third on the third anniversary of the date of issuance.
Of the vested options, 708,423 cannot be exercised and sold until July 28, 2000
in accordance with an agreement signed with the Office of Thrift Supervision. Of
the 1,597,152 options outstanding as of December 31, 1998, 837,063 were
exercisable.

                                       28
<PAGE>
    During the three months ended March 31, 1999, we granted 21,000 incentive
stock options at an exercise price of $11.67 per share on January 15, 1999,
30,000 incentive stock options at an exercise price of $13.00 per share on
February 25, 1999 and 30,000 incentive stock options at an exercise price of
$23.33 per share on March 29, 1999. Grant prices approximated fair value of the
stock at the grant date.

    During the three months ended March 31, 1999, 35,211 incentive stock options
were exercised at a price of $1.21. Also, 16,200 incentive stock options with an
exercise price of $5.25 and 3,366 incentive stock options with an exercise price
of $1.21 were terminated.

    In addition, effective April 22, 1999, we granted 177,000 nonqualified stock
options at an exercise price of $53.33 per share. Grant prices approximated the
fair value of the stock at the grant date. Also, during April 1999, 6,000 and
1,500 incentive stock options with an exercise price of $5.25 and $1.21,
respectively were exercised.

MARKET RISK

    ASSET AND LIABILITY MANAGEMENT.  Our principal business is the originating
and purchasing of loans, funded by customer deposits and, to the extent
necessary, other borrowed funds. Consequently, a significant portion of our
assets and liabilities are monetary in nature and fluctuations in interest
rates, specifically the prime rate, will affect our future net interest income
and cash flows. This interest rate risk is our primary market risk exposure. We
do not enter into derivative financial instruments such as futures, forwards,
swaps and options. Also, we have no market risk-sensitive instruments held for
trading purposes. Our exposure to market risk is reviewed on a regular basis by
our management.

    The following table sets forth the interest rate risk of our assets and
liabilities as of December 31, 1997.
<TABLE>
<CAPTION>
                                                                  TERM TO MATURITY
                      ---------------------------------------------------------------------------------------------------------
                                                               YEAR                                                OVER FIVE
                      ---------------------------------------------------------------------------------------      YEARS AND
                            ONE               TWO              THREE             FOUR              FIVE           INSENSITIVE
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                   <C>               <C>               <C>               <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       250,535
  Federal funds
    sold............       28,853,057
  Investment
    securities......        9,926,283                                                                           $     8,127,863
  Stock of Federal
    Home Loan Bank
    of Atlanta......          225,000
  Loans
    receivable......       16,407,989   $     6,369,393   $     2,924,749   $     1,462,375                          17,768,901
                      ---------------   ---------------   ---------------   ---------------                     ---------------
    Total interest-
      earning
      assets........       55,662,864         6,369,393         2,924,749         1,462,375                          25,896,764
Noninterest-earning
  assets............                                                                                                    903,664
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total assets........  $    55,662,864   $     6,369,393   $     2,924,749   $     1,462,375   $     --          $    26,800,428
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $    56,200,270                     $     2,233,439
Interest-free
  deposits..........          293,054
Other interest-free
  liabilities and
  equity............          375,649                                                                           $    34,117,397
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total liabilities
  and equity........  $    56,868,973   $     --          $     2,233,439   $     --          $     --          $    34,117,397
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Net interest rate
  sensitivity gap...  $      (537,406)  $     6,369,393   $       691,310   $     1,462,375                     $    25,896,764
Cumulative gap......         (537,406)        5,831,987         6,523,297         7,985,672   $     7,985,672        33,882,436
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....             (.97)%           100.0%            23.64%            100.0%                              100.0%
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............             (.97)%            9.40%            10.04%            12.02%            11.02%            36.70%

<CAPTION>
                                                           WEIGHTED
                                                            AVERAGE
                                                           INTEREST
                           TOTAL          FAIR VALUE         RATE
                      ---------------   ---------------   -----------
<S>                   <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       250,535   $       250,535
  Federal funds
    sold............       28,853,057        28,853,057         5.50%
  Investment
    securities......       18,054,146        18,054,146          7.0%
  Stock of Federal
    Home Loan Bank
    of Atlanta......          225,000           225,000
  Loans
    receivable......       44,933,407        46,109,296         8.70%
                      ---------------   ---------------
    Total interest-
      earning
      assets........       92,316,145        93,492,034
Noninterest-earning
  assets............          903,664           903,664
                      ---------------   ---------------
Total assets........  $    93,219,809   $    94,395,698
                      ---------------   ---------------
                      ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $    58,433,709   $    58,586,263         5.17%
Interest-free
  deposits..........          293,054           293,054
Other interest-free
  liabilities and
  equity............       34,493,046        34,493,046
                      ---------------   ---------------
Total liabilities
  and equity........  $    93,219,809   $    93,372,363
                      ---------------   ---------------
                      ---------------   ---------------
Net interest rate
  sensitivity gap...
Cumulative gap......
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............
</TABLE>

                                       29
<PAGE>
    The following table sets forth the interest rate risk of our assets and
liabilities as of December 31, 1998:
<TABLE>
<CAPTION>
                                                                  TERM TO MATURITY
                      ---------------------------------------------------------------------------------------------------------
                                                               YEAR                                                OVER FIVE
                      ---------------------------------------------------------------------------------------      YEARS AND
                            ONE               TWO              THREE             FOUR              FIVE           INSENSITIVE
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                   <C>               <C>               <C>               <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       446,940
  Federal funds
    sold............       12,013,243
  Investment
    securities......        --                                                                                  $    59,465,062
  Stock of Federal
    Home Loan Bank
    of Atlanta......                                                                                                  2,000,000
  Loan sale proceeds
    receivable......       23,202,679
  Loans
    receivable......       42,561,397   $     2,225,802   $     1,483,868   $       741,934                         233,414,601
                      ---------------   ---------------   ---------------   ---------------                     ---------------
    Total interest-
      earning
      assets........       78,224,259         2,225,802         1,483,868           741,934                         294,879,663
Noninterest-earning
  assets............                                                                                                 10,881,210
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total assets........  $    78,224,259   $     2,225,802   $     1,483,868   $       741,934   $     --          $   305,760,873
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   267,925,399   $     1,128,734   $     5,189,478   $        60,000
  Other borrowed
    funds...........       20,000,000                                                         $    20,000,000   $    20,000,000
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
    Total
    interest-bearing
      liabilities...      287,925,399         1,128,734         5,189,478            60,000        20,000,000        20,000,000
Interest-free
  deposits..........        9,285,540
Other interest-free
  liabilities and
  equity............                                                                                                 44,847,585
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total liabilities
  and
  equity............  $   297,210,939   $     1,128,734   $     5,189,478   $        60,000   $    20,000,000   $    64,847,585
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Net interest rate
  sensitivity gap...  $  (209,701,140)  $     1,097,068   $     3,705,610)  $       681,934   $   (20,000,000)  $   274,879,663
Cumulative gap......     (209,701,140)     (208,604,072)     (212,309,682)     (211,627,748)     (231,627,748)       43,251,915
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....          (268.08)%          49.29%           (249.73)%          91.91%               N/M             93.22
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............          (268.08)%         (259.30)%         (259.12)%         (255.97)%         (280.16)%           11.46%

<CAPTION>
                                                           WEIGHTED
                                                            AVERAGE
                                                           INTEREST
                           TOTAL          FAIR VALUE         RATE
                      ---------------   ---------------   -----------
<S>                   <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $       446,940   $       446,940
  Federal funds
    sold............       12,013,243        12,013,243         5.00%
  Investment
    securities......       59,465,062        59,465,062         6.71%
  Stock of Federal
    Home Loan Bank
    of Atlanta......        2,000,000         2,000,000
  Loan sale proceeds
    receivable......       23,202,679        23,202,679         6.70%
  Loans
    receivable......      280,427,602       278,607,376         7.54%
                      ---------------   ---------------
    Total interest-
      earning
      assets........      377,555,526       375,735,300
Noninterest-earning
  assets............       10,881,210        10,881,210
                      ---------------   ---------------
Total assets........  $   388,436,736   $   386,616,510
                      ---------------   ---------------
                      ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   274,303,611   $   274,709,385         5.54%
  Other borrowed
    funds...........       60,000,000        59,924,400         5.01%
                      ---------------   ---------------
    Total
    interest-bearing
      liabilities...      334,303,611       334,633,785
Interest-free
  deposits..........        9,285,540         9,285,540
Other interest-free
  liabilities and
  equity............       44,847,585        44,847,585
                      ---------------   ---------------
Total liabilities
  and
  equity............  $   388,436,736   $   388,766,910
                      ---------------   ---------------
                      ---------------   ---------------
Net interest rate
  sensitivity gap...
Cumulative gap......
Net interest rate
  sensitivity gap as
  a
  percent of
  interest-
  earning assets....
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............
</TABLE>

                                       30
<PAGE>
    The following table sets forth the interest rate risk of our assets and
liabilities as of March 31, 1999:
<TABLE>
<CAPTION>
                                                                  TERM TO MATURITY
                      ---------------------------------------------------------------------------------------------------------
                                                               YEAR                                                OVER FIVE
                      ---------------------------------------------------------------------------------------      YEARS AND
                            ONE               TWO              THREE             FOUR              FIVE           INSENSITIVE
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
<S>                   <C>               <C>               <C>               <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $     1,576,102
  Federal fund
    sold............       33,416,433
  Investment
    securities......                                                                                            $    80,310,559
  Stock of Federal
    Home Loan Bank
    of Atlanta......                                                                                                  2,569,700
  Loan sale proceeds
    receivable......       35,003,385
  Loans
    receivable......       79,190,699   $    19,867,529   $    12,885,672   $     5,903,752                         246,204,980
                      ---------------   ---------------   ---------------   ---------------                     ---------------
    Total
    interest-earning
      assets........      149,186,619        19,867,529        12,885,672         5,903,752                         329,085,239
Noninterest-earning
  assets............                                                                                                  9,534,397
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total assets........  $   149,186,619   $    19,867,529   $    12,885,672   $     5,903,752   $     --          $   338,619,636
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   313,127,941   $     3,830,466   $     5,392,607
  Other borrowed
    funds...........                                                                          $    20,000,000   $    25,000,000
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
    Total
    interest-bearing
      liabilities         313,127,941         3,830,466         5,392,607                          20,000,000        25,000,000
Interest-free
  deposits..........       10,327,320
Other interest-free
  liabilities and
  equity............                                                                                                148,784,874
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Total liabilities
  and equity........  $   323,455,261   $     3,830,466   $     5,392,607   $     --          $    20,000,000   $   173,784,874
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
                      ---------------   ---------------   ---------------   ---------------   ---------------   ---------------
Net interest rate
  sensitivity gap...  $  (163,941,322)  $    16,037,063   $     7,493,065   $     5,903,752   $   (20,000,000)  $   304,085,239
Cumulative gap......     (163,941,322)     (147,904,259)     (140,411,194)     (134,507,442)     (154,507,442)      149,577,797
Net interest rate
  sensitivity gap as
  a percent of
  interest-earning
  assets............          (109.89)%           80.72%            58.15%           100.00%              N/M             92.40%
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............          (109.89)%          (87.49)%          (77.17)%          (71.61)%          (82.25)%           28.94%

<CAPTION>
                                                           WEIGHTED
                                                            AVERAGE
                                                           INTEREST
                           TOTAL          FAIR VALUE         RATE
                      ---------------   ---------------   -----------
<S>                   <C>               <C>               <C>
Interest-Earning
  Assets:
  Cash and cash
    equivalents.....  $     1,576,102   $     1,576,102
  Federal fund
    sold............       33,416,433        33,416,433         5.15%
  Investment
    securities......       80,310,559        80,310,559         6.20%
  Stock of Federal
    Home Loan Bank
    of Atlanta......        2,569,700         2,569,700
  Loan sale proceeds
    receivable......       35,003,385        35,003,385         6.50%
  Loans
    receivable......      364,052,632       364,052,632         7.55%
                      ---------------   ---------------
    Total
    interest-earning
      assets........      516,928,811       516,928,811
Noninterest-earning
  assets............        9,534,397         9,534,397
                      ---------------   ---------------
Total assets........  $   526,463,208   $   526,463,208
                      ---------------   ---------------
                      ---------------   ---------------
Interest-Bearing
  Liabilities:
  Interest-bearing
    deposits........  $   322,351,014   $   322,351,014         5.29%
  Other borrowed
    funds...........       45,000,000   $    44,838,280         4.55%
                      ---------------   ---------------
    Total
    interest-bearing
      liabilities         367,351,014       367,189,294
Interest-free
  deposits..........       10,327,320        10,327,320
Other interest-free
  liabilities and
  equity............      148,784,874       148,784,874
                      ---------------   ---------------
Total liabilities
  and equity........  $   526,463,208   $   526,301,488
                      ---------------   ---------------
                      ---------------   ---------------
Net interest rate
  sensitivity gap...
Cumulative gap......
Net interest rate
  sensitivity gap as
  a percent of
  interest-earning
  assets............
Cumulative gap as a
  percent of
  cumulative
  interest-earning
  assets............
</TABLE>

    We measure interest rate sensitivity as the difference between the amount of
interest-earning assets and interest-bearing liabilities that mature within a
given period of time. The difference, or the interest rate sensitivity "gap,"
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. The above table does not
consider interest rate adjustments on our adjustable rate loans. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities and is considered negative
when the amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets. In a rising interest rate environment, an
institution with a positive gap would be in a better position than an
institution with a negative gap to invest in higher yielding assets or have its
asset yields adjusted upward, which would result in the yield on its assets
increasing at a faster pace than the cost of its interest-bearing liabilities.
During a period of falling interest rates, however, an institution with a
positive gap would tend to have its assets maturing at a faster rate than one
with a negative gap, which would tend to reduce or restrain the growth of its
net interest income.

LENDING ACTIVITIES

    GENERAL.  At March 31, 1999, our loans receivable portfolio totaled $364.1
million or 69.2% of total assets. At December 31, 1998 and 1997, our loans
receivable portfolio totaled $280.4 million and $44.9 million, or 72.2% and
48.2% of total assets, respectively. The majority of our loans were purchased
from other originating institutions. We have concentrated our purchasing
activities on one-

                                       31
<PAGE>
and three-year adjustable rate mortgage loans, home equity lines of credit,
fixed residential mortgages and auto loans. We also participate in construction
loans with other institutions.

    LOAN PORTFOLIO COMPOSITION.  The following table sets forth the composition
of our loan portfolio by type of loan as of December 31, 1997 and 1998 and March
31, 1999:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,                              MARCH 31,
                                          ---------------------------------------------------  -------------------------
                                                    1997                      1998                       1999
                                          ------------------------  -------------------------  -------------------------
                                             AMOUNT          %          AMOUNT          %          AMOUNT          %
                                          -------------  ---------  --------------  ---------  --------------  ---------
<S>                                       <C>            <C>        <C>             <C>        <C>             <C>
Residential mortgages...................  $  13,953,501       31.0% $  144,361,069       51.4% $  146,247,811       40.2%
Construction............................      5,399,624       12.0      27,996,691       10.0      25,750,375        7.1
Commercial..............................      4,478,053       10.0       8,556,264        3.1      77,736,501       21.4
Home equity lines.......................      4,412,013        9.8      89,053,532       31.8     103,483,066       28.5
Auto....................................     14,623,745       32.6       7,803,648        2.8       6,468,885        1.8
Personal and other......................      2,066,471        4.6       2,656,399        0.9       3,865,994        1.0
                                          -------------  ---------  --------------  ---------  --------------  ---------
    Total loans.........................  $  44,933,407      100.0% $  280,427,603      100.0% $  363,552,632      100.0%
                                          -------------  ---------  --------------  ---------  --------------  ---------
                                          -------------  ---------  --------------  ---------  --------------  ---------
</TABLE>

    CONTRACTUAL PRINCIPAL REPAYMENTS.  The following table sets forth certain
information at December 31, 1998 regarding the dollar amount of loans maturing
in our total loan portfolio, based on the contractual terms to maturity. Loans
having no stated schedule of repayments and no stated maturity are reported as
due in one year or less.

<TABLE>
<CAPTION>
                                              DUE 1                         DUE                         WEIGHTED
                                             YEAR OR       DUE 1-5        AFTER 5                        AVERAGE
                                              LESS          YEARS          YEARS           TOTAL          YIELD
                                          -------------  ------------  --------------  --------------  -----------
<S>                                       <C>            <C>           <C>             <C>             <C>
Residential mortgages...................  $    --        $    --       $  144,361,069  $  144,361,069        7.25%
Construction............................     27,996,691       --             --            27,996,691        7.75%
Commercial..............................      8,556,264       --             --             8,556,264        8.33%
Home equity loans.......................       --             --           89,053,532      89,053,532        7.75%
Auto and other loans....................      6,008,442     4,451,605        --            10,460,047        8.50%
                                          -------------  ------------  --------------  --------------         ---
    Total...............................  $  42,561,397  $  4,451,605  $  233,414,601  $  280,427,603        7.54%
                                          -------------  ------------  --------------  --------------         ---
                                          -------------  ------------  --------------  --------------         ---
</TABLE>

    The following table sets forth the dollar amount of total loans due after
one year from December 31, 1998, as shown in the preceding table, which have
fixed interest rates or which have floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                                   FLOATING OR
                                                                                    ADJUSTABLE
                                                                    FIXED RATE         RATE           TOTAL
                                                                   -------------  --------------  --------------
<S>                                                                <C>            <C>             <C>
Residential mortgages............................................  $  58,193,633   $ 86,167,436   $  144,361,069
Home equity lines................................................       --           89,053,532       89,053,532
Other loans......................................................      4,451,605        --             4,451,605
                                                                   -------------  --------------  --------------
    Total........................................................  $  62,645,238   $175,220,968   $  237,866,206
                                                                   -------------  --------------  --------------
                                                                   -------------  --------------  --------------
</TABLE>

    A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower and its related entities if the
loans are fully secured by readily marketable securities. At March 31, 1999, our
limit on loans to one borrower was approximately $21.6 million (15% unimpaired
capital and surplus). At March 31, 1999, we had not made any loans to any one
borrower, including persons or entities related to the borrower, exceeding the
limitation.

                                       32
<PAGE>
    ASSET QUALITY AND NONPERFORMING ASSETS.  During the years ended December 31,
1998 and 1997 and the three months ended March 31, 1999, we did not have any
significant loans on nonaccrual status, significant loans past due 90 days or
more or restructured loans.

    CONCENTRATIONS OF CREDIT RISK.  At December 31, 1998, a majority of our
loans were with customers residing in the Western and Southeastern United
States. At December 31, 1997, all of our loans were with customers residing in
the Southeastern United States.

    ALLOWANCE FOR LOAN LOSSES.  The allowance for loan losses is maintained at a
level management considers adequate to provide for probable losses in the loan
portfolio. As the majority of our portfolio is purchased, we make an estimate of
the loss inherent in the purchased portfolio based on industry statistics and
record an allowance for loan losses by adjusting the premium associated with the
purchased loans. We periodically review the adequacy of the allowance based upon
reviews of individual loans and loan pools, recent loss experience, current
economic conditions, the risk characteristics of the various pools of loans, or
individual loans, industry statistics and other pertinent factors. If we note a
decline in credit quality for a specific loan pool or a loan, we record an
additional allowance through a charge to the provision for loan losses. Loans
that we deem uncollectible are charged to the allowance. We also add provisions
for loan losses and recoveries on loans previously charged off to the allowance.

    Although we use the best information available to make determinations with
respect to the provisions for loan losses, additional provisions for loan losses
may be necessary in the future should economic or other conditions change
substantially. In addition, the Office of Thrift Supervision, as an integral
part of the examination process, periodically reviews our allowance for loan
losses. The agency may require us to recognize additions to the allowance based
on their judgments about the information available to them at the time of their
examination.

    The following table sets forth an analysis of our allowance for loan losses
during the years ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                       --------------------
                                                                         1997       1998
                                                                       ---------  ---------
<S>                                                                    <C>        <C>
Balance--Beginning of year...........................................  $  --      $ 453,444
                                                                       ---------  ---------
  Allowances recorded in connection with the purchase of loan
    pools............................................................     --      3,585,926
  Provision for loan losses..........................................    471,706     20,132
                                                                       ---------  ---------
  Loans charged off:
    Residential mortgages............................................     --       (326,852)
    Equipment leases.................................................     (8,477)   (31,492)
    Auto.............................................................     --       (171,006)
    Home equity lines................................................     --        (44,230)
    Other............................................................     (9,785)   (13,558)
                                                                       ---------  ---------
    Total loans charged off..........................................    (18,262)  (587,138)
                                                                       ---------  ---------
Balance--End of year.................................................  $ 453,444  $3,472,364
                                                                       ---------  ---------
                                                                       ---------  ---------
Allowances for loan losses as a percent of total loans outstanding...       1.01%      1.24%
                                                                       ---------  ---------
                                                                       ---------  ---------
</TABLE>

                                       33
<PAGE>
    The following table sets forth information concerning the allocation of our
allowance for loan losses by loan category at December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1997             DECEMBER 31, 1998
                                                          ---------------------------  -----------------------------
<S>                                                       <C>         <C>              <C>           <C>
                                                                        PERCENT OF                     PERCENT OF
                                                                       LOANS IN EACH                  LOANS IN EACH
                                                                        CATEGORY TO                    CATEGORY TO
                                                            AMOUNT      TOTAL LOANS       AMOUNT       TOTAL LOANS
                                                          ----------  ---------------  ------------  ---------------
Residential mortgages...................................  $   46,425          31.0%    $  1,844,473          51.4%
Construction............................................      52,400          12.0           38,000          10.0
Commercial..............................................     112,887          10.0           81,935           3.1
Home equity lines.......................................      48,951           9.8        1,484,221          31.8
Auto....................................................     179,984          32.6            8,978           2.8
Other...................................................      12,797           4.6           15,297           0.9
                                                          ----------         -----     ------------         -----
                                                          $  453,444         100.0%    $  3,472,364         100.0%
                                                          ----------         -----     ------------         -----
                                                          ----------         -----     ------------         -----
</TABLE>

    INVESTMENT SECURITIES.  Our investment policy, as established by the Board
of Directors, is designed primarily to provide and maintain liquidity and to
generate a favorable return on investments without incurring undue interest rate
risk, credit risk and investment portfolio asset concentrations. Our investment
policy is currently implemented by the investment committee within the
parameters set by the Board of Directors.

    We are authorized to invest in obligations issued or fully guaranteed by the
United States government, certain federal agency obligations, certain time
deposits, negotiable certificates of deposit issued by commercial banks and
other insured financial institutions, investment grade corporate debt securities
and other specified investments.

    Securities classified as available for sale are reported at fair value, with
unrealized gains and losses, net of tax, excluded from earnings and reported in
other comprehensive income. At March 31, 1999 and December 31, 1998 and 1997,
all of our investment securities were classified as available for sale. At March
31, 1999 and December 31, 1998 and 1997, investments in the debt and/or equity
securities of any one issuer did not exceed more than 10% of our shareholders'
equity.

    The following tables set forth certain information relating to our
available-for-sale securities at December 31, 1997 and 1998 and March 31, 1999:
<TABLE>
<CAPTION>
                                                                               DECEMBER 31, 1997
                                                             ------------------------------------------------------
<S>                                                          <C>            <C>          <C>          <C>
                                                                              GROSS
                                                             ---------------------------------------

<CAPTION>
                                                                                                        ESTIMATED
                                                               AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                                                 COST          GAINS       LOSSES         VALUE
                                                             -------------  -----------  -----------  -------------
<S>                                                          <C>            <C>          <C>          <C>
Collateralized mortgage obligations........................  $   8,127,863   $  --        $  --       $   8,127,863
U.S. government agencies obligations.......................     10,009,346      --           83,063       9,926,283
                                                             -------------  -----------  -----------  -------------
                                                             $  18,137,209   $  --        $  83,063   $  18,054,146
                                                             -------------  -----------  -----------  -------------
                                                             -------------  -----------  -----------  -------------
</TABLE>

                                       34
<PAGE>
<TABLE>
<CAPTION>
                                                                               DECEMBER 31, 1998
                                                             ------------------------------------------------------
<S>                                                          <C>            <C>          <C>          <C>
                                                                              GROSS
                                                             ---------------------------------------

<CAPTION>
                                                                                                        ESTIMATED
                                                               AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                                                 COST          GAINS       LOSSES         VALUE
                                                             -------------  -----------  -----------  -------------
<S>                                                          <C>            <C>          <C>          <C>
Collateralized mortgage obligations........................  $  58,330,285   $  --        $   2,045   $  58,328,240
U.S. government agencies obligations.......................        882,442      --              264         882,178
Habitat bonds and other....................................        254,644      --           --             254,644
                                                             -------------  -----------  -----------  -------------
                                                             $  59,467,371   $  --        $   2,309   $  59,465,062
                                                             -------------  -----------  -----------  -------------
                                                             -------------  -----------  -----------  -------------
</TABLE>
<TABLE>
<CAPTION>
                                                                               MARCH 31, 1999
                                                           -------------------------------------------------------
<S>                                                        <C>            <C>          <C>           <C>
                                                                            GROSS
                                                           ----------------------------------------

<CAPTION>
                                                                                                       ESTIMATED
                                                             AMORTIZED    UNREALIZED    UNREALIZED       FAIR
                                                               COST          GAINS        LOSSES         VALUE
                                                           -------------  -----------  ------------  -------------
<S>                                                        <C>            <C>          <C>           <C>
Collateralized mortgage obligations......................  $  80,400,316   $  --       $  1,010,503  $  79,389,813
U.S. government agencies obligations.....................        668,004      --              1,956        666,048
Habitat bonds and other..................................        254,698      --            --             254,698
                                                           -------------  -----------  ------------  -------------
                                                           $  81,323,018   $  --       $  1,012,459  $  80,310,559
                                                           -------------  -----------  ------------  -------------
                                                           -------------  -----------  ------------  -------------
</TABLE>

    The following table sets forth the amount of our investment securities,
which mature during each of the periods indicated, and the weighted average
yields for each range of maturities at December 31, 1998. The actual maturity of
our investment securities may differ from contractual maturity as certain of our
investment securities are subject to call provisions, which allow the issuer to
accelerate the maturity date of the security:

<TABLE>
<CAPTION>
                                                                               CONTRACTUALLY MATURING
                                                                 ---------------------------------------------------
<S>                                                              <C>           <C>        <C>            <C>
                                                                               WEIGHTED      GREATER      WEIGHTED
                                                                     5-10       AVERAGE       THAN         AVERAGE
                                                                    YEARS        YIELD      10 YEARS        YIELD
                                                                 ------------  ---------  -------------  -----------
Collateralized mortgage obligations............................  $  5,986,729       6.96% $  52,341,511        6.82%
U.S. government agencies obligations...........................       --          --            882,178        7.54
Habitat bonds and other........................................       --          --            254,644        3.50
                                                                 ------------  ---------  -------------  -----------
                                                                 $  5,986,729       6.96% $  53,478,333        6.71%
                                                                 ------------  ---------  -------------  -----------
                                                                 ------------  ---------  -------------  -----------
</TABLE>

SOURCES OF FUNDS

    GENERAL.  Our primary sources of funds are deposits, borrowings, prepayments
and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled loan payments and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. We invest excess funds in overnight deposits and
other short-term interest-earning assets. We can use cash generated through the
retail deposit market, our traditional funding source, to offset the cash
utilized in investing activities. Our available-for-sale securities and
short-term interest-earning assets can also be used to provide liquidity for
lending and other operational requirements. As an additional source of funds, we
had $40.0 million of availability under existing line of credit agreements at
March 31, 1999. See note 8 of the notes to our consolidated financial
statements.

    DEPOSITS.  Our deposit products include a broad selection of deposit
instruments, including commercial checking accounts, negotiable order of
withdrawal accounts, money market accounts and

                                       35
<PAGE>
term certificate accounts. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.

    We utilize nontraditional marketing methods to attract new customers and
savings deposits. Our target market includes internet users, on-line shoppers
and special niche customers. We market our products and services by placing
banner advertisements on portals and Web sites that we believe will attract our
target customers. We also derive a marketing benefit from media coverage.
Additionally, we continually seek to form product and marketing alliances with
other financial services providers to broaden our product and service offerings
and appeal to a broader customer base.

    We are competitive in the types of accounts and range of interest rates we
offer on our deposit products. Our deposit levels have increased during the
years ended December 31, 1998 and 1997, primarily as a result of competitive
rates we offer and internet advertising. The weighted average interest rate paid
during the years ended December 31, 1998 and 1997 was 5.77% and 5.17%,
respectively. Although market demand generally dictates which deposit maturities
and rates will be accepted by the public, we intend to continue to promote
checking and negotiable order of withdrawal accounts as well as longer term
certificates of deposit to the extent possible and consistent with asset and
liability management goals.

    The following table sets forth the dollar amount of deposits and weighted
average interest rates in the various types of deposit programs offered by us at
December 31, 1997 and 1998 and March 31, 1999, respectively:
<TABLE>
<CAPTION>
                                                                                                                    MARCH 31,
                                        DECEMBER 31, 1997                          DECEMBER 31, 1998                  1999
                             ----------------------------------------  -----------------------------------------  -------------
<S>                          <C>           <C>            <C>          <C>            <C>            <C>          <C>
                                                           WEIGHTED                                   WEIGHTED
                                                            AVERAGE                                    AVERAGE
                                                           INTEREST                                   INTEREST
                                AMOUNT      PERCENTAGE       RATE         AMOUNT       PERCENTAGE       RATE         AMOUNT
                             ------------  -------------  -----------  -------------  -------------  -----------  -------------
Demand checking accounts...  $    293,054          0.5%          N/A   $   9,285,540          3.3%          N/A   $  10,327,320
Interest bearing:
  NOW accounts.............     1,573,283          2.7          3.28%      6,090,704          2.1          3.49%      9,201,428
  Money market.............    36,534,967         62.2          5.51%     65,325,880         23.0          5.13%     98,162,882
Certificate of deposit
  under $100,000...........    16,662,365         28.4          6.22%    197,162,916         69.5          5.74%    199,370,410
Certificate of deposit over
  $100,000.................     3,663,094          6.2          6.22%      5,724,111          2.1          5.74%  $  15,616,294
                             ------------        -----                 -------------        -----                 -------------
    Total deposits.........  $ 58,726,763        100.0%                $ 283,589,151        100.0%                $ 332,678,334
                             ------------        -----                 -------------        -----                 -------------
                             ------------        -----                 -------------        -----                 -------------

<CAPTION>

<S>                          <C>            <C>
                                             WEIGHTED
                                              AVERAGE
                                             INTEREST
                              PERCENTAGE       RATE
                             -------------  -----------
Demand checking accounts...          3.1%          N/A
Interest bearing:
  NOW accounts.............          2.8          3.38%
  Money market.............         29.5          5.12%
Certificate of deposit
  under $100,000...........         59.9          5.44%
Certificate of deposit over
  $100,000.................          4.7          5.44%
                                   -----
    Total deposits.........        100.0%
                                   -----
                                   -----
</TABLE>

    The following table presents the average balance of each deposit type and
the average rate paid on each deposit type for the years ended December 31, 1997
and 1998, respectively:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED                  YEAR ENDED
                                                                    DECEMBER 31,                DECEMBER 31,
                                                                        1997                        1998
                                                             --------------------------  ---------------------------
<S>                                                          <C>            <C>          <C>             <C>
                                                                AVERAGE       AVERAGE       AVERAGE        AVERAGE
                                                                BALANCE      RATE PAID      BALANCE       RATE PAID
                                                             -------------  -----------  --------------  -----------
Demand checking accounts...................................  $     300,000         N/A   $    2,730,769         N/A
NOW accounts...............................................      1,728,571        3.28%       5,423,077        1.96%
Money market...............................................     33,328,571        5.51%      46,015,385        5.48%
Certificates of deposit under $100,000.....................     11,433,435        6.22%     122,354,337        6.04%
Certificates of deposit over $100,000......................      2,209,423        6.22%       3,814,894        6.04%
</TABLE>

                                       36
<PAGE>
    The following table shows maturity information for our certificates of
deposit at December 31, 1998:

<TABLE>
<CAPTION>
                                                               MATURITY DATE
                                           -----------------------------------------------------
<S>                                        <C>             <C>           <C>           <C>        <C>
                                              ONE YEAR        1 TO 2        2 TO 3      3 TO 4
                                              OR LESS         YEARS         YEARS        YEARS        TOTAL
                                           --------------  ------------  ------------  ---------  --------------
4.01--6.00%..............................  $  169,227,411  $  1,128,734  $  5,189,478  $  60,000  $  175,605,623
6.01--8.00%..............................      27,281,404       --            --          --          27,281,404
                                           --------------  ------------  ------------  ---------  --------------
    Total................................  $  196,508,815  $  1,128,734  $  5,189,478  $  60,000  $  202,887,027
                                           --------------  ------------  ------------  ---------  --------------
                                           --------------  ------------  ------------  ---------  --------------
</TABLE>

    The following table sets forth the maturities of our certificates of deposit
having principal amounts of $100,000 or more at December 31, 1998:

<TABLE>
<S>                                                               <C>
Within three months.............................................  $3,011,146
Over three months through six months............................    421,451
Over six months through one year................................  1,782,206
Over one year...................................................    509,308
                                                                  ---------
    Total certificates of deposit with balance of $100,000 or
      more......................................................  $5,724,111
                                                                  ---------
                                                                  ---------
</TABLE>

    CAPITAL RESOURCES.  We are subject to various regulatory capital
requirements administered by the federal banking agencies. Our failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on our consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
we must meet specific capital guidelines that involve quantitative measures of
our assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. Our capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors. In addition, under regulatory guidelines,
Net.B@nk, our banking subsidiary, may not pay a dividend to Net.B@nk, Inc., if
doing so would cause Net.B@nk to be less than adequately capitalized, as defined
below.

    Quantitative measures established by regulation to ensure capital adequacy
require Net.B@nk to maintain minimum amounts and ratios, as set forth in the
table below. Net.B@nk's primary regulatory agency, the Office of Thrift
Supervision, requires Net.B@nk to maintain minimum ratios of tangible capital to
tangible assets of 1.5%, core capital to tangible assets of 3.0% and total
risk-based capital to risk-weighted assets of 8.0%. We believe that as of
December 31, 1998 Net.B@nk met all the capital adequacy requirements to which it
was subject.

    As of December 31, 1998, the most recent notification from the Office of
Thrift Supervision categorized Net.B@nk as well capitalized under the regulatory
framework for prompt corrective action. To be well capitalized Net.B@nk must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. No conditions or events have occurred since that
notification that we believe would change Net.B@nk's category.

    On February 10, 1999, we received net proceeds of approximately $105.0
million from the sale of 7,290,000 shares of our common stock in a public
offering.

                                       37
<PAGE>
    Net.B@nk's actual capital amounts and ratios as of December 31, 1997 and
1998, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                     TO BE
                                                                                                 CATEGORIZED AS
                                                                            FOR CAPITAL        "WELL CAPITALIZED"
                                                         ACTUAL          ADEQUACY PURPOSES         BY THE OTS
                                                  --------------------  --------------------  --------------------
<S>                                               <C>        <C>        <C>        <C>        <C>        <C>
                                                   AMOUNT      RATIO     AMOUNT      RATIO     AMOUNT      RATIO
                                                  ---------  ---------  ---------  ---------  ---------  ---------
DECEMBER 31, 1997:
Total capital (to risk-weighted assets).........  $  23,652      47.8%  $   3,956       8.0%  $   4,948      10.0%
Core capital (to tangible assets)...............  $  23,735      28.3%  $   2,517       3.0%  $   4,196       5.0%
Tangible capital (to tangible assets)...........  $  23,735      28.3%  $   1,259       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)........  $  23,735      48.0%        N/A        N/A  $   2,969       6.0%

DECEMBER 31, 1998:
Total capital (to risk-weighted assets).........  $  38,297     15.36%  $  19,947       8.0%  $  24,934      10.0%
Core capital (to tangible assets)...............  $  35,996      9.31%  $  11,595       3.0%  $  19,325       5.0%
Tangible capital (to tangible assets)...........  $  35,996      9.31%  $   5,798       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)........  $  35,996     14.44%        N/A        N/A  $  14,960       6.0%
</TABLE>

    At March 31, 1999, Net.B@nk had total, core, tangible and Tier I capital
ratios of 35.81%, 24.64%, 24.64% and 35.24%, respectively.

    Under current Office of Thrift Supervision regulations, Net.B@nk may pay
dividends and make other capital distributions after giving notice to the Office
of Thrift Supervision.

    During the year ended December 31, 1998, Net.B@nk, Inc. and its sole
subsidiary, Net.B@nk, entered into line of credit agreements with The Bankers
Bank. Net.B@nk, Inc. is a party to one such agreement and its sole subsidiary,
Net.B@nk, is a party to two such agreements. Under the terms of our agreement
that expired on October 20, 1998, Net.B@nk, Inc. could borrow 50.0% of the
tangible equity of Net.B@nk, up to $17.0 million, using the stock of Net.B@nk as
collateral. Any amounts borrowed under this line had interest at a fixed rate of
8.0% per annum. During the year ended December 31, 1998, Net.B@nk borrowed and
repaid $12.0 million under the line. Under the terms of the other two
agreements, Net.B@nk may borrow $5.0 million under an unsecured general purpose
line and 99.0% of the value of its investment securities under another line.
Both of the lines bear interest at 25 basis points above the Federal Funds rate,
or 5.0%, at December 31, 1998. Under these agreements at December 31, 1998,
Net.B@nk had an outstanding borrowing of $20.0 million with no stated maturity
secured by investment securities.

    During the three months ended March 31, 1999, Net.B@nk repaid $20.0 million
of borrowings outstanding under its line of credit agreement with The Bankers
Bank and $20.0 million under one of its line of credit agreements with the
Federal Home Loan Bank.

    As of March 31, 1999, Net.B@nk had borrowed $20.0 million from the Federal
Home Loan Bank at a fixed rate of 4.43%. The borrowing is callable at the second
anniversary date. If not called at the second anniversary date, the borrowing
extends for an additional three years at 4.43%. Also, Net.B@nk has borrowed
$25.0 million from the Federal Home Loan Bank at a fixed rate of 4.64%. The
borrowing is callable at the second anniversary date. If not called at the
second anniversary date, the borrowing extends for an additional eight years at
4.64%. These borrowings are secured by Net.B@nk's investment securities.

NEW ACCOUNTING PRONOUNCEMENTS

    As of January 1, 1998, we adopted Statement of Financial Accounting
Standards 130, REPORTING COMPREHENSIVE INCOME, and restated prior periods to
conform to the presentation required by

                                       38
<PAGE>
SFAS 130. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses, net of tax, on our available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The adoption of SFAS 130 had no impact on our net
income or shareholders' equity.

    As of April 1, 1998, our adopted Statement of Position 98-1, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1
allows for the capitalization of costs related to the development and
implementation of software obtained for internal use including materials,
payroll and interest costs once the criteria of the SOP have been met. As of
December 31, 1998, $592,402 of these related costs had been capitalized.

    As of December 31, 1998, we adopted Statement of Financial Accounting
Standards 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS 131 establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers. The adoption of SFAS 131 had no
effect on our financial statements for the year ended December 31, 1998 because
we only had one reportable segment.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. SFAS 133 establishes standards for derivative instruments
and hedging activities and requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The adoption of SFAS 133 is not
expected to have a significant effect on our financial statements.

YEAR 2000

    We are working to resolve the potential impact of the year 2000 on the
ability of the computerized information systems we use to accurately process
information that may be date sensitive. Any of the programs we or our service
providers use that recognize a date using "00" as the year 1900 rather than the
year 2000 could result in errors or system failures that could ultimately cause
us or our service providers to become unable to process customer transactions.
This would require us to cease operations pending resolution of the problem.
Such an eventuality would materially adversely affect our business, financial
condition and results of operations. Accordingly, we are devoting significant
attention to identifying year 2000 issues and testing our in-house and external
systems for year 2000 compliance. To date, we have incurred year 2000
remediation costs of approximately $21,000 and have budgeted approximately
$35,000 for total remediation costs. We have been utilizing working capital to
fund our year 2000 compliance program and anticipate that we will continue to do
so.

    We began testing our in-house information technology systems during the
second quarter of 1998 and completed this testing during the third quarter of
1998. We have not identified, and do not anticipate, any significant risks or
issues relating to non-information technology systems.

    We are also assessing the year 2000 compliance of our outside vendors and
service providers. Because we primarily contract with outside vendors for our
computer application programs, we believe our principal risk relating to year
2000 issues lies in the potential inability of those vendors to process date
sensitive information involving the year 2000. We began testing the systems
provided by these vendors for year 2000 compliance in the third quarter of 1998
and have an Office of Thrift Supervision-mandated completion date of June 30,
1999. In addition, we are contacting each of our vendors to obtain a commitment
that they are or will timely be year 2000 compliant. If such assurances are not
forthcoming, or if we believe for any reason that any of our vendors will not be
year 2000 compliant when required, we plan to contract with other vendors that
would be able to provide similar services at

                                       39
<PAGE>
similar costs. Although we cannot offer any assurances, we believe that such
vendors are and will be available. Alternatively, we could bring the outsourced
services in-house by licensing the applicable software and converting it to run
on our platforms or form a correspondent relationship with an unaffiliated year
2000 compliant bank that could service our customers and accounts until we could
provide such services on a year 2000 compliant basis. We believe we could
implement any of the foregoing contingency plans without a material interruption
in our business and without a material adverse effect on our financial
condition, results of operations or cash flows.

QUARTERLY FINANCIAL DATA (UNAUDITED)

    Quarterly financial data for the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1999 is summarized as follows (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                                            FIRST     SECOND      THIRD      FOURTH
                                                                           QUARTER    QUARTER    QUARTER     QUARTER
                                                                          ---------  ---------  ---------  -----------
<S>                                                                       <C>        <C>        <C>        <C>
1997
Interest income.........................................................  $       6  $  --      $     902   $   1,315
Interest expense........................................................        103         37        465         655
                                                                          ---------  ---------  ---------  -----------
  Net interest income (loss)............................................        (97)       (37)       437         660
                                                                          ---------  ---------  ---------  -----------
Provision for loan losses...............................................     --         --            392          80
                                                                          ---------  ---------  ---------  -----------
  Net interest income (loss) after provision for loan losses............        (97)       (37)        45         580
Noninterest income......................................................     --         --             30          33
Noninterest expense.....................................................      1,703      1,383      1,593       1,452
                                                                          ---------  ---------  ---------  -----------
  Net loss..............................................................  $  (1,800) $  (1,420) $  (1,518)  $    (839)
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
Basic and diluted net loss per common and common
  equivalent share outstanding..........................................  $   (0.48) $   (0.37) $   (0.11)  $   (0.05)
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------

1998
Interest income.........................................................  $   2,207  $   4,253  $   5,284   $   6,343
Interest expense........................................................      1,304      2,714      3,220       4,186
                                                                          ---------  ---------  ---------  -----------
  Net interest income...................................................        903      1,539      2,064       2,157
                                                                          ---------  ---------  ---------  -----------
Provision for loan losses...............................................          4          6          6           4
                                                                          ---------  ---------  ---------  -----------
  Net interest income after provision for loan losses...................        899      1,533      2,058       2,153
Noninterest income......................................................        123        104        190         266
Noninterest expense.....................................................      1,173      1,397      1,290       1,327
                                                                          ---------  ---------  ---------  -----------
  Income (loss) before income taxes.....................................       (151)       240        958       1,092
                                                                          ---------  ---------  ---------  -----------
Income tax benefit (expense)............................................     --          3,029       (345)       (359)
                                                                          ---------  ---------  ---------  -----------
  Net income (loss).....................................................  $    (151) $   3,269  $     613   $     733
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
Basic net income (loss) per common and common equivalent share
  outstanding...........................................................  $   (0.01) $    0.18  $    0.03   $    0.04
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
Diluted net income (loss) per common and common equivalent share
  outstanding...........................................................  $   (0.01) $    0.17  $    0.03   $    0.04
                                                                          ---------  ---------  ---------  -----------
                                                                          ---------  ---------  ---------  -----------
</TABLE>

                                       40
<PAGE>

<TABLE>
<CAPTION>
                                                                            FIRST
                                                                           QUARTER
                                                                          ---------
<S>                                                                       <C>        <C>        <C>        <C>

1999
Interest income.........................................................  $   7,558
Interest expense........................................................      4,560
                                                                          ---------
  Net interest income...................................................      2,998
                                                                          ---------
Provision for loan losses...............................................         50
                                                                          ---------
  Net interest income after provision for loan losses...................      2,948
Noninterest income......................................................        246
Noninterest expense.....................................................      2,147
                                                                          ---------
  Income before income taxes............................................  $   1,046
Income tax expense......................................................       (355)
                                                                          ---------
  Net income............................................................  $     692
                                                                          ---------
                                                                          ---------
Basic and diluted net income per common and common equivalent share
  outstanding...........................................................  $    0.03
                                                                          ---------
                                                                          ---------
</TABLE>


    Basic and diluted net income (loss) per common and common equivalent share
have been calculated based on the weighted average number of shares outstanding
during the quarter in accordance with SFAS 128. Potential common shares have not
been included in the calculation related to those quarters with a net loss
because they were antidilutive. All previously reported per share amounts have
been restated to conform to SFAS 128. The total for the quarters differs from
the net loss per share as shown on the statement of operations because of the
issuance of common shares during the year of 1997. On April 13, 1999, we
declared a 3 for 1 split of our common stock effected in the form of a stock
dividend paid on May 14, 1999 to shareholders of record as of the close of
business on April 23, 1999. All references to share and per share amounts have
been retroactively adjusted to reflect the split.


                                       41
<PAGE>
                                    BUSINESS

OVERVIEW

    Net.B@nk, our sole subsidiary, is the largest federally-insured bank
operating exclusively on the internet. Our mission is to profitably provide a
broad range of banking and financial services to the growing number of internet
users. Our low cost branchless business model allowed us to attain profitability
within a year of acquiring our bank charter and to continue to maintain
profitability while passing along our operating cost savings to customers in the
form of attractive interest rates and low fees. We strive to maintain high asset
quality by employing conservative credit policies. We plan to attract new
accounts through national awareness of the Net.B@nk brand name and to capitalize
on increasing consumer use of the internet.

    During 1998, our customer accounts grew from 4,755 to 17,408, deposits grew
from $58.7 million to $283.6 million and total assets grew from $93.2 million to
$388.4 million. During 1998, we added an average of 1,054 net customer accounts
per month. At March 31, 1999, we had 24,634 customer accounts, $332.7 million in
deposits and $526.5 million in total assets. During the four months ended April
30, 1999, we added an average of over 2,900 net customer accounts per month with
4,865 added in April alone. We believe our growth is attributable to our
expanded marketing program, increasing consumer use of the internet and our
ability to offer a broad array of convenient, cost-effective, secure banking
services to this growing customer base.

    The following charts demonstrate the growth in our total customer accounts,
checking accounts, deposits and assets:

<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
         NUMBER OF CUSTOMER ACCOUNTS
<S>                                            <C>

12/31/97 TO 3/31/99 GROWTH: 418%
12/97                                       4,755
3/98                                        8,416
6/98                                       11,823
9/98                                       14,634
12/98                                      17,408
3/99                                       24,634
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
     NUMBER OF CHECKING ACCOUNTS

<S>                                    <C>
12/31/97 tO 3/31/99 GROWTH: 403%
Date                                    Accounts
12/97                                      1,236
3/98                                       1,613
6/98                                       1,971
9/98                                       2,284
12/98                                      3,293
3/99                                       6,219
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
             DEPOSITS

<S>                                  <C>
(IN MILLIONS)
12/31/97 TO 3/31/99 GROWTH: 464%
12/97                                      $59
3/98                                      $129
6/98                                      $187
9/98                                      $241
12/98                                     $284
3/99                                      $333
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
           TOTAL ASSETS

<S>                                  <C>
(IN MILLIONS)
12/31/97 TO 3/31/99 GROWTH: 467%
12/97                                      $93
3/98                                      $164
6/98                                      $247
9/98                                      $283
12/98                                     $388
3/99                                      $527
</TABLE>

    Since our equity offering in February 1999, we have continued to experience
rapid growth in our business and have entered into several new programs to
expand and improve our operational and product capabilities. Since February
1999, we have initiated the following:

    - EXPANDED MARKETING PROGRAM. We embarked on a new marketing program that
      has been highly successful in reaching our targeted audience and has
      resulted in a significant increase in checking accounts. We believe this
      growth in our checking account base indicates growing customer willingness
      to move their everyday banking activities to Net.B@nk and will result in
      long-term customer relationships. Furthermore, we believe that our
      checking account customers

                                       42
<PAGE>
      will visit our Web site more frequently and spend more time on our Web
      site, allowing us to cross-sell a variety of other products and services.

    - SERVICING AGREEMENT WITH PNC BANK CORP. We entered into a consumer loan
      processing and servicing agreement with PNC Bank Corp. This agreement will
      allow us to offer consumer loan products on-line. PNC will provide
      origination and loan servicing for these consumer loans as well as
      substantially all consumer loans for which we retain servicing rights on a
      scalable basis and at a favorable cost.

    - IMPROVED CUSTOMER SERVICE. We increased our customer support staff by over
      70% in order to maintain high-quality customer service. We have also
      invested in advanced technology and implemented new procedures in order to
      continually improve the quality and responsiveness of our customer
      service.

    - STRENGTHENED LENDING AND FINANCIAL OPERATIONS. We expanded our mortgage
      lending capabilities through a mortgage loan origination partnership with
      Virtuallender.com. We strengthened our lending and financial operations by
      adding several individuals to our professional staff. Additionally, we
      have significantly increased our loan portfolio while continuing to
      maintain a conservative lending and investment strategy.

INDUSTRY BACKGROUND

    THE INTERNET.  The internet enables millions of people worldwide to access
news and information, communicate with each other and conduct business
electronically. According to International Data Corporation, the number of
worldwide internet users is projected to grow from an estimated 159.3 million in
1998 to an estimated 410.4 million by 2002. Additionally, Jupiter Communications
estimates that 37.6 million United States households were on-line in 1998 and
that an estimated 62.6 million households are expected to be on-line in 2002.
On-line households are those that have access to the Web, use a consumer on-line
service or send e-mail.

    The internet has become a significant marketplace for buying and selling
goods and services. International Data Corporation forecasts that total
worldwide commerce on the internet will grow from an estimated $50.4 billion in
1998 to an estimated $733.6 billion in 2002. With the emergence of the internet
as a globally accessible, fully interactive medium, many companies that have
traditionally conducted business in person, through the mail or over the
telephone are increasingly conducting business electronically. Many consumers
are showing strong preferences for transacting certain types of business, such
as paying bills, booking airline tickets, trading securities and purchasing
consumer products, electronically rather than in person or over the telephone.
Individuals can now conduct these transactions virtually anywhere at any time.
Many consumers have embraced self-directed on-line transactions because such
transactions can be faster, less expensive and more convenient than transactions
conducted through a teller or an ATM.

    In addition to its use as a general commercial medium, the internet has
rapidly emerged as an innovative means of providing financial services. As
finance-related Web sites continue to grow in popularity, many companies are
increasingly offering a variety of financial services, including credit cards,
brokerage services, insurance products and banking services, via the internet.

    ELECTRONIC BANKING.  The growth in internet commerce has prompted the
development of electronic banking delivery systems. These forms of electronic
delivery systems provide convenience for customers and allow financial
institutions to lower their overhead costs. The two types of electronic banking
currently available, PC-based home banking and internet banking, are very
different. The characteristics of each are as follows:

    - PC-BASED HOME BANKING. PC-based home banking requires PC-based financial
      services software products such as Intuit's QUICKEN, Microsoft's MONEY or
      a bank's proprietary software. Each

                                       43
<PAGE>
      product carries its own set of instructions that the customer must learn
      before commencing any banking transactions. The software resides on the
      customer's PC along with his or her account data and requires a dial-up
      modem and manual downloading. Consequently, customers must conduct
      PC-based home banking from the PC containing the customer's software and
      account data. Customers generally must back up their account data at
      frequent intervals to counteract the risk of losing data. Because the
      customer must connect with the financial institution via modem and
      download his or her account data, real-time transactions are not generally
      possible.

    - INTERNET BANKING. Unlike PC-based home banking, internet banking requires
      only a secure Web browser for access to the internet and the financial
      institution. Internet banking requires no particular software and does not
      restrict the customer's operations to the location of his or her PC.
      Instead, the customer accesses the financial institution through the
      internet and deposits or transfers funds, pays bills or transacts other
      business on a real-time basis. In contrast, account data remains stored on
      Net.B@nk's secure server at all times, protected by technology designed
      specifically to safeguard such information. No downloading or back-up is
      required, as our server backs up all data and transactions on a continuous
      basis. With internet banking, the information presented to the customer
      remains current at all times.

    The use of electronic banking delivery systems, and particularly internet
banking, is growing as consumers find that electronic banking is both convenient
and cost-effective. According to Jupiter Communications, the number of on-line
banking households in the United States is projected to grow from an estimated
6.6 million in 1998 to an estimated 17.1 million in 2002.

    INTERNET DEMOGRAPHICS. Demographic surveys indicate that internet users
represent an ideal target market for internet banking. Recent studies by Jupiter
Communications revealed that, in the United States, approximately 47% of on-line
users are college graduates and that approximately 37% are engaged in
professional or managerial occupations. The survey also indicated that the
largest group on-line is adults aged 19 to 34, that approximately 86% of on-line
users are under the age of 50 and that 43% of the on-line audience earns over
$60,000 per year. The attractive demographics of internet users facilitate the
growth of internet banking. Internet users tend to be young and mobile and thus
more inclined to be comfortable with and receptive to the convenience of on-line
commercial transactions. We believe that as internet users enter their prime
earnings and savings years, there will be an increased demand for high-yielding
savings products. Additionally, internet users tend to be professionals with
limited amounts of discretionary time and are attracted to the convenience of
"one-stop shopping" for a full range of financial services.

THE NET.B@NK SOLUTION

    As the first federally-insured bank to operate solely on the internet, we
believe we have a first mover advantage relative to on-line banks with less
extensive market presence and less established operating histories. In addition,
we have a competitive cost advantage over traditional banks. We also believe our
established position in the marketplace provides us with a competitive advantage
in view of the lead time required for new competitors to obtain a charter and
start an internet bank. We intend to continue to capitalize on this advantage by
aggressively seeking new customers in order to further build market share.

    Our customer demographics parallel those of the general internet population
and illustrate Net.B@nk's appeal to households with relatively high incomes.
According to John H. Harland Company, as of September 1998, our customers had an
average age of 44 and a median annual household income in excess of $50,000. We
are ideally positioned to participate in the rapid growth of the internet and
on-line banking based on our:

    - ATTRACTIVE INTEREST RATES AND LOW FEES. Our operating costs are generally
      lower than those of traditional "bricks and mortar" banks because we do
      not require a traditional branch network to

                                       44
<PAGE>
      generate deposits and conduct operations. We pass our savings in operating
      costs on to customers by offering attractive interest rates and low fees
      in order to generate deposits without sacrificing profit margins. We
      believe our unique business model differentiates Net.B@nk from traditional
      banks offering internet banking services because traditional banks
      frequently offset the incremental expense of their internet banking
      services by charging additional fees or imposing minimum account balances.

    - CONVENIENCE AND EASE OF ACCESS. We believe we provide customers with a
      higher level of convenience than can be achieved in a traditional bank
      branch or through PC-based home banking. The internet allows our customers
      to conduct banking activities on a real-time, 7-day-a-week, 24-hour-a-day
      basis from any PC, wherever located, using a secure Web browser. In
      addition, our Web site is designed to be user-friendly and to expedite
      customer transactions with Net.B@nk.

    - BROAD SELECTION OF PRODUCTS AND SERVICES. We offer a broad array of
      products and services that customers would typically expect from a
      traditional bank. These products and services include checking and money
      market accounts, certificates of deposit, electronic bill payment, debit
      cards, credit cards, mortgage loans, business equipment leases and
      securities brokerage services. We plan to offer consumer loans, including
      home equity and automobile loans, beginning in the third quarter of 1999.
      We intend to continue to develop additional products and services such as
      insurance products, electronic bill presentment and electronic document
      and image storage in a virtual safe deposit box.

    - HIGH-QUALITY SERVICE AND CUSTOMER SATISFACTION. We continually seek ways
      to enhance customer satisfaction. In an effort to serve the needs of our
      customers, we offer services such as electronic bill payment and ATM cards
      without service charges. We also emphasize responsive, courteous customer
      service and utilize a fully-trained dedicated staff who respond to
      inquiries from existing and potential customers and process new accounts.
      Our customers can access account data and information regarding products
      and services 24 hours a day and can currently reach our customer service
      representatives by telephone or e-mail. We strive for the highest level of
      customer satisfaction and believe the significant growth in our customer
      base illustrates our ability to meet our customers' needs.

    - ADVANCED SECURITY. A significant barrier to on-line financial transactions
      has been the secure transmission of confidential information over public
      networks. We use sophisticated technology to provide what we believe to be
      among the most advanced security measures currently available in the
      internet banking industry. All banking transactions are encrypted and all
      transactions are routed from the internet server through a "firewall" that
      limits access to the Net.B@nk server. Our systems automatically detect
      attempts by third parties to access other users' accounts and feature a
      high degree of physical security, secure modem access, service continuity
      and transaction monitoring. See "--Security."

GROWTH STRATEGY

    Our objective is to become the leading provider of a full range of on-line
financial services. We intend to accomplish this objective by implementing the
following strategies:

    - BUILD NATIONAL BRAND AWARENESS THROUGH INCREASED MARKETING EFFORTS. We
      have significantly expanded our marketing program and are working with
      nationally known advertising and public relations agencies to build
      national awareness of the Net.B@nk name through a variety of marketing
      initiatives. These initiatives include expanding our advertising media to
      include print and direct mail campaigns; continued advertisement on
      targeted portals such as Yahoo!, Alta Vista, Infoseek, Lycos, AOL and
      Excite and Web sites such as Bank Rate Monitor, iVillage and Motley Fool;
      and the pursuit of strategic alliances with other internet financial
      service providers.

                                       45
<PAGE>
      To fund these initiatives, we have increased our marketing expenditures
      from approximately $695,000 for 1998 to a budgeted $6.6 million for 1999.
      During the first quarter of 1999, we applied approximately $400,000 to our
      marketing program and added 7,226 new accounts. We plan to increase our
      print and on-line advertising and continue to explore opportunities in
      broadcast advertising during the course of the year. Our experience
      indicates that by expanding our marketing efforts further, we can heighten
      brand awareness of Net.B@nk on a national scale and significantly increase
      our customer base. See "--Marketing."

    - LEVERAGE LOW COST STRUCTURE. Our operating costs are generally lower than
      those of traditional "bricks and mortar" banks because we do not require a
      traditional branch network to generate deposits and conduct operations.
      This is demonstrated by our low ratio of annualized fourth quarter 1998
      noninterest expenses to average earning assets of 1.7% compared to 4.2%
      for commercial banks with $300 million to $500 million in assets, as
      calculated by the FDIC Institution Directory by multiplying the
      noninterest expenses for the quarter divided by the average earning assets
      for the quarter by four. Additionally, our ratio of total assets per
      full-time equivalent employee was $13.9 million as of December 31, 1998
      compared to $2.6 million for commercial banks with $300 million to $500
      million in assets, based on data provided by the FDIC Institution
      directory. We pass our operating cost savings on to customers by offering
      more attractive interest rates on deposit accounts and lower fees than
      those offered generally by traditional banks. We believe this strategy
      attracts deposits without sacrificing profit margins. We intend to
      continue to leverage the fixed-cost aspect of our branchless business
      model to enhance profitability.

    - OFFER A BROAD ARRAY OF PRODUCTS AND SERVICES. Our objective is to attract
      customers seeking to combine the convenience of internet banking with the
      broad array of products and services typically offered by traditional
      banks. Toward this end, our product and service offerings include checking
      and money market accounts, certificates of deposit, electronic bill
      payment, debit cards, credit cards, mortgage loans, business equipment
      leases and securities brokerage services. We plan to offer consumer loans,
      including home equity and automobile loans, beginning in the third quarter
      of 1999. We also intend to continue to develop additional products and
      services such as insurance products, electronic bill presentment and
      electronic document and image storage in a virtual safe deposit box. See
      "--Products and Services."

    - MAINTAIN HIGH ASSET QUALITY. Our loan portfolio strategy is to maintain a
      conservative loan mix consisting of home mortgage, home equity, consumer,
      commercial and construction loans with an emphasis on high credit quality.
      At our current stage of development, it is more cost-effective for us to
      purchase most of our loans or act as a participating lender with other
      banks rather than originate our own loans. This strategy decreases our
      expenses and allows us to reduce our loan loss exposure by diversifying
      our portfolio. We also emphasize a conservative securities investment
      strategy by investing in fixed income securities such as United States
      Treasury obligations, collateralized mortgage obligations and
      mortgage-backed securities issued by agencies such as Federal National
      Mortgage Association and Federal Home Loan Mortgage Corporation. See
      "--Lending and Investment Activities."

    - OUTSOURCE OPERATIONAL FUNCTIONS. To enhance the flexibility and
      scalability of our operations, we outsource certain principal operational
      functions to leading service providers such as NCR, BISYS and CheckFree.
      NCR provides a secure server for the electronic banking software licensed
      to us by Edify Corporation. CheckFree provides electronic bill payment
      systems for us and BISYS processes our transactions and interfaces with
      NCR's secure server. In each of these relationships, we benefit from the
      service provider's expertise and economies of scale while retaining the
      flexibility to take advantage of changes in available technology without
      affecting customer service. We can also respond easily to growth because
      these third-party service

                                       46
<PAGE>
      providers have the capacity to process a high volume of transactions. See
      "--Operations-- Service Providers."

    - GENERATE NONINTEREST INCOME THROUGH CROSS-MARKETING INITIATIVES. To
      generate additional noninterest income and enhance customer loyalty, we
      cross-market a variety of non-deposit products. We offer credit cards,
      mortgage loans, business equipment leases, securities brokerage services
      and other noninterest income-generating products. We offer these products
      to existing and potential depositors through various marketing techniques,
      such as our Web site, e-mail, on-line advertising and direct mailings.
      This strategy enables us to generate additional earning assets and fee
      income from a growing customer base.

PRODUCTS AND SERVICES

    DEPOSIT PRODUCTS AND SERVICES.  In order to build our customer base, we
offer a variety of deposit products at attractive interest rates. We are able to
offer attractive interest rates as a result of our low operating costs. We also
attract customers by offering convenient services such as free electronic bill
payment, overdraft protection and ATM cards. Our deposit products and services
include:

    - DEPOSIT PRODUCTS. We offer two types of interest-bearing checking
      accounts, a money market account and 6-, 12- and 30-month certificates of
      deposit. We have consistently offered interest rates on our deposit
      accounts that are higher than the national average.

    - BILL PAYMENT SERVICE. Through services provided by CheckFree, customers
      can pay their bills on-line through electronic funds transfer or a written
      draft prepared and sent to the creditor. We do not charge a fee for this
      service.

    - OVERDRAFT PROTECTION. Overdraft protection is available to all interest
      checking customers who qualify. Customers with interest checking accounts
      may apply for overdraft protection on-line for amounts up to $5,000. If a
      customer has both a money market and an interest checking account, we
      automatically establish overdraft protection between those accounts.

    - ATM CARDS. Each customer automatically receives a free ATM card when he or
      she opens an account. Customers can access their accounts at ATMs
      affiliated with the Cirrus, Honor and Avail networks. We do not charge our
      own fee for ATM usage, but the operator of the ATM generally imposes fees.

    LENDING PROGRAMS.  To generate fee income and provide a convenient service
to our customers, we offer on-line loans and credit cards as described below.

    - MORTGAGE LOANS. Our Web site enables customers to obtain interest rate
      quotes and apply for mortgage loans on-line. We have an agreement with
      mortgage.com (formerly known as First Mortgage Network), under which we
      act as a loan originator on their behalf. We have similar agreements with
      E-loan, Inc., Virtuallender.com and Fidelity Mortgage Services, Inc. under
      which they forward mortgage applications to us. Applications received
      directly through our Web site are processed and closed by mortgage.com.
      Applications received indirectly from mortgage.com, E-loan,
      Virtuallender.com or Fidelity Mortgage Services are processed by the
      respective lender, which in turn receives funding from us and closes the
      loans. We fund each loan that meets our underwriting criteria and sell the
      loans received directly through our Web site to mortgage.com or, in the
      case of loans received indirectly, to the lender from which it was
      received, in each case with the servicing rights released. The loans are
      presold to the same sources at the time of closing so that we do not bear
      any material risk of loss. We generally carry loans receivable on our
      books for an average of approximately 30 days while we await receipt of
      sale proceeds. During this time, we receive interest income on the
      outstanding balance at the rate stated in the mortgage note. We also
      receive a portion of the loan origination fee for providing these funding
      services. We plan to expand our loan offerings to include home equity

                                       47
<PAGE>
      loans, home equity lines of credit and automobile loans. We also originate
      and retain a small number of home mortgage loans for our own portfolio.
      See "--Lending and Investment Activities."

    - CREDIT CARDS. We offer our customers Visa and MasterCard credit cards
      issued by The Bankers Bank for no annual fee. The Bankers Bank carries the
      credit card loans on its books and we have an income-sharing arrangement
      with The Bankers Bank. Customers can apply for these credit cards on-line.
      The cards prominently display the Net.B@nk logo with the Visa or
      MasterCard emblem appearing in the lower right corner of the card.

    NON-BANKING FINANCIAL SERVICES.  To serve as a sole source for the financial
services needs of internet users and to generate additional noninterest income,
we offer a full range of non-banking financial services designed to attract and
retain customers. These services currently include securities brokerage and
business equipment leasing services and in the future will include several new
services such as insurance products.

    - SECURITIES BROKERAGE SERVICES. We have contracted with UVEST Investment
      Services, a discount broker, to provide our customers with access to a
      full line of financial services and investment products. We have a
      fee-sharing agreement with UVEST Investment Services. Customers can
      purchase securities without writing checks to their brokers, as trading
      fees are automatically deducted from their Net.B@nk checking or money
      market accounts. Investment proceeds are automatically deposited into the
      customer's Net.B@nk deposit account. Customers enjoy 24-hour on-line
      access, real-time quotes, low commissions and a professional brokerage
      staff.

    - BUSINESS EQUIPMENT LEASING. In October 1998, we entered into an agreement
      with Republic Leasing Company that allows our customers, many of whom are
      independent business owners or managers, to lease small business equipment
      through Republic Leasing. We have a fee-sharing agreement with Republic
      Leasing. Lease amounts range from $5,000 to $500,000 and cover virtually
      all types of business equipment. Republic Leasing provides advice,
      comparison quotes and immediate equipment lease financing and holds and
      services all of its leases.

    FUTURE PRODUCTS AND SERVICES.  To generate additional interest and fee
income and enhance customer convenience, Net.B@nk plans to introduce a variety
of new products and services. We plan to offer consumer loans, including home
equity and automobile loans, beginning in the third quarter of 1999. Other
future products and services may include insurance products, electronic bill
presentment and electronic document and image storage in a virtual safe deposit
box.

LENDING AND INVESTMENT ACTIVITIES

    Our loan portfolio strategy is to maintain a conservative loan mix
consisting of home mortgage, home equity, consumer and construction loans with
an emphasis on high credit quality. At our current stage of development, it is
more cost-effective for us to purchase most of our loans or act as a
participating lender with other banks rather than originating our own loans.
This strategy decreases our expenses and allows us to diversify our portfolio.
As we grow, we will continue to develop our portfolio through purchases,
participations and direct originations.

    We build our loan portfolio in the following ways:

    - PURCHASES. We acquire most of our loans by purchasing packages of specific
      types of loans, such as mortgage, home equity and consumer loans, with
      each package consisting of loans with similar principal amounts, interest
      rates and asset quality. We also purchase portions of commercial loan
      pools, with the seller retaining a portion of the loans to decrease our
      risk. As of March 31, 1999, purchased loans accounted for approximately
      $259.6 million, or 71.3%, of our loan portfolio.

                                       48
<PAGE>
    - PARTICIPATIONS. We act as a participating lender in commercial and large
      construction loans with varying banks in the Southeast, including The
      Bankers Bank. We anticipate expanding our participations in construction
      loans to include loans originated nationwide in order to take advantage of
      lower prices for these loans in less competitive geographic areas. As of
      March 31, 1999, participations accounted for approximately $81.2 million,
      or 22.3%, of our loan portfolio.

    - DIRECT ORIGINATION. We originate a small number of loans directly with our
      customers. As of March 31, 1999, these loans accounted for approximately
      $23.3 million, or 6.4%, of our loan portfolio.

    In addition, as described in "--Products and Services," "-- Lending
Programs" and "--Mortgage Loans," we have agreements with each of mortgage.com,
E-loan, Virtuallender.com, BancMortgage and Fidelity Mortgage Services that
provide that we act as a loan originator on their behalf. From May 1998, when we
began providing services under the first of these agreements, to March 31, 1999,
we funded $258.2 million of loans for third parties. As of March 31, 1999, we
had $35.0 million in loan sale proceeds receivable relating to these agreements.
In the future, we may retain a portion of such loans for our own portfolio.

    Our loan committee establishes underwriting standards and criteria for our
loan portfolio and monitors the portfolio on an ongoing basis. The loan
committee applies the same underwriting standards to all of our loans,
regardless of how they are originated. We have also retained an outside
consulting firm to assist the loan committee in its review of the loan portfolio
and to conduct due diligence on purchased loans.

    In addition to loans, we invest deposit funds in various fixed income
securities. Our philosophy of high credit quality also guides our investment
decisions. Our fixed income securities portfolio is comprised primarily of
United States Treasury obligations, collateralized mortgage obligations and
mortgage-backed securities issued by agencies such as Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation.

CUSTOMER SATISFACTION

    We continually seek ways to enhance customer satisfaction. Offering our
customers a high-level of customer service is a top priority of ours and we
believe that it is critical to our success. In an effort to serve the needs of
our customers, we offer services such as electronic bill payment and ATM cards
without service charges. Our customers can access account data and information
regarding products and services 24 hours a day and can currently reach our
customer service representatives by telephone and e-mail.

    We are committed to investing in customer service. We recently created a
managerial position dedicated to customer service and hired an individual with
approximately 20 years of experience in customer service and call center
management. We have also expanded our customer support staff by over 70% in
order to maintain high-quality customer service. We have also invested in
technology and implemented new procedures in order to continually improve the
quality and responsiveness of our customer service. To optimize our customer
service resources, we have designed a user-friendly Web site with a goal of
achieving customer self-support. For example, customers can find answers to
their "frequently asked questions" and intuitively navigate our Web site.

                                       49
<PAGE>
MARKETING

    The goal of our marketing strategy is to make Net.B@nk the leading brand in
the internet financial services market. Our marketing strategy is designed to
grow our customer base and includes targeted advertising on the internet and
other media, developing strategic partnerships that will enhance our product and
service offerings, cross-marketing initiatives to existing customers and
fostering public relations. Our marketing campaign launched after our February
1999 offering has been highly successful, and we plan to significantly increase
our marketing expenses from $695,000 in 1998 to a budgeted $6.6 million for
1999.

    During the first quarter of 1999, we applied approximately $400,000 to our
marketing program and added 7,226 new accounts. We plan to increase our print
and on-line advertising and continue to explore opportunities in broadcast
advertising during the course of the year. We have recently hired additional
marketing support staff and believe that a significant increase in our marketing
initiatives will enable us to increase our name recognition and grow our
customer and deposit base on a national scale.

    ADVERTISING STRATEGIES.  We have allocated the majority of our advertising
budget to on-line advertising because we believe it is a rapidly growing medium
that best reaches our target audience. We currently market our products and
services by placing banner ads on portals such as Yahoo!, Alta Vista, Infoseek,
Lycos, AOL and Excite and Web sites such as Bank Rate Monitor, iVillage and
Motley Fool that our experience indicates will attract our target customers. We
have enhanced our ability to monitor the audience that we reach as well as the
results of our on-line advertising campaign. For example, we track the number of
hits on our Web site that result from a particular advertisement and incorporate
our findings into our subsequent marketing efforts.

    We also utilize traditional advertisement media. We have a national print
media campaign aimed at increasing brand awareness. Our print media campaign has
included a series of advertisements in national newspaper and magazines such as
THE WALL STREET JOURNAL, FORBES, PC WORLD and INTERNET LIFE. We added direct
mail marketing to our marketing activities and we are evaluating opportunities
in broadcast advertising.

    STRATEGIC PARTNERSHIPS.  We continually seek to form product and marketing
alliances with other internet financial services providers such as
Virtuallender.com and E-loan to broaden our product and service offerings and
attract a broader customer base. We plan to pursue other marketing alliances
such as co-branded credit cards. We believe these alliances provide us with the
opportunity to cross-market our products and services to the customers of these
financial service providers and to our existing customers.

    PUBLIC RELATIONS.  We also derive a marketing benefit from media coverage
that we generate through our public relations campaign. We believe this coverage
increases the general public's awareness of Net.B@nk and attracts new customers.

COMPETITION

    We believe that the principal competitive factors in the banking industry
are market presence, customer service, convenience, product offerings and
deposit and loan rates and associated account fees. While the banking industry
is highly competitive, we believe we compete effectively with our principal
competitors, which are traditional banks, internet banks and other financial
services providers. We believe our low cost structure, which allows us to offer
attractive interest rates and low fees, gives us a competitive advantage over
traditional banks, which must support a physical branch structure. We also
believe our operating history and name recognition give us an advantage over
other independent internet banks, most of which are still in a relatively early
stage of operation. Furthermore, we are able to offer a broader array of
products and services than many non-bank financial services providers. However,
many of our competitors have larger customer bases, greater name recognition and
brand awareness, greater financial and other resources and longer operating
histories. Additionally, new

                                       50
<PAGE>
competitors and competitive factors are likely to emerge, particularly in view
of the rapid development of internet commerce. See "Risk Factors--Industry
competition may adversely affect our success."

OPERATIONS

    ACCOUNT ACTIVITY.  Customers can access Net.B@nk through any internet
service provider by means of an acceptable secure Web browser. In doing so,
customers can apply for loans, review account activity, enter transactions into
an on-line account register, pay bills electronically, conduct brokerage
transactions, receive statements by mail and print bank statement reports from
any PC with a secure Web browser, regardless of its location. To open a new
account, the customer completes the on-line enrollment form on our Web site,
prints the signature card, signs it and mails it to us. Customers can make
deposits into an open account at Net.B@nk via direct deposit programs, by
transferring funds between Net.B@nk accounts, by wire transfer, by mail or in
person at our principal executive offices. No teller line is maintained,
however, and we do not have or intend to establish a physical branch system.
Customers can also make withdrawals and have access to their accounts at ATMs
that are affiliated with the Cirrus, Honor and Avail networks, which provides
added customer convenience.

    SERVICE PROVIDERS.  We have negotiated relationships with a select group of
service providers who not only provide us with significant quality, security,
reliability, performance and marketing capabilities, but also play an integral
role in implementing our full financial services strategy. Because we outsource
our principal operational functions to experienced third-party service providers
that have the capacity to process a high volume of transactions, we can respond
easily to growth. Moreover, we have preserved a degree of flexibility that
enables us to assess and evaluate our product offerings and delivery structure
on an ongoing basis and to incorporate other alliance opportunities as they
present themselves. Should any of these relationships terminate, however, we
believe we could secure the required services from an alternative source without
material interruption of our operations. Our principal service providers are
described below:

    - NCR. NCR provides operational support for our internet banking and bill
      payment applications. Specifically, NCR provides a secure Web site,
      software that performs services relating to our infrastructure and other
      electronic banking services. NCR also hosts Edify's electronic banking
      software on its secure server and provides the interface necessary to link
      our servers with those used by BISYS and CheckFree.

    - BISYS. We receive core systems processing services, such as deposit
      account, loan and year-end processing services, from BISYS. The BISYS
      server interfaces with NCR's secure server and verifies customer passwords
      and identification. BISYS also operates our ATM and debit card systems.

    - EDIFY. Edify licenses its Electronic Banking System and Electronic
      Workforce software, a suite of internet banking applications, to us. Edify
      also maintains the software and provides consulting services as needed.

    - CHECKFREE. CheckFree provides electronic bill paying services to our
      customers. Customers can pay their bills on-line through electronic funds
      transfer or a written draft prepared and sent to the creditor.

    - UVEST INVESTMENT SERVICES. UVEST Investment Services provides discount
      brokerage services to our customers. UVEST Investment Services executes
      the trades and receives a commission that is automatically deducted from
      our customer's deposit account.

    - MORTGAGE.COM. mortgage.com processes mortgage loan applications submitted
      through our Web site. It reviews the application, contacts the customer
      and closes the loan for us.

    - PNC BANK CORP. We plan to offer consumer loans, including home equity and
      automobile loans, in the third quarter of 1999. PNC will originate and
      service these loans and will service other consumer loans on a servicing
      released basis.

                                       51
<PAGE>
    As part of our outsourcing strategy, we will continue to explore the
outsourcing of a variety of our operations, including customer service, new
product offerings and certain lending and portfolio management activities.

SECURITY

    Our ability to provide our customers with secure financial services over the
internet is of paramount importance. We continually evaluate the internet
systems, services and software used in our operations to ensure that they meet
the highest standards of security. The following are among the security measures
that are in place:

    ENCRYPTED TRANSACTIONS.  All banking transactions and internet
communications are encrypted so that sensitive information is not transmitted
over the internet in a form that can be read or easily deciphered. Encryption of
internet communications is accomplished through the use of the Netscape Secure
Sockets Layer technology. This technology is the standard for encryption on the
internet and is currently used by Netscape's NAVIGATOR (Version 2.0 or higher)
and Microsoft's INTERNET EXPLORER (Version 3.0 or higher). Messages between our
server and BISYS are encrypted using DES encryption, which is described in
"--Isolated Bank Server" below.

    SECURE LOGON.  To eliminate the possibility that a third party may download
Net.B@nk's or a customer's password file, user identification and passwords are
not stored on the internet or the Web server. Furthermore, passwords are strings
of six to eight alpha-numeric characters, which makes the chance that a password
can be randomly guessed less than one in one trillion.

    ISOLATED BANK SERVER.  The computer used to provide our services cannot be
accessed directly through the internet. It is on a private connection, or
intranet, that provides two-way communication between the isolated bank server
and the NCR internet server. Consequently, an internet user cannot directly
access the computer that actually provides our services.

    All banking services are routed from the NCR server through a firewall. The
firewall is a combined software and hardware product that precisely defines,
controls and limits the access to "internal" computers from "outside" computers
across a network. Use of this firewall means that only authenticated bank
customers or administrators may send or receive transactions through it, and the
firewall itself is immune to penetration from the network. In other words, the
firewall is a mechanism used to protect our server from the freely accessible
internet.

    Furthermore, all messages sent or received between the NCR server and our
server are encrypted using DES encryption. This is a symmetric key algorithm and
is highly secure because it is not susceptible to standard ciphertext attacks.
Thus, even if a perpetrator were able to route a message to our server through
the firewall, the message could not be encrypted in a way that would be
considered valid by the server. As a result, our server would reject the
message.

    AUTHENTICATED SESSION INTEGRITY.  An authenticated user is any user who
signs onto our Web site with a valid user ID and password. Although the vast
majority of authenticated users are legitimate bank customers, our server is
programmed to limit exposure to an authenticated user who is attempting to
defraud Net.B@nk. If the authenticated user alters the URL, which is the command
or request that is sent from the browser to the server, in any way in an attempt
to gain access to other users' accounts, our server immediately detects that the
session integrity variables have been violated. Our server will immediately stop
the session and record the attempt in a log so that our staff can investigate.

    PHYSICAL SECURITY.  All servers and network computers reside in secure NCR
facilities. Currently, computer operations supporting our internet access are
based in Columbia, Maryland with backup facilities in Dayton, Ohio. Only
employees with proper photographic identification may enter the primary
building. The computer operations are located in a secure area, with admission
only by key card. Access to our server console requires further password
identification.

    SECURE MODEM ACCESS. A private line that is not accessible from the public
network connects our server and BISYS. Our server is connected to CheckFree by a
similar private connection. A dial-up

                                       52
<PAGE>
maintenance port also permits access to our server. The modem that provides the
only access to this port is specially protected and is only enabled on an
as-needed basis.

    SERVICE CONTINUITY.  NCR and BISYS each provide a fully redundant network
with no single point of failure. Our server is also "mirrored" so that hardware
failures or software bugs should cause no more than a few minutes of service
outage. "Mirroring" means that our server is backed up continuously so that all
data is stored in two physical locations. This network and server redundancy
ensures that access to Net.B@nk will be reliable. However, if customers are not
able to access Net.B@nk over the internet, customers retain access to their
funds through several means, including paper checks, ATM cards, customer service
and an automated telephone response system.

    MONITORING.  All customer transactions on our server using services provided
by BISYS and CheckFree produce one or more entries into transactional logs. We
and NCR recognize that it is critical to monitor these logs for unusual or
fraudulent activity. As mentioned previously, any attempt by an authenticated
user to modify the command or request that is sent from the browser to the
server is logged. Additionally, all financial transactions are logged. Bank
personnel review these logs regularly, and we or NCR will note any abnormal or
unusual activity and take appropriate action. Ultimately, vigilant monitoring is
the best defense against fraud.

    The preceding security measures are designed to ensure that Net.B@nk is set
up in a secure manner. However, over the long term, our security depends upon
the procedures and standards used for administration of the internet site. Both
NCR and BISYS are required to obtain SAS 70 certification from a national
accounting firm. This is a certification by independent auditors that the NCR
and BISYS computer systems are being managed and operated in a manner consistent
with accepted practices. Both BISYS and NCR have received this certification.

    We believe the risk of fraud presented by internet banking is not materially
different from the risk of fraud inherent in any banking relationship. We
believe the three principal reasons for a breach in bank security are:

    - Misappropriation from the user of the user's account number or password;

    - Penetration of our server by an outside "hacker"; and

    - Fraud committed by one of our employees or an employee of one of our
      service providers.

Both traditional banks and internet banks are vulnerable to these types of
fraud. By establishing the security measures described above, we believe we have
reduced our vulnerability to the first two types of fraud. To counteract fraud
by employees, associates and consultants, we have established internal
procedures and policies designed to ensure that, as in any bank, proper control
and supervision is exercised over employees, associates and consultants. We also
counteract all types of fraud through daily examination of our transactional
logs.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

    We regard the form and substance of our name and other intellectual property
we have developed as proprietary and attempt to protect them by relying on
intellectual property laws. We have submitted a United States trademark
registration for the Net.B@nk name and take active measures to safeguard our
name and other proprietary intellectual property. Policing unauthorized use of
proprietary information is difficult, however, and litigation may be necessary
to enforce our intellectual property rights.

    We own the internet domain name "netbank.com." Domain names in the United
States and in foreign countries are regulated, by the laws and regulations
governing the internet are continually evolving. Additionally, the relationship
between regulations governing domain names and laws protecting intellectual
property rights is unclear. As a result, we may not be able to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our trademark and other intellectual property rights.

                                       53
<PAGE>
SUPERVISION AND REGULATION

    References to "we," "us," "our" and "Net.B@nk" generally refer to Net.B@nk,
Inc. and its sole subsidiary, Net.B@nk, on a consolidated basis, except where we
indicate that Net.B@nk, Inc. means only the parent entity and Net.B@nk refers
only to the banking subsidiary.

    BACKGROUND.  In connection with its approval of the July 31, 1997
acquisition of our bank charter, the Office of Thrift Supervision required us to
make certain commitments with respect to our ongoing operations. These
commitments included:

    - Until July 28, 2000, receiving prior approval from the Office of Thrift
      Supervision before making any changes to our senior management team or
      board of directors;

    - Operating within the parameters of our business plan as submitted to the
      Office of Thrift Supervision;

    - Obtaining from an independent computer security specialist an independent
      review of, and written report regarding, the internet banking security
      measures we employ;

    - Complying with the Office of Thrift Supervision policy statement regarding
      on-line banking;

    - Ensuring that our directors and certain executive officers and
      shareholders refrain from disposing of their restricted shares of common
      stock without the prior consent of the Office of Thrift Supervision until
      July 28, 2000;

    - Obtaining the approval of the Regional Director of the Office of Thrift
      Supervision with respect to any changes in our stock benefit plans
      effected on or before July 28, 2000;

    - Complying with Office of Thrift Supervision directives, if any, that
      require the exercise or forfeiture of participants' rights under our stock
      benefit plans in the event our capital falls below minimum Office of
      Thrift Supervision requirements; and

    - Submitting to the Office of Thrift Supervision a structured project plan
      describing the steps and timing required to replace the Web hosting
      services that were previously provided by AT&T Corp. and are now provided
      by NCR.

    We and our directors, executive officers and shareholders have complied with
these conditions to date.

    On January 8, 1999, the Office of Thrift Supervision granted Carolina First
Corporation permission to sell a portion of its shares of common stock in
Net.B@nk's February 1999 public offering. As a condition to its approval, the
Office of Thrift Supervision required that two of the four directors initially
nominated by Carolina First Corporation resign following completion of the
offering and that those directors be replaced with two outside directors within
six months of the resignations. The Office of Thrift Supervision also required
Carolina First Corporation to refrain from disposing of its remaining shares of
common stock without the prior consent of the Office of Thrift Supervision. We
do not believe that these commitments have or will materially affect our
operations.

    Carolina First Corporation currently owns more than five percent of our
outstanding common stock. As a result, Carolina First Corporation is subject to
certain Federal Reserve Board regulations regarding its relationship with
Net.B@nk. Until Carolina First Corporation owns less than five percent of our
outstanding common stock, we will not engage in any activities that are not
permissible under applicable Federal Reserve Board regulations.

    SAVINGS AND LOAN HOLDING COMPANY REGULATION.  Savings and loan holding
companies and federal savings banks are extensively regulated under both federal
and state law. The following is a brief summary of certain statutes, rules and
regulations that affect Net.B@nk, Inc. and its banking subsidiary. This summary
is qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below. This summary is not intended to be an
exhaustive description of the statutes or regulations applicable to our
business. Supervision, regulation and examination of Net.B@nk by regulatory
agencies is intended primarily for the protection of our depositors rather than
our shareholders. The terms bank, savings institution, savings association,
federal savings bank and

                                       54
<PAGE>
thrift are used interchangeably in this section to refer to savings associations
such as Net.B@nk, Inc.'s banking subsidiary that are subject to supervision and
regulation by the Office of Thrift Supervision. The terms savings and loan
holding company and holding company are used interchangeably to refer to holding
companies, such as Net.B@nk, Inc., that are subject to supervision and
regulation by the Office of Thrift Supervision.

    Net.B@nk, Inc. is registered as a holding company under both the Savings and
Loan Holding Company Act set forth in Section 10 of the Home Owners Loan Act and
the Financial Institutions Code of Georgia. Net.B@nk, Inc. is currently
regulated under these acts by the Office of Thrift Supervision and by the
Georgia Department of Banking and Finance. As a savings and loan holding
company, Net.B@nk, Inc. is required to file with the Office of Thrift
Supervision an annual report and any additional information that the Office of
Thrift Supervision may require under the Savings and Loan Holding Company Act.
The Office of Thrift Supervision also conducts examinations of Net.B@nk, Inc.
and its banking subsidiary.

    Generally, savings and loan holding companies and their subsidiaries may not
engage in activities or render any services for or on behalf of their savings
institution subsidiaries for the purpose or with the effect of evading any law
or regulation applicable to the institution. This restriction is designed to
prevent savings and loan holding companies and their affiliates from evading
requirements of the Savings and Loan Holding Company Act that were enacted to
protect a holding company's savings institution subsidiaries. A unitary thrift
holding company, that is, a holding company that owns only one insured
institution whose subsidiary institution satisfies the qualified thrift lender
test (discussed below), however, is not restricted to any statutorily prescribed
list of permissible activities, and the Savings and Loan Holding Company Act and
the Financial Institutions Code of Georgia impose no limits on direct or
indirect non-savings institution subsidiary operations. Net.B@nk, Inc. is a
unitary thrift holding company and qualifies for this exception. However, as
discussed above, we have committed that Net.B@nk, Inc. will not engage in any
activity that is impermissible for bank holding companies under Federal Reserve
Board regulations.

    The Savings and Loan Holding Company Act and the Financial Institutions Code
of Georgia make it unlawful for any savings and loan holding company to acquire
control of another savings association or savings and loan holding company
without prior approval from the Office of Thrift Supervision and the Georgia
Department of Banking and Finance. These statutes also prohibit a savings
institution or holding company from merging with, consolidating with or
purchasing all or substantially all of the assets of another institution or
holding company without prior approval. The Office of Thrift Supervision and the
Georgia Department of Banking and Finance take into consideration the financial
and managerial resources and future prospects of the institutions involved when
considering an application for these transactions. This includes consideration
of the competence, experience and integrity of the officers, directors and
principal shareholders of the companies. In addition, the agencies consider the
effect of the transaction on the institution, the insurance risk to the Savings
Association Insurance Fund and the convenience and needs of the community to be
served.

    The Office of Thrift Supervision may not approve an acquisition that would
result in the formation of certain types of interstate banking networks. The
Office of Thrift Supervision is precluded from approving an acquisition that
would result in the formation of a holding company that controls savings
institutions in more than one state. If, however, the acquiring company or one
of its savings institution subsidiaries is authorized to acquire control of an
institution or to operate an office in the additional state under a supervisory
acquisition authorized under Section 13(k) of the Federal Deposit Insurance Act
or the statutes of the state in which the institution to be acquired is located
permits the acquisition, then the acquisition may be approved.

                                       55
<PAGE>
    Savings and loan holding companies are generally allowed to acquire or to
retain as much as 5% of the voting shares of a savings institution or savings
and loan holding company without regulatory approval.

SAVINGS BANK REGULATION

    GENERAL.  Net.B@nk is chartered by the Office of Thrift Supervision, a
bureau of the United States Treasury, and is subject to examination by the
Office of Thrift Supervision and the FDIC. The Office of Thrift Supervision
regulates all areas of our banking operations including reserves, lending,
mergers, payment of dividends, interest rates, establishment of branches and
other aspects of our operations. Federal savings banks with assets greater than
or equal to $250 million, like Net.B@nk, must be examined no less frequently
than every 12 months. Federal savings banks with assets less than $250 million
may be examined no less frequently than 18 months, if they are well capitalized
and meet other regulatory requirements. Additionally, the Office of Thrift
Supervision may assess the federal savings bank with the cost of the
examination.

    The FDIC insures Net.B@nk's deposits to the maximum extent provided by law.
The major functions of the FDIC with respect to insured federal savings banks
include:

    - Paying depositors to the extent provided by law in the event an insured
      federal savings bank is closed without adequately providing for payment of
      depositors' claims; and

    - Preventing the continuance or development of unsound and unsafe banking
      practices.

    CAPITAL REQUIREMENTS.  Net.B@nk is required to comply with the capital
adequacy standards established by the Office of Thrift Supervision. The Office
of Thrift Supervision has established three basic measures of capital adequacy
for federal savings banks--a risk-based measure, a leverage measure and a
tangible capital measure.

    The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among savings
associations, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.

    Under risk-based capital standards, the minimum guideline for the ratio of
total capital to risk-weighted assets is 8%. Net.B@nk's risk-based capital ratio
at December 31, 1998 was 15.36%.

    Under leverage-based capital standards, the minimum guideline for the ratio
of core capital to tangible assets is 3%. Net.B@nk's leverage ratio at December
31, 1998 was 9.31%. This leverage-based capital guideline, however, is the
minimum requirement. The guidelines provide that federal savings banks which are
not granted the highest regulatory rating shall maintain a core capital to total
adjusted assets ratio of 4%. A higher ratio may be required if warranted by the
risk profile of the federal savings bank.

    Under Office of Thrift Supervision regulations, core capital generally
includes:

    - Common stockholders' equity;

    - Noncumulative perpetual preferred stock and related surplus; and

    - Minority interests in the equity accounts of consolidated subsidiaries,

    LESS:

    - Unidentifiable intangible assets, other than certain amounts of
      supervisory goodwill; and

                                       56
<PAGE>
    - Certain investments in certain subsidiaries plus 90% of the fair market
      value of readily marketable purchased mortgage servicing rights and
      purchased credit card relationships, subject to certain conditions.

    Total capital, for purposes of the risk-based capital requirement equals the
sum of core capital plus supplementary capital. Supplementary capital includes
the sum of, among other items, perpetual preferred stock not counted as core
capital, limited life preferred stock, subordinated debt and general loan and
lease loss allowances up to 1.25% of risk-weighted assets less certain
deductions. The amount of supplementary capital that may be counted towards
satisfaction of the total capital requirement may not exceed 100% of core
capital, and Office of Thrift Supervision regulations require the maintenance of
a minimum ratio of core capital to total risk-weighted assets of 4%.

    Under tangible capital standards, the minimum guideline for the ratio of
tangible capital to tangible assets is 1.5%. Net.B@nk's tangible capital ratio
at December 31, 1998 was 9.31%. Generally, tangible capital is defined as core
capital minus intangible assets and investments in certain subsidiaries and does
not include purchased mortgage servicing rights.

    Office of Thrift Supervision regulations have been amended to include an
interest-rate risk component to the risk-based capital requirement. This new
requirement is not expected to have any material effect on our ability to meet
the risk-based capital requirement. The Office of Thrift Supervision also
revised its risk-based capital standards to ensure that its standards provide
adequately for concentration of credit risk, risk from nontraditional activities
and actual performance and expected risk of loss on multi-family mortgages.

    Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings association if the
Office of Thrift Supervision determines that the institution's capital was or
may become inadequate in view of its particular circumstances.

    Additionally, the Georgia Department of Banking and Finance requires savings
and loan holding companies, such as Net.B@nk, Inc., to maintain a 5% Tier 1
capital ratio on a consolidated basis. Tier 1 capital is substantially the same
as core capital. As of December 31, 1998, Net.B@nk's Tier 1 capital ratio was
14.44%.

    PROMPT CORRECTIVE ACTION.  The Federal Deposit Insurance Corporation
Improvement Act of 1991 established a system of prompt corrective action to
resolve the problems of undercapitalized institutions. Under this system, the
federal banking regulators, which include the Office of Thrift Supervision, the
FDIC, the Office of the Comptroller of the Currency and the Federal Reserve
Board, established five capital categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized), and are required to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, relating to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the federal banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital levels for each category.

    An institution that is categorized as undercapitalized, significantly
undercapitalized or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
savings and loan holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The controlling holding company's obligation to fund a capital restoration plan
is limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC
approval. In addition, the appropriate federal banking

                                       57
<PAGE>
agency may treat an undercapitalized institution in the same manner as it treats
a significantly undercapitalized institution, if it determines that those
actions are necessary. The appropriate federal banking agency may also treat an
institution in the well capitalized, adequately capitalized or undercapitalized
categories as if it was in the next lower category based on safety and soundness
considerations relating to factors other than capital levels.

    At December 31, 1998, our capital level placed us in the well capitalized
category.

    CAPITAL DISTRIBUTIONS.  Office of Thrift Supervision regulations govern the
payment of dividends and other capital distributions of savings associations
such as Net.B@nk. Under new regulations effective April 1, 1999, savings
associations that meet specified criteria must file a notice or an application
with the Office of Thrift Supervision before making a "capital distribution,"
which is defined to include dividends as well as stock repurchases and cash-out
mergers. Savings associations that do not meet these criteria are permitted to
make distributions without prior notice or application. The Office of Thrift
Supervision may deny distribution notices or applications under specified
circumstances.

    A savings association must file an application with the Office of Thrift
Supervision and receive the Office of Thrift Supervision's approval of the
application before making the distribution if:

    - The association is not eligible for expedited treatment under the agency's
      application processing guidelines;

    - The total amount of all of the association's capital distributions,
      including the proposed capital distribution, for the applicable calendar
      year exceeds the association's net income for that year to date plus the
      association's retained net income for the preceding two years;

    - The association would not be at least adequately capitalized under the
      Office of Thrift Supervision's prompt corrective action regulations,
      following the distribution; or

    - The proposed capital distribution would violate a prohibition contained in
      any applicable statute, regulation or agreement between the association
      and the Office of Thrift Supervision or the FDIC, or violate a condition
      imposed on the association in an application or notice approved by the
      Office of Thrift Supervision.

    A savings association is not eligible for expedited treatment if the
association does not have a composite rating of 1 or 2, does not have a
Community Reinvestment Act rating of satisfactory or better, does not have a
compliance rating of 1 or 2, does not meet its minimum capital requirements or
has been notified by Office of Thrift Supervision personnel that it is a problem
or troubled association.

    A savings association must file a notice 30 days before a capital
distribution if the association is not required to file an application but:

    - The association would not be well capitalized under the prompt corrective
      action regulations following the distribution;

    - The proposed capital distribution would reduce the amount of or retire any
      part of the association's common or preferred stock or retire any part of
      debt instruments such as notes or debentures included in capital under the
      Office of Thrift Supervision's capital regulations (other than regular
      payments required under certain debt instruments); or

    - The association is a subsidiary of a savings and loan holding company.

                                       58
<PAGE>
    The Office of Thrift Supervision may disapprove a notice or deny an
application, in whole or in part, if the Office of Thrift Supervision determines
that:

    - The association will be undercapitalized, significantly undercapitalized
      or critically undercapitalized as set forth in the prompt corrective
      action regulations, following the distribution;

    - The proposed distribution raises safety or soundness concerns; or

    - The proposed distribution violates a prohibition contained in any statute,
      regulation, agreement between the association and the Office of Thrift
      Supervision or the FDIC or a condition imposed in an application or notice
      approved by the Office of Thrift Supervision, unless the Office of Thrift
      Supervision decides to permit the proposed distribution notwithstanding
      the prohibition or condition.

    Net.B@nk does not currently meet the criteria for an application. However,
because Net.B@nk is a subsidiary of a savings and loan holding company, it must
file a notice with the Office of Thrift Supervision at least 30 days before it
makes any capital distribution.

    LIQUIDITY.  Under Office of Thrift Supervision regulations, savings
associations must maintain an average daily balance of liquid assets in each
calendar quarter of not less than 4% of: (1) the amount of its liquidity base at
the end of the preceding calendar quarter or (2) the average daily balance of
its liquidity base during the preceding quarter. Liquid assets include cash,
certain time deposits, certain bankers' acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual funds
and specified United States government, state or federal agency obligations. The
liquidity base is the amount of the savings association's net withdrawable
accounts plus its short-term borrowings.

    The Office of Thrift Supervision may, to the extent and under conditions it
may prescribe, permit a savings association to reduce its liquid assets below
the minimum amount to meet withdrawals or pay obligations. In addition, the
Office of Thrift Supervision may suspend part or all of the minimum liquidity
requirements whenever it determines that conditions of national emergency or
unusual economic stress exist. Savings institutions also are required to
maintain short-term liquid assets to satisfy Federal Reserve Board requirements.

    QUALIFIED THRIFT LENDER REQUIREMENT. A federal savings bank is deemed to be
a qualified thrift lender if: (1) the savings association qualifies as a
domestic building and loan association, as defined in section 7701(a)(19) of the
Internal Revenue Code of 1986 or (2) the savings association's qualified thrift
investments equal or exceed 65% of its portfolio assets on a monthly average
basis in nine out of every 12 months.

    Qualified thrift investments generally consist of (1) various
housing-related loans and investments such as residential construction and
mortgage loans, home improvement loans, mobile home loans, home equity loans and
mortgage-backed securities, (2) certain obligations of the FDIC and (3) shares
of stock issued by any Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association.

    In addition, the following assets may be categorized as qualified thrift
investments in an amount not to exceed 20% in the aggregate of portfolio assets:

    - 50% of the dollar amount of residential mortgage loans originated and sold
      within 90 days of origination;

    - Investments in securities of a service corporation that derives at least
      80% of its income from residential housing finance;

                                       59
<PAGE>
    - 200% of loans and investments made to acquire, develop or construct
      starter homes or homes in credit needy areas (subject to certain
      conditions);

    - Loans for the purchase or construction of churches, schools, nursing homes
      and hospitals; and

    - Consumer loans.

    The term portfolio assets means the savings institution's total assets minus
goodwill and other intangible assets, the value of property used by the savings
institution to conduct its business and liquid assets held by the savings
institution in an amount up to 20% of its total assets.

    A savings association that fails to meet the definition of a qualified
thrift lender must either convert to a national bank charter or limit its future
investments and activities, including branching and payments of dividends, to
those permitted for both savings associations and national banks. Further,
within one year of the loss of qualified thrift lender status, a holding company
of a savings association that does not convert to a bank charter must register
as a bank holding company and will be subject to all statutes applicable to bank
holding companies. In order to exercise the powers granted to federally
chartered savings associations and maintain full access to Federal Home Loan
Bank advances, Net.B@nk must continue to meet the definition of a qualified
thrift lender. In addition, Net.B@nk must continue to meet this definition for
Net.B@nk, Inc. to maintain its status as a unitary savings and loan holding
company.

    LOANS TO ONE BORROWER LIMITATIONS.  The Home Owners Loan Act generally
requires savings associations to comply with the loans to one borrower
limitations applicable to national banks. National banks generally may make
loans to a single borrower in amounts up to 15% of their unimpaired capital and
surplus, plus an additional 10% of capital and surplus for loans secured by
readily marketable collateral. The Home Owners Loan Act provides exceptions
under which a savings association may make loans to one borrower in excess of
the generally applicable national bank limits. A savings association may make
loans to one borrower in excess of the limits under the following circumstances:
(1) for any purpose, in any amount not to exceed $500,000 or (2) to develop
domestic residential housing units, in an amount not to exceed the lesser of $30
million or 30% of the savings association's unimpaired capital and unimpaired
surplus, provided other conditions are satisfied.

    The Federal Institutions Reform, Recovery, and Enforcement Act of 1989
provided that a savings association could make loans to one borrower to finance
the sale of real property which the savings association acquired in satisfaction
of debts previously contracted in good faith, in amounts up to 50% of the
savings association's unimpaired capital and unimpaired surplus. The Office of
Thrift Supervision, however, has modified this standard by limiting loans to one
borrower to finance the sale of real property acquired in satisfaction of debts
to 15% of unimpaired capital and surplus. That rule provides, however, that
purchase money mortgages received by a savings association to finance those
sales that do not constitute "loans" if no new funds are advanced and the
savings association is not placed in a more detrimental position holding the
note than holding the real estate. Therefore, these purchase money mortgages are
not subject to the loans to one borrower limitations.

    COMMERCIAL REAL PROPERTY LOANS.  The Home Owners Loan Act limits the
aggregate amount of commercial real estate loans that a federal savings
association may make to an amount not in excess of 20% of the savings
association's assets. Also, the amount in excess of 10% of total assets must be
devoted to small business real property loans.

    COMMUNITY REINVESTMENT.  Under the Community Reinvestment Act and the
implementing Office of Thrift Supervision regulations, federal savings banks
have a continuing and affirmative obligation to help meet the credit needs of
their local communities, including low and moderate-income neighborhoods,
consistent with the safe and sound operation of the institution. The Community
Reinvestment Act requires the boards of directors of financial institutions to
adopt a Community

                                       60
<PAGE>
Reinvestment Act statement for each assessment area that, among other things,
describes its efforts to help meet community credit needs and the specific types
of credit that the institution is willing to extend. The Office of Thrift
Supervision has established the following three tests to evaluate a federal
savings bank's compliance with the Community Reinvestment Act:

    - A lending test which will compare the institution's market share of loans
      in low- and moderate-income areas to its market share of loans in its
      entire service area and the percentage of a bank's outstanding loans to
      low- and moderate-income areas or individuals;

    - A services test which will evaluate the provision of services that promote
      the availability of credit to low- and moderate-income areas; and

    - An investment test, which will evaluate an institution's record of
      investments in organizations designed to foster community development,
      small- and minority-owned businesses and affordable housing lending,
      including state and local government housing or revenue bonds.

    FAIR LENDING.  Congress and various federal agencies, including bank
regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice, which are responsible
for implementing fair lending laws in the United States, have been increasingly
concerned that prospective home buyers and other borrowers are experiencing
discrimination in their efforts to obtain loans. In recent years, the Department
of Justice has filed suit against financial institutions that it determined had
discriminated, seeking fines and restitution for borrowers who allegedly
suffered from discriminatory practices. Most, if not all, of these suits have
been settled, some for substantial sums, without a full adjudication on the
merits.

    On March 8, 1994, these federal agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified:

    - Overt evidence of discrimination, when a lender blatantly discriminates on
      a prohibited basis;

    - Evidence of disparate treatment, when a lender treats applicants
      differently based on a prohibited factor even where there is no showing
      that the treatment was motivated by prejudice or a conscious intention to
      discriminate against a person; and

    - Evidence of disparate impact, when a lender applies a practice uniformly
      to all applicants, but the practice has a discriminatory effect, even
      where the practices are neutral on their face and are applied equally,
      unless the practice can be justified on the basis of business necessity.

    FDIC INSURANCE ASSESSMENTS.  Federal deposit insurance is required for all
federally chartered savings associations. Net.B@nk's deposits are insured to a
maximum of $100,000 for each depositor by the Savings Association Insurance Fund
of the FDIC. Net.B@nk is therefore subject to regulation and supervision by the
FDIC to the extent deemed necessary by the FDIC to ensure the safety and
soundness of the Savings Association Insurance Fund. The FDIC is entitled to
have access to reports of examination of Net.B@nk made by the Office of Thrift
Supervision and all reports of condition filed by Net.B@nk with the Office of
Thrift Supervision. The FDIC also may require Net.B@nk to file additional
reports that determines to be advisable for insurance purposes. Additionally,
the FDIC may determine by regulation or order that a specific activity poses a
threat to the Savings Association Insurance Fund and that no Savings Association
Insurance Fund member may engage in the activity directly.

    Insurance premiums are paid in semiannual assessments. Under a risk-based
assessment system, the FDIC is required to calculate on a semi-annual basis a
savings association's semiannual assessment based on (1) the probability that
the insurance fund will incur a loss with respect to the institution,

                                       61
<PAGE>
taking into account the institution's asset and liability concentration, (2) the
potential magnitude of any such loss and (3) the revenue and reserve needs of
the insurance fund. The semiannual assessment imposed on the Net.B@nk may
increase depending on the Savings Association Insurance Fund revenue and expense
levels, and the risk classification applied to Net.B@nk.

    The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns an
institution to one of three supervisory subgroups within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation that the Office of Thrift Supervision provides to the
FDIC and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. The FDIC determines an institution's insurance assessment rate based on
the institution's capital category and supervisory category.

    Since January 1, 1997, Savings Association Insurance Fund members and Bank
Insurance Fund members have the same risk-based assessment schedule which is
$0.00 to $0.27 per $100 of deposits. Beginning January 1, 1997, financing
corporate bond debt service assessments of $0.013 for Bank Insurance Fund
deposits and $0.064 per $100 of deposits for Savings Association Insurance Fund
deposits were added to the Bank Insurance Fund assessable base and Savings
Association Insurance Fund assessable base, respectively. These rates will be in
effect until December 31, 1999. Thereafter, approximately $0.024 per $100 of
deposits will be added to each regular assessment for all insured depositors.

    The Deposit Insurance Funds Act of 1996 provided that the Bank Insurance
Fund and the Savings Association Insurance Fund were to be merged, creating the
"Deposit Insurance Fund," on January 1, 1999, provided that bank and savings
association charters were combined by that date. The Treasury Department has
submitted a report to Congress on the development of a common charter for all
insured depository institutions, but as of January 1, 1999, Congress had not
passed any legislation to combine the charters. See "--Elimination of Federal
Savings Association Charter."

    The FDIC may terminate an institution's deposit insurance if it finds that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operation, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.

    FEDERAL HOME LOAN BANK SYSTEM.  The Federal Home Loan Bank System consists
of 12 regional Federal Home Loan Banks, each subject to supervision and
regulation by the Federal Housing Finance Board. The Federal Home Loan Banks
provide a central credit facility for member savings associations. Collateral is
required. The maximum amount that the Federal Home Loan Bank of Atlanta will
advance fluctuates from time to time in accordance with changes in policies of
the Federal Housing Finance Board and the Federal Home Loan Banks, and the
maximum amount generally is reduced by borrowings from any other source. In
addition, the amount of advances that a savings association may obtain from the
Federal Home Loan Banks will be restricted in the event the institution fails to
constitute a qualified thrift lender. Net.B@nk is a member of the Federal Home
Loan Bank of Atlanta.

    FEDERAL RESERVE SYSTEM.  The Federal Reserve Board has adopted regulations
that require savings associations to maintain non-earning reserves against their
transaction accounts, primarily NOW and regular checking accounts. These
reserves may also be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision. Because required reserves must be maintained in
the form of cash or a non-interest-bearing account at a Federal Reserve Bank,
the effect of this reserve requirement is to reduce the amount of our
interest-earning assets.

                                       62
<PAGE>
    Savings institutions also have the authority to borrow from the Federal
Reserve discount window. Collateral is required. Federal Reserve Board
regulations, however, require savings associations to exhaust all Federal Home
Loan Bank sources before borrowing from a Federal Reserve Bank.

    TRANSACTIONS WITH AFFILIATES RESTRICTIONS.  Net.B@nk is subject to the
provisions of Section 23A of the Federal Reserve Act and the Office of Thrift
Supervision's implementing regulation. Section 23A places limits on:

    - The amount of loans or extensions of credit to affiliates;

    - The amount of investment in affiliates;

    - The amount of the purchase of assets from affiliates, except for real and
      personal property exempted by the Federal Reserve Board;

    - The amount of loans or extensions of credit to third parties
      collateralized by the securities or obligations of affiliates; and

    - The amount of any guarantee, acceptance or letter of credit issued on
      behalf of an affiliate.

    The aggregate of all of the above transactions is limited in amount, as to
any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each transaction must also meet
specified collateral requirements. Net.B@nk must also comply with certain
provisions designed to avoid transactions with affiliates involving low-quality
assets.

    Net.B@nk is also subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibits an institution from engaging in
the above transactions with affiliates unless the transactions are on terms
substantially the same, or at least as favorable to the institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliated companies.

    Net.B@nk is also subject to certain restrictions on extensions of credit to
its executive officers, directors, certain principal shareholders and their
related interests. These extensions of credit (1) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with third parties, and (2) must not
involve more than the normal risk of repayment or present other unfavorable
features.

    The Home Owners Loan Act and Office of Thrift Supervision regulations
contain additional restrictions on loans and extension of credit to affiliates,
and the Office of Thrift Supervision is authorized to impose additional
restrictions on transactions with affiliates if it determines restrictions are
necessary to ensure the safety and soundness of any savings association.

    FUTURE REQUIREMENTS.  Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions. We cannot predict
whether or what form any proposed statute or regulation will be adopted or the
extent to which our business may be affected by such statute or regulation.

    ELIMINATION OF FEDERAL SAVINGS ASSOCIATION CHARTER.  In recent years,
Congress has considered legislation that would eliminate the federal savings
association charter. If this legislation is enacted, Net.B@nk likely would be
required to convert its federal savings bank charter to either a national bank
charter or to a state depository institution charter and Net.B@nk, Inc. would
become a bank holding company subject to regulation by the Federal Reserve Board
and the Georgia Department of Banking and Finance. Congress has also considered
various legislative proposals that would result in the restructuring of federal
regulatory oversight, including, for example, consolidation of the Office of

                                       63
<PAGE>
Thrift Supervision into another agency, or creation of a new Federal banking
agency to replace the various agencies which presently exist.

PROPERTIES

    We lease 7,480 square feet of office space for our headquarters at 950 North
Point Parkway, Suite 350, Alpharetta, Georgia 30005. The office space is subject
to a lease that expires on January 31, 2005. We have entered into a lease for
approximately 19,615 square feet of office space for a new headquarters located
at Royal Centre Three, Suite 100, 11475 Great Oaks Way, Alpharetta, Georgia
30022. We plan to move our offices to this location in the summer of 1999.

EMPLOYEES

    As of April 30, 1999, we employed 40 persons on a full-time basis and one
person on a part-time basis. None of our employees is covered by a collective
bargaining agreement. We believe our relations with our employees are excellent.

LEGAL PROCEEDINGS


    On May 5, 1999, Net.B@nk, Inc. and Net.B@nk filed suit in the United States
District Court for the Southern District of Florida against Net1Bank, N.A.,
f/k/a Boca Raton First National Bank, N.A., First Telebanc Corp., Equitex, Inc.,
Keith Duffy and Henry Fong. The suit is based on the defendants' use and planned
use of the "Net1Bank" name and related domain names and marks in connection with
their Internet banking services and includes claims for false designation of
origin, trademark dilution, false advertising, unfair competition and trademark
infringement. In the lawsuit, we seek a variety of forms of relief, including
declaratory and injunctive relief, damages, a destruction order requiring that
the defendants deliver and destroy all materials bearing the Net1Bank mark and
an order directing defendants to cancel their domain names or to assign those
domain names to us. The defendants have not yet filed a response to the
complaint. Although we cannot state with certainty what the outcome of the
litigation will be, we believe that it is unlikely that the outcome will have a
material adverse effect on our business, financial condition or results of
operations.


    None of our properties is subject to a material legal proceeding, and we are
not aware of any material proceeding involving Net.B@nk that may be contemplated
by any governmental authority. We are also unaware of any pending or
contemplated material proceeding in which any Net.B@nk director, officer,
affiliate or principal shareholder is a party or has a direct or indirect
interest adverse to Net.B@nk.

                                       64
<PAGE>
                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

    The following table sets forth certain information concerning each of our
executive officers and directors:

<TABLE>
<CAPTION>
NAME                                           AGE               POSITION AND OFFICES HELD
- -----------------------------------------      ---      -------------------------------------------
<S>                                        <C>          <C>
T. Stephen Johnson.......................          49   Chairman of the Board
D. R. Grimes.............................          52   Vice Chairman, Chief Executive Officer and
                                                          Director
Robert E. Bowers.........................          42   Chief Financial Officer and Director
Thomas L. Cable..........................          42   Chief Technology Officer
Jeffrey B. Watson........................          39   Chief Lending Officer
Ward H. Clegg............................          47   Director
J. Stephen Heard.........................          56   Director
Robin C. Kelton..........................          64   Director
Thomas H. Muller, Jr.....................          57   Director
J. Joe Ricketts..........................          57   Director
Donald S. Shapleigh, Jr..................          50   Director
W. James Stokes..........................          40   Director
Mack I. Whittle, Jr......................          50   Director
</TABLE>

    T. STEPHEN JOHNSON is President of T. Stephen Johnson & Associates, a bank
consulting firm located in Roswell, Georgia. The firm specializes in mergers,
acquisitions and regulatory consulting. T. Stephen Johnson & Associates has
served as advisor and consultant in the formation of approximately 70 banks in
the southeastern United States. Mr. Johnson served in a management capacity for
two large Atlanta banks before forming T. Stephen Johnson & Associates in 1987.
Mr. Johnson also serves as Vice Chairman of Florida Banks, Inc., a bank holding
company. In addition, he is principal owner of Bank Assets Inc., a provider of
benefit programs for directors and officers of banks.

    D. R. GRIMES has served as Vice Chairman and Chief Executive Officer of
Net.B@nk, Inc. since January 1997. From March 1996 to January 1997, he was an
independent management consultant, and from 1978 to March 1996, he served in
various capacities with Servantis Systems, Inc., which provides electronic funds
transfer and home banking software to the financial services industry, including
Executive Vice President of Technology and Chief Information Officer
(1995-1996); Executive Vice President of Technology and Marketing (1993-1995);
President, Treasury Products Division (1994); and President, Financial
Productions Division (1988-1993). Prior to joining Servantis Systems, Mr. Grimes
served in various technology positions with Trust Company Bank of Georgia, now
SunTrust Bank.

    ROBERT E. BOWERS has served as Chief Financial Officer of Net.B@nk, Inc.
since February 1997. Prior to joining Net.B@nk, Inc., Mr. Bowers, a certified
public accountant, was the Chief Financial Officer of CheckFree Corporation,
which provides electronic bill payment processing for the financial services
industry, from January 1996 through August 1996. From September 1984 until
January 1996, he served as the Chief Financial Officer and a director of
Servantis Systems, which was acquired by CheckFree Corporation in January 1996.
His experience includes initial public offerings, strategic business planning
and investor relations.

    THOMAS L. CABLE has served as Chief Technology Officer of Net.B@nk, Inc. and
Net.B@nk since May 1997. From May 1996 to May 1997, he served as Vice President,
Retail Financial Services of CheckFree Corporation, and from February 1996 to
May 1996, he was responsible for CheckFree's Retail Direct Bank Product. From
1985 to February 1996, Mr. Cable served in various capacities with Servantis
Systems, including Senior Vice President and Business Unit Manager for Home
Banking Products and Services, Vice President and Product Manager for Delivery
Systems and Associate and Product Manager for Servantis Systems's licensed bill
payment software product. From 1978 to 1985, he

                                       65
<PAGE>
was employed by First National Bank, Louisville, Kentucky as a Programmer and
Programming Team Leader responsible for the implementation and support of
Servantis Systems's bill payment product and other bank application systems.

    JEFFREY B. WATSON has served as the Net.B@nk's Chief Lending Officer since
November 1997. From 1996 to November 1997, he served as Product
Manager--Internet Financial Software for Security First Technologies, and in the
summer of 1995, he coordinated consultation projects with Fortune 500 companies
for Coopers & Lybrand. Mr. Watson served in various capacities at Tracy Federal
Bank from 1987 to 1994, including Senior Vice President from 1993 to 1994, Loan
Production Manager from 1989 to 1992 and Loan Officer from 1987 to 1988.

    WARD H. CLEGG has served as a director of Resource Bancshares Corporation
since September 1986 and has also worked with Net.B@nk, Inc. on a consulting
basis. Resource Bancshares was acquired by Resource Bancshares Mortgage in
December 1997. Mr. Clegg also served as Executive Vice President of Bankers
Trust of South Carolina, where he had responsibility for approximately $1.2
billion in securities processing assets as well as Advanced Systems.

    J. STEPHEN HEARD has served as Area Vice President, Hartford Computer Group,
Inc. since August 1998. From October 1997 to August 1998, he served as Product
Sales Executive of Vanstar Corporation, a technology services company and
value-added reseller of computer products to Fortune 1,000 companies, since
October 1997. He has also served as President of Heard Systems, Inc., which
provides information systems consulting services and ATM services to the retail
industry, since January 1, 1994. In 1995 he retired from IBM after a 30-year
career in marketing, sales and systems engineering.

    ROBIN C. KELTON is Chairman of Kelton International Ltd., an investment
banking firm formed in January 1996 specializing in the banking and insurance
industries. Mr. Kelton is a founder and former Chairman and Chief Executive
Officer of Fox-Pitt, Kelton Ltd. and the Fox-Pitt, Kelton Group, and President
of Fox-Pitt, Kelton, Inc. These companies were formed in 1970 and comprise an
international investment banking and brokerage group based in London and New
York. See "Underwriting."

    THOMAS H. MULLER, JR. has served as the Chief Financial Officer of SpectRx,
Inc., a medical device company, since December 1996. Mr. Muller has also served
as President of Muller & Associates, a firm providing financial management
services to entrepreneurial enterprises, since 1992 and Chief Financial Officer
of Nurse On Call, Inc., a healthcare software company, from 1993 to 1996. From
1993 to 1995, Mr. Muller also served as Chief Financial Officer of Amstel, Inc.,
a beverage manufacturing and marketing company. From 1984 to 1992, Mr. Muller
served as Chief Financial Officer of HBO & Company, a leading healthcare
information systems company.

    J. JOE RICKETTS has served as a director and as Chairman and Chief Executive
Officer of Ameritrade Holding Corp. since 1981. From 1975 to 1981, Mr. Ricketts
served in various capacities with predecessors to Ameritrade Holding Corp. Prior
to 1975, Mr. Ricketts was a registered representative with a national brokerage
firm, an investment advisor with Ricketts & Co., and a branch manager with Dun &
Bradstreet. Mr. Ricketts is a director of CSS Management and is on the Advisory
Committee of Roundtable. Mr. Ricketts currently serves as a member of the
District Committee for District 4 of the National Association of Securities
Dealers, Inc. Mr. Ricketts is a member of the Board of Trustees for Father
Flanagan's Boy's Home (Boys Town).

    DONALD S. SHAPLEIGH, JR. served as President of Net.B@nk, Inc. and Net.B@nk
from January 1996 through April 1999 and has served as a director of Net.B@nk.
Inc. since its incorporation. He resigned as President of Net.B@nk, Inc. and
Net.B@nk effective April 30, 1999 in order to serve as Executive Vice President
and Director of Sales of Directo, Inc., a debit card marketing and management
organization. Mr. Shapleigh has been involved in banking since 1971, having
spent 23 years in various senior positions with BankSouth, N.A. and SouthTrust
Bank. From November 1994 to December 1995, Mr. Shapleigh served as Director of
Sales for Creative Solutions Group/A BISYS Company, an

                                       66
<PAGE>
Atlanta-based company that sells its patented automated voice response
technology to retail financial service companies.

    W. JAMES STOKES has served as Senior Vice President of T. Stephen Johnson &
Associates since 1987. He served as Head of Analysis, with a focus on bank
mergers and acquisitions, stock valuations, fairness opinions and regulatory
assistance. Mr. Stokes also serves as the Managing Director for the Southeast
Bank Fund, Inc.

    MACK I. WHITTLE, JR. has served as President and Chief Executive Officer of
Carolina First since 1986. Mr. Whittle is also a director of Carolina First and
of Carolina First Bank. Mr. Whittle began his banking career in 1969 with
Bankers Trust of South Carolina. From 1969 to 1986, he served in several
capacities including Trust Officer, Vice President of Commercial Business
Development, City Executive for Myrtle Beach, and Senior Vice President and
Regional Officer. In January 1986, Bankers Trust of South Carolina merged with
NCNB Corp. Mr. Whittle resigned from NCNB Corp. in May 1986 to form Carolina
First.

    The Board of Directors is divided into three classes with three directors in
Class I and four directors in Classes II and III. One class of directors is
elected each year for a three-year term and until their successors are selected
and qualified or until their earlier resignation or removal. Messrs. Kelton,
Muller, Ricketts and Shapleigh will serve until our 2000 Annual Meeting of
Shareholders; Messrs. Grimes, Johnson, and Whittle will serve until our 2001
Annual Meeting of Shareholders; and Messrs. Bowers, Clegg, Heard and Stokes will
serve until our 2002 Annual Meeting of Shareholders.


    Except for Messrs. Kelton and Ricketts, who are only directors of Net.B@nk,
Inc., all of our directors are directors of both Net.B@nk, Inc. and its banking
subsidiary. Except for Mr. Ricketts, who was elected to fill a vacancy on the
Board of Directors on April 22, 1999, and Messrs. Johnson and Shapleigh, who
were elected as directors in February 1996, all of our directors have served on
our Board of Directors since April 1997.


COMMITTEES OF THE BOARD OF DIRECTORS

    The Board of Directors has established a Compensation Committee, which sets
the compensation for officers of Net.B@nk, reviews management organization and
development, reviews significant employee benefit programs and establishes and
administers executive compensation programs. The Compensation Committee consists
of Messrs. Johnson, Heard and Muller.

    The Board of Directors has also established an Audit Committee, which
recommends to the Board of Directors the independent public accountants to be
selected to audit Net.B@nk's annual financial statements and approves any
special assignments given to the accountants. The Audit Committee also reviews
the planned scope of the annual audit, any changes in accounting principles and
the effectiveness and efficiency of Net.B@nk's internal accounting staff. The
Audit Committee currently consists of Messrs. Muller, Stokes and Clegg.

    The Board of Directors may from time to time establish other committees to
facilitate the management of Net.B@nk.

                  RELATIONSHIP WITH CAROLINA FIRST CORPORATION

    Carolina First Corporation owns more than five percent of our outstanding
common stock. As a result, Carolina First Corporation is subject to Federal
Reserve Board regulations regarding its relationship with Net.B@nk. Therefore,
we have agreed with Carolina First Corporation that until they own less than
five percent of our outstanding common stock, we will not engage in any
activities that are not permissible banking or non-banking activities under
applicable Federal Reserve Board regulations. These regulations limit the
activities of bank holding companies and their affiliates to those that are
determined to be closely related to banking or to the management or control of
banks. We do not believe that these limitations will impose any material
constraints on our activities.

                                       67
<PAGE>
                             PRINCIPAL SHAREHOLDERS

    The following table lists, as of April 30, 1999, the number of shares of
common stock beneficially owned by (a) each current director, (b) our chief
executive officer and our next three most highly compensated executive officers
for 1998, (c) each person or entity known to us to be the beneficial owner of
more than five percent of our outstanding common stock and (d) all current
executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                                                                PERCENT OF CLASS
                                                                                        --------------------------------
<S>                                                               <C>                   <C>              <C>
                                                                    NUMBER OF SHARES
                                                                      BENEFICIALLY          BEFORE            AFTER
NAME OF BENEFICIAL OWNER                                                OWNED(1)         THIS OFFERING    THIS OFFERING
- ----------------------------------------------------------------  --------------------  ---------------  ---------------
T. Stephen Johnson..............................................            883,779(2)           3.4%             3.1%
D. R. Grimes....................................................            537,186              2.0%             1.8%
Robert E. Bowers................................................            397,814              1.5%             1.4%
Thomas L. Cable.................................................             15,000                *                *
Jeffrey B. Watson...............................................              9,000                *                *
Ward H. Clegg...................................................            155,064                *                *
J. Stephen Heard................................................             35,814                *                *
Robin C. Kelton.................................................            433,314              1.7%             1.5%
Thomas H. Muller, Jr............................................             35,814                *                *
J. Joe Ricketts.................................................              6,000                *                *
Donald S. Shapleigh, Jr.........................................            347,811              1.3%             1.2%
W. James Stokes.................................................            106,500                *                *
Mack I. Whittle, Jr.............................................          2,421,000(3)           9.4%             8.4%
Carolina First Corporation(4)...................................          2,415,000              9.4%             8.4%
Lord, Abbett & Co.(5)...........................................          1,831,449              7.1%             6.4%
All current Executive Officers and Directors
  as a Group (13 persons).......................................          5,384,096(6)          20.0%            18.0%
</TABLE>

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

*   Indicates less than one percent of the shares of common stock outstanding as
    of April 30, 1999.

(1) Includes the following number of shares subject to options exercisable on or
    before June 30, 1999 for the indicated reporting person:

<TABLE>
<S>                    <C>
Mr. Johnson..........      6,000
Mr. Grimes...........    537,186
Mr. Bowers...........    397,814
Mr. Cable............     15,000
Mr. Watson...........      9,000
Mr. Clegg............      6,000
Mr. Heard............      6,000
Mr. Kelton...........      6,000
Mr. Muller, Jr.......      6,000
Mr. Ricketts.........      6,000
Mr. Shapleigh, Jr....    149,061
Mr. Stokes...........      6,000
Mr. Whittle, Jr. ....      6,000
</TABLE>

(2) Includes 438,840 shares owned of record by Mr. Johnson's spouse, Mary E.
    Johnson.

(3) Mr. Whittle serves as Chairman of the Board of Carolina First Corporation.
    As a result, he may be deemed to beneficially own any shares owned by
    Carolina First Corporation.

(4) Carolina First Corporation is located at 102 South Main Street, Greenville,
    South Carolina 29601.

(5) Lord, Abbett & Co. is located at 767 Fifth Avenue, New York, New York 10153
    and is an investment advisor registered under Section 203 of the Investment
    Company Act of 1940, as amended. This information is based on a Report on
    Schedule 13G filed by Lord, Abbett & Co. with the Securities and Exchange
    Commission on February 12, 1999.

(6) Includes 1,156,061 shares subject to options exercisable on or before June
    30, 1999.

                                       68
<PAGE>
                            DESCRIPTION OF THE NOTES

    The notes will be issued under an Indenture dated as of      , 1999 (the
"Indenture") between Net.B@nk, Inc. and SunTrust Bank, Atlanta, as trustee (the
"Trustee"). A copy of the form of Indenture is filed as an exhibit to the
registration statement of which this prospectus is a part. The terms of the
Indenture are also governed by certain provisions contained in the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summaries of certain provisions of the notes and the Indenture do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the notes and the Indenture, including the definitions
therein of certain terms that are not otherwise defined in this prospectus and
those terms made a part of the Indenture by reference to the Trust Indenture Act
as in effect on the date of the Indenture. Wherever particular provisions or
defined terms of the Indenture (or of the form of notes that is a part thereof)
are referred to, such provisions or defined terms are incorporated herein by
reference in their entirety. As used in this "Description of the Notes,"
"Net.B@nk" refers to Net.B@nk, Inc. and does not include Net.B@nk, our bank
subsidiary, unless the context otherwise indicates. In cases in which both
Net.B@nk, Inc. and our bank subsidiary, Net.B@nk, are discussed we refer to the
bank subsidiary as the "Bank."

GENERAL


    The notes will be general unsecured subordinated obligations of Net.B@nk and
will be convertible into our common stock as described below under "Conversion
of Notes." The notes will be limited to $100,000,000 aggregate principal amount
($115,000,000 if the underwriters exercise the over-allotment option in full)
and will mature on June 1, 2004, unless earlier redeemed at the option of
Net.B@nk or repurchased at the option of a holder upon a Change of Control.



    The notes will bear interest from the date of original issue at the annual
rate set forth on the cover page of this prospectus, payable semi-annually on
June 1 and December 1, beginning on December 1, 1999, to holders of record at
the close of business on the preceding May 15 and November 15, respectively.
Interest will be computed on the basis of a 360-day year composed of twelve
30-day months.



    Unless other arrangements are made, interest will be paid by check mailed to
holders entitled thereto. Principal will be payable, and the notes may be
presented for conversion, registration of transfer and exchange, without service
charge, at the Corporate Trust Office of the Trustee or at the option of the
holder of the note, at any other office or agency of the Company maintained for
that purpose pursuant to the Indenture. Payments, transfers, exchanges and
conversions relating to beneficial interests in notes issued in book-entry form
will be subject to the procedures described under "Form, Denomination, Transfer,
Exchange and Book-entry Procedures" and "Exchange of Book-entry Notes for
Certificated Notes."


    The Indenture will not contain any financial covenants or any restrictions
on the incurrence of debt by Net.B@nk or any of its subsidiaries.

CONVERSION OF NOTES

    The holders of notes will be entitled, at any time through the close of
business on the business day immediately preceding the maturity date, subject to
prior redemption or repurchase, to convert any notes or portions thereof (in
denominations of $1,000 in principal amount or multiples thereof) into our
common stock at the conversion price set forth on the cover page of this
prospectus, subject to adjustment as described below; provided that in the case
of notes called for redemption, conversion rights will expire immediately prior
to the close of business on the last business day before the date fixed for
redemption, unless Net.B@nk defaults in payment of the redemption price. A note
(or portion thereof) in respect of which a holder is exercising its option to
require repurchase upon a

                                       69
<PAGE>
Change of Control may be converted only if such holder withdraws its election to
exercise such repurchase option in accordance with the terms of the Indenture.

    Except as described below, no adjustment will be made on conversion of any
notes for interest accrued thereon or for dividends paid on any common stock we
issue. Holders of notes at the close of business on a record date will be
entitled to receive the interest payable on such note on the corresponding
interest payment date. However, notes surrendered for conversion after the close
of business on a record date, and before the opening of business on the
corresponding interest payment date must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted (unless such note is subject to redemption on a redemption
date between such record date and the corresponding interest payment date). The
interest payment with respect to a note called for redemption on a date during
the period from the close of business on or after any record date to the close
of business on the business day following the corresponding payment date will be
payable on the corresponding interest payment date to the registered holder at
the close of business on that record date (notwithstanding the conversion of
such note before the corresponding interest payment date) and a holder of notes
who elects to convert need not include funds equal to the interest paid. We are
not required to issue fractional shares of our common stock upon conversion of
notes and, in lieu thereof, we will pay a cash adjustment based upon the closing
price of our common stock on the last business day prior to the date of
conversion.

    The conversion price is subject to adjustment (under formulae set forth in
the Indenture) upon the occurrence of certain events, including:

        (1) The issuance of our common stock as a dividend or distribution on
    our outstanding common stock;

        (2) The issuance to all holders of our common stock of certain rights,
    options or warrants to purchase our common stock at less than the current
    market price;

        (3) Certain subdivisions, combinations and reclassifications of our
    common stock;

        (4) Distributions to all holders of our common stock of Net.B@nk's
    capital stock (other than our common stock) or evidences of indebtedness of
    Net.B@nk or assets (including securities, but excluding those dividends,
    rights, options, warrants and distributions referred to in clauses (1) and
    (2) above, dividends and distributions in connection with the liquidation,
    dissolution or winding up of Net.B@nk and dividends and distributions paid
    exclusively in cash);

        (5) Distributions consisting exclusively of cash (excluding any cash
    portion of distributions referred to in clause (4) above or in connection
    with a consolidation, merger or sale of assets of Net.B@nk as referred to in
    clause (2) of the third paragraph below) to all holders of our common stock
    in an aggregate amount that, together with (A) all other such all-cash
    distributions made within the preceding 12 months in respect of which no
    adjustment has been made and (B) any cash and the fair market value of other
    consideration payable in respect of any tender offers by Net.B@nk or any of
    our subsidiaries for our common stock concluded within the preceding 12
    months in respect of which no adjustment has been made, exceeds 20% of our
    market capitalization (being the product of the then current market price of
    our common stock times the number of shares of our then outstanding common
    stock) on the record date for such distribution; and

        (6) The purchase of our common stock pursuant to a tender offer made by
    Net.B@nk or any of our subsidiaries that involves an aggregate consideration
    that, together with (A) any cash and the fair market value of any other
    consideration payable in any other tender offer by Net.B@nk or any of our
    subsidiaries for our common stock expiring within the 12 months preceding
    such tender offer in respect of which no adjustment has been made and (B)
    the aggregate amount of any such all-cash distributions referred to in
    clause (5) above to all holders of our common stock within the

                                       70
<PAGE>
    12 months preceding the expiration of such tender offer in respect of which
    no adjustments have been made, exceeds 20% of our market capitalization on
    the expiration of such tender offer.

    Except as stated above, the conversion price will not be adjusted for the
issuance our of common stock or any securities convertible into or exchangeable
for our common stock or carrying the right to purchase any of the foregoing. No
adjustment in the conversion price will be required unless such adjustment would
require a change of at least 1% in the conversion price then in effect; provided
that any adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.

    No adjustment will be made pursuant to clause (4) of the preceding paragraph
if Net.B@nk makes proper provision for each holder of notes who converts a note
to receive, in addition to our common stock issuable upon such conversion, the
kind and amount assets (including securities) if such holder had been a holder
of our common stock at the time of the distribution of such assets or
securities. Rights, options or warrants distributed by Net.B@nk to all holders
of our common stock that entitle the holders thereof to purchase shares of our
capital stock and that, until the occurrence of an event (a "Triggering Event"),
(1) are deemed to be transferred with the common stock, (2) are not exercisable
and (3) are also issued in respect of future issuances of our common stock,
shall not be deemed to be distributed until the occurrence of the Triggering
Event.

    In the case of (1) any reclassification or change of our common stock (other
than changes in par value or from par value to no par value or resulting from a
subdivision or a combination) or (2) a consolidation or merger involving
Net.B@nk or a sale or conveyance to another corporation or business entity of
the property and assets of Net.B@nk as an entirety or substantially as an
entirety (determined on a consolidated basis), in each case as a result of which
holders of our common stock shall be entitled to receive stock, other
securities, other property or assets (including cash) with respect to or in
exchange for such common stock, the holders of the notes then outstanding will
be entitled thereafter to convert such notes into the kind and amount of shares
of stock, other securities or other property or assets that they would have
owned or been entitled to receive upon such reclassification, change,
consolidation, merger, sale or conveyance had such notes been converted into our
common stock immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance, after giving effect to any adjustment event,
assuming that a holder of notes would not have exercised any rights of election
as to the stock, other securities or other property or assets receivable in
connection therewith and received per share the kind and amount received per
share by a plurality of non-electing shareholders.

    If a taxable distribution to holders of common stock (or other transaction)
results in any adjustment of the conversion price, the holders of notes may, in
certain circumstances, be deemed to have received a distribution subject to the
U.S. federal income tax as a dividend. In certain other circumstances, the
absence of such an adjustment may result in a taxable dividend to the holders of
our common stock. See "Certain Tax Considerations--U.S. Holders--Adjustments to
Conversion Price."


    We may, from time to time and to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 business days, in
which case we shall give at least 15 days' notice of such decrease, if the Board
of Directors has made a determination that such decrease would be in our best
interests, which determination shall be conclusive. We may, at our option, make
such reductions in the conversion price, in addition to those set forth above,
as we deem advisable to avoid or diminish any income tax to our stockholders
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. See "Certain
Tax Considerations."


                                       71
<PAGE>
SUBORDINATION

    The payment of principal of, premium, if any, and interest on the notes,
including amounts payable on any redemption or repurchase, will, to the extent
set forth in the Indenture, be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness. Upon any distribution to creditors
of Net.B@nk in a liquidation or dissolution of Net.B@nk or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding related to
Net.B@nk or its property, in an assignment for the benefit of creditors or any
marshalling of Net.B@nk's assets and liabilities, the holders of Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due or to become due thereon before the holders of the notes will be entitled to
receive any payment in respect of the principal of, premium, if any, or interest
on the notes (except that holders of notes may receive securities that are
subordinated at least to the same extent as the notes to Senior Indebtedness and
any securities issued in exchange for Senior Indebtedness).

    We also may not make any payment upon or in respect of the notes (except in
such subordinated securities) and may not acquire any notes for cash or property
(except in such subordinated securities) if (1) a default in the payment of the
principal of, premium, if any, or interest on Senior Indebtedness occurs and is
continuing beyond any applicable period of grace or (2) any other default occurs
and is continuing with respect to Senior Indebtedness that permits holders of
the Senior Indebtedness as to which such default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the representative or representatives of holders of at least a
majority in principal amount of Senior Indebtedness then outstanding. Payments
on the notes may and shall be resumed and NetB@nk may acquire notes (A) in the
case of a payment default, upon the date on which such default is cured or
waived, or (B) in the case of a non-payment default, 179 days after the date on
which the applicable Payment Blockage Notice is received (or sooner, if such
default is cured or waived), unless the maturity of any Senior Indebtedness has
been accelerated. No new period of payment blockage may be commenced within 360
days after the receipt by the Trustee of any prior Payment Blockage Notice. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be the basis for a subsequent
Payment Blockage Notice.

    "Senior Indebtedness" with respect to the notes means the principal of,
premium, if any, and interest on, and any fees, costs, expenses and any other
amounts (including indemnity payments) related to the following, whether
outstanding on the date of the Indenture or thereafter incurred or created:

        (1) Indebtedness, matured or unmatured, whether or not contingent, of
    Net.B@nk for money borrowed evidenced by notes or other written obligations;

        (2) Any interest rate contract, interest rate swap agreement or other
    similar agreement or arrangement designed to protect Net.B@nk or any of its
    subsidiaries against fluctuations in interest rates;

        (3) Indebtedness, matured or umatured, whether or not contingent, of
    Net.B@nk evidenced by notes, debentures, bonds or similar instruments or
    letters of credit (or reimbursement agreements in respect thereof);

        (4) Obligations of Net.B@nk as lessee under capitalized leases and under
    leases of property made as part of any sale and leaseback transactions;

        (5) Indebtedness of others of any of the kinds described in the
    preceding clauses (1) through (4) assumed or guaranteed by Net.B@nk; and

        (6) Renewals, extensions, modifications, amendments and refundings of,
    and indebtedness and obligations of a successor person issued in exchange
    for or in replacement of, indebtedness or

                                       72
<PAGE>
    obligations of the kinds described in the preceding clauses (1) through (5),
    unless the agreement pursuant to which any such indebtedness described in
    clauses (1) through (5) is created, issued, assumed or guaranteed expressly
    provides that such indebtedness is not senior or superior in right of
    payment to the notes;

PROVIDED, HOWEVER, that the following shall not constitute Senior Indebtedness:

        (A) Any indebtedness or obligation of Net.B@nk in respect of the notes;

        (B) Any indebtedness of Net.B@nk to any of its subsidiaries or other
    affiliates;

        (C) Any indebtedness that is subordinated or junior in any respect to
    any other indebtedness of Net.B@nk; and

        (D) Any indebtedness incurred for the purchase of goods or materials in
    the ordinary course of business.

    If the Trustee (or paying agent if other than the Trustee) or any holder
receives any payment of principal of, premium, if any, or interest with respect
to the notes at a time when such payment is prohibited under the Indenture, such
payment shall be held in trust for the benefit of, and shall be paid over and
delivered to, the holders of Senior Indebtedness or their representative as
their respective interests may appear. After all Senior Indebtedness is paid in
full and until the notes are paid in full, holders of the notes shall be
subrogated (equally and ratably with all other indebtedness ranking equally with
the notes) to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the extent that distributions
otherwise payable to the holders of the notes have been applied to the payment
of Senior Indebtedness.

    As of March 31, 1999, Net.B@nk had no indebtedness that would be considered
Senior Indebtedness.

    Net.B@nk is a legal entity separate and distinct from the Bank. Net.B@nk's
principal asset is the common stock of the Bank. The principal sources of
Net.B@nk's income are dividends, interest and fees from the Bank. Net.B@nk
relies primarily on dividends from the Bank to meet its obligations for payment
of principal and interest on its outstanding debt obligations and corporate
expenses. Accordingly, the notes are effectively subordinated to all existing
and future liabilities of the Bank. The Bank is subject to claims of creditors
for debt obligations, including deposit liabilities, obligations for borrowings
from the Federal Home Loan Bank and securities sold under reverse repurchase
agreements. At March 31, 1999, the Bank's liabilities, including deposits, were
approximately $383.0 million. Moreover, the Bank is subject to certain
restrictions imposed by federal law on any extensions of credit to, and certain
other transactions with, Net.B@nk and certain other affiliates, and on
investments in stock or other securities thereof. In addition, payment of
dividends to Net.B@nk by the Bank is subject to ongoing review by banking
regulators and is subject to various statutory limitations, including approval
by banking regulatory authorities.

    Because of these subordination provisions, in the event of a liquidation or
insolvency of Net.B@nk or the Bank, holders of notes may ratably recover less
than the holders of Senior Indebtedness.

    No provision contained in the Indenture or the notes will affect our
obligation, which is absolute and unconditional, to pay, when due, principal of,
premium, if any, and interest on the notes. The subordination provisions of the
Indenture and the notes will not prevent the occurrence of any Default or Event
of Default under the Indenture or limit the rights of the Trustee or any other
holder, subject to the provisions described herein, to pursue any other rights
or remedies with respect to the notes.

    The Indenture does not prohibit or limit the incurrence of any indebtedness
by Net.B@nk or any subsidiary.

                                       73
<PAGE>
PROVISIONAL REDEMPTION BY NET.B@NK


    We may redeem the notes, in whole or in part, at any time prior to June   ,
2002, at a redemption price equal to $1,000 per $1,000 principal amount of notes
to be redeemed plus accrued and unpaid interest, if any, to the Redemption Date
(the "Provisional Redemption Date") if the closing price of the common stock
shall have exceeded 150% of the conversion price then in effect for at least 20
trading days within a period of 30 consecutive trading days ending on the
trading day prior to the date of mailing of the notice of provisional redemption
(the "Notice Date," which date shall be no more than 60 nor less than 30 days
prior to the Provisional Redemption Date).


    Upon any Provisional Redemption, Net.B@nk will make an additional payment in
cash (the "Make-Whole Payment") with respect to the notes called for redemption
to holders on the Notice Date in an amount equal to $      per $1,000 principal
amount of notes, less the amount of any interest actually paid on such note
prior to the Notice Date. NET.B@NK WILL BE OBLIGATED TO MAKE THE MAKE-WHOLE
PAYMENT ON ALL NOTES CALLED FOR PROVISIONAL REDEMPTION, INCLUDING ANY NOTES
CONVERTED AFTER THE NOTICE DATE AND PRIOR TO THE PROVISIONAL REDEMPTION DATE.

OPTIONAL REDEMPTION BY NET.B@NK


    At any time on or after June   , 2002, we have the option to redeem the
notes on at least 30 but not more than 60 days' notice, in whole at any time or
in part from time to time, at the following prices (expressed in percentages of
the principal amount), together with accrued interest to the date fixed for
redemption if redeemed on or after:



<TABLE>
<CAPTION>
DATE                                                                          REDEMPTION PRICE
- ----------------------------------------------------------------------------  -----------------
<S>                                                                           <C>
June   , 2002...............................................................               %
June   , 2003...............................................................               %
</TABLE>


    If fewer than all the notes are to be redeemed, the Trustee will select the
notes to be redeemed in principal amounts of $1,000 or integral multiples
thereof by lot or, in its discretion, on a pro rata basis. If any note is to be
redeemed in part only, a new note or notes in principal amount equal to the
unredeemed principal portion thereof will be issued. If a portion of a holder's
notes is selected for partial redemption and such holder converts a portion of
such notes, such converted portion shall be deemed to be taken from the portion
selected for redemption. No sinking fund is provided for the notes.

REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL

    Upon the occurrence of a Change of Control, each holder of notes shall have
the right to require us to repurchase such holder's notes in whole or in part in
integral multiples of $1,000 at a purchase price in cash in an amount equal to
100% of the principal amount thereof, together with accrued and unpaid interest
to the date of purchase, pursuant to an offer (the "Change of Control Offer")
made in accordance with the procedures described below and the other provisions
in the Indenture.

    A "Change of Control" means an event or series of events in which:

        (1) Any "person" or "group" (as such terms are used in Sections 13(d)
    and 14(d) of the Exchange Act) acquires "beneficial ownership" (as
    determined in accordance with Rule 13d-3 under the Exchange Act), directly
    or indirectly, of more than 50% of the combined voting power of the then
    outstanding securities entitled to vote generally in elections of directors
    of Net.B@nk (the "Voting Stock"); or

        (2) Net.B@nk consolidates with or merges into any other corporation or
    business entity, or conveys, transfers or leases all or substantially all of
    its assets to any person, or any other corporation or business entity merges
    into Net.B@nk, and, in the case of any such transaction, the

                                       74
<PAGE>
    outstanding common stock of Net.B@nk is changed or exchanged as a result,
    unless the shareholders of Net.B@nk immediately before such transaction own,
    directly or indirectly, at least 51% of the combined voting power of the
    outstanding voting securities of the corporation or business entity
    resulting from such transaction in substantially the same proportion as
    their ownership of the Voting Stock immediately before such transaction;

PROVIDED that a Change in Control shall not be deemed to have occurred if
either:

        (A) The closing price per share of the common stock for any 5 trading
    days within the period of ten consecutive trading days ending immediately
    after the announcement of such Change of Control shall equal or exceed 105%
    of the conversion price of the notes in effect on each such trading day; or

        (B) At least 90% of the consideration in the Change of Control
    transaction consists of shares of common stock traded on a national
    securities exchange or quoted on the Nasdaq National Market, and as a result
    of such transaction, the notes become convertible solely into such common
    stock.

    Within 30 days following any Change of Control, unless Net.B@nk has given
the holders notice of its irrevocable intention to redeem all outstanding notes
as described under "Optional Redemption by Net.B@nk," Net.B@nk shall send by
first-class mail, postage prepaid, to the Trustee and to each holder of notes,
at such holder's address appearing in the security register, a notice (the
"Change of Control Notice") stating, among other things, that a Change of
Control has occurred, the purchase price, the purchase date, which shall be a
business day no earlier than 30 days nor later than 60 days from the date such
notice is mailed, and certain other procedures that a holder of notes must
follow to accept a Change of Control Offer or to withdraw such acceptance.

    Net.B@nk will comply, to the extent applicable, with the requirements of
Rule 13e-4 under the Exchange Act and other securities laws or regulations in
connection with the repurchase of the notes as described above.

    Future indebtedness of Net.B@nk may contain prohibitions of certain events
that would constitute a Change of Control or require Net.B@nk to offer to
repurchase such indebtedness upon a Change of Control. Moreover, the exercise by
the holders of notes of their right to require Net.B@nk to purchase the notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such purchase on Net.B@nk.
Finally, Net.B@nk's ability to pay cash to holders of notes upon a purchase may
be limited by Net.B@nk's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required purchases. Furthermore, the Change of Control provisions may in certain
circumstances make more difficult or discourage a takeover of Net.B@nk and the
removal of the incumbent management.

CERTAIN COVENANTS

    MAINTENANCE OF STATUS AS INSURED DEPOSITORY INSTITUTION.  Net.B@nk has
agreed that it will do or cause to be done all things necessary to preserve and
keep in full force and effect the status of the Bank as an insured depository
institution and do or cause to be done all things necessary to ensure that
depository accounts of the Bank are insured by the Federal Deposit Insurance
Corporation or any successor organization up to the maximum amount permitted by
12 U.S.C. Section 1811 et seq. and the regulations thereunder or any succeeding
federal law, except as to individual accounts or interests in employee benefit
plans that are not entitled to pass-through insurance under 12 U.S.C. Section
1821 (a)(1)(D).

    MERGER, CONSOLIDATION AND SALE OF ASSETS.  Net.B@nk shall not consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all its assets (determined on a consolidated basis), whether in a single
transaction or a series of related transactions, to any person unless:

                                       75
<PAGE>
    (1) Either Net.B@nk is the resulting, surviving or transferee person (the
       "Successor Company") or the Successor Company is a corporation organized
       and existing under the laws of the United States or any State thereof or
       the District of Columbia, and the Successor Company (if not Net.B@nk)
       expressly assumes by a supplemental indenture, executed and delivered to
       the Trustee, in form satisfactory to the Trustee, all the obligations of
       Net.B@nk under the Indenture and the notes, including the conversion
       rights described above under "Conversion of Notes;"

    (2) Immediately after giving effect to such transaction no Event of Default
       has happened and is continuing; and

    (3) Net.B@nk delivers to the Trustee an Officers' Certificate and an opinion
       of counsel, each stating that such consolidation, merger or transfer and
       such supplemental indenture, if any, comply with the Indenture.

EVENTS OF DEFAULT AND REMEDIES

    An Event of Default is defined in the Indenture as being:

    (1) Default in payment of the principal of or premium, if any, on the notes
       when due at maturity, upon redemption or otherwise, including failure by
       Net.B@nk to purchase the notes when required upon a Change of Control
       (whether or not such payment shall be prohibited by the subordination
       provisions of the Indenture);

    (2) Default for 30 days in payment of any installment of interest on the
       notes (whether or not such payment shall be prohibited by the
       subordination provisions of the Indenture);

    (3) Failure to provide a Change of Control Notice, whether or not such
       Notice or payment pursuant to a Change of Control Offer shall be
       prohibited by the subordination provisions of the Indenture;

    (4) Failure to perform any other covenant in the Indenture continuing for 90
       days after written notice by the Trustee or the holders of 25% in
       aggregate principal amount of the notes; and

    (5) Certain events involving the bankruptcy, insolvency or reorganization of
       Net.B@nk.

The Indenture provides that the Trustee may withhold notice to the holders of
notes of any default (except in payment of principal, premium, if any, or
interest with respect to the notes) if the Trustee considers it in the interest
of the holders of notes to do so.

    The Indenture provides that if any Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the notes then outstanding may declare the principal of and premium,
if any, on the notes to be due and payable immediately. At any time after a
declaration of acceleration, but before a judgement or decree based on
acceleration has been obtained, the holders of a majority in aggregate principal
amount of the notes may, under certain circumstances, rescind and annul such
acceleration.

    The holders of a majority in principal amount of the notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture. The Indenture provides that, subject to
the duty of the Trustee following an Event of Default to act with the required
standard of care, the Trustee will not be under an obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the holders of the notes, unless the Trustee receives satisfactory indemnity
against any associated loss, liability or expense.

                                       76
<PAGE>
SATISFACTION AND DISCHARGE; DEFEASANCE

    The Indenture will cease to be of further effect as to all outstanding notes
except as to:

    (1) Rights of registration of transfer and exchange and Net.B@nk's right of
       optional redemption;

    (2) Substitution of apparently mutilated, defaced, destroyed, lost or stolen
       notes;

    (3) Rights of holders of notes to receive payments of principal of, premium,
       if any, and interest on, the notes;

    (4) Rights of holders of notes to convert to common stock;

    (5) Rights, obligations and immunities of the Trustee under the Indenture;
       and

    (6) Rights of the holders of notes as beneficiaries of the Indenture with
       respect to the property so deposited with the Trustee payable to all or
       any of them;

IF:

        (A) Net.B@nk will have paid or caused to be paid the principal of,
    premium, if any, and interest on the notes as and when the same will have
    become due and payable;

        (B) All outstanding notes (except lost, stolen or destroyed notes which
    have been replaced or paid) have been delivered to the Trustee for
    cancellation; or

        (C) (i) the notes not previously delivered to the Trustee for
    cancellation will have become due and payable or are by their terms to
    become due and payable within one year or are to be called for redemption
    under arrangements satisfactory to the Trustee upon delivery of notice and
    (ii) Net.B@nk will have irrevocably deposited with the Trustee, as trust
    funds, cash, in an amount sufficient to pay principal of and interest on the
    outstanding notes, to maturity or redemption, as the case may be.

Such trust may only be established if such deposit will not result in a breach
or violation of, or constitute a default under, any agreement or instrument
pursuant to which Net.B@nk is a party or by which it is bound and Net.B@nk has
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions related to such defeasance have been complied
with.

    The Indenture will also cease to be in effect (except as described in
clauses (1) through (6) in the immediately preceding paragraph) and the
indebtedness on all outstanding notes will be discharged on the 123rd day after
the irrevocable deposit by Net.B@nk with the Trustee, in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the holders of
notes, of cash, U.S. Government Obligations (as defined in the Indenture) or a
combination thereof, in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay the principal of,
premium, if any, and interest on the notes then outstanding in accordance with
the terms of the Indenture and the notes ("legal defeasance"). Such legal
defeasance may only be effected if:

    (1) Such deposit will not result in a breach or violation of, or constitute
       a default under, any agreement or instrument to which Net.B@nk is a party
       or by which it is bound;

    (2) Net.B@nk has delivered to the Trustee an opinion of counsel stating that
       (A) Net.B@nk has received from, or there has been published by, the
       Internal Revenue Service a ruling or (B) since the date of the Indenture,
       there has been a change in the applicable federal income tax law, in
       either case to the effect that, based thereon, the holders of the notes
       will not recognize income, gain or loss for federal income tax purposes
       as a result of such deposit, defeasance and discharge by Net.B@nk and
       will be subject to federal income tax on the same amount and in the same
       manner and at the same times as would have been the case if such deposit,
       defeasance and discharge had not occurred;

                                       77
<PAGE>
    (3) Net.B@nk has delivered to the Trustee an opinion of counsel to the
       effect that after the 123rd day following the deposit, the trust funds
       will not be subject to the effect of any applicable bankruptcy,
       insolvency, reorganization or similar laws affecting creditors' rights
       generally; and

    (4) Net.B@nk has delivered to the Trustee an Officers' Certificate and an
       opinion of counsel stating that all conditions related to the defeasance
       have been complied with.

    Net.B@nk may also be released from its obligations under the covenants
described above under "Change of Control" and "Certain Covenants" with respect
to the notes outstanding on the 123rd day after the irrevocable deposit by
Net.B@nk with the Trustee, in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of notes, of cash, U.S.
Government Obligations or a combination thereof, in an amount sufficient in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
the principal of, premium, if any, and interest on the notes then outstanding in
accordance with the terms of the Indenture and the notes ("covenant
defeasance"). Such covenant defeasance may only be effected if:

    (1) Such deposit will not result in a breach or violation of, or constitute
       a default under, any agreement or instrument to which Net.B@nk is a party
       or by which it is bound;

    (2) Net.B@nk has delivered to the Trustee an Officers' Certificate and an
       opinion of counsel to the effect that the holders of notes will not
       recognize income, gain or loss for federal income tax purposes as a
       result of such deposit and covenant defeasance by Net.B@nk and will be
       subject to federal income tax on the same amount, in the same manner and
       at the same times as would have been the case if such deposit and
       covenant defeasance had not occurred;

    (3) Net.B@nk has delivered to the Trustee an opinion of counsel to the
       effect that after the 123rd day following the deposit, the trust funds
       will not be subject to the effect of any applicable bankruptcy,
       insolvency, reorganization or similar laws affecting creditors' rights
       generally; and

    (4) Net.B@nk has delivered to the Trustee an Officers' Certificate and an
       opinion of counsel stating that all conditions related to the covenant
       defeasance have been complied with.

Following such covenant defeasance, Net.B@nk will no longer be required to
comply with the obligations described above under "Certain Covenants" and will
have no obligation to repurchase the notes pursuant to the provisions described
under "Change of Control."

    Notwithstanding any satisfaction and discharge or defeasance of the
Indenture, the obligations of Net.B@nk described under "Conversion of Notes"
will survive to the extent provided in the Indenture until the notes cease to be
outstanding.

FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES

    Notes will be issued only in fully registered form, without interest
coupons, in minimum denominations of $1,000 and integral multiples in excess
thereof. Notes sold in the offering will be issued only against payment therefor
in immediately available funds.

    The notes initially will be represented by one or more notes in registered,
global form without interest coupons (each a "global note" and collectively, the
"global notes"). The global notes will be deposited upon issuance with the
trustee as custodian for the Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.

    Transfer of beneficial interests in the global notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants,
which may change from time to time.

    Except as set forth below, the global notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global

                                       78
<PAGE>
notes may not be exchanged for notes in certificated form except in the limited
circumstances described below under "--Exchange of Book-entry Notes for
Certificated Notes."

EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES

    A beneficial interest in a global note may not be exchanged for a note in
certificated form unless (1) DTC (A) notifies Net.B@nk that it is unwilling or
unable to continue as depositary for the global note or (B) has ceased to be a
clearing agency registered under the Exchange Act and in either case Net.B@nk
thereupon fails to appoint a successor depositary with 90 days, (2) Net.B@nk, at
its option, notifies the trustee in writing that it elects to cause the issuance
of Net.B@nk notes in certificated form or (3) there shall have occurred and be
continuing an Event of Default or any event that after notice or lapse of time
or both would be an Event of Default with respect to the notes. In all cases,
certificated notes delivered in exchange for any global note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary, in accordance with
its customary procedures.

    CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL NOTES.  THE DESCRIPTION OF THE
OPERATIONS AND PROCEDURES OF DTC THAT FOLLOW ARE PROVIDED SOLELY AS A MATTER OF
CONVENIENCE. THESE OPERATIONS AND PROCEDURES ARE SOLELY WITHIN THE CONTROL OF
DTC AND ARE SUBJECT TO CHANGE BY THEM FROM TIME TO TIME. NET.B@NK TAKES NO
RESPONSIBILITY FOR THESE OPERATIONS AND PROCEDURES AND URGES INVESTORS TO
CONTACT DTC OR ITS PARTICIPANTS DIRECTLY TO DISCUSS THESE MATTERS.

    DTC has advised Net.B@nk as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants ("participants") and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Certain of such participants, or their
representatives, together with other entities, own DTC. Indirect access to the
DTC system is available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").

    DTC has advised Net.B@nk that its current practice, upon the issuance of a
global note, is to credit, on its internal system, the respective principal
amount of the individual beneficial interests represented by such global note to
the accounts with DTC of the participants through which such interests are to be
held. Ownership of beneficial interest in the global note will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by DTC or its nominees, with respect to interests of participants, and the
records of participants and indirect participants, with respect to interests of
persons other than participants.

    AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES UNDER THE
INDENTURE AND THE NOTES. Except in the limited circumstances described above,
owners of beneficial interest in a global note will not be entitled to have any
portions of such global note registered in their names, will not receive or be
entitled to receive physical delivery of notes in definitive form and will not
be considered the owners or holders of the global notes, or any notes
represented thereby, under the Indenture or the notes. Accordingly, each person
owning a beneficial interest in the global note must rely on the procedures of
DTC and, if such

                                       79
<PAGE>
person is not a participant, those of the participant through which such person
owns its interest, in order to exercise any rights of a holder under the
Indenture or such note.

    Investors may hold their interests in the global note directly through DTC,
if they are participants in such system, or indirectly through organizations
that are participants in such system. All interests in a global note will be
subject to the procedures and requirements of DTC.

    The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons may be limited to
that extent. Because DTC can act only on behalf of its participants, which in
turn act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a global note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.

    Cash payment of the principal of, interest on, or the redemption or
repurchase of the global note will be made to DTC or its nominee, as the case
may be, as the registered owner of the global note by wire transfer of
immediately available funds on each relevant payment date. Neither Net.B@nk, the
Trustee nor any of their respective agents will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a global note including any delay by DTC or
any participant or indirect participant in identifying the beneficial ownership
interests, and Net.B@nk and the Trustee may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes.

    Net.B@nk expects that DTC or its nominee, upon receipt of any cash payment
of principal, interest or the redemption or repurchase price in respect of a
global note representing any notes held by it or its nominee, will immediately
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such global note for
such notes as shown on the records of DTC or its nominee (adjusted as necessary
so that such payments are made with respect of whole notes only), unless DTC has
reason to believe that it will not receive payment on such payment date.
Net.B@nk also expects that payments by participants to owners of beneficial
interests in such global note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in "street name." Such
payments will be the responsibility of such participants.

    Redemption notices will be sent to DTC or its nominee. If less than all
notes are being redeemed, DTC's practice is to determine by lot the amount of
the holdings of each participant in such issue to be redeemed.

    Neither DTC or its nominee will consent or vote with respect to the notes.
Under its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date. The omnibus proxy assigns DTC's, or its
nominee's, consenting or voting rights to those participants to whose accounts
the notes are credited on the record date identified in a listing attached to
the omnibus proxy.

    Interests in the global notes will trade in DTC's Same-Day Funds Settlement
System, and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject to all cases to the rules and
procedures of DTC and its participants. Transfers between participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.

    DTC has advised Net.B@nk that it will take any action permitted to be taken
by a holder of notes, including the presentation of notes for exchange as
described below and the conversion of notes, only at the direction of one or
more participants to whose account with DTC interests in the global notes are
credited and only in respect of such portion of the aggregate principal amount
of the notes as to which such participant or participants has or have given such
direction. However, if there is an Event

                                       80
<PAGE>
of Default, as defined above, under the notes, DTC reserves the right to
exchange the global notes for notes in certificated form, and to distribute such
notes to its participants.

    Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the global note among
participants, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time.

    None of Net.B@nk, the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC, its participants or indirect
participants of their respective obligations under the rules and procedures
governing its operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in global notes.

MODIFICATIONS OF THE INDENTURE

    The Indenture contains provisions permitting Net.B@nk and the Trustee, with
the consent of the holders of not less than a majority in principal amount of
the notes at the time outstanding, to modify the Indenture or any supplemental
indenture or the rights of the holders of notes, except that without the consent
of the holder of each note so affected no such modification shall:

    (1) Extend the fixed maturity of any note;

    (2) Reduce the rate or extend the time of payment of interest thereon;

    (3) Reduce the principal amount thereof or premium, if any, thereon;

    (4) Reduce any amount payable upon redemption thereof;

    (5) Change the obligation of Net.B@nk to repurchase any note upon the
       happening of a Change of Control;

    (6) Impair or affect the right of a holder to institute suit for the payment
       thereof;

    (7) Change the currency in which the notes are payable;

    (8) Modify the subordination provisions of the Indenture in a manner adverse
       to the holders of notes; or

    (9) Impair the right to convert the notes into common stock subject to the
       terms set forth in the Indenture.

    In addition, no modification shall reduce the foregoing percentage of notes
without the consent of the holders of all of the notes then outstanding.

GOVERNING LAW

    The Indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York.

CONCERNING THE TRUSTEE

    SunTrust Bank, Atlanta, the Trustee under the Indenture, has been appointed
by Net.B@nk as the paying agent, conversion agent, registrar and custodian with
regard to the notes. The Trustee and/or its affiliates may in the future provide
banking and other services to Net.B@nk in the ordinary course of their
respective businesses.

                                       81
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

    Our authorized capital stock consists of 100,000,000 shares of common stock,
$.01 par value, and 10,000,000 shares of preferred stock, no par value. The
following summary is qualified by reference to our Articles of Incorporation and
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement of which this prospectus is a part.

COMMON STOCK

    Holders of our common stock are entitled to one vote per share in the
election of directors and on all other matters submitted to a vote of the
holders of common stock and do not have cumulative voting rights. The holders of
common stock are entitled to receive dividends, if any, as may be declared from
time to time by the Board of Directors out of legally available funds, and in
the event of liquidation, dissolution or winding-up of Net.B@nk, to share
ratably in all assets available for distribution.

PREFERRED STOCK

    The authorized preferred stock may be issued from time to time in one or
more designated series or classes. The Board of Directors, without approval of
the shareholders, is authorized to establish the voting, dividend, redemption,
conversion, liquidation and other relative provisions as may be provided in a
particular series or class. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of common stock and, under certain circumstances, make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of our outstanding voting stock. We have no present intention to issue
any series or class of preferred stock.

SPECIAL MEETINGS OF SHAREHOLDERS

    Our Bylaws provide that special meetings of the shareholders may be called
at any time for any purpose by the Chief Executive Officer or by the presiding
officer of the Board of Directors. Either our Chief Executive Officer or the
Secretary is required to call a special meeting when (1) requested in writing by
any two or more of the directors or (2) requested in writing by shareholders
owning shares representing at least 25% of all the votes entitled to be cast on
any issue proposed to be considered at such meeting.

SUPERMAJORITY APPROVAL OF CERTAIN TRANSACTIONS

    Our Articles of Incorporation require the affirmative vote of the holders of
two-thirds of the voting stock to approve certain mergers, share exchanges and
dispositions of our assets unless at least two-thirds of the members of the
Board of Directors approve the proposed transaction. If such approval by the
Board of Directors is obtained, approval by the vote of a majority of the
outstanding shares entitled to vote is required. This provision may tend to
discourage attempts by third parties to acquire Net.B@nk in a hostile takeover
effort. It may also permit a minority of directors and shareholders to prevent a
business combination regardless of the terms of the proposed transaction.

CLASSIFIED BOARD AND REMOVAL OF DIRECTORS

    Our Articles of Incorporation also provide that the Board of Directors will
be divided into three classes serving staggered three-year terms and that a
director may only be removed by the vote of two-thirds of the outstanding shares
entitled to vote in an election of directors. These provisions could enable a
minority of our shareholders to prevent the removal of a director sought to be
removed by a

                                       82
<PAGE>
majority of the shareholders and may tend to enhance management's ability to
retain control over our affairs and to preserve the director's present position
on the Board.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

    Our Bylaws contain indemnification provisions providing that our directors,
officers and employees or agents will be indemnified against expenses actually
and reasonably incurred by them if they are successful on the merits of a claim
or proceeding.

    When a case or dispute is not ultimately determined on its merits (i.e., it
is settled), the indemnification provisions provide that Net.B@nk will indemnify
directors when they meet the applicable standard of conduct. The applicable
standard of conduct is met if the director acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
Net.B@nk, and with respect to an employee benefit plan, for a purpose the
director believed in good faith to be in the interests of the participants and
beneficiaries of the plan. The standard of conduct with respect to any criminal
action or proceeding is met if the director had no reasonable cause to believe
his or her conduct was unlawful. Whether the applicable standard of conduct has
been met is determined by the Board of Directors, the shareholders or
independent legal counsel in each specific case.

    We can also provide for greater indemnification than that set forth in our
Bylaws if we choose to do so, subject to approval by our shareholders. We may
not, however, indemnify a director for liability arising out of circumstances
which constitute exceptions to limitation of a director's liability for monetary
damages. See "--Limitation of Liability."

    The indemnification provisions of the Bylaws specifically provide that we
may purchase and maintain insurance on behalf of any director against any
liability asserted against such person and incurred by him or her in any such
capacity, whether or not we would have had the power to indemnify against such
liability.

    We are not aware of any pending or threatened action, suit or proceeding
involving any of our directors or officers for which indemnification from
Net.B@nk may be sought.

LIMITATION OF LIABILITY

    Article X of our Articles of Incorporation, subject to certain exceptions,
eliminates the potential personal liability of a director for monetary damages
to Net.B@nk and to the shareholders of Net.B@nk for breach of a duty as a
director. There is no elimination of liability for:

    - A breach of duty involving appropriation of a business opportunity of
      Net.B@nk;

    - An act or omission not in good faith or involving intentional misconduct
      or a knowing violation of law;

    - A transaction from which the director derives an improper material
      tangible personal benefit; or

    - As to any payment of a dividend or approval of a stock repurchase that is
      illegal under the Georgia Business Corporation Code, our Articles of
      Incorporation do not eliminate or limit the right of Net.B@nk or its
      shareholders to seek injunctive or other equitable relief not involving
      monetary damages.

    We adopted Article X pursuant to the Georgia Business Corporation Code which
allows Georgia corporations, with the approval of their shareholders, to include
in their articles of incorporation a provision eliminating or limiting the
liability of directors, except in the circumstances described above. We included
Article X in our Articles of Incorporation to encourage qualified individuals to
serve and remain as directors of Net.B@nk. Article X was also included to
enhance our ability to secure liability

                                       83
<PAGE>
insurance for its directors at a reasonable cost. We maintain liability
insurance covering actions taken by its directors in their capacities as
directors. The Board of Directors believes that Article X will enable us to
secure such insurance on terms more favorable than if such a provision were not
included in the Articles of Incorporation.

TRANSFER AGENT AND REGISTRAR

    The transfer agent and registrar for the common stock is SunTrust Bank,
N.A., 58 Edgewood Avenue, Atlanta, Georgia 30303.

                                       84
<PAGE>
                           CERTAIN TAX CONSIDERATIONS

GENERAL

    The following is a discussion of certain U.S. federal income tax and estate
tax consequences of the purchase, ownership and disposition of the notes as of
the date hereof. For purposes of this discussion, a "U.S. Holder" is a holder of
notes that is an individual who is a citizen or resident of the United States, a
corporation or a partnership that is organized under the laws of the United
States or any state thereof or an estate or trust whose income is includible in
gross income regardless of its source. A "Non-U.S. Holder" is a holder of notes
that is not a U.S. Holder. This summary applies only to notes and common stock
held as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). It does not discuss all of the
tax consequences that may be relevant to a Holder in light of its particular
circumstances or to Holders subject to special rules, such as dealers in
securities or foreign currencies, financial institutions, life insurance
companies, or regulated investment companies, or to Holders whose functional
currency is not the United States dollar or who hold the notes or the common
stock as part of a synthetic security, conversion transaction, or certain
"straddle" or hedging transactions.

    The U.S. federal income tax and estate tax considerations set forth below
are based upon the Code and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified, possibly with retroactive effect, so as to result in U.S. federal
income tax consequences different from those presented below.

U.S. HOLDERS

    INTEREST.  Interest on a note should be taxable to a U.S. Holder as ordinary
interest income in accordance with the U.S. Holder's method of accounting for
U.S. federal income tax purposes.

    SALE, EXCHANGE OR REDEMPTION OF A NOTE. A U.S. Holder should recognize gain
or loss, if any, on the sale, redemption or other taxable disposition of a note
in an amount equal to the difference, if any, between the U.S. Holder's adjusted
tax basis in the note and the amount received therefor (other than amounts
attributable to accrued and unpaid interest on the notes, which should be
treated as interest for U.S. federal income tax purposes). Subject to the market
discount rules noted under "U.S. Holders--Market Discount and Bond Premium"
below, gain or loss, if any, recognized on the sale, redemption or other taxable
disposition of a note generally should be long-term capital gain or loss if the
note was held for more than one year as of the date of disposition.

    MARKET DISCOUNT AND BOND PREMIUM.  If a U.S. Holder acquires a note
subsequent to its original issuance and the note's stated redemption price at
maturity exceeds the U.S. Holder's initial tax basis in the note by more than a
de-minimis amount, the U.S. Holder should generally be treated as having
acquired the note at a "market discount" equal to such excess. In addition, if a
U.S. Holder's initial tax basis in a note exceeds the stated redemption price at
maturity of the note, the U.S. Holder should generally be treated as having
acquired the note with "bond premium" in an amount equal to such excess. U.S.
Holders should consult their tax advisers regarding the existence, if any, and
tax consequences of market discount and bond premium.

    CONVERSION OF THE NOTES. A U.S. Holder should not recognize gain or loss
upon conversion of the notes into common stock. The U.S. Holder's tax basis in
shares of common stock received upon conversion should be the same as the U.S.
Holder's adjusted tax basis of the notes converted (reduced by the portion of
such basis allocable to any fractional common stock interest for which the U.S.
Holder receives a cash payment from Net.B@nk). The holding period of the common
stock received in the conversion should include the holding period of the notes
that were converted. A U.S. Holder generally should recognize gain (or loss)
upon a conversion to the extent that any cash paid in lieu of a

                                       85
<PAGE>
fractional share of common stock exceeds (or is less than) its tax basis
allocable to such fractional share.

    DIVIDENDS.  Dividends paid on common stock received upon conversion will be
taxable to a U.S. Holder as ordinary income, to the extent paid out of
Net.B@nk's current or accumulated earnings and profits. Subject to certain
restrictions, dividends received by a corporate U.S. Holder generally should be
eligible for the 70% dividends received deduction.

    SALE OF COMMON STOCK. A U.S. Holder of common stock received on conversion
who sells or otherwise disposes of such stock in a taxable transaction will
recognize capital gain or loss equal to the difference between the cash and the
fair market value of any property received on such sale and the U.S. Holder's
tax basis in such stock. Such gain or loss will be long term gain or loss if the
holding period for such common stock was more than one year.

    REDEMPTION OF COMMON STOCK. A redemption by Net.B@nk of some or all of a
U.S. Holder's common stock will be treated as a dividend to the redeeming U.S.
Holder to the extent of Net.B@nk's current and accumulated earnings and profits
unless the redemption meets one of the tests under Section 302(b) of the Code.
If one of the tests under Section 302(b) is met, the redemption will be treated
as an exchange giving rise to capital gain or loss, except to the extent of
declared but unpaid dividends. Such gain or loss will be long term capital gain
or loss if the holding period for such common stock was more than one year. U.S.
Holders should consult their tax advisors as to the application of Section 302
(b) to their particular circumstances.

    ADJUSTMENTS TO CONVERSION PRICE.  Pursuant to Treasury Regulations
promulgated under Section 305 of the Code, a U.S. Holder of a note should be
treated as having received a constructive distribution from Net.B@nk upon an
adjustment in the conversion price of the notes if (1) as a result of such
adjustment, the proportionate interest of such U.S. Holder in the assets or
earnings and profits of Net.B@nk is increased and (2) the adjustment is not made
pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the
conversion price would not be considered made pursuant to such a formula if the
adjustment were made to compensate for certain taxable distributions with
respect to the common stock into which the notes are convertible. Thus, under
certain circumstances, a decrease in the conversion price of the notes may be
taxable to a U.S. Holder of a note as a dividend to the extent of the current or
accumulated earnings and profits of Net.B@nk. In addition, the failure to adjust
fully the conversion price of the notes to reflect distributions of stock
dividends with respect to the common stock may result in a taxable dividend to
the U.S. Holders of the common stock.

    BACKUP WITHHOLDING AND INFORMATION REPORTING. A U.S. Holder of a note, or of
common stock issued upon conversion of a note, may be subject to information
reporting and possible backup withholding. If applicable, backup withholding
would apply at a rate of 31% with respect to dividends or interest on, or the
proceeds of a sale, exchange, redemption, retirement, or other disposition of,
such note or common stock, as the case may be, unless (1) such U.S. Holder is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (2) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable backup withholding rules.

NON-U.S. HOLDERS

    THE NOTES.  The payment of interest on a note should generally not be
subject to U.S. federal withholding tax, if (1) the interest is not effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Holder, (2) the Non-U.S. Holder does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
Net.B@nk entitled to vote, (3) the Non-U.S. Holder is not a controlled foreign
corporation that is related to Net.B@nk actually or constructively through stock
ownership and (4) either (A) the beneficial owner of the note certifies to
Net.B@nk or its agent, under penalties of perjury, that it is not

                                       86
<PAGE>
a U.S. Holder and provides its name and address on U.S. Treasury Form W-8 (or on
a suitable substitute form) or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the note
certifies under penalties of perjury that such a Form W-8 (or suitable
substitute form) has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payer with a copy thereof.

    A Non-U.S. Holder should generally not be subject to U.S. federal income tax
on any gain or income realized in connection with the sale, exchange,
retirement, or other disposition of a note, including the exchange of a note for
common stock, unless the Non-U.S. Holder is an individual who is present in the
United States for 183 days or more in the taxable year of the disposition, and
either (1) has a tax home in the United States and the gain from the disposition
is not attributable to an office of other fixed place of business maintained by
such non-U.S. Holder in a foreign country or (2) the gain from the disposition
is attributable to an office or other fixed place of business maintained by such
non-U.S. Holder in the United States.

    A note held directly by an individual who, at the time of death, is not a
citizen or resident of the United States should not be includible in such
individual's gross estate for U.S. estate tax purposes as a result of such
individual's death if the individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of Net.B@nk
entitled to vote and, at the time of the individual's death, if payments with
respect to such note would not have been effectively connected with the conduct
by such individual of a trade or business in the United States. Even if the note
was includible in the gross estate under the foregoing rules, the note may be
excluded under the provisions of an applicable estate tax treaty.

    THE COMMON STOCK.  In general, dividends (including any amounts that are
treated as dividends as described above) paid to a Non-U.S. Holder of the common
stock should be subject to U.S. federal income tax withholding at a 30% rate
unless such rate is reduced by an applicable income tax treaty. Dividends that
are effectively connected with such Non-U.S. Holder's conduct of a trade or
business in the United States or, if a tax treaty applies, attributable to a
permanent establishment, or, in the case of an individual, a "fixed base," in
the United States ("U.S. trade or business income") are generally subject to
U.S. federal income tax at regular rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate form with the
payer. Any U.S. trade or business income received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be applicable under
an income tax treaty.

    Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding tax discussed above and, under the current
interpretation of Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate. Effective for payments of dividends made
after December 31, 1999, however, a Non-U.S. Holder of the common stock who
wishes to claim the benefit of an applicable tax treaty rate will be required to
present a U.S. Treasury Form W-8 or documentary evidence confirming the Non-U.S.
Holder's status as a bona fide resident of the particular country under whose
treaty the reduced rate of tax is claimed.

    A Non-U.S. Holder of the common stock that is eligible for a reduced rate of
U.S. federal withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.

    A Non-U.S. Holder of the common stock should generally not be subject to
U.S. income or withholding tax on gain realized on the sale, exchange or
redemption (provided that the redemption is treated as the sale or exchange of
the stock) of such stock, unless the Non-U.S. Holder is an individual who is
present in the United States for 183 days or more in the taxable year of the
disposition, and

                                       87
<PAGE>
either (1) has a tax home in the United States and the gain from the disposition
is not attributable to an office or other fixed place of business maintained by
such Non-U.S. Holder in a foreign country or (2) the gain from the disposition
is attributable to an office or other fixed place of business maintained by such
Non-U.S. Holder in the United States. Common stock held directly by an
individual who at the time of death is not a citizen or resident of the United
States will nevertheless generally be includible in the gross estate of such
individual for U.S. estate tax purposes, subject to contrary provisions of an
applicable estate tax treaty.

    BACKUP WITHHOLDING AND INFORMATION REPORTING.  Payments on the notes made by
Net.B@nk or any paying agent of Net.B@nk and payments of dividends on the common
stock to certain noncorporate Non-U.S. Holders generally should be subject to
information reporting and possibly to "backup withholding" at a rate of 31%.
Information reporting and backup withholding do not apply, however, to payments
made outside the United States by Net.B@nk or a paying agent on a note or to
payments of dividends on the common stock if the certification described under
"Non-U.S. Holders--The Notes" above is received, provided in each case that the
payer does not have actual knowledge that the Holder is a U.S. Holder.

    Payment of proceeds from a sale of a note or the common stock to or through
the U.S. office of a broker is subject to information reporting and backup
withholding unless the Non-U.S. Holder certifies as to its non U.S. status or
otherwise establishes an exemption from information reporting and backup
withholding. Payment outside the United States of the proceeds of the sale of a
note or the common stock to or through a foreign office of a "broker" (as
defined in applicable U.S. Treasury Regulations) should not be subject to
information reporting or backup withholding. However, unless the broker has
documentary evidence in its records that the beneficial owner is not a U.S.
Holder and certain other conditions are not met or the beneficial owner
otherwise establishes an exemption, US information reporting, but not backup
withholding, generally will apply to a payment made outside the United States of
the proceeds of a sale a note or the common stock through an office outside the
United States of a broker if the broker (1) is a U.S. person; (2) derives 50% or
more of its gross income from the conduct of a U.S. trade or business; (3) is a
"controlled foreign corporation" for U.S. federal income tax purposes; or (4)
with respect to payments made after December 31, 1999, is a foreign partnership,
if at any time during its taxable year, one or more of its partners are U.S.
persons, as defined in U.S. Treasury Regulations, who in the aggregate hold more
than 50% of the income or capital interest in the partnership or if, at any time
during its taxable year, such foreign partnership is engaged in a U.S. trade or
business.

    The U.S. Treasury Department has recently finalized regulations regarding
withholding and information reporting (the "Final Regulations") which will
generally be effective for payments made after December 31, 1999. The Final
Regulations do not significantly alter the substantive withholding and
information reporting requirements but would alter the procedures for claiming
the benefits of an income tax treaty and change the certification procedures
relating to the receipt by intermediaries of payments on behalf of the
beneficial owner of shares of notes or common stock. Non-U.S. Holders should
consult their own tax advisors regarding the effect, if any, of the Final
Regulations.

    THE U.S. FEDERAL INCOME TAX AND ESTATE TAX DISCUSSION SET FORTH ABOVE IS
INTENDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR
HOLDER'S SITUATION. PERSONS CONSIDERING A PURCHASE OF THE NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF PURCHASING,
OWNING AND DISPOSING OF THE NOTES AND THE COMMON STOCK, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN LAWS AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES (POSSIBLY INCLUDING RETROACTIVE CHANGES) IN U.S.
FEDERAL AND OTHER TAX LAWS.

                                       88
<PAGE>
                                  UNDERWRITING

    Subject to the terms and conditions of an underwriting agreement, dated
      , 1999, the underwriters named below have severally agreed to purchase
from us the principal amount of notes listed opposite its name below.


<TABLE>
<CAPTION>
                                                                                            PRINCIPAL AMOUNT OF
NAME OF UNDERWRITER                                                                                NOTES
- ----------------------------------------------------------------------------------------  ------------------------
<S>                                                                                       <C>
Bear, Stearns & Co. Inc.................................................................      $
BancBoston Robertson Stephens Inc.......................................................
Raymond James & Associates, Ltd.........................................................
Kelton International Ltd................................................................
                                                                                                 -------------
    Total...............................................................................      $
                                                                                                 -------------
                                                                                                 -------------
</TABLE>


    The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the notes offered by this
prospectus are subject to approval by their counsel of certain legal matters and
to other conditions customary in a firm commitment public offering. The
underwriters are required to purchase and pay for the entire principal amount of
the notes offered by this prospectus, except for the principal amount of notes
covered by the over-allotment option described below, if any are purchased.

    The underwriters propose to offer the notes to the public at the offering
price listed on the cover page of this prospectus and to securities dealers,
including the underwriters, at the same price less a concession of not more than
$    per $1,000 principal amount of notes. The underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $    per $1,000
principal amount of the notes to other brokers and dealers. After the completion
of this offering, the offering price and other selling terms may be changed by
the underwriters. However, no change shall alter the amount of proceeds, as
listed on the cover page of this prospectus, to be received by us.

    We have granted the underwriters an option, exercisable within 30 days after
the date of this prospectus, to purchase up to an additional $15,000,000
aggregate principal amount of the notes. The underwriters may exercise the
option only to cover over-allotments, if any, made in connection with this
offering. To the extent that the underwriters exercise the option, each
underwriter will become obligated to purchase its pro rata portion of the
additional principal amount of the notes based on the underwriter's percentage
underwriting commitment in the offering, which is indicated in the preceding
table. If purchased, the additional principal amount of the notes will be sold
by the underwriters on the same terms as those on which they are selling the
initial $100,000,000 principal amount of the notes.


    We estimate that our share of the total expenses of this notes offering,
excluding the estimated underwriting discounts and commissions, will be
approximately $      . We have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, or
to contribute to payments that the underwriters may be required to make in
connection with these liabilities.


    Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the notes offered by this
prospectus in any jurisdiction which requires action for that purpose. The notes
offered by this prospectus may not be offered or sold, directly or indirectly,
nor may this prospectus or any other offering material or advertisements be
distributed or published in any jurisdiction, except under circumstances that
will ensure compliance with the applicable rules and regulations of the
jurisdiction. Persons holding this prospectus are advised to inform themselves
about and to observe any restrictions relating to this offering and the
distribution of this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered by this
prospectus in any jurisdiction in which an offer or a solicitation is unlawful.

                                       89
<PAGE>

    We and certain of our executive officers, directors and existing
shareholders have agreed that during the period beginning from the date of this
prospectus and continuing to and including the date 90 days after the date of
the prospectus, they will not, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, pledge, make any short sale,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934 or otherwise dispose of any shares of
Net.B@nk's common stock (or securities that are convertible into, exercisable
for or exchangeable for common stock), without the prior written consent of
Bear, Stearns & Co. Inc., except under limited circumstances.


    Certain persons participating in this offering may engage in passive market
making transactions in the common stock in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934. Rule 103 permits, upon
the satisfaction of certain conditions, underwriting and selling group members
participating in a distribution that are also registered Nasdaq market makers in
the security being distributed, or a related security, to engage in limited
passive market making transactions during the period when Regulation M would
otherwise prohibit the activity. In general, a passive market maker may not bid
for or purchase a security at a price that exceeds the highest independent bid
for those securities by a person that is not participating in the distribution
and must identify its passive market making bids on the Nasdaq electronic
inter-dealer reporting system. In addition, the net daily purchases made by a
passive market maker generally may not exceed 30% of the market maker's average
daily trading volume in the security for the two full consecutive calendar
months, or any 60 consecutive days ending within 10 days, immediately preceding
the date of filing of the registration statement of which this prospectus is a
part.

    In addition, the underwriters may maintain or stabilize the price of the
notes by bidding for or purchasing notes in the open markets, and may impose
penalty bids, under which selling concessions allowed to broker-dealers
participating in this offering are reclaimed if notes previously distributed in
this offering are repurchased in connection with stabilization transactions or
otherwise. The imposition of a penalty bid may also affect the price of the
common stock to the extent that it discourages resales of the notes. The
underwriters can make no representation as to the magnitude, duration or effect
of any stabilization or other transactions.

    The notes are a new issue of securities with no established trading market.
We have been advised by the underwriters that they intend to make a market in
the notes but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the notes.

    Each underwriter has represented and agreed that:

    (1) It has not offered or sold, and for up to six months following the
       consummation of this offering, will not offer or sell, any notes in the
       United Kingdom except to persons whose ordinary activities involve them
       in acquiring, holding, managing or disposing of investments (as principal
       or agent) for the purposes of their businesses or otherwise in
       circumstances which do not constitute an offer to the public in the
       United Kingdom for the purposes of the Public Offers of Securities
       Regulations 1995;

    (2) It has complied and will comply with all applicable provisions of the
       Financial Services Act 1986 with respect to anything done by it in
       relation to the notes in, from or otherwise involving the United Kingdom;
       and

    (3) It has only issued or passed on and will only issue or pass on, in the
       United Kingdom, any document received by it in connection with the issue
       or sale of the notes to a person who is of a kind described in Article
       11(3) of the Financial Services Act 1986 (Investment
       Advertisements)(Exemptions) Order 1996 or to a person to whom the
       document may otherwise lawfully be issued or passed on.

                                       90
<PAGE>
    Kelton International Ltd., one of the underwriters:

    (1) Is a foreign broker-dealer with a principal place of business in the
       United Kingdom;

    (2) Is not registered with the Securities and Exchange Commission as a
       broker-dealer;

    (3) Is not a member of the National Association of Securities Dealers, Inc.;

    (4) Has agreed not to sell any of the notes offered by this prospectus
       within the United States, its territories or possessions or to nationals
       or residents of the United States, other than certain underwriting
       syndicate sales; and

    (5) Has agreed to comply with certain rules of the National Association of
       Securities Dealers Regulation as if it were a member of the National
       Association of Securities Dealers, Inc.

    Certain of the underwriters may from time to time perform investment banking
and other financial services for us for which they may receive advisory or
transaction fees, as applicable, plus out-of-pocket expenses, of the nature and
in amounts customary in the industry for these services. Bear, Stearns & Co.
Inc., Raymond James & Associates, Inc. and Kelton International Ltd.
participated in the public offering of our common stock on February 5, 1999 in
which we sold 7,290,000 shares.

    Concurrent with this notes offering, we are offering, by means of a separate
prospectus, 3,000,000 shares of our common stock, plus an additional 450,000
shares to cover over-allotments by the underwriters of that offering. The
completion of this notes offering and of the common stock offering do not depend
upon one another. The underwriters for the common stock offering are also the
underwriters for this notes offering. The underwriters will receive customary
compensation in connection with the common stock offering.

                                       91
<PAGE>
                                 LEGAL MATTERS

    Certain legal matters in connection with the notes offered by this
prospectus will be passed upon for Net.B@nk by Powell, Goldstein, Frazer &
Murphy, LLP, Atlanta, Georgia. Certain legal matters in connection with the
offering will be passed upon by Morrison & Foerster LLP, New York, New York,
counsel to the underwriters listed on the cover page of this prospectus.

                                    EXPERTS

    The Consolidated Financial Statements as of December 31, 1997 and 1998 and
for the period February 20, 1996 (date of incorporation) to December 31, 1996
and for the years ended December 31, 1997 and 1998 included in this prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, appearing in this prospectus, and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

               WHERE YOU CAN FIND MORE INFORMATION ABOUT NET.B@NK

    We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can receive copies
of such reports, proxy and information statements, and other information, at
prescribed rates, from the Securities and Exchange Commission by addressing
written requests to the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
In addition, you can read such reports, proxy and information statements, and
other information at the public reference facilities and at the regional offices
of the Securities and Exchange Commission, Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
Securities and Exchange Commission also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as Net.B@nk that file electronically with the Securities and
Exchange Commission. The address of the Securities and Exchange Commission Web
site is http://www.sec.gov.

    We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 to register the shares that we will issue in this
offering. This prospectus is a part of the Registration Statement. This
prospectus does not include all of the information contained in the Registration
Statement. For further information about us and the securities offered in this
prospectus, you should review the Registration Statement. You can inspect or
copy the Registration Statement, at prescribed rates, at the Securities and
Exchange Commission's public reference facilities at the addresses listed above.

    The Securities and Exchange Commission allows us to "incorporate by
reference" information into the prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered part of this prospectus, except for any
information superseded by information contained directly in this prospectus or
in later filed documents incorporated by reference in this prospectus.

    This prospectus incorporates by reference the documents listed below that we
previously filed with the Securities and Exchange Commission. These documents
contain important information about us and our finances.

    (1) Annual Report on Form 10-K for the fiscal year ended December 31, 1998
       (Commission File No. 0-22361) except for Item 8, "Financial Statements
       and Supplementary Data," which has been updated and is included elsewhere
       in this prospectus;

                                       92
<PAGE>
    (2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
       (Commission File No. 0-22361); and

    (3) Registration Statement on Form 8-A filed April 18, 1997 (Commission No.
       File 0-22361).

    We also incorporate by reference additional documents that it may file with
the Securities and Exchange Commission between the date of this prospectus and
the completion of the offering. These additional documents include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.

    You can obtain documents incorporated by reference in this prospectus by
requesting them from:

        Net.B@nk, Inc.
       950 North Point Parkway
       Suite 350
       Alpharetta, Georgia 30005
       Telephone: (770) 343-6066
       www.netbank.com
       Attn: Investor Relations

                                       93
<PAGE>
                                 NET.B@NK, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----

<S>                                                                                                          <C>
Independent Auditors' Report...............................................................................         F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998 and (unaudited) March 31, 1999................         F-3

Consolidated Statements of Operations for the period from February 20, 1996 (date of incorporation) to
December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the three-month periods
ended March 31, 1998 and 1999..............................................................................         F-4

Consolidated Statements of Shareholders' Equity (Deficit) for the period from February 20, 1996 (date of
incorporation) to December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the
three-month period ended March 31, 1999....................................................................         F-6

Consolidated Statements of Cash Flows for the period from February 20, 1996 (date of incorporation) to
December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the three-month periods
ended March 31, 1998 and 1999..............................................................................         F-7

Notes to Consolidated Financial Statements as of December 31, 1997, 1998, and (unaudited) March 31, 1999,
and for the period from February 20, 1996 (date of incorporation) to December 31, 1996, the years ended
December 31, 1997 and 1998, and (unaudited) the three months ended March 31, 1998 and 1999.................         F-8
</TABLE>

                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders

Net.B@nk, Inc.

    We have audited the consolidated balance sheets of Net.B@nk, Inc. and its
subsidiary ("Net.B@nk") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the years ended December 31, 1998 and 1997 and the period from
February 20, 1996 (date of incorporation) to December 31, 1996. These financial
statements are the responsibility of Net.B@nk's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Net.B@nk as of December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997 and the period from February 20, 1996
(date of incorporation) to December 31, 1996 in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

Atlanta, Georgia

February 16, 1999
(April 13, 1999 as to
the third paragraph
of Note 14)

                                      F-2
<PAGE>
                                 NET.B@NK, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,             MARCH 31,
                                                                  ------------------------------  --------------
                                                                       1997            1998            1999
                                                                  --------------  --------------  --------------
<S>                                                               <C>             <C>             <C>
                                                                                                   (UNAUDITED)
ASSETS
Cash and cash equivalents:
  Cash..........................................................  $      250,535  $      446,940  $    1,576,102
  Federal funds sold............................................      28,853,057      12,013,243      33,416,433
                                                                  --------------  --------------  --------------
    Total cash and cash equivalents.............................      29,103,592      12,460,183      34,992,535
                                                                  --------------  --------------  --------------
Securities available for sale--At fair value
  (amortized cost of $18,137,209, $59,467,371 and $81,323,018,
  respectively).................................................      18,054,146      59,465,062      80,310,559
Stock of Federal Home Loan Bank of Atlanta--At cost.............         225,000       2,000,000       2,569,700
Loans receivable--Net of allowance for loan losses of $453,444,
  $3,472,364 and $4,312,285, respectively.......................      44,479,963     276,955,239     359,740,347
Accrued interest receivable.....................................         372,237       2,582,627       3,085,716
Furniture and equipment--Net....................................         388,508       1,321,918       1,734,680
Bank charter....................................................         344,167         330,167         326,667
Deferred income taxes...........................................              --       2,297,125       2,643,631
Loan sale proceeds receivable...................................              --      23,202,679      35,003,385
Other assets....................................................         252,196       7,821,736       6,055,988
                                                                  --------------  --------------  --------------
                                                                  $   93,219,809  $  388,436,736  $  526,463,208
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits......................................................  $   58,726,763  $  283,589,151  $  332,678,334
  Other borrowed funds..........................................              --      60,000,000      45,000,000
  Accounts payable and accrued liabilities......................         375,649       6,092,697       5,036,752
                                                                  --------------  --------------  --------------
                                                                      59,102,412     349,681,848     382,715,086
Commitments and contingencies (Note 18)

Shareholders' Equity:
  Preferred stock, no par (10,000,000 shares authorized, none
  outstanding)..................................................              --              --              --
  Common stock, $.01 par (100,000,000 shares authorized,
  18,436,686, 18,470,274 and 25,795,485 shares issued and
  outstanding, respectively)....................................          61,456          61,568          85,985
  Additional paid-in capital....................................      43,631,314      43,671,732     148,604,108
  Unamortized stock plan expense................................         (75,689)        (24,279)        (15,709)
  Accumulated deficit...........................................      (9,416,621)     (4,952,609)     (4,261,093)
  Accumulated other comprehensive loss, net of tax..............         (83,063)         (1,524)       (665,169)
                                                                  --------------  --------------  --------------
    Total shareholders' equity..................................      34,117,397      38,754,888     143,748,122
                                                                  --------------  --------------  --------------
                                                                  $   93,219,809  $  388,436,736  $  526,463,208
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>
                                 NET.B@NK, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                           PERIOD FROM
                                          FEBRUARY 20,
                                              1996
                                            (DATE OF              YEAR ENDED                  THREE MONTHS
                                         INCORPORATION)          DECEMBER 31,               ENDED MARCH 31,
                                         TO DECEMBER 31,  ---------------------------  --------------------------
                                              1996            1997          1998           1998          1999
                                         ---------------  ------------  -------------  ------------  ------------
<S>                                      <C>              <C>           <C>            <C>           <C>
                                                                                       (UNAUDITED)   (UNAUDITED)
Interest Income:
  Loans................................   $          --   $  1,095,238  $  14,548,747  $  1,358,235  $  6,011,818
  Investment securities................              --        183,184      2,905,404       453,376     1,214,914
  Short-term investments...............           7,709        944,743        633,893       395,003       331,118
                                         ---------------  ------------  -------------  ------------  ------------
    Total interest income..............           7,709      2,223,165     18,088,044     2,206,614     7,557,850
                                         ---------------  ------------  -------------  ------------  ------------

Interest Expense:
  Deposits.............................              --      1,259,743     10,249,533     1,303,628     4,023,760
  Other borrowed funds.................              --             --      1,174,899            --       535,947
                                         ---------------  ------------  -------------  ------------  ------------
    Total interest expense.............              --      1,259,743     11,424,432     1,303,628     4,559,707
                                         ---------------  ------------  -------------  ------------  ------------

Net interest income....................           7,709        963,422      6,663,612       902,986     2,998,143

Provision for loan losses..............              --        471,706         20,132         3,661        49,806
                                         ---------------  ------------  -------------  ------------  ------------

Net interest income after provision for
  loan losses..........................           7,709        491,716      6,643,480       899,325     2,948,337
                                         ---------------  ------------  -------------  ------------  ------------

Noninterest Income:
  Service charges and fees.............              --         62,607        683,092       122,495       245,715
  Management fees......................          60,000             --             --            --            --
                                         ---------------  ------------  -------------  ------------  ------------
    Total noninterest income...........          60,000         62,607        683,092       122,495       245,715
                                         ---------------  ------------  -------------  ------------  ------------

Noninterest Expenses:
  Salaries and benefits................         836,427      2,396,347      1,429,675       434,353       506,921
  Amortization of service contract with
    affiliate..........................       2,400,000      1,440,000             --            --            --
  Customer services....................           4,951        310,285      1,377,635       191,661       593,897
  Marketing............................         288,584        524,494        694,631       240,018       387,158
  Data processing......................         148,159        539,013        316,590        91,226       228,980
  Depreciation and amortization........          18,934        217,440        272,354        40,037       141,268
  Office expenses......................          56,765        177,054        175,019        47,566        84,424
  Occupancy............................          19,330        107,304        147,169        26,093        39,485
  Travel and entertainment.............          38,794         64,759         88,341        15,441        22,092
  Other................................          94,947        355,066        685,976        86,872       143,311
                                         ---------------  ------------  -------------  ------------  ------------
    Total noninterest expenses.........       3,906,891      6,131,762      5,187,390     1,173,267     2,147,536
                                         ---------------  ------------  -------------  ------------  ------------
</TABLE>

                                                                     (Continued)

                                      F-4
<PAGE>
                                 NET.B@NK, INC.

               CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
                                       PERIOD FROM
                                      FEBRUARY 20,
                                          1996
                                        (DATE OF               YEAR ENDED                    THREE MONTHS
                                     INCORPORATION)           DECEMBER 31,                 ENDED MARCH 31,
                                     TO DECEMBER 31,  -----------------------------  ----------------------------
                                          1996             1997           1998           1998           1999
                                     ---------------  --------------  -------------  -------------  -------------
<S>                                  <C>              <C>             <C>            <C>            <C>
                                                                                      (UNAUDITED)    (UNAUDITED)
Income (loss) before income
  taxes............................      (3,839,182)      (5,577,439)     2,139,182       (151,447)     1,046,516

Income tax benefit (expense).......              --               --      2,324,830             --       (355,000)
                                     ---------------  --------------  -------------  -------------  -------------
Net income (loss)..................   $  (3,839,182)  $   (5,577,439) $   4,464,012  $    (151,447) $     691,516
                                     ---------------  --------------  -------------  -------------  -------------
                                     ---------------  --------------  -------------  -------------  -------------

Net income (loss) per common share
  and potential common share:
    Basic..........................   $       (1.44)  $        (0.55) $        0.24  $       (0.01) $        0.03
    Diluted........................   $       (1.44)  $        (0.55) $        0.23  $       (0.01) $        0.03

Weighted average common and
  potential common shares
  outstanding:
    Basic..........................       2,658,000       10,062,000     18,447,000     18,431,000     22,536,000
    Diluted........................       2,658,000       10,062,000     19,152,000     18,431,000     23,424,000
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>
NET.B@NK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                                                       COMMON      ADDITIONAL     COMMON
                                                                          COMMON        STOCK       PAID-IN        STOCK
                                                                          SHARES     ($.01 PAR)     CAPITAL     SUBSCRIBED
                                                                        -----------  -----------  ------------  -----------
<S>                                                                     <C>          <C>          <C>           <C>
BALANCE--February 19, 1996
  Comprehensive loss--
    Net loss, including amortization of service contract for the
      period from February 20, 1996 (date of incorporation) to
      December 31, 1996...............................................           --  $        --  $         --  $        --
  Proceeds from issuance of common stock:
    Incorporation, February 20, 1996..................................    2,277,282        7,591        (7,362)          --
    March 31, 1996....................................................      149,064          497          (482)          --
    April 1, 1996.....................................................      427,314        1,424        18,571           --
    September 17, 1996................................................      894,366        2,981       997,129           --
  Contribution of services from affiliate.............................                                  31,232           --
  Issuance of 4,064,442 shares of common stock subscriptions..........           --           --            --    3,844,185
  Issuance of 49,686 compensatory stock options.......................           --           --        30,000           --
  Amortization of stock plan expense..................................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--December 31, 1996............................................    3,748,026       12,493     1,069,088    3,844,185
  Comprehensive loss:
    Net loss for the year ended December 31, 1997.....................           --           --            --           --
    Unrealized holding losses on securities arising during the year,
      net of taxes of ($42,790).......................................           --           --            --           --
      Comprehensive loss..............................................           --           --            --           --
  Proceeds from issuance of common stock:
    March 31, 1997....................................................       59,628          199         2,591       (2,790)
    April 2, 1997.....................................................       29,814          100         1,295       (1,395)
    July 28, 1997.....................................................   10,500,000       35,000    38,216,520           --
    July 31, 1997.....................................................    4,099,218       13,664     3,951,336   (3,840,000)
  Issuance of 491,910 compensatory stock options......................           --           --       390,484           --
  Amortization of service contract....................................           --           --            --           --
  Amortization of stock plan expense..................................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--December 31, 1997............................................   18,436,686       61,456    43,631,314           --
  Comprehensive income:
    Net income for the year ended December 31, 1998...................           --           --            --           --
    Unrealized holding gains on securities arising during the year,
      net of taxes of $45,454.........................................           --           --            --           --
    Less reclassification adjustment for gains included in net income,
      net of taxes of $3450...........................................           --           --            --           --
      Comprehensive income............................................           --           --            --           --
  Exercised stock options.............................................       33,588          112        40,418           --
  Amortization of stock plan expense..................................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--December 31, 1998............................................   18,470,274       61,568    43,671,732           --
  Comprehensive income:
    Net income for three months ended March 31, 1999 (unaudited)......           --           --            --           --
    Unrealized losses on securities, net of taxes of $348,814
      (unaudited).....................................................           --           --            --           --
      Comprehensive income (unaudited)................................           --           --            --           --
  Proceeds from the issuance of common stock (unaudited)..............    7,290,000       24,300   104,889,977           --
  Exercised stock options (unaudited).................................       35,211          117        42,399           --
  Amortization of stock plan expense (unaudited)......................           --           --            --           --
                                                                        -----------  -----------  ------------  -----------
BALANCE--March 31, 1999 (unaudited)...................................   25,795,485  $    85,985  $148,604,108  $        --
                                                                        -----------  -----------  ------------  -----------
                                                                        -----------  -----------  ------------  -----------

<CAPTION>
                                                                                      UNAMORTIZED
                                                                                       AFFILIATE
                                                                                        SERVICE     UNAMORTIZED
                                                                           STOCK        CONTRACT       STOCK
                                                                        SUBSCRIPTIONS   EXPENSE         PLAN      ACCUMULATED
                                                                         RECEIVABLE    NET OF TAX     EXPENSE       DEFICIT
                                                                        ------------  ------------  ------------  ------------
<S>                                                                     <C>             <C>
BALANCE--February 19, 1996
  Comprehensive loss--
    Net loss, including amortization of service contract for the
      period from February 20, 1996 (date of incorporation) to
      December 31, 1996...............................................   $       --    $2,400,000    $       --    $(3,839,182)
  Proceeds from issuance of common stock:
    Incorporation, February 20, 1996..................................           --            --            --            --
    March 31, 1996....................................................           --            --            --            --
    April 1, 1996.....................................................           --            --            --            --
    September 17, 1996................................................           --            --            --            --
  Contribution of services from affiliate.............................           --            --            --            --
  Issuance of 4,064,442 shares of common stock subscriptions..........       (4,185)   (3,840,000)           --            --
  Issuance of 49,686 compensatory stock options.......................           --            --       (30,000)           --
  Amortization of stock plan expense..................................           --            --         1,528            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--December 31, 1996............................................       (4,185)   (1,440,000)      (28,472)   (3,839,182)
  Comprehensive loss:
    Net loss for the year ended December 31, 1997.....................           --            --            --    (5,577,439)
    Unrealized holding losses on securities arising during the year,
      net of taxes of ($42,790).......................................           --            --            --            --

      Comprehensive loss..............................................           --            --            --            --
  Proceeds from issuance of common stock:
    March 31, 1997....................................................        2,790            --            --            --
    April 2, 1997.....................................................        1,395            --            --            --
    July 28, 1997.....................................................           --            --            --            --
    July 31, 1997.....................................................           --            --            --            --
  Issuance of 491,910 compensatory stock options......................           --            --      (390,484)           --
  Amortization of service contract....................................           --     1,440,000            --            --
  Amortization of stock plan expense..................................           --            --       343,267            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--December 31, 1997............................................           --            --       (75,689)   (9,416,621)
  Comprehensive income:
    Net income for the year ended December 31, 1998...................           --            --            --     4,464,012
    Unrealized holding gains on securities arising during the year,
      net of taxes of $45,454.........................................           --            --            --            --
    Less reclassification adjustment for gains included in net income,
      net of taxes of $3450...........................................           --            --            --            --

      Comprehensive income............................................           --            --            --            --
  Exercised stock options.............................................           --            --            --            --
  Amortization of stock plan expense..................................           --            --        51,410            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--December 31, 1998............................................           --            --       (24,279)   (4,952,609)
  Comprehensive income:
    Net income for three months ended March 31, 1999 (unaudited)......           --            --            --       691,516
    Unrealized losses on securities, net of taxes of $348,814
      (unaudited).....................................................           --            --            --            --

      Comprehensive income (unaudited)................................           --            --            --            --
  Proceeds from the issuance of common stock (unaudited)..............           --            --            --            --
  Exercised stock options (unaudited).................................           --            --            --            --
  Amortization of stock plan expense (unaudited)......................           --            --         8,570            --
                                                                        ------------  ------------  ------------  ------------
BALANCE--March 31, 1999 (unaudited)...................................   $       --    $       --    $  (15,709)   $(4,261,093)
                                                                        ------------  ------------  ------------  ------------
                                                                        ------------  ------------  ------------  ------------

<CAPTION>
                                                                         ACCUMULATED
                                                                            OTHER
                                                                        COMPREHENSIVE
                                                                            INCOME
                                                                           (LOSS),
                                                                          NET OF TAX       TOTAL
                                                                        --------------  ------------
BALANCE--February 19, 1996
  Comprehensive loss--
    Net loss, including amortization of service contract for the
      period from February 20, 1996 (date of incorporation) to
      December 31, 1996...............................................    $       --    $ (1,439,182)
  Proceeds from issuance of common stock:
    Incorporation, February 20, 1996..................................            --             229
    March 31, 1996....................................................            --              15
    April 1, 1996.....................................................            --          19,995
    September 17, 1996................................................            --       1,000,110
  Contribution of services from affiliate.............................            --          31,232
  Issuance of 4,064,442 shares of common stock subscriptions..........            --              --
  Issuance of 49,686 compensatory stock options.......................            --              --
  Amortization of stock plan expense..................................            --           1,528
                                                                        --------------  ------------
BALANCE--December 31, 1996............................................            --        (386,073)
  Comprehensive loss:
    Net loss for the year ended December 31, 1997.....................            --      (5,577,439)
    Unrealized holding losses on securities arising during the year,
      net of taxes of ($42,790).......................................       (83,063)        (83,063)
                                                                                        ------------
      Comprehensive loss..............................................            --      (5,660,502)
  Proceeds from issuance of common stock:
    March 31, 1997....................................................            --           2,790
    April 2, 1997.....................................................            --           1,395
    July 28, 1997.....................................................            --      38,251,520
    July 31, 1997.....................................................            --         125,000
  Issuance of 491,910 compensatory stock options......................            --
  Amortization of service contract....................................            --       1,440,000
  Amortization of stock plan expense..................................            --         343,267
                                                                        --------------  ------------
BALANCE--December 31, 1997............................................       (83,063)     34,117,397
  Comprehensive income:
    Net income for the year ended December 31, 1998...................            --       4,464,012
    Unrealized holding gains on securities arising during the year,
      net of taxes of $45,454.........................................        88,235          88,235
    Less reclassification adjustment for gains included in net income,
      net of taxes of $3450...........................................        (6,696)         (6,696)
                                                                                        ------------
      Comprehensive income............................................            --       4,545,551
  Exercised stock options.............................................            --          40,530
  Amortization of stock plan expense..................................            --          51,410
                                                                        --------------  ------------
BALANCE--December 31, 1998............................................        (1,524)     38,754,888
  Comprehensive income:
    Net income for three months ended March 31, 1999 (unaudited)......            --         691,516
    Unrealized losses on securities, net of taxes of $348,814
      (unaudited).....................................................      (663,645)       (663,645)
                                                                                        ------------
      Comprehensive income (unaudited)................................            --          27,871
  Proceeds from the issuance of common stock (unaudited)..............            --     104,914,277
  Exercised stock options (unaudited).................................            --          42,516
  Amortization of stock plan expense (unaudited)......................            --           8,570
                                                                        --------------  ------------
BALANCE--March 31, 1999 (unaudited)...................................    $ (665,169)   $143,748,122
                                                                        --------------  ------------
                                                                        --------------  ------------
</TABLE>

See notes to consolidated financial statements.

                                      F-6
<PAGE>
                                 NET.B@NK, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                  FEBRUARY 20,
                                                      1996
                                                    (DATE OF             YEAR ENDED
                                                 INCORPORATION)         DECEMBER 31,
                                                 TO DECEMBER 31,  -------------------------
                                                      1996           1997          1998
                                                 ---------------  -----------  ------------         THREE MONTHS
                                                                                                       ENDED
                                                                                                     MARCH 31,
                                                                                             --------------------------
                                                                                                 1998          1999
                                                                                             ------------  ------------
                                                                                             (UNAUDITED)   (UNAUDITED)
<S>                                              <C>              <C>          <C>           <C>           <C>
Operating Activities:
  Net income (loss)............................    $(3,839,182)   $(5,577,439) $  4,464,012  $   (151,447) $    691,516
  Adjustments to reconcile net income (loss) to
    net cash used in operating activities:
    Depreciation...............................         17,406        211,607       251,147        36,537       137,768
    Amortization of service contract...........      2,400,000      1,440,000            --            --            --
    Amortization of stock plan expense.........          1,528        343,267        51,410        23,564         8,570
    Amortization of premiums on investment
      securities...............................             --         49,331       237,040        73,062        42,768
    Amortization of premiums on purchased
      loans....................................             --        116,509     2,541,016       152,038       970,511
    Amortization of trademark..................             --             --         6,417            --            --
    Amortization of bank charter...............             --          5,833        14,790         3,500         3,500
    Amortization of start-up costs.............             --          2,280            --            --            --
    Provision for loan losses..................             --        471,706        20,132         3,661        49,806
    Contribution of services from affiliate....         31,232             --            --            --            --
    Changes in assets and liabilities which
      provide (use) cash:
      Increase in accrued interest
        receivable.............................             --       (372,237)   (2,210,390)     (526,066)     (503,089)
      Decrease (increase) in other assets......       (311,799)      (142,363)   (7,569,540)       49,296     1,765,748
      Loans originated for sale................        --             --       (142,189,154)      --        (95,779,910)
      Proceeds from loan sales.................        --             --        118,986,475       --         83,979,204
      Increase (decrease) in payables and
        accrued liabilities....................        748,916       (373,267)    5,717,048       305,652    (1,055,945)
      Increase (decrease) in deferred income
        taxes..................................             --             --    (2,297,125)                      2,308
                                                 ---------------  -----------  ------------  ------------  ------------
        Net cash used in operating
          activities...........................       (951,899)    (3,824,773)  (21,976,722)      (30,203)   (9,687,245)
Investing Activities:
  Purchases of securities available for sale...             --    (19,347,623)  (52,502,591)  (30,443,211)  (24,852,142)
  Purchase of Federal Home Loan Bank stock.....             --       (225,000)   (1,775,000)      (26,500)     (569,700)
  Principal repayments on investment
    securities.................................             --      1,161,085    11,104,635     2,202,455     2,951,418
  Purchase of Habitat bonds....................             --             --      (250,000)           --            --
  Origination and purchase of loans............             --    (52,909,291) (352,665,802)  (70,683,033) (123,425,611)
  Principal payments on loans..................             --      7,838,834   117,703,710    10,195,800    39,620,186
  Purchase of Premier Bank charter.............             --       (350,000)           --            --            --
  Capital expenditures.........................       (183,390)      (249,906)     (592,065)     (178,874)     (318,005)
  Captitalized software costs..................             --             --      (592,492)           --      (232,525)
  Proceeds from return of equipment............             --         17,738            --            --            --
                                                 ---------------  -----------  ------------  ------------  ------------
        Net cash used in investing
          activities...........................       (183,390)   (64,064,163) (279,569,605)  (88,933,363) (106,826,379)
Financing Activities:
  Assumption of Premier deposits...............             --      5,000,000            --            --            --
  Transfer of deposits from affiliate..........             --     42,977,650            --            --            --
  Proceeds from other borrowed funds...........             --             --    72,000,000            --    25,000,000
  Repayments of other borrowed funds...........                                 (12,000,000)                (40,000,000)
  Increase in deposits.........................             --     10,749,113   224,862,388    69,954,906    49,089,183
  Advances from (repayments to) affiliate......        883,606       (883,606)           --            --            --
  Net proceeds from the sale of stock..........      1,020,349     38,380,705        40,530            --   104,956,793
                                                 ---------------  -----------  ------------  ------------  ------------
        Net cash provided by financing
          activities...........................      1,903,955     96,223,862   284,902,918    69,954,906   139,045,976
                                                 ---------------  -----------  ------------  ------------  ------------
Net Increase (Decrease) in Cash and Cash
  Equivalents..................................        768,666     28,334,926   (16,643,409)  (19,008,660)   22,532,352
Cash and Cash Equivalents:
  Beginning of period..........................             --        768,666    29,103,592    29,103,592    12,460,183
                                                 ---------------  -----------  ------------  ------------  ------------
  End of period................................    $   768,666    $29,103,592  $ 12,460,183  $ 10,094,932  $ 34,992,535
                                                 ---------------  -----------  ------------  ------------  ------------
                                                 ---------------  -----------  ------------  ------------  ------------
Supplemental Disclosures of Cash Flow
  Information--
  Cash paid during the period for interest.....    $        --    $ 1,184,549  $  5,694,481  $    808,000  $  5,830,309
                                                 ---------------  -----------  ------------  ------------  ------------
                                                 ---------------  -----------  ------------  ------------  ------------
  Cash paid during the period for income
    taxes......................................                                $     30,000  $         --  $     12,000
                                                 ---------------  -----------  ------------  ------------  ------------
                                                 ---------------  -----------  ------------  ------------  ------------
</TABLE>

                See notes to consolidated financial statements.

                                      F-7
<PAGE>
                                 NET.B@NK, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         AS OF DECEMBER 31, 1997, 1998, AND (UNAUDITED) MARCH 31, 1999,
                   AND FOR THE PERIOD FROM FEBRUARY 20, 1996
                 (DATE OF INCORPORATION) TO DECEMBER 31, 1996,
        THE YEARS ENDED DECEMBER 31, 1997 AND 1998, AND (UNAUDITED) THE
                   THREE MONTHS ENDED MARCH 31, 1998 AND 1999

1. ORGANIZATION AND BASIS OF PRESENTATION

    Net.B@nk, Inc. ("Net.B@nk") is a bank holding company that wholly owns the
outstanding stock of Net.B@nk, formerly Atlanta Internet Bank, a federal savings
bank. Net.B@nk, Inc. was incorporated as a Georgia corporation on February 20,
1996, for the primary purpose of forming and, ultimately, operating Net.B@nk.
During the period from February 20, 1996 to July 31,1997, pending regulatory
approval and the acquisition of a bank charter, Net.B@nk was operating as a
development stage enterprise under an agreement with Carolina First Bank
("CFB"), a wholly owned subsidiary of Carolina First Corporation ("CFC"),
whereby CFB agreed to hold and service the deposit accounts generated by the
Internet banking operations of Net.B@nk in exchange for 3,975,000 shares of
Net.B@nk's common stock valued at $3,840,000. In addition, during the period
from February 20, 1996 to July 31, 1997, Net.B@nk was a party to an agreement
with First Alliance/Premier Bancshares, Inc. ("First Alliance") pursuant to
which Net.B@nk had agreed to purchase the charter of First Alliance's
subsidiary, Premier Bank, $5 million of loans, $5 million of certificates of
deposit and $2 million in unimpaired capital for $2,150,000 in cash, 124,218
shares of Net.B@nk's common stock valued at $125,000 and $75,000 in additional
cash for reimbursement of direct out-of-pocket expenses.

    On July 11, 1997, the final regulatory approval from the Office of Thrift
Supervision ("OTS") was received. On July 31, 1997, Net.B@nk received
approximately $38.4 million in net proceeds from the sale of 10,500,000 shares
of its common stock in an Initial Public Offering (the "IPO") and consummated
its agreements with both First Alliance and CFB. As a result, Net.B@nk, a
federal savings bank, became a wholly owned subsidiary of Net.B@nk, Inc. On
February 10, 1999, Net.B@nk received net proceeds of approximately $105,000,000
from the sale of an additional 7,290,000 shares of its common stock in a public
offering.

2. ACCOUNTING POLICIES

    The accounting and reporting policies of Net.B@nk conform with generally
accepted accounting principles and with general practice within the banking
industry. The following is a summary of the more significant policies:

    CONSOLIDATION--The consolidated financial statements of Net.B@nk, Inc.
include the financial statements of Net.B@nk, Net.B@nk, Inc.'s wholly owned
subsidiary. All intercompany balances and transactions have been eliminated in
consolidation.

    USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

    INTEREST RATE RISK--Net.B@nk's assets and liabilities are generally monetary
in nature and interest rate changes have an impact on Net.B@nk's performance.
Net.B@nk decreases the effect of interest rate changes on its performance by
striving to match maturities and interest sensitivity between loans,

                                      F-8
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
investment securities, deposits, and other borrowings. However, a significant
change in interest rates, specifically the prime rate, could have a material
effect on Net.B@nk's results of operations.

    CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, demand deposits due from banks, and
federal funds sold to banks.

    INVESTMENT SECURITIES AVAILABLE FOR SALE--Investment securities classified
as available-for-sale are carried at fair value. Unrealized holding gains or
losses, net of tax, on available-for-sale securities are reported as a net
amount in other comprehensive income. Gains and losses from dispositions are
based on the net proceeds and the adjusted carrying amounts of the securities
sold using the specific identification method. Any decreases in investment value
other than temporary declines would be recognized in operations. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.

    DEFERRED FEES AND COSTS--Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
of the related loans.

    ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is maintained at a
level estimated to be adequate to provide for probable losses in the loan
portfolio. As the majority of Net.B@nk's portfolio is purchased, an estimate of
the loss inherent in the purchased portfolio is made and an allowance for loan
losses is recorded by adjusting the premium associated with the purchased loans.
Management determines the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.
Loans deemed uncollectible are charged to the allowance. Provisions for loan
losses and recoveries on loans previously charged off are added to the
allowance.

    FURNITURE AND EQUIPMENT--Furniture and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful life of each asset. Net.B@nk evaluates the
estimated useful lives of assets on a periodic basis to determine whether events
or circumstances warrant revised estimated useful lives or whether any
impairment exists. Management believes no impairment existed at December 31,
1998.

    BANK CHARTER--The value of the charter is being amortized on a straight-line
basis over 25 years. The carrying value of the charter is periodically reviewed
to assess recoverability based on expected undiscounted cash flows and operating
income of Net.B@nk. Impairment would be recognized in operating results if a
permanent diminution in value was expected. Net.B@nk also evaluates the
amortization period of the bank charter to determine whether events or
circumstances warrant revised estimates of the useful life. Management believes
that no impairment of the bank charter existed at December 31, 1998.

    INTEREST INCOME ON LOANS--Interest on loans is generally recorded over the
term of the loan based on the unpaid principal balance. Accrual of interest is
discontinued when either principal or interest becomes 90 days past due or when,
in management's opinion, collectibility of such interest is doubtful. In
addition, any previously accrued interest is reversed when the loan becomes 90
days past due.

    PREMIUM ON LOANS PURCHASED--Premiums on loans purchased from third parties
are capitalized and amortized over the average life of the loan as an adjustment
to yield. Such premiums are classified with the loan balance to which they
relate for financial reporting purposes.

                                      F-9
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
    INCOME TAXES--Provisions for income taxes are based upon amounts reported in
the statements of income and include deferred taxes for net operating loss
carryforwards and temporary differences between financial statement and tax
bases of assets and liabilities using enacted tax rates for the year in which
the temporary differences are expected to reverse. Net.B@nk records a valuation
allowance when management believes it is more likely than not that deferred tax
assets will not be realized.

    NET INCOME (LOSS) PER SHARE--In February 1997, Statement of Financial
Accounting Standards 128, EARNINGS PER SHARE ("SFAS 128") was issued. SFAS 128
establishes standards for computing and presenting earnings per share
information for entities with publicly held common stock. In accordance with
SFAS 128, basic net income per share is computed based on the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed based on the weighted average number of common and potential
dilutive common shares outstanding during the period. All previously reported
per share amounts have been restated to conform to SFAS 128.

    RECLASSIFICATIONS--Certain reclassifications have been made to the 1996 and
1997 financial statements to conform to the 1998 presentation.

    UNAUDITED INTERIM FINANCIAL STATEMENTS--The financial statements as of March
31, 1998 and 1999 and for the three months ended March 31, 1998 and 1999, were
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. Certain information and
note disclosures normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations relating to interim
financial statements. Operating results for the interim periods included herein
are not necessarily indicative of the results that may be expected for the
entire year.

    NEW ACCOUNTING PRONOUNCEMENTS--As of January 1, 1998, Net.B@nk adopted
Statement of Financial Accounting Standards 130, REPORTING COMPREHENSIVE INCOME
("SFAS 130"), and restated prior periods to conform to the presentation required
by SFAS 130. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses, net of tax, on Net.B@nk's available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The adoption of SFAS 130 had no impact on Net.B@nk's
net income or shareholders' equity.

    As of April 1, 1998, Net.B@nk adopted Statement of Position 98-1, ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP
98-1"). SOP 98-1 allows for the capitalization of costs related to the
development and implementation of software obtained for internal use including
materials, payroll, and interest costs once the criteria of the SOP have been
met. As of December 31, 1998, $592,402 of these related costs had been
capitalized.

    As of December 31, 1998, Net.B@nk adopted SFAS 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 establishes annual
and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas, and major
customers. The adoption of SFAS 131 had no effect on Net.B@nk's financial
statements for the year ended December 31, 1998 because Net.B@nk only has one
reportable segment-banking.

                                      F-10
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
    In June 1998, Statement of Financial Accounting Standards 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), was issued. SFAS
133 establishes standards for derivative instruments and hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The adoption of SFAS 133 is not expected to have
a significant effect on Net.B@nk's financial statements.

3. ACQUISITION

    Effective July 31, 1997, Net.B@nk acquired all of the outstanding stock of
Premier Bank, FSB for $2,150,000 in cash, 124,218 shares of Net.B@nk's common
stock valued at $125,000 and $75,000 in additional cash for reimbursement of
direct out-of-pocket expenses. The acquisition was accounted for as a purchase
and the bank charter was recorded at $350,000. This amount is being amortized
over 25 years. Revenues, net loss, and basic and diluted net loss per common
share and potential dilutive common share for Net.B@nk for the period from
February 20, 1996 to December 31, 1996 or for the year ended December 31, 1997
would not have been materially affected assuming the transaction had occurred on
February 20, 1996 and January 1, 1997, respectively.

4. INVESTMENT SECURITIES AVAILABLE FOR SALE

    The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities available for sale are as follows:

<TABLE>
<CAPTION>
                                                                            GROSS
                                                          -----------------------------------------    ESTIMATED
                                                            AMORTIZED    UNREALIZED    UNREALIZED        FAIR
                                                              COST          GAINS        LOSSES          VALUE
                                                          -------------  -----------  -------------  -------------
<S>                                                       <C>            <C>          <C>            <C>
AT DECEMBER 31, 1997
Collateralized mortgage obligations.....................  $   8,127,863   $      --   $          --  $   8,127,863
Unites States government agencies.......................     10,009,346          --          83,063      9,926,283
                                                          -------------  -----------  -------------  -------------
                                                          $  18,137,209   $      --   $      83,063  $  18,054,146
                                                          -------------  -----------  -------------  -------------
                                                          -------------  -----------  -------------  -------------
AT DECEMBER 31, 1998
Collateralized mortgage obligations.....................  $  58,330,285   $      --   $       2,045  $  58,328,240
United States government agencies.......................        882,442          --             264        882,178
Habitat bonds and other.................................        254,644          --              --        254,644
                                                          -------------  -----------  -------------  -------------
                                                          $  59,467,371   $      --   $       2,309  $  59,465,062
                                                          -------------  -----------  -------------  -------------
                                                          -------------  -----------  -------------  -------------
</TABLE>

                                      F-11
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
    The amortized cost and estimated fair value of these securities at December
31, 1998, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because the borrower may have the right to call or
prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                   AMORTIZED      ESTIMATED
                                                                     COST        FAIR VALUE
                                                                 -------------  -------------
<S>                                                              <C>            <C>
AT DECEMBER 31, 1998
Due after five years through ten years.........................  $   5,983,682  $   5,986,729
Due after ten years............................................     53,483,689     53,478,333
                                                                 -------------  -------------
                                                                 $  59,467,371  $  59,465,062
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>

    There were no significant sales, or calls of securities, for the period from
February 20, 1996 (date of incorporation) to December 31, 1996, or for the years
ended December 31, 1997 and 1998.

5. LOANS

    Net.B@nk's primary loan strategy is to originate or purchase high credit
quality packages of loans from other financial institutions. The servicing on
all loan purchases is retained by the selling institutions. As of December 31,
1998, fees paid for servicing range from .25% to 3.75%. A summary of loans
purchased during the years ended December 31, 1997 and 1998 follows:
<TABLE>
<CAPTION>
                               TYPES OF LOANS               PRINCIPAL        PREMIUM     RANGE OF STATED
                                 PURCHASED                    AMOUNT         AMOUNT      INTEREST RATES
                    ------------------------------------  --------------  -------------  ---------------
<S>                 <C>                                   <C>             <C>            <C>
1997                First and second mortgages, auto and
                    unsecured loans                       $   36,804,000  $     808,832         6.0--12%
                    Automobile leases...................       6,100,000             --            11.5%
                                                          --------------  -------------
                                                          $   42,904,000  $     808,832
                                                          --------------  -------------
                                                          --------------  -------------

<CAPTION>

                               TYPES OF LOANS               PRINCIPAL        PREMIUM     RANGE OF STATED
                                 PURCHASED                    AMOUNT         AMOUNT      INTEREST RATES
                    ------------------------------------  --------------  -------------  ---------------
<S>                 <C>                                   <C>             <C>            <C>
1998                First and second mortgages            $  134,789,041  $   5,002,363     6.12--16.99%
                    Home equity lines                        122,746,433      7,247,263     7.25--13.00%
                                                          --------------  -------------
                                                          $  257,535,474  $  12,249,626
                                                          --------------  -------------
                                                          --------------  -------------
</TABLE>

    There were no loans purchased during the year ended December 31, 1996.

                                      F-12
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LOANS (CONTINUED)
    Loans are summarized as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                -----------------------------
<S>                                                             <C>            <C>
                                                                    1997            1998
                                                                -------------  --------------
Residential mortgages.........................................  $  13,953,501  $  144,361,069
Construction..................................................      5,399,624      27,996,691
Commercial....................................................      4,478,053       8,556,264
Home equity lines.............................................      4,412,013      89,053,532
Auto..........................................................     14,623,745       7,803,648
Personal and other............................................      2,066,471       2,656,399
                                                                -------------  --------------
                                                                   44,933,407     280,427,603
Less allowance for loan losses................................        453,444       3,472,364
                                                                -------------  --------------
      Total...................................................  $  44,479,963  $  276,955,239
                                                                -------------  --------------
                                                                -------------  --------------
</TABLE>

    Net.B@nk provides lines of credit and overdraft protection to its banking
customers on a nationwide basis. At December 31, 1997 and 1998, outstanding
lines of credit totaled $29,000 and $200,000, respectively, and unused
commitments totaled $353,000 and $937,000, respectively. Net.B@nk's home equity
lines are secured by residential property. At December 31, 1997, all of
Net.B@nk's loans were with customers residing in the Southeastern United States.
At December 31, 1998, a majority of Net.B@nk's loans were with customers
residing in the Western and Southeastern United States.

    Net.B@nk had unearned income of $351,202 and $29,776, at December 31, 1997
and 1998, respectively.

                                      F-13
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. ALLOWANCE FOR LOAN LOSS

    An analysis of the allowance for loan losses for the years ended December
31, 1997 and 1998 follows:

<TABLE>
<CAPTION>
                                                                         1997         1998
                                                                      ----------  ------------
<S>                                                                   <C>         <C>
Balance--Beginning of year..........................................  $       --  $    453,444
Allowance recorded in connection with the purchase of loan pools....          --     3,585,926
Provision for loan losses...........................................     471,706        20,132
Loans charged off...................................................     (18,262)     (587,138)
                                                                      ----------  ------------
Balance--End of year................................................  $  453,444  $  3,472,364
                                                                      ----------  ------------
                                                                      ----------  ------------
</TABLE>

    Net.B@nk considers a loan to be impaired when it is probable that it will be
unable to collect all amounts due according to the original terms of the loan
agreement. Net.B@nk measures impairment of a loan on a loan by loan basis.
Amounts of impaired loans that are not probable of collection are charged off
immediately. During the years ended December 31, 1997 and 1998, Net.B@nk had no
significant amount of impaired loans or nonaccrual loans. The amount of impaired
loans written off during the years ended December 31, 1997 and 1998 was $18,262
and $587,138, respectively. Net.B@nk had no restructured loans as of either
December 31, 1997 or 1998.

    Net.B@nk is a party to financial instruments with off-balance-sheet risk in
the normal course of its lending activities to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
lines of credit. Net.B@nk's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. Net.B@nk uses the same credit policies in making
these commitments as it does for on-balance-sheet instruments and evaluates each
customer's creditworthiness on a case-by-case basis. At December 31, 1997 and
1998, Net.B@nk had outstanding loan commitments of $8,332,568 and $47,617,700,
respectively.

    The amount of collateral obtained by Net.B@nk, if deemed necessary, for
these commitments, upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held, if any, varies but may include
inventory, equipment, real estate, or other property. The accounting loss
Net.B@nk would incur if the borrower failed completely to perform according to
the terms of the contract and the collateral proved to be of no value is equal
to the face amount of the commitment.

7. LOAN ORIGINATION AGREEMENTS

    During the year ended December 31, 1998, Net.B@nk entered into separate
agreements with three unrelated third parties whereby Net.B@nk acts as a loan
originator on behalf of the third parties. Under the terms of the agreements,
the third parties are required to purchase all loans, including the related
servicing of these loans, originated by Net.B@nk, unless Net.B@nk elects to
retain the loans. As a result of the agreements, loans originated for the third
parties for which the purchase price has not yet been received are accounted for
as receivables.

                                      F-14
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. DEPOSITS AND OTHER BORROWINGS

    The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by Net.B@nk:

<TABLE>
<CAPTION>
                                                   1997                         1998
                                       ----------------------------  ---------------------------
<S>                                    <C>            <C>            <C>             <C>
                                          AMOUNT       PERCENTAGE        AMOUNT      PERCENTAGE
                                       -------------  -------------  --------------  -----------
Demand checking accounts.............  $     293,054          0.5%   $    9,285,540         3.3%
Interest bearing:
  NOW accounts.......................      1,573,283          2.7%        6,090,704         2.1%
  Money markets......................     36,534,967         62.2%       65,325,880        23.0%
  Certificates of deposit under
    $100,000.........................     16,662,365         28.4%      197,162,916        69.5%
  Certificates of deposit over
    $100,000.........................      3,663,094          6.2%        5,724,111         2.1%
                                       -------------          ---    --------------       -----
    Total deposits...................  $  58,726,763          100%   $  283,589,151       100.0%
                                       -------------          ---    --------------       -----
                                       -------------          ---    --------------       -----
</TABLE>

    At December 31, 1998, the scheduled maturities of certificates of deposit
were as follows:

<TABLE>
<S>                                                             <C>
Within three months...........................................  $76,566,728
Over three months through six months..........................   48,393,173
Over six months through one year..............................   71,548,914
Over one year.................................................    6,378,212
                                                                -----------
    Total.....................................................  $202,887,027
                                                                -----------
                                                                -----------
</TABLE>

    During the year ended December 31, 1998, Net.B@nk, Inc. and its subsidiary,
Net.B@nk, entered into line of credit agreements with The Bankers Bank.
Net.B@nk, Inc. is a party to one such agreement and its subsidiary, Net.B@nk, is
a party to two such agreements. Under the terms of Net.B@nk, Inc.'s agreement
which expired on October 20, 1998, Net.B@nk, Inc. could borrow 50% of the
tangible equity of Net.B@nk, up to $17 million, using the stock of Net.B@nk as
collateral. Any amounts borrowed under this line had interest at a fixed rate of
8.00% per annum. During the year ended December 31, 1998, Net.B@nk, Inc.
borrowed and repaid $12 million under the line. Under the terms of the other two
agreements, the subsidiary, Net.B@nk, may borrow $5 million under an unsecured
general purpose line and 99% of the value of its investment securities under
another line. Both of the lines bear interest at 25 basis points above the
Federal Funds rate (5.00% at December 31, 1998). Under these agreements at
December 31, 1998, the subsidiary, Net.B@nk, had an outstanding borrowing of $20
million with no stated maturity secured by investment securities.

    As of March 31, 1999, the subsidiary, Net.B@nk, has borrowed $20 million
from the Federal Home Loan Bank ("FHLB") at a fixed rate of 4.43%. The borrowing
is callable at the two-year anniversary date. If not called at the two-year
date, the borrowing extends for an additional three years at 4.435%. Also, the
subsidiary, Net.B@nk, has borrowed $25 million from the Federal Home Loan Bank
at a fixed rate of 4.64%. The borrowing is callable at the two-year anniversary
date. If not called at the two-year date, the borrowing extends for an
additional eight years at 4.64%. These borrowings are secured by Net.B@nk's
investment securities.

                                      F-15
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. FURNITURE AND EQUIPMENT

    Furniture and equipment as of December 31, 1997 and 1998, are summarized as
follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                      ------------------------
<S>                                                                   <C>         <C>
                                                                         1997         1998
                                                                      ----------  ------------
Furniture and fixtures..............................................  $   56,145  $    234,440
Equipment...........................................................     190,483       284,388
Software............................................................     428,306     1,340,663
                                                                      ----------  ------------
  Total.............................................................     674,934     1,859,491
Less accumulated depreciation.......................................     286,426       537,573
                                                                      ----------  ------------
    Furniture and equipment, net....................................  $  388,508  $  1,321,918
                                                                      ----------  ------------
                                                                      ----------  ------------
</TABLE>

10. LEASES

    Net.B@nk leases its facilities and certain other equipment under operating
lease agreements. Future minimum payments as of December 31, 1998 under these
leases follow:

<TABLE>
<S>                                                                 <C>
1999..............................................................  $ 128,028
2000..............................................................    130,872
2001..............................................................    133,788
2002..............................................................    136,788
2003 and beyond...................................................    295,156
</TABLE>

    Rent expense for the period from February 20, 1996 (date of incorporation)
to December 31, 1996, and for the years ended December 31, 1997 and 1998, was
$17,850, $91,868, and $110,011, respectively.

11. INCOME TAXES

    Net.B@nk provides deferred income taxes for net operating loss carryforwards
and for temporary differences between financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse. As of December 31, 1998,
Net.B@nk had state and federal net operating loss carryforwards of $6,182,993
which will expire in 2012 and 2011, if not utilized.

    Net.B@nk did not incur any income taxes during 1996 and 1997. For the year
ended December 31, 1998, Net.B@nk's income tax benefit results from the reversal
of the valuation allowance as of December 31, 1997, relating to net operating
loss carryforwards offset by taxable income for the period. As Net.B@nk achieved
profitability in 1998, management now believes that it is more likely than not
that such assets will be realized, and thus, reversed the valuation allowance in
accordance with SFAS 109, ACCOUNTING OF INCOME TAXES.

                                      F-16
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
    As of December 31, 1997 and 1998, Net.B@nk had deferred tax assets and
deferred tax liabilities as follows:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                    --------------------------
<S>                                                                 <C>           <C>
                                                                        1997          1998
                                                                    ------------  ------------
Net operating loss carryforwards..................................  $  2,962,303  $  2,102,218
Allowance for loan losses.........................................       165,369      (244,089)
Start-up costs....................................................       170,761       112,043
Loan premium amortization.........................................            --       357,348
Other, net........................................................       (38,402)      (30,395)
                                                                    ------------  ------------
                                                                       3,260,031     2,297,125
Less valuation allowance..........................................     3,260,031            --
                                                                    ------------  ------------
Net deferred tax asset............................................  $         --  $  2,297,125
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>

    Net.B@nk's income tax benefit consists of current and deferred income tax
benefit as follows:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                                                 DECEMBER 31,
                                                                                     1998
                                                                                 -------------
<S>                                                                              <C>
Current........................................................................  $     (58,490)
Deferred.......................................................................     (2,266,340)
                                                                                 -------------
  Income tax benefit...........................................................  $  (2,324,830)
                                                                                 -------------
                                                                                 -------------
</TABLE>

    The benefit for income taxes is reconciled to the tax computed by applying
the federal statutory rate of 34% to income before income taxes as follows:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                                                 DECEMBER 31,
                                                                                     1998
                                                                                 -------------
<S>                                                                              <C>
Income tax at statutory rate...................................................  $     727,322
Reversal of valuation allowance................................................     (3,260,031)
Other..........................................................................        207,879
                                                                                 -------------
  Income tax benefit...........................................................  $  (2,324,830)
                                                                                 -------------
                                                                                 -------------
</TABLE>

                                      F-17
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. OTHER EXPENSE

    Items comprising other expense:

<TABLE>
<CAPTION>
                                                                        FEBRUARY 20,
                                                                          1996 TO      YEAR ENDED    YEAR ENDED
                                                                        DECEMBER 31,  DECEMBER 31,  DECEMBER 31,
                                                                            1996          1997          1998
                                                                        ------------  ------------  ------------
<S>                                                                     <C>           <C>           <C>
Accounting, legal and professional services...........................   $   84,183    $  238,650    $  423,290
Consultants...........................................................           --        52,739            --
Annual report.........................................................           --            --        93,395
Investor relations....................................................           --         6,946        40,011
Other.................................................................       10,764        56,731       129,280
                                                                        ------------  ------------  ------------
                                                                         $   94,947    $  355,066    $  685,976
                                                                        ------------  ------------  ------------
                                                                        ------------  ------------  ------------
</TABLE>

13. EMPLOYEE BENEFIT PLAN

    Effective December 31, 1997, Net.B@nk adopted a 401(k) plan (the "Plan")
which covers substantially all of its employees. Net.B@nk, at its discretion,
matches 25% of employee contributions to the Plan, up to a maximum Company
contribution of 1% of an employee's compensation. Net.B@nk expensed $10,100
during 1998 related to the plan.

14. SHAREHOLDERS' EQUITY

    On March 17, 1997, Net.B@nk declared a 33.125 for one split of its common
stock effected in the form of a stock dividend payable on the effective date of
the initial public offering. All references to share and per share amounts
reflect the split. Also, additional paid-in capital has been charged and common
stock has been credited retroactively with $12,116 to reflect the stock split.

    On February 10, 1999, Net.B@nk received net proceeds of approximately
$105,000,000 from the sale of 7,290,000 shares of its common stock in a public
offering.

    On April 13, 1999, Net.B@nk declared a three-for-one split of its common
stock effected in the form of a stock dividend payable on May 14, 1999 to
shareholders of record as of the close of business on April 23, 1999. All
references to share and per share amounts have been retroactively adjusted to
reflect the split.

    Under current OTS regulations, Net.B@nk may pay dividends and make other
capital distributions after giving notice to the Office of Thrift Supervision.

15. STOCK OPTIONS

    Net.B@nk has a 1996 Stock Incentive Plan (the "Plan"), which provides that
key employees, officers, directors, and consultants of Net.B@nk may be granted
nonqualified and incentive stock options to purchase shares of common stock of
Net.B@nk, derivative securities related to the value of the common stock, or
cash awards. Previously, the Plan limited the number of shares which could be
awarded to 1,800,000. Effective with shareholder approval on April 22, 1999, the
Plan was amended to increase the total number of shares reserved for the Plan to
3,750,000. Generally, the options expire ten years from the date of the grant.

                                      F-18
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
    A summary of the status of the Plan and activity follows:

<TABLE>
<CAPTION>
                                                                WEIGHTED                   WEIGHTED                   WEIGHTED
                                                                 AVERAGE                    AVERAGE                    AVERAGE
                                                DECEMBER 31,    EXERCISE    DECEMBER 31,   EXERCISE    DECEMBER 31,   EXERCISE
                                                    1996          PRICE         1997         PRICE         1998         PRICE
                                                -------------  -----------  ------------  -----------  ------------  -----------
<S>                                             <C>            <C>          <C>           <C>          <C>           <C>
Outstanding at beginning of period............           --     $      --        49,686    $    0.40     1,099,368    $    1.99
  Granted.....................................       49,686     $    0.40     1,058,625         1.94       573,000         6.50
  Exercised...................................           --            --                                  (33,588)        1.21
  Terminated..................................           --            --        (8,943)        1.21       (41,628)        2.19
                                                     ------                 ------------               ------------
Outstanding at end of period..................       49,686          0.40     1,099,368         1.99     1,597,152         3.63
                                                     ------                 ------------               ------------
                                                     ------                 ------------               ------------
</TABLE>

    In connection with the issuance of some of the options during the year ended
December 31, 1997, $390,484 of compensation expense will be recognized over the
vesting period. Certain of those options vested immediately on July 28, 1997,
upon completion of the Initial Public Offering, and $319,704 of unamortized
compensation expense was recognized. The other options vest one-third on the
first anniversary of the date of issuance, one-third on the second anniversary
of the date of issuance, and one-third on the third anniversary of the date of
issuance. Of the vested options, 708,423 cannot be exercised and sold until July
28, 2000 in accordance with an agreement signed with the OTS. As such, of the
1,597,152 options outstanding as of December 31, 1998, 837,063 are exercisable.

    During the three-month period ended March 31, 1999, Net.B@nk awarded 21,000
incentive stock options at an exercise price of $11.67 per share on January 15,
1999, 30,000 incentive stock options at an exercise price of $13.00 per share on
February 25, 1999 and 30,000 incentive stock options at an exercise price of
$23.33 per share on March 29, 1999. Grant prices approximated the fair value of
the stock at the grant date. Additionally, during the three-month period ended
March 31, 1999, 35,211 incentive stock options were exercised at a price of
$1.21 per share, and 16,200 and 3,366 incentive stock options with an exercise
price of $5.25 and $1.21, respectively, were terminated.

    In addition, effective April 22, 1999, 177,000 nonqualified stock options
were granted at an exercise price of $53.33 per share. Grant prices approximated
the fair value of the stock at the grant date. Also, during April 1999, 6,000
and 1,500 incentive stock options with an exercise price of $5.25 and $1.21,
respectively, were exercised.

                                      F-19
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
    The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
                NUMBER        WEIGHTED
             OUTSTANDING       AVERAGE      EXERCISABLE
                  AT          REMAINING          AT
 EXERCISE    DECEMBER 31,    CONTRACTUAL    DECEMBER 31,
   PRICE         1998           LIFE            1998
- -----------  ------------  ---------------  ------------
<S>          <C>           <C>              <C>
 $     .40       422,343            8.0         422,343
      1.21        48,591            8.2          21,870
      3.33       521,718            8.2         260,850
      3.67        45,000            8.6          15,000
      3.75        60,000            9.0              --
      5.58         9,000            9.1              --
      5.25       187,500            9.7          27,000
      7.94       303,000           10.0          90,000
</TABLE>

    Net.B@nk accounts for its stock-based compensation plan under Accounting
Principles Board 25. Net.B@nk has adopted SFAS 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), for disclosure purposes. For SFAS 123 purposes, the
fair value of each option granted under Net.B@nk's stock option plan during the
period from February 20, 1996 to December 31, 1996 and during the years ended
December 31, 1997 and 1998, was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used:

<TABLE>
<CAPTION>
                                                                            OPTIONS        OPTIONS
                                                                            GRANTED        GRANTED
                                                                         FEBRUARY 20,       AS OF
                                                                            1996 TO     JULY 30, 1997    YEAR ENDED
                                                                           JULY 29,         (IPO        DECEMBER 31,
                                                                             1997           DATE)           1998
                                                                         -------------  -------------  ---------------
<S>                                                                      <C>            <C>            <C>
Fair value.............................................................    $    0.32      $    2.51       $    4.02
Expected life (years)..................................................            5              5               5
Risk-free interest rate................................................          6.2%          5.95%           4.96%
Dividend rate..........................................................          0.0%           0.0%            0.0%
Expected volatility....................................................          0.0%          75.0%           70.0%
Forfeiture rate........................................................          0.0%           1.0%            1.0%
</TABLE>

    Had compensation cost for Net.B@nk's stock options granted been determined
based on the fair value at the grant dates for awards under the plan consistent
with a method prescribed in SFAS 123 utilizing the assumptions described above,
Net.B@nk's net income (loss) and net income (loss) per common share and
potential dilutive common share for the period from February 20, 1996 to

                                      F-20
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
December 31, 1996, and the years ended December 31, 1997 and 1998, would have
changed to the proforma amounts indicated below:

<TABLE>
<CAPTION>
                                                                    PERIOD FROM
                                                                   FEBRUARY 20,
                                                                       1996
                                                                        TO           YEAR ENDED      YEAR ENDED
                                                                   DECEMBER 31,     DECEMBER 31,    DECEMBER 31,
                                                                       1996             1997            1998
                                                                   -------------  ----------------  -------------
<S>                                                                <C>            <C>               <C>
Net income (loss):
As reported......................................................  $  (3,839,182)  $   (5,577,439)  $   4,464,012
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Pro forma........................................................  $  (4,012,534)  $   (5,504,245)  $   3,959,813
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Net income (loss) per share:
As reported:
Basic............................................................  $       (1.44)  $        (0.55)  $        0.24
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Diluted..........................................................  $       (1.44)  $        (0.55)  $        0.23
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Pro forma:
Basic............................................................  $       (1.51)  $        (0.55)  $        0.21
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
Diluted..........................................................  $       (1.51)  $        (0.55)  $        0.21
                                                                   -------------  ----------------  -------------
                                                                   -------------  ----------------  -------------
</TABLE>

16. EARNINGS PER SHARE

    Basic and diluted net income (loss) per common and potential common share
have been calculated based on the weighted average number of shares outstanding
in accordance with SFAS 128. In accordance with SFAS 128, the following schedule
reconciles the numerators and denominators of the basic and diluted net income
per common and potential common share. The only periods presented relate to
those with net income as diluted securities would be anti-dilutive to periods
with a net loss. Net.B@nk had options to purchase common stock outstanding of
49,686 and 1,099,368 at December 31, 1996 and 1997, respectively.

<TABLE>
<CAPTION>
                                                                                      FOR THE YEAR ENDED
                                                                                      DECEMBER 31, 1998
                                                                           ----------------------------------------
<S>                                                                        <C>           <C>            <C>
                                                                              INCOME        SHARES       PER SHARE
                                                                           (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                                                           ------------  -------------  -----------
Net income...............................................................  $  4,464,012
Basic EPS................................................................     4,464,012    18,446,652    $    0.24
                                                                                                             -----
                                                                                                             -----
Effect of Dilutive Securities-Options to purchase common shares..........                     704,466
                                                                           ------------  -------------
Diluted EPS..............................................................  $  4,464,012    19,151,118    $    0.23
                                                                           ------------  -------------       -----
                                                                           ------------  -------------       -----
</TABLE>

                                      F-21
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. CAPITAL ADEQUACY

    Net.B@nk is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure of Net.B@nk to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on Net.B@nk's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Net.B@nk must meet specific capital guidelines that involve quantitative
measures of Net.B@nk's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. Net.B@nk's capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. In addition, under
regulatory guidelines, Net.B@nk may not pay a dividend to Net.B@nk, Inc. if
doing so would cause Net.B@nk to be less than adequately capitalized, as defined
below.

    Quantitative measures established by regulation to ensure capital adequacy
require Net.B@nk to maintain minimum amounts and ratios set forth in the table
below. Net.B@nk's regulatory agency, the OTS, requires Net.B@nk to maintain
minimum ratios of tangible capital to tangible assets of 1.5%, core capital to
tangible assets of 3.0%, and total risk-based capital to risk-weighted assets of
8.0%. Management believes, as of December 31, 1998, that Net.B@nk meets all the
capital adequacy requirements to which it is subject.

    As of December 31, 1998, the most recent notification from the OTS
categorized Net.B@nk as well capitalized under the regulatory framework for
prompt corrective action. To be well capitalized Net.B@nk must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes would have changed the institution's category.

    Net.B@nk's actual capital amounts and ratios as of December 31, 1997 and
1998, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                                 TO BE
                                                                                                              CATEGORIZED
                                                                                                                AS WELL
                                                                                                              CAPITALIZED
                                                                                        FOR CAPITAL           UNDER PROMPT
                                                                                     ADEQUACY PURPOSES         CORRECTIVE
                                                                     ACTUAL                                   ACTION PLAN
                                                              --------------------  --------------------  --------------------
                                                               AMOUNT      RATIO     AMOUNT      RATIO     AMOUNT      RATIO
                                                              ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                           <C>        <C>        <C>        <C>        <C>        <C>

DECEMBER 31, 1997
Total capital (to risk-weighted assets).....................  $  23,652      47.8%  $   3,956       8.0%  $   4,948      10.0%
Core capital (to tangible assets)...........................     23,735      28.3%      2,517       3.0%      4,196       5.0%
Tangible capital (to tangible assets).......................     23,735      28.3%      1,259       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)....................     23,735      48.0%        N/A        N/A      2,969       6.0%
DECEMBER 31, 1998
Total capital (to risk-weighted assets).....................  $  38,297     15.36%  $  19,947       8.0%  $  24,934      10.0%
Core capital (to tangible assets)...........................     35,996      9.31%     11,595       3.0%     19,325       5.0%
Tangible capital (to tangible assets).......................     35,996      9.31%      5,798       1.5%        N/A        N/A
Tier I capital (to risk-weighted assets)....................     35,996     14.44%        N/A        N/A     14,960       6.0%
</TABLE>

    As of March 31, 1999, Net.Bank had total, core, tangible and tier I capital
ratios of 35.81%, 24.64%, 24.64% and 35.24%, respectively.

                                      F-22
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENCIES

    As of December 31, 1998, Net.B@nk was a party to a three year agreement with
BISYS Corporation ("BISYS") who provides Net.B@nk with core bank processing
services. Net.B@nk also receives professional programming services from Edify
Corporation, item processing services from Intercept (formerly NOVA Financial
Corporation), and electronic bill payment processing services from CheckFree
Corporation. Under the terms of the agreements, Net.B@nk pays ongoing monthly
payments for customer support and processing services.

    During the three months ended March 31, 1999, Net.B@nk entered into an
agreement effective June 1, 1999 and extending to May 31, 2004 with an unrelated
third party to act as a loan originator and servicer on behalf of Net.B@nk.
Under the terms of the agreement, loans originated through Net.B@nk's website
which meet Net.B@nk's pre-established credit criteria will be retained by
Net.B@nk with the third party receiving a portion of the origination fee charged
to the customer. Loans which do not meet Net.B@nk's pre-established credit
criteria may be retained by the third party, who in turn will pay Net.B@nk a
flat fee per loan originated. The third party will also perform servicing on
Net.B@nk's portfolio for a monthly fee. In addition, Net.B@nk will also pay the
third party a $300,000 setup fee for reimbursement of out-of-pocket expenses
incurred by the third party in conjunction with certain setup services, as
defined in the agreement.

19. RELATED PARTY TRANSACTIONS

    TRANSACTIONS WITH CFB--Certain of Net.B@nk's cash accounts and time deposits
were on deposit with CFB until July 31, 1997. Net.B@nk received $7,709 and $0 in
interest income related to these accounts during the period from February 20,
1996 to December 31, 1996 and the year ended December 31, 1997, respectively.
For the period from February 20, 1996 to December 31, 1996, Net.B@nk received
$60,000 in management fees from CFB. Net.B@nk expensed $883,606, $1,217,459, and
$0 for the period from February 20, 1996 (date of incorporation) to December 31,
1996, and for the years ended December 31, 1997 and 1998, respectively, for fees
paid to CFB for various advisory, consulting, custodial services, and net
interest expense. Net.B@nk recorded $31,232 in consulting expense and
contributed capital for consulting services contributed by CFB during the period
from February 20, 1996 to December 31, 1996. In addition, during the year ended
December 31, 1997, Net.B@nk purchased $36.8 million in loans from CFB. The
purchase price included a premium of $808,832. CFB continues to service these
loans for a fee ranging from .375% to 2% of the loan balance. During the year
ended December 31, 1998, Net.B@nk was included in a loan participation with CFB
in the amount of $246,600. This loan is serviced by CFB.

    OTHER TRANSACTIONS--Net.B@nk paid $67,032, $104,958, and $60,000 for the
period from February 20, 1996 (date of incorporation) to December 31, 1996, and
for the years ended December 31, 1997 and 1998, respectively, in consulting fees
to a director. In addition, Net.B@nk expensed $278,418 and $246,265 for amounts
paid to a company owned by the Chairman of the Board of Net.B@nk for accounting
and management services provided to Net.B@nk during the period from February 20,
1996 to December 31, 1996 and for the year ended December 31, 1997,
respectively.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

    The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS 107, DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have
been determined by Net.B@nk using available market information and

                                      F-23
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts Net.B@nk could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
                                                                        DECEMBER 31, 1997
                                                                       --------------------
                                                                       CARRYING     FAIR
                                                                        AMOUNT      VALUE
                                                                       ---------  ---------
<S>                                                                    <C>        <C>
Assets:
  Cash...............................................................  $ 250,535  $ 250,535
  Federal funds sold.................................................  28,853,057 28,853,057
  Securities available for sale......................................  18,054,146 18,054,146
  Loans..............................................................  44,933,407 46,109,296
Liabilities:
  Noninterest bearing deposits.......................................    293,054    293,054
  Interest bearing deposits--certificates of deposit.................  20,325,459 20,478,013
  Interest bearing deposits--other...................................  38,108,250 38,108,250
</TABLE>

<TABLE>
<CAPTION>
                                                                       DECEMBER 31, 1998
                                                                     ----------------------
                                                                      CARRYING      FAIR
                                                                       AMOUNT      VALUE
                                                                     ----------  ----------
<S>                                                                  <C>         <C>
Assets:
  Cash.............................................................  $  446,940  $  446,940
  Federal funds sold...............................................  12,013,243  12,013,243
  Securities available for sale....................................  59,465,062  59,465,062
  Loans............................................................  280,427,603 278,607,376
  Loan sale proceeds receivable....................................  23,202,679  23,202,679
Liabilities:
  Noninterest bearing deposits.....................................   9,285,540   9,285,540
  Interest bearing deposits--certificates of deposit...............  202,887,027 203,292,801
  Interest bearing deposits--other.................................  71,416,584  71,416,584
  Other borrowed funds.............................................  60,000,000  59,924,400
</TABLE>

    The carrying amounts of cash and due from banks and federal funds sold are a
reasonable estimate of their fair value due to the short-term nature of these
financial instruments. The fair value of investment securities and loans is
based on quoted market prices and dealer quotes. The fair value of time deposits
and other borrowed funds is estimated by discounting the future cash flows using
Net.B@nk's current interest rates for such financial instruments.

    As required by SFAS 107, demand deposits are shown at their face value. No
additional value has been ascribed to core deposits, which generally bear a low
rate of or no interest and do not fluctuate in response to changes in interest
rates.

    The fair value estimates presented herein are based on pertinent information
available to management at December 31, 1998 and 1997. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.

                                      F-24
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. CONDENSED FINANCIAL STATEMENTS OF NET.B@NK, INC. (PARENT ONLY)

    As of December 31, 1996, Net.B@nk was not a subsidiary of Net.B@nk, Inc.
Therefore, Net.B@nk, Inc.'s financial statements as of December 31, 1996 include
only parent company amounts.

    The condensed balance sheets of Net.B@nk, Inc. (parent only) as of December
31, 1997 and 1998 follow:

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                     ----------------------------
CONDENSED BALANCE SHEET                                                                  1997           1998
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
Assets:
    Cash...........................................................................  $  10,122,666  $      44,398
    Investment in subsidiary.......................................................     23,734,818     38,426,644
    Other assets...................................................................        269,357        283,846
                                                                                     -------------  -------------
        Total assets...............................................................  $  34,126,841  $  38,754,888
                                                                                     -------------  -------------
                                                                                     -------------  -------------

Liabilities........................................................................  $       9,444  $          --

Shareholders' equity:
    Common stock...................................................................         61,456         61,568
    Additional paid-in capital.....................................................     43,631,314     43,671,732
    Unamortized stock plan expense.................................................        (75,689)       (24,279)
    Accumulated deficit............................................................     (9,416,621)    (4,952,609)
    Accumulated other comprehensive loss, net of tax...............................        (83,063)        (1,524)
                                                                                     -------------  -------------
        Total shareholders' equity.................................................     34,117,397     38,754,888
                                                                                     -------------  -------------
                                                                                     $  34,126,841  $  38,754,888
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</TABLE>

                                      F-25
<PAGE>
                                 NET.B@NK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. CONDENSED FINANCIAL STATEMENTS OF NET.B@NK, INC. (PARENT ONLY) (CONTINUED)
    The condensed statements of operations and comprehensive income and cash
flows for years ended December 31, 1997 and 1998 follow:

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED     YEAR ENDED
                                                                                      DECEMBER 31,   DECEMBER 31,
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)                        1997           1998
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
Net interest income.................................................................  $      87,984  $     162,006
Expenses............................................................................     (4,150,859)       (58,281)
                                                                                      -------------  -------------
Income (loss) before income (loss) of subsidiary....................................     (4,062,875)       103,725
Income (loss) of subsidiary.........................................................     (1,514,564)     4,360,287
                                                                                      -------------  -------------
Net income (loss)...................................................................  $  (5,577,439) $   4,464,012
                                                                                      -------------  -------------
Other comprehensive income (loss) of subsidiary.....................................        (83,063)        81,539
                                                                                      -------------  -------------
Comprehensive income (loss).........................................................  $  (5,660,502) $   4,545,551
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED     YEAR ENDED
                                                                                      DECEMBER 31,   DECEMBER 31,
CONDENSED STATEMENT OF CASH FLOWS                                                         1997           1998
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
Operating activities:
    Net income (loss)...............................................................  $  (5,577,439) $   4,464,012
    Adjustments to reconcile net income (loss) to net cash used by operating
      activities:
    Amortization....................................................................      1,783,266         51,410
    (Income) loss of subsidiary.....................................................      1,514,564     (4,360,287)
    Changes in assets and liabilities:
    (Increase) decrease in other assets.............................................        125,363        (14,489)
    Decrease in other liabilities...................................................     (1,623,078)        (9,444)
                                                                                      -------------  -------------
        Net cash used by operating activities.......................................     (3,777,324)       131,202
Investing activities--investment in subsidiary......................................    (25,249,381)   (10,250,000)
Financing activities--net proceeds from sale of stock...............................     38,380,705         40,530
                                                                                      -------------  -------------
(Decrease) increase in cash and cash equivalents....................................      9,354,000    (10,078,268)
Cash:
    Beginning of year...............................................................        768,666     10,122,666
                                                                                      -------------  -------------
    End of year.....................................................................  $  10,122,666  $      44,398
                                                                                      -------------  -------------
                                                                                      -------------  -------------
Supplemental disclosure of cash flow information:
    Cash paid during the year for:
        Interest....................................................................  $     163,479  $      23,111
                                                                                      -------------  -------------
                                                                                      -------------  -------------
        Income taxes................................................................  $          --  $      30,000
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>

                                      F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER NET.B@NK, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.

NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT
A PUBLIC OFFERING OF THE NOTES OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS
IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS IN
JURISDICTIONS OUTSIDE THE UNITED STATES AND CANADA ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION RELATED TO
THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS.

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

                               TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Prospectus Summary........................................................    3
Risk Factors..............................................................    9
Cautionary Statement Regarding
  Forward-Looking Statements..............................................   17
Use of Proceeds...........................................................   18
Capitalization............................................................   19
Price Range of Common Stock...............................................   20
Dividend Policy...........................................................   20
Selected Conslidated Financial Data.......................................   21
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations..............................................................   22
Business..................................................................   42
Management................................................................   65
Relationship with Carolina First Corporation..............................   67
Principal Shareholders....................................................   68
Description of the Notes..................................................   69
Description of Capital Stock..............................................   82
Certain Tax Considerations................................................   85
Underwriting..............................................................   89
Legal Matters.............................................................   92
Experts...................................................................   92
Where You Can Find More Information About Net.B@nk........................   92
Index to Consolidated Financial Statements................................  F-1
</TABLE>

                                  $100,000,000

                                 NET.B@NK, INC.

                                     [LOGO]

                                  % CONVERTIBLE
                               SUBORDINATED NOTES
                                    DUE 2004

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

                                   PROSPECTUS

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

                            BEAR, STEARNS & CO. INC.

                         BANCBOSTON ROBERTSON STEPHENS

                                RAYMOND JAMES &
                                ASSOCIATES, INC.

                           KELTON INTERNATIONAL LTD.

                                           , 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
                                    PART II.
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.


    The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock and notes being registered, all of which will be paid by
Net.B@nk. All amounts are estimates except the registration fee, the Nasdaq
additional listing fee and the NASD filing fee.



<TABLE>
<S>                                                                 <C>
Securities and Exchange Commission registration fee...............  $  85,810
NASD filing fee...................................................     31,367
Nasdaq additional listing fee.....................................     35,000
Accounting fees and expenses......................................    130,000
Legal fees and expenses...........................................    150,000
Transfer Agent and Registrar Fees.................................     20,000
Printing expenses.................................................    250,000
Miscellaneous.....................................................     87,823
                                                                    ---------
    Total.........................................................  $ 790,000
                                                                    ---------
                                                                    ---------
</TABLE>


ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

    Our Bylaws contain certain indemnification provisions providing that
directors, officers and employees or agents of Net.B@nk will be indemnified
against expenses actually and reasonably incurred by them if they are successful
on the merits of a claim or proceeding.

    When a case or dispute is not ultimately determined on its merits (i.e., it
is settled), the indemnification provisions provide that Net.B@nk will indemnify
directors when they meet the applicable standard of conduct. The applicable
standard of conduct is met if the director acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
Net.B@nk, and with respect to an employee benefit plan, for a purpose the
director believed in good faith to be in the interests of the participants and
beneficiaries of the plan. The standard of conduct with respect to any criminal
action or proceeding is met if the director had no reasonable cause to believe
his or her conduct was unlawful. Whether the applicable standard of conduct has
been met is determined by the Board of Directors, the shareholders or
independent legal counsel in each specific case.

    Net.B@nk can also provide for greater indemnification than that set forth in
the Bylaws if it chooses to do so, subject to approval by Net.B@nk's
shareholders. Net.B@nk may not, however, indemnify a director for liability
arising out of circumstances which constitute exceptions to limitation of a
director's liability for monetary damages.

    The indemnification provisions of the Bylaws specifically provide that
Net.B@nk may purchase and maintain insurance on behalf of any director against
any liability asserted against such person and incurred by him or her in any
such capacity, whether or not Net.B@nk would have had the power to indemnify
against such liability.

    In addition, Article IV of Net.B@nk's Articles of Incorporation, subject to
certain exceptions, eliminates the potential personal liability of a director
for monetary damages to Net.B@nk and to the shareholders of Net.B@nk for breach
of a duty as a director. There is no elimination of liability for (a) a breach
of duty involving appropriation of a business opportunity of Net.B@nk, (b) an
act or omission not in good faith or involving intentional misconduct or a
knowing violation of law, (c) a transaction from which the director derives an
improper material tangible personal benefit, or (d) as to

                                      II-1
<PAGE>
any payment of a dividend or approval of a stock repurchase that is illegal
under the Georgia Business Corporation Code. The Articles of Incorporation do
not eliminate or limit the right of Net.B@nk or its shareholders to seek
injunctive or other equitable relief not involving monetary damages.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

    (a) Exhibits


<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     EXHIBIT
- -----------  -------------------------------------------------------------------------------------------------------
<C>          <S>

       1.1   Form of Underwriting Agreement regarding offer and sale of common stock.

       1.2   Form of Underwriting Agreement regarding offer and sale of the   % Convertible Subordinated Notes Due
             2004.

       4.1   Amended and Restated Articles of Incorporation.(1)

       4.2   Bylaws.(1)

       4.3   Amendment to the Bylaws adopted April 22, 1997.(1)

       4.4   Form of Indenture for the   % Convertible Subordinated Notes Due 2004.

       5.1   Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding the legality of the common stock being
             registered.

       5.2   Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding the legality of the   % Convertible
             Subordinated Notes Due 2004 being registered.

      12.1   Statement Regarding Computation of Ratios.

      23.1   Consent of Deloitte & Touche LLP.

      23.2   Consent of Powell, Goldstein, Frazer & Murphy LLP (contained in Exhibit 5.1).

      23.3   Consent of Powell, Goldstein, Frazer & Murphy LLP (contained in Exhibit 5.2).

      24.1   Power of Attorney (included on Signature Page).*

      25.1   Statement of Eligibility of Trustee.
</TABLE>


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


*   Previously filed.


(1) Incorporated by reference to the exhibit of the same number contained in the
    Registrant's Registration Statement on Form S-1 (Regis. No. 333-23717).

ITEM 17. UNDERTAKINGS.

    Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the forgoing provisions described in Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such

                                      II-2
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

    The undersigned registrant hereby undertakes:

    (a) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

    (b) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

    (c) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

    (d) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

    (e) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

                                      II-3
<PAGE>
                                   SIGNATURES


    Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alpharetta, State of Georgia, on the 28th day of May,
1999.


<TABLE>
<S>                             <C>  <C>
                                NET.B@NK, INC.

                                By:               /s/ D. R. GRIMES
                                     -----------------------------------------
                                                    D. R. Grimes
                                              CHIEF EXECUTIVE OFFICER
</TABLE>

    Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:


<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
- ------------------------------  --------------------------  -------------------

<C>                             <S>                         <C>
              *
- ------------------------------  Chairman of the Board          May 28, 1999
      T. Stephen Johnson
       /s/ D. R. GRIMES
- ------------------------------  Vice Chairman and Chief        May 28, 1999
         D. R. Grimes             Executive Officer**
              *
- ------------------------------  Director                       May 28, 1999
   Donald S. Shapleigh, Jr.
              *                 Chief Financial Officer
- ------------------------------    and                          May 28, 1999
       Robert E. Bowers           Director***
              *
- ------------------------------  Director                       May 28, 1999
        Ward H. Clegg
              *
- ------------------------------  Director                       May 28, 1999
       J. Stephen Heard
              *
- ------------------------------  Director                       May 28, 1999
       Robin C. Kelton
              *
- ------------------------------  Director                       May 28, 1999
    Thomas H. Muller, Jr.
- ------------------------------  Director
       J. Joe Ricketts
              *
- ------------------------------  Director                       May 28, 1999
       W. James Stokes
              *
- ------------------------------  Director                       May 28, 1999
     Mack I. Whittle, Jr.
</TABLE>


- ------------------------
*   By:  /s/ D.R. GRIMES
- -------------------------------------------
       Attorney-in-Fact

**  Principal Executive Officer

*** Principal Accounting Officer

                                      II-4
<PAGE>
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     EXHIBIT
- -----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
       1.1   Form of Underwriting Agreement regarding offer and sale of common stock.

       1.2   Form of Underwriting Agreement regarding offer and sale of the   % Convertible Subordinated Notes Due
             2004.

       4.1   Amended and Restated Articles of Incorporation.(1)

       4.2   Bylaws.(1)

       4.3   Amendment to the Bylaws adopted April 22, 1997.(1)

       4.4   Form of Indenture for the   % Convertible Subordinated Notes Due 2004.

       5.1   Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding the legality of the common stock being
             registered.

       5.2   Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding the legality of the   % Convertible
             Subordinated Notes Due 2004 being registered.

      12.1   Statement Regarding Computation of Ratios.

      23.1   Consent of Deloitte & Touche LLP.

      23.2   Consent of Powell, Goldstein, Frazer & Murphy LLP (contained in Exhibit 5.1).

      23.3   Consent of Powell, Goldstein, Frazer & Murphy LLP (contained in Exhibit 5.2).

      24.1   Power of Attorney (included on Signature Page).*

      25.1   Statement of Eligibility of Trustee.
</TABLE>


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


*   Previously filed.


(1) Incorporated by reference to the exhibit of the same number contained in the
    Registrant's Registration Statement on Form S-1 (Regis. No. 333-23717).

                                      II-5


<PAGE>

                                                                     Exhibit 1.1

                        3,000,000 Shares of Common Stock

    (after giving effect to a 3 for 1 stock split effective May 14, 1999)

                                 NET.B@NK, INC.

                             UNDERWRITING AGREEMENT

                                                               [         ], 1999

BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS, INC.
RAYMOND JAMES & ASSOCIATES, INC.
KELTON INTERNATIONAL LTD.
as Underwriters
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York  10167

Ladies and Gentlemen:

      Net.B@nk, Inc., a corporation organized and existing under the laws of the
State of Georgia (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of 3,000,000 shares (the "Firm Shares")
of common stock, par value $.01 per share, of the Company (the "Common Stock"),
and, for the sole purpose of covering over-allotments in connection with the
sale of the Firm Shares, the Company proposes to issue and sell to the
Underwriters, at the option of the Underwriters, up to an additional 450,000
shares (the "Additional Shares") of Common Stock. The Firm Shares and any
Additional Shares purchased by the Underwriters are referred to herein
collectively as the "Shares". The Shares are more fully described in the
Registration Statement referred to below.

      1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters that:

            (a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement and two amendments
thereto, on Form S-3 (No. 333-77969), for the registration of the Shares under
the Securities Act of 1933, as amended (the "Act"). Such registration statement,
including the prospectus, financial statements and schedules, exhibits and all
other documents filed as a part thereof, as amended at the time of


                                       1
<PAGE>

effectiveness of the registration statement, including any information deemed to
be a part thereof as of the time of effectiveness pursuant to paragraph (b) of
Rule 430A or Rule 434 of the Rules and Regulations of the Commission under the
Act (the "Regulations"), is herein called the "Registration Statement". Any
registration statement filed pursuant to Rule 462(b) of the Regulations is
herein called the "462(b) Registration Statement", and after such filing the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The prospectus, in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations or filed as part of the Registration Statement
at the time of effectiveness if no Rule 424(b) or Rule 434 filing is required,
is herein called the "Prospectus". The term "preliminary prospectus" as used
herein means a preliminary prospectus as described in Rule 430 of the
Regulations. Any reference herein to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3 that
were filed under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), on or before the effective date of the Registration Statement, the date
of such preliminary prospectus or the date of the Prospectus, as the case may
be, and any reference herein to the terms "amend", "amendment" or "supplement"
with respect to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include (i) the filing of any
document under the Exchange Act after the effective date of the Registration
Statement, the date of such preliminary prospectus or the date of the
Prospectus, as the case may be, that is incorporated therein by reference and
(ii) any such document so filed. Neither the Commission nor the Blue Sky or
securities authority of any jurisdiction has issued a stop order suspending the
effectiveness of the Registration Statement, preventing or suspending the use of
any preliminary prospectus, the Prospectus, the Registration Statement or any
amendment or supplement thereto, refusing to permit the effectiveness of the
Registration Statement or suspending the registration or qualification of the
Shares, nor, to the Company's knowledge, has any of such authorities instituted
or threatened to institute any proceedings with respect to a stop order.

            (b) At the respective time of the effectiveness of the Registration
Statement or any 462(b) Registration Statement or the effectiveness of any
post-effective amendment to the Registration Statement, when the Prospectus is
first filed with the Commission pursuant to Rule 424(b) or Rule 434 of the
Regulations, when any supplement to or amendment of the Prospectus is filed with
the Commission, when any document filed under the Exchange Act is filed and at
the Closing Date and the Additional Closing Date, if any (as hereinafter
respectively defined), the Registration Statement, any 462(b) Registration
Statement and the Prospectus and any amendments thereof and supplements thereto
complied or will comply in all material respects with the applicable provisions
of the Act and the Regulations and the Exchange Act and the respective
rules and regulations thereunder and does not or will not contain an untrue
statement of a material fact and does not or will not omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein (i), in the case of the Registration Statement, not misleading and (ii),
in the case of the Prospectus, in the light of the circumstances under which
they were made, not misleading. When any related preliminary prospectus was
first filed with the Commission (whether filed as part of the Registration
Statement or any amendment thereto or pursuant to Rule 424(a) of the
Regulations) and when any amendment thereof or supplement thereto was first
filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and the Exchange Act and
the respective


                                       2
<PAGE>

rules and regulations thereunder and did not contain an untrue statement of a
material fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The Prospectus and
any preliminary prospectus delivered to the Underwriters for use in connection
with the registration of the Shares was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through Bear, Stearns & Co. Inc. as
herein stated expressly for use in connection with the preparation thereof. If
Rule 434 is used, the Company will comply with the requirements of Rule 434.

            (c) Deloitte & Touche LLP, who have certified certain of the
financial statements and any supporting schedules included in the Registration
Statement, are independent public accountants, as required by the Act and the
Regulations.

            (d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other), shareholders' equity or results of operations of either the Company
or its sole subsidiary Net.B@nk, a federally-chartered stock savings bank (the
"Bank") (the effect of each such change or development being referred to herein
as a "Material Adverse Effect"), whether or not arising from transactions in the
ordinary course of business, and since the date of the latest balance sheet
presented in the Registration Statement and the Prospectus, neither the Company
nor the Bank has incurred or undertaken any liabilities or obligations, direct
or contingent, that are material to the Company or the Bank, respectively,
except for liabilities or obligations that are reflected in the Registration
Statement and the Prospectus.

            (e) This Agreement and the transactions contemplated hereby have
been duly and validly authorized by the Company, and this Agreement has been
duly and validly executed and delivered by the Company.

            (f) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not (i)
conflict with or result in a breach of any of the terms and provisions of, or
constitute a default (or an event that with notice or lapse of time, or both,
would constitute a default) under, require approval or consent under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or the Bank, respectively, any agreement,
instrument, franchise, license or permit to which either of the Company or the
Bank is a party or by which any of the Company's or the Bank's respective
properties or assets may be bound; or (ii) violate or conflict with any
provision of the charter or by-laws of the Company or of the Bank; or (iii)
violate any decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over
either of the Company or the Bank or any of their respective properties or
assets. No consent, approval, authorization, order, registration,


                                       3
<PAGE>

filing, qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over either of the
Company or the Bank or any of their respective properties or assets is required
for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the issuance,
sale and delivery of the Shares to be issued, sold and delivered by the Company
hereunder, except the registration under the Act of the Shares and such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws or with the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution of the Shares by
the Underwriters.

            (g) All of the outstanding shares of capital stock of the Company
are duly and validly authorized and issued, fully paid and nonassessable, and
none of such shares was issued in violation of or is now subject to any
preemptive or similar rights. The Shares to be issued and sold by the Company
hereunder, when issued, delivered and sold in accordance with this Agreement,
will be duly and validly issued and outstanding, fully paid and nonassessable,
and will not have been issued in violation of or be subject to any preemptive or
similar rights. The Company had, at March 31, 1999, an authorized and
outstanding capitalization as set forth in the Registration Statement and the
Prospectus. The Common Stock, the Firm Shares and the Additional Shares conform
to the descriptions thereof contained in the Registration Statement and the
Prospectus. Except as disclosed in or specifically contemplated by the
Registration Statement and the Prospectus, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments,
obligations, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable for capital stock of
the Company. The outstanding stock options relating to the Common Stock have
been duly authorized by the Board of Directors of the Company or a committee
thereof and conform to the descriptions thereof contained in the Registration
Statement and the Prospectus. Other than the Bank, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
corporation or have any ownership interest in any partnership, joint venture or
other association. All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times duly registered under the Act or were
exempt from the registration requirements of the Act and were duly registered or
the subject of an available exemption from the registration requirements of the
applicable state securities or Blue Sky laws.

            (h) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so qualified
or in good standing that will not in the aggregate have a Material Adverse
Effect on the Company and the Bank taken as a whole. The Company is duly
registered under the Savings and Loan Holding Company Act ("SLHCA") and the
Georgia Bank Holding Company Act ("GBHCA"). Neither the Company nor the Bank is
subject to any current formal arrangement or memorandum of understanding with,
or cease and desist order by, any banking or similar agency.

            (i) The Bank has been duly organized and is validly existing as a
federally-chartered stock savings bank under the laws of the United States. The
Bank is duly


                                       4
<PAGE>

qualified and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned, leased or licensed) or
the nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not in the
aggregate have a Material Adverse Effect on the Bank. The Bank is a member in
good standing of the Federal Home Loan Bank of Atlanta (the "FHLB of Atlanta"),
and the Bank's deposit accounts are insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the fullest extent provided under applicable law. No
proceeding for the termination or revocation of such insurance is pending or
threatened.

            (j) Each of the Company and the Bank has all requisite power and
authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all public,
regulatory or governmental agencies and bodies, to own, lease and operate its
respective properties and conduct its respective business as now being conducted
and as described in the Registration Statement and the Prospectus, and no such
consent, approval, authorization, order, registration, qualification, license or
permit contains a materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus. All of the outstanding shares of
capital stock of the Bank are duly and validly issued, fully paid and
nonassessable and are owned by the Company free and clear of any liens,
mortgages, pledges, charges, security interests, claims, encumbrances or other
defects in title whatsoever, except as are disclosed in the Registration
Statement and the Prospectus.

            (k) Neither the Company nor the Bank is in violation of its charter
or by-laws, as the case may be, or in default in the performance or observance
of any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness or in any
material indenture, mortgage, deed of trust, loan or credit agreement, lease,
joint venture or other agreement or instrument to which either of the Company or
the Bank is a party or by which any of its respective properties may be bound,
or in violation of any law, order, rule, regulation, writ, injunction, judgment
or decree of any court or governmental agency or body, the violation of which
would have a Material Adverse Effect on the Company or the Bank.

            (l) There is no litigation or governmental proceeding to which
either of the Company or the Bank is a party or to which any property of the
Company or the Bank is subject or which is pending or, to the knowledge of the
Company, contemplated against either the Company or the Bank that in each case
is required to be described in the Prospectus but is not so described.

            (m) Neither the Company nor the Bank has taken, nor will take,
directly or indirectly, any action designed to cause or result in, or that
constitutes or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.

            (n) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company and its
consolidated subsidiary as of the dates indicated and the results of their
operations for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with


                                       5
<PAGE>

generally accepted accounting principles ("GAAP") applied on a consistent basis;
and any supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. The selected consolidated
financial data and the summary consolidated financial data included in the
Registration Statement and the Prospectus present fairly the information shown
therein and have been compiled on a basis consistent with that of the financial
statements included in the Registration Statement and the Prospectus. No other
financial statements are required by Form S-3 or otherwise to be included in the
Registration Statement or the Prospectus other than those included therein.

            (o) Each of the Company and the Bank has filed all federal, state,
local and foreign tax returns that are required to be filed and have paid all
taxes shown thereon and all assessments received by either of them to the extent
that such taxes have become due and are not being contested in good faith.
Except as disclosed in the Registration Statement and the Prospectus, there is
no tax deficiency that has been or might reasonably be expected to be asserted
or threatened against the Company or the Bank.

            (p) Each of the Company and the Bank has good title in fee simple to
all items of real property and good and marketable title to all personal
property owned by it, in each case free and clear of all liens, encumbrances and
defects except such as are described or referred to in the Prospectus or such as
do not materially affect the value of such property and do not interfere with
the use made or proposed to be made of such property by the Company or the Bank,
respectively. Any real property and buildings held under lease by either of the
Company or the Bank is held under valid, existing and enforceable leases with
such exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company or the Bank,
respectively.

            (q) Each of the Company and the Bank owns or possesses adequate
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade names and
other intellectual property (collectively, "Intellectual Property") necessary to
carry on the business it now operates, and neither the Company nor the Bank has
received any notice or is otherwise aware of (i) any claim, action or demand of
any person in the United States or elsewhere or any proceeding in the United
States or elsewhere, pending or threatened, that (A) challenges the ownership
interests of the Company or the Bank in any of the Intellectual Property or (B)
alleges that any product or service of the Company or the Bank infringes or
misappropriates the Intellectual Property rights of others, which claim, action,
demand or proceeding (including, without limitation, infringement,
misappropriation and unfair competition), if the subject of any unfavorable
decision, ruling or finding, or invalidity or inadequacy could reasonably be
expected to have, in the aggregate with all other such claims, actions, demands
and proceedings, a Material Adverse Effect on the Company or the Bank,
respectively or (ii) any facts or circumstances that would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or the Bank.

            (r) No relationship, direct or indirect, exists between or among the
Company or the Bank, on the one hand, and the directors, officers, shareholders,
customers or suppliers of the Company or the Bank, on the other hand, that is
required by the Act to be described in the Registration Statement and the
Prospectus that is not so described.


                                       6
<PAGE>

            (s) The Common Stock currently outstanding is listed on the Nasdaq
National Market.

            (t) Except as described in the Prospectus, no holder of securities
of the Company has any rights to the registration of securities of the Company
as a result of the filing of the Registration Statement or otherwise in
connection with the sale of the Shares contemplated hereby.

            (u) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended.

            (v) There are no existing or, to the knowledge of the Company,
threatened labor disputes with any employees of the Company or the Bank that are
likely, in the aggregate, to have a Material Adverse Effect on either the
Company or the Bank.

            (w) Each of the Company and the Bank (i) is in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"); (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
respective business; and (iii) is in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance, failure
to receive required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals will not in
the aggregate have a Material Adverse Effect on either the Company or the Bank.

            (x) Each employee benefit plan, within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
that is maintained, administered or contributed to by either of the Company or
the Bank for employees or former employees of the Company or the Bank,
respectively, has been maintained in compliance with its respective terms and
the requirements of any applicable statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Internal Revenue Code of 1986, as
amended, (the "Code"). No prohibited transaction, within the meaning of Section
406 of ERISA or Section 4975 of the Code, has occurred with respect to any such
plan, excluding transactions effected pursuant to a statutory or administrative
exemption. For each such plan that is subject to the funding rules of Section
412 of the Code or Section 302 of ERISA, no "accumulated funding deficiency", as
defined in Section 412 of the Code, has been incurred, whether or not waived,
and the fair market value of the assets of each such plan (excluding for these
purposes accrued but unpaid contributions) exceeded the present value of all
benefits accrued under such plan, as determined using reasonable actuarial
assumptions.

            (y) Each of the Company and the Bank maintains a system of internal
accounting controls that, taken as a whole, are sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit the preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (iii) access to assets is permitted


                                       7
<PAGE>

only in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

            (z) Each of the Company and the Bank maintains insurance of the
types and in the amounts generally deemed adequate for its respective business,
including, without limitation, insurance covering real and personal property
owned or leased by it against theft, damage, destruction, acts of vandalism and
all other material risks customarily insured against, all of which insurance is
in full force and effect. Neither the Company nor the Bank has any reason to
believe that it will not be able to renew existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its respective business.

            (aa) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.

            (bb) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement or the Prospectus, at the time they were
or hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission under the Exchange Act, and, when read together
with the other information in the Prospectus, at the time the Registration
Statement and any amendments thereto become effective and at the Closing Date
and the Additional Closing Date, if any, will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

            (cc) The descriptions in the Registration Statement and the
Prospectus of the contracts, leases and other legal documents therein described
present fairly in all material respects the information required to be shown,
and there are no contracts, leases or other documents of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.

            (dd) The Company will comply with Rule 463 of the Regulations.

      2. Purchase, Sale and Delivery of the Shares.

            (a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell, as applicable, to the Underwriters
3,000,000 Firm Shares and the Underwriters, severally and not jointly, agree to
purchase from the Company, at a purchase price per share of $_____, the number
of Firm Shares set forth opposite the respective names of the Underwriters in
Schedule I hereto, plus any additional number of Shares that they may
individually become obligated to purchase pursuant to the provisions of Section
9 hereof.

            (b) Payment of the purchase price for and delivery of the Firm
Shares shall be made at the offices of Morrison & Foerster LLP, 1290 Avenue of
the Americas, 40th Floor, New York 10104, or at such other place as shall be
agreed upon by you at 10:00 A.M., New York City


                                       8
<PAGE>

time, on the third Business Day (as permitted under Rule 15c6-1 under the
Exchange Act) (unless postponed in accordance with the provisions of Section 9
hereof) following the date of the effectiveness of the Registration Statement
(or, if the Company has elected to rely upon Rule 430A of the Regulations, the
third Business Day (as permitted under Rule 15c6-1 under the Exchange Act) after
the determination of the public offering price of the Shares), or such other
time not later than ten Business Days after such date as shall be agreed upon by
you and the Company (such time and date of payment and delivery being herein
called the "Closing Date"). As used herein, the term "Business Day" means any
day other than a day on which banks are permitted or required to be closed in
New York City. Payment shall be made by wire transfer in same day funds against
delivery to you at the offices of Morrison & Foerster LLP, 1290 Avenue of the
Americas, 40th Floor, New York 10104 for the respective accounts of the
Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares shall be registered in such name or names and in
such authorized denominations as you may request in writing at least two full
Business Days prior to the Closing Date. The Company shall permit you to examine
and package such certificates for delivery at least one full Business Day prior
to the Closing Date. If you so elect, delivery of the Firm Shares may be made by
credit through full fast transfer to the Depository Trust Company account(s)
that you designate.

            (c) Neither the consummation of the transactions contemplated hereby
nor the sale, issuance, execution or delivery of the Shares will violate
Regulation T, U or X of the Board of Governors of the Federal Reserve System.

            (d) In addition, the Company hereby grants to the Underwriters the
option to purchase up to 450,000 Additional Shares at the same purchase price
per share to be paid by the Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering over-allotments in
the sale of Firm Shares by the Underwriters. This option may be exercised at any
time, or from time to time, in whole or in part, on or before the thirtieth day
following the date of the Prospectus, by written notice by you to the Company.
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date and
time herein referred to as the "Additional Closing Date"); provided, however,
that an Additional Closing Date shall not be earlier than the Closing Date or
earlier than the second full Business Day after the date on which the option
shall have been exercised nor later than the eighth full Business Day after the
date on which the option shall have been exercised (unless such time and date
are postponed in accordance with the provisions of Section 9 hereof).
Certificates for the Additional Shares shall be registered in such name or names
and in such authorized denominations as you may request in writing at least two
full Business Days prior to the Additional Closing Date. The Company shall
permit you to examine and package such certificates for delivery at least one
full Business Day prior to the Additional Closing Date. If you so elect,
delivery of the Additional Shares may be made by credit through full fast
transfer to the Depository Trust Company account(s) that you designate.

      The number of Additional Shares to be sold to each Underwriter shall be
the number that bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 9 hereof) bears to 3,000,000, subject, however, to such adjustments
to eliminate any fractional shares as you in your sole discretion shall make.


                                       9
<PAGE>

      Payment of the purchase price for the Additional Shares shall be made to
the Company by wire transfer in same day funds at the offices of Morrison &
Foerster LLP, 1290 Avenue of the Americas, 40th Floor, New York 10104, or at
such other place as shall be agreed upon by you and the Company, against
delivery to you at the offices of Morrison & Foerster LLP, 1290 Avenue of the
Americas, 40th Floor, New York 10104 for the respective accounts of the
Underwriters of certificates for the Additional Shares to be purchased by them.

      3. Offering. Upon the Company's authorization of the release of the Firm
Shares, the Underwriters propose to offer the Shares for sale to the public upon
the terms set forth in the Prospectus.

      4. Covenants of the Company.

            (a) The Company covenants and agrees with the Underwriters that:

                        (i) If the Registration Statement has not yet been
                  declared effective, the Company will use its best efforts to
                  cause the Registration Statement and any amendments thereto to
                  become effective as promptly as possible, and if Rule 430A is
                  used or the filing of the Prospectus is otherwise required
                  under Rule 424(b) or Rule 434, the Company will file the
                  Prospectus (properly completed if Rule 430A has been used)
                  pursuant to Rule 424(b) or Rule 434 within the prescribed time
                  period and will provide evidence satisfactory to you of such
                  timely filing. If the Company elects to rely on Rule 434, the
                  Company will prepare and file a term sheet that complies with
                  the requirements of Rule 434.

      The Company will notify you immediately (and, if requested by you, will
confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective; (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information; (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus; (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor, (v) of the receipt of any comments from the
Commission; and (vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time, the
Company will make every reasonable effort to prevent the issuance of any such
stop order and, if issued, to obtain the lifting of such order as soon as
possible. The Company will not file any amendment to the Registration Statement,
any filing under Rule 462(b) of the Regulations, or any amendment of or
supplement to the Prospectus (including the prospectus required to be filed
pursuant to Rule 424(b) or Rule 434 of the Regulations) that differs from the
prospectus on file at the time of the effectiveness of the Registration
Statement before or after the effective date of the Registration Statement or
file any document under the Exchange Act if such document would be deemed to be
incorporated by reference into the Prospectus to which you shall reasonably
object in writing after being timely furnished in advance a copy thereof.


                                       10
<PAGE>

            (ii) If at any time when a prospectus relating to the Shares is
      required to be delivered under the Act any event shall have occurred as a
      result of which the Prospectus as then amended or supplemented would, in
      the judgment of the Underwriters or the Company, include an untrue
      statement of a material fact or omit to state any material fact required
      to be stated therein or necessary to make the statements therein, in the
      light of the circumstances under which they were made, not misleading, or
      if it shall be necessary at any time to amend or supplement the Prospectus
      or Registration Statement to comply with the Act or the Regulations, or to
      file under the Exchange Act so as to comply therewith any document
      incorporated by reference in the Registration Statement or the Prospectus
      or in any amendment thereof or supplement thereto, the Company will notify
      you promptly and prepare and file with the Commission an appropriate
      amendment or supplement (in form and substance satisfactory to you) that
      will correct such statement or omission or that will effect such
      compliance and will use its best efforts to have any amendment to the
      Registration Statement declared effective as soon as possible.

            (iii) The Company will promptly deliver to you three signed copies
      of the Registration Statement, including exhibits and all documents
      incorporated by reference therein and all amendments thereto, and the
      Company will promptly deliver to each of the Underwriters such number of
      copies of any preliminary prospectus, the Prospectus, the Registration
      Statement, all amendments of and supplements to such documents, if any,
      and all documents incorporated by reference in the Registration Statement
      and Prospectus or any amendment thereof or supplement thereto, without
      exhibits, as you may reasonably request.

            (iv) The Company will endeavor in good faith, in cooperation with
      you, at or prior to the time of effectiveness of the Registration
      Statement, to qualify the Shares for offering and sale under the
      securities laws relating to the offering or sale of the Shares of such
      jurisdictions as you may designate and to maintain such qualification in
      effect for so long as required for the distribution thereof; except that
      in no event shall the Company be obligated in connection therewith to
      qualify as a foreign corporation or to execute a general consent to
      service of process.

            (v) The Company will make generally available (within the meaning of
      Section 11(a) of the Act) to its security holders and to you as soon as
      practicable, but not later than 45 days after the end of its fiscal
      quarter in which the first anniversary date of the effective date of the
      Registration Statement occurs, an earning statement (in form complying
      with the provisions of Rule 158 of the Regulations) covering a period of
      at least twelve consecutive months beginning after the effective date of
      the Registration Statement.

            (vi) During the period of 90 days from the date of the Prospectus,
      the Company will not, without the prior written consent of Bear, Stearns &
      Co. Inc., directly or indirectly, issue, sell, offer or agree to sell,
      except pursuant to any stock option or incentive plan described in the
      Prospectus or the sale of Shares hereunder, grant any option for the sale
      of, pledge, make any short sale, establish an open "put equivalent
      position" within the meaning of Rule 16a-1(h) under the Exchange Act or
      otherwise


                                       11
<PAGE>

      dispose of or transfer, whether directly or indirectly, any shares of
      Common Stock or any securities convertible into, or exchangeable or
      exercisable for Common Stock, except as provided in Section 2 of this
      Agreement, and the Company will obtain the undertaking of each of its
      executive officers and directors and such of its shareholders as have been
      heretofore designated by you and listed in Schedule II attached hereto not
      to engage in any of the aforementioned transactions on their own behalf.

            (vii) During a period of three years from the effective date of the
      Registration Statement, the Company will furnish to you copies of (A) all
      reports to its shareholders and (B) all reports, financial statements and
      proxy or information statements filed by the Company with the Commission
      or any national securities exchange.

            (viii) The Company will apply the proceeds from the sale of the
      Shares as set forth under "Use of Proceeds" in the Prospectus.

            (ix) The Company will use its best efforts to cause the Common Stock
      and the Shares to maintain its status of being quoted on the Nasdaq
      National Market so long as any of the Common Stock or Shares are
      outstanding.

            (x) The Company, during the period when the Prospectus is required
      to be delivered under the Act or the Exchange Act, will file all documents
      required to be filed with the Commission pursuant to Section 13, 14 or 15
      of the Exchange Act within the time periods required by the Exchange Act
      and the rules and regulations thereunder.

            (xi) The Company is familiar with the Investment Company Act of
      1940, as amended, and the rules and regulations thereunder, and has in the
      past conducted its affairs, and will in the future conduct its affairs, in
      such a manner so as to ensure that the company was not and will not be an
      "investment company" or an entity "controlled" by an "investment company"
      within the meaning of the Investment Company Act of 1940, as amended.

            (xii) The Company will not take, prior to the termination of the
      underwriting arrangement contemplated by this Agreement, directly or
      indirectly, any action designed to cause or result in, or which
      constitutes or which might reasonably be expected to constitute, the
      stabilization or manipulation of the price of the shares of Common Stock
      to facilitate the sale or resale of the Shares.

            (xiii) The Company will use its best efforts to do and perform all
      things required or necessary to be done and performed under this Agreement
      by the Company prior to or after the Closing Date or any Additional
      Closing Date, as the case may be, and to satisfy all conditions precedent
      to the delivery of the Shares.

      5. Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder those in connection with (i) preparing,
printing, duplicating, filing and distributing the Registration Statement, as
originally filed and all amendments thereof (including all exhibits thereto),
any preliminary prospectus, the Prospectus and any amendments or supplements
thereto


                                       12
<PAGE>

(including, without limitation, fees and expenses of the Company's accountants
and counsel), the underwriting documents (including this Agreement and the
Master Agreement among Underwriters and the Master Selling Agreement) and all
other documents related to the public offering of the Shares (including those
supplied to the Underwriters in quantities as hereinabove stated); (ii) the
issuance, transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon; (iii) the qualification of the Shares
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing any preliminary or final "Blue Sky Survey" and the fees of
counsel for the Underwriters and such counsel's disbursements in relation
thereto; (iv) quotation of the Shares on the Nasdaq National Market; (v) filing
fees of the Commission and the NASD; (vi) the cost of printing certificates
representing the Shares; (vii) the cost and charges of any transfer agent or
registrar; (viii) the fees and disbursements of the Company's accountants and
the fees and expenses of counsel for the Company; (ix) all miscellaneous
expenses referred to in Part II of the Registration Statement, (x) costs related
to travel and lodging incurred by the Company and its representatives relating
to meetings with and presentations to prospective purchasers of the Shares
reasonably determined by the Underwriters to be necessary or desirable to effect
the sale of the Shares to the public; and (xi) all other costs and expenses
incident to the performance of the Company's obligations hereunder (including
costs incurred in closing the purchase of the Additional Shares, if any) that
are not otherwise specifically provided for in this Section 5.

      6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6, "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Morrison & Foerster LLP
("Underwriters' Counsel") pursuant to this Section 6 of any material
misstatement or omission, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:

            (a) The Registration Statement, including any Rule 462(b)
Registration Statement, shall have become effective and all necessary approvals
of the Nasdaq National Market shall have been received not later than, if
pricing pursuant to Rule 430A, 5:30 P.M., New York City time, on the date of
this Agreement, or at such later time and date as shall have been consented to
in writing by you; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement, if the Company shall have elected
to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus shall have
been filed with the Commission in a timely fashion in accordance with Section
4(a)(i) hereof; and at or prior to the Closing Date, no stop order suspending
the effectiveness of the Registration Statement or any post-effective amendment
thereof shall have been issued and no proceedings therefor shall have been
initiated or threatened by the Commission.

            (b) At the Closing Date, you shall have received the opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel for the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:


                                       13
<PAGE>

            (i) The Company has been duly incorporated and is validly existing
      as a corporation in good standing under the laws of its jurisdiction of
      incorporation. The Company is duly qualified and in good standing as a
      foreign corporation in each jurisdiction in which the character or
      location of its properties (owned, leased or licensed) or the nature or
      conduct of its business makes such qualification necessary, except for
      those failures to be so qualified or in good standing which will not in
      the aggregate have a Material Adverse Effect on the Company and the Bank
      taken as a whole. The Company is duly registered under the SLHCA and the
      GBHCA. Neither the Company nor the Bank is subject to any current formal
      arrangement or memorandum of understanding with, or cease and desist order
      by, any banking or similar agency.

            (ii) The Bank has been duly organized and is validly existing as a
      federally-chartered stock savings bank under the laws of the United
      States. The Bank is duly qualified and in good standing as a foreign
      corporation in each jurisdiction in which the character or location of its
      properties (owned, leased or licensed) or the nature or conduct of its
      business makes such qualification necessary, except for those failures to
      be so qualified or in good standing which will not in the aggregate have a
      Material Adverse Effect on the Bank. The Bank is a member in good standing
      of the FHLB of Atlanta, the Bank's deposit accounts are insured by the
      FDIC and, to such counsel's knowledge, no proceeding for the termination
      or revocation of such insurance is pending or threatened.

            (iii) Each of the Company and the Bank has all requisite corporate
      authority to own, lease and license its properties and conduct its
      business as now being conducted and as described in the Registration
      Statement and the Prospectus. All of the outstanding shares of capital
      stock of the Bank have been duly and validly issued, are fully paid and
      nonassessable and are owned directly or indirectly by the Company, free
      and clear of any lien, encumbrance, claim, security interest, restriction
      on transfer, shareholders' agreement, voting trust or other defect of
      title whatsoever except as described in the Registration Statement and the
      Prospectus, and none of such shares was issued in violation of or is now
      subject to any preemptive or similar rights.

            (iv) The Company's authorized capital stock is accurately set forth
      in the Registration Statement and the Prospectus. All of the outstanding
      shares of capital stock of the Company are duly and validly authorized and
      issued, are fully paid and nonassessable, and none of such shares was
      issued in violation of or is now subject to any preemptive or similar
      rights. The Shares have been duly and validly authorized and are, or when
      delivered by the Company in accordance with this Agreement will be, duly
      and validly issued, fully paid and nonassessable and will not have been
      issued in violation of or be subject to any preemptive or similar rights.
      The Common Stock, the Firm Shares and the Additional Shares conform as to
      legal matters in all material respects to the descriptions thereof
      contained in the Registration Statement and the Prospectus. Other than the
      Bank, the Company does not own, directly or indirectly, any capital stock
      or other equity securities of any corporation or any ownership interest in
      any partnership, joint venture or other association. All offers and sales
      of the Company's capital stock prior to the date hereof were at all
      relevant times duly registered under the Act or were exempt from the
      registration requirements of the Act and were duly registered or the
      subject of an available exemption from the registration requirements of
      the applicable


                                       14
<PAGE>

      state securities or Blue Sky laws, provided, however, that such counsel
      need not express any opinion with respect to the registration or
      availability of an exemption under applicable state securities or Blue Sky
      laws for shares of Common Stock issued pursuant to an underwritten public
      offering.

            (v) The Common Stock and the Shares to be sold under this Agreement
      to the Underwriters are duly authorized for listing on the Nasdaq National
      Market.

            (vi) This Agreement has been duly and validly authorized, executed
      and delivered by the Company and, assuming due authorization, execution
      and delivery by the Underwriters, is a valid and binding agreement of the
      Company.

            (vii) To such counsel's best knowledge, there is no litigation or
      governmental or other action, suit, proceeding or investigation before any
      court or before or by any public, regulatory or governmental agency or
      body pending or threatened against, or involving the respective properties
      or businesses of, the Company or the Bank which is of a character required
      to be disclosed in the Registration Statement and the Prospectus which has
      not been properly disclosed therein.

            (viii) The execution, delivery, and performance of this Agreement
      and the consummation of the transactions contemplated hereby by the
      Company do not and will not (A) conflict with or result in a breach of any
      of the terms and provisions of, or constitute a default (or an event which
      with notice or lapse of time, or both, would constitute a default) under,
      require approval or consent under, or result in the creation or imposition
      of any lien, charge or encumbrance upon any property or assets of either
      of the Company or the Bank pursuant to, any agreement, instrument,
      franchise, license or permit known to such counsel to which either of the
      Company or the Bank is a party or by which any of such persons or its
      respective properties or assets may be bound, except where such conflict,
      breach, default or other circumstance contemplated above would not have a
      Material Adverse Effect on the Company and the Bank taken as a whole; (B)
      violate or conflict with any provision of the charter or by-laws of either
      of the Company or the Bank; or (C) to the best knowledge of such counsel,
      violate any judgment, decree, order, statute, rule or regulation of any
      court or any public, governmental or regulatory agency or body having
      jurisdiction over either of the Company or the Bank or any of its
      respective properties or assets, except where such violation would not
      have a Material Adverse Effect on the Company and the Bank taken as a
      whole. No consent, approval, authorization, order, registration, filing,
      qualification, license or permit of or with any court or any public,
      governmental, or regulatory agency or body having jurisdiction over either
      of the Company or the Bank, or any of their respective properties or
      assets, is required for the execution, delivery and performance of this
      Agreement or the consummation of the transactions contemplated hereby,
      including the issuance, sale and delivery of the Shares, except (1) such
      consents, approvals, authorizations, orders, registrations, filings,
      qualifications, licenses and permits as may be required under state
      securities or Blue Sky laws or by the NASD in connection with the purchase
      and distribution of the Shares by the Underwriters (as to which such
      counsel need express no opinion), (2) such as have been made or obtained
      under the Act and (3) such as will not,


                                       15
<PAGE>

      if not obtained, have a Material Adverse Effect on the Company or the Bank
      or on the consummation of the transactions contemplated hereby.

            (ix) The Company is not, and solely as a result of the consummation
      of the transactions contemplated hereby will not be, subject to
      registration as an "investment company" under the Investment Company Act
      of 1940, as amended.

            (x) The Registration Statement and the Prospectus and any amendments
      thereof or supplements thereto (other than the financial statements and
      schedules and other financial data included or incorporated by reference
      therein, as to which no opinion need be rendered) comply as to form in all
      material respects with the requirements of the Act and the Regulations.
      The documents filed under the Exchange Act and incorporated by reference
      in the Registration Statement and the Prospectus or any amendment thereof
      or supplement thereto (other than the financial statements and schedules
      and other financial data included or incorporated by reference therein, as
      to which no opinion need be rendered) when they became effective or were
      filed with the Commission, as the case may be, complied as to form in all
      material respects with the Act or the Exchange Act, as applicable, and the
      rules and regulations of the Commission thereunder.

            (xi) The Registration Statement is effective under the Act, all
      filings required by Rule 424(b) of the Regulations have been made and, to
      the best knowledge of such counsel, no stop order suspending the
      effectiveness of the Registration Statement or any post-effective
      amendment thereof or supplement thereto has been issued and no proceedings
      therefor have been initiated or threatened by the Commission.

            (xii) Except as disclosed in or specifically contemplated by the
      Registration Statement and the Prospectus, to such counsel's best
      knowledge, there are no outstanding options, warrants or other rights
      calling for the issuance of, and no commitments, obligations, plans or
      arrangements to issue, any shares of capital stock of the Company or any
      security convertible into or exchangeable for capital stock of the
      Company.

            (xiii) The statements in the Registration Statement and the
      Prospectus under the captions "Prospectus Summary", "Business--Supervision
      and Regulation, --Legal Proceedings", "Management", "Description of
      Capital Stock", "Legal Matters" and in Item 15 of Part II of the
      Registration Statement, insofar as such statements constitute a summary of
      the terms of the Shares, legal matters, documents or proceedings referred
      to therein, fairly present in all material respects the information called
      for with respect to such terms, legal matters, documents or proceedings.

            (xiv) The form of certificate used to evidence the Common Stock
      complies in all material respects with all applicable statutory
      requirements, with any applicable requirements of the articles of
      incorporation and by-laws of the Company and the requirements of the
      Nasdaq National Market.


                                       16
<PAGE>

            (xv) Neither the consummation of the transactions contemplated
      hereby nor the sale, issuance, execution or delivery of the Shares will
      violate Regulation T, U or X of the Board of Governors of the Federal
      Reserve System.

            (xvi) Each of the Company and the Bank has good title in fee simple
      to all items of personal property owned by it, in each case free and clear
      of all liens, encumbrances and defects except such as are described or
      referred to in the Registration Statement or the Prospectus or such as do
      not materially affect the value of such property and do not interfere with
      the use made or proposed to be made of such property by the Company or the
      Bank, respectively. Any real property and buildings held under lease by
      either of the Company or the Bank are held under valid, existing and
      enforceable leases with such exceptions as are not material and do not
      interfere with the use made or proposed to be made of such property and
      buildings by the Company or the Bank, respectively.

            (xvii) The descriptions in the Registration Statement and the
      Prospectus of the contracts, leases and other legal documents therein
      described present fairly in all material respects the information required
      to be shown and there are no contracts, leases or other documents known to
      such counsel of a character required to be described in the Registration
      Statement or the Prospectus or to be filed as exhibits to the Registration
      Statement which are not described or filed as required.

            (xviii) To the knowledge of such counsel, except as described in the
      Prospectus, no holder of securities of the Company has any rights to the
      registration of securities of the Company as a result of the filing of the
      Registration Statement or the Prospectus or otherwise in connection with
      the sale of the Shares contemplated hereby.

      In addition, such opinion shall also contain a statement that such counsel
has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and that no facts have come to the
attention of such counsel that would lead such counsel to believe that either
the Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any
amendment thereof made prior to the Closing Date as of the date of such
amendment, contained an untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date (or any
amendment thereof or supplement thereto made prior to the Closing Date as of the
date of such amendment or supplement) and as of the Closing Date contained or
contains an untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief or
opinion with respect to the financial statements and schedules and other
financial data included or incorporated by reference therein). Such counsel
shall also state in its opinion that it has no reason to believe that any of the
documents filed under the Exchange Act and incorporated by reference in the
Registration Statement and the Prospectus or any amendment thereof or supplement
thereto (other than the


                                       17
<PAGE>

financial statements and schedules and other financial data included or
incorporated by reference therein, as to which no opinion need be rendered),
when such documents became effective or were so filed, as the case may be,
contained, in the case of a registration statement which became effective under
the Act, an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or, in the case of other documents which were filed under the
Exchange Act with the Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when such
documents were so filed, not misleading.

            (c) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as hereby contemplated shall be satisfactory in
form and substance to you and to Underwriters' Counsel, and the Underwriters
shall have received from said Underwriters' Counsel a favorable opinion, dated
as of the Closing Date, with respect to the issuance and sale of the Shares, the
Registration Statement and the Prospectus and such other related matters as you
may reasonably require, and the Company shall have furnished to Underwriters'
Counsel such documents as request for the purpose of enabling them to pass upon
such matters.

            (d) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date, to the effect that (i) the conditions set forth in subsection (a)
of this Section 6 have been satisfied; (ii) as of the date hereof and as of the
Closing Date, the representations and warranties of the Company set forth in
Section 1 hereof are accurate; (iii) as of the Closing Date, the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed; and (iv) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company and the
Bank have not sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has not been any prospective
material adverse change, or any development involving a material adverse change,
in the business prospects, properties, operations, condition (financial or
otherwise), or results of operations of the Company and the Bank taken as a
whole, except in each case as described in or contemplated by the Prospectus.

            (e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter from Deloitte & Touche LLP, independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, stating that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the Regulations and that the answer to Item 10 of the Registration Statement is
correct insofar as it relates to them and that they have performed a review of
the unaudited interim financial information of the Company for the three months
ended March 31, 1999 (and as at March 31, 1999), in accordance with Statements
on Auditing Standards No. 71 and stating in effect that:

            (i) in their opinion, the audited consolidated financial statements
      and schedules of the Company included in and incorporated by reference in
      the Registration Statement and the Prospectus and covered by their opinion
      therein comply as to form in


                                       18
<PAGE>

      all material respects with the applicable accounting requirements of the
      Act and the Exchange Act and the applicable published rules and
      regulations of the Commission thereunder;

            (ii) on the basis of procedures consisting of a reading of the
      latest available unaudited interim consolidated financial statements of
      the Company and the Bank, their limited review (in accordance with
      standards established under Statement of Accounting Standards No. 71) of
      the unaudited financial information for the three-month period ended March
      31, 1999 (and as at March 31, 1999), carrying out certain procedures (but
      not an examination in accordance with generally accepted auditing
      standards) which would not necessarily reveal matters of significance with
      respect to the comments set forth in such letter, a reading of the minutes
      of meetings and consents of the shareholders and boards of directors of
      the Company and the Bank and the committees of such boards subsequent to
      March 31, 1999, inquiries of officers and other employees of the Company
      and the Bank who have responsibility for financial and accounting matters
      of the Company and the Bank with respect to transactions and events
      subsequent to March 31, 1999 to a date not more than five days prior to
      the date of such letter, nothing has come to their attention that would
      cause them to believe that: (A) the unaudited consolidated financial
      statements and schedules of the Company presented in the Registration
      Statement and the Prospectus do not comply as to form in all material
      respects with the applicable accounting requirements of the Act and, if
      applicable, the Exchange Act and the applicable published rules and
      regulations of the Commission thereunder or that such unaudited
      consolidated financial statements are not fairly presented in conformity
      with GAAP, except to the extent certain footnote disclosures have been
      omitted in accordance with applicable rules of the Commission under the
      Exchange Act, applied on a basis substantially consistent with that of the
      audited consolidated financial statements incorporated by reference in the
      Registration Statement and the Prospectus; (B) with respect to the period
      subsequent to March 31, 1999, there was, as of the date of the most recent
      available monthly consolidated financial statements of the Company and the
      Bank, and as of a specified date not more than five days prior to the date
      of such letter, any decrease in deposits, total assets or shareholders'
      equity of the Company, in each case as compared with the amounts shown in
      the March 31, 1999 balance sheet incorporated by reference in the
      Registration Statement and the Prospectus, except for increases or
      decreases which the Registration Statement and the Prospectus disclose
      have occurred or may occur or which are set forth in such letter; or (C)
      that during the period from March 31, 1999 to the date of the most recent
      available monthly consolidated financial statements of the Company and the
      Bank, and to a specified date not more than five days prior to the date of
      such letter, there was any decrease, as compared with the corresponding
      period in the prior fiscal year, in net interest income, non-interest
      income or net income, except for decreases which the Registration
      Statement and the Prospectus disclose have occurred or may occur or which
      are set forth in such letter; and

            (iii) they have compared specific dollar amounts, numbers of shares,
      percentages of revenues and earnings and other financial information
      pertaining to the Company and its subsidiary set forth in the Registration
      Statement and the Prospectus, which have been specified by you prior to
      the date of this Agreement, to the extent that such amounts, numbers,
      percentages and information may be derived from the general


                                       19
<PAGE>

      accounting and financial records of the Company and the Bank or from
      schedules furnished by the Company, and excluding any questions requiring
      an interpretation by legal counsel, with the results obtained from the
      application of specified readings, inquiries, and other appropriate
      procedures specified by you set forth in such letter, and found them to be
      in agreement.

            (f) Prior to the Closing Date, the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.

            (g) You shall have received from each person who is a director or
executive officer of the Company and such shareholders as have been heretofore
designated by you and listed in Schedule II hereto, an agreement to the effect
that such person will not, without the prior written consent of Bear, Stearns &
Co. Inc., directly or indirectly, sell, offer or agree to sell, grant any option
for the sale of, pledge, make any short sale, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable or exercisable for Common Stock (or securities which are
convertible into, exercisable for or exchangeable for Common Stock) for a period
of 90 days after the date of the Prospectus, except in connection with (A) the
issuance of any shares of Common Stock upon the exercise of an option or warrant
or the conversion of a security outstanding on the date hereof and referred to
in the Registration Statement, (B) transfers of shares of Common Stock to
immediate family members or trusts for the benefit of such family members,
provided such transferee enters into a similar lock-up agreement or (C) shares
of Common Stock issued in connection with a merger, recapitalization or
consolidation of the Company.

            (h) At the Closing Date, the Shares shall have been approved for
listing on the Nasdaq National Market.

            (i) The Bank shall have guaranteed the obligations of the Company
under this Agreement, in such form that is reasonably satisfactory to you.

      If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to you or to Underwriters'
Counsel pursuant to this Section 6 shall not be in all material respects
reasonably satisfactory in form and substance to you and to Underwriters'
Counsel, all obligations of the Underwriters hereunder may be cancelled by you
on, or at any time prior to, the Closing Date and the obligations of the
Underwriters to purchase the Additional Shares may be cancelled by you on, or at
any time prior to, the Additional Closing Date. Notice of such cancellation
shall be given to the Company in writing or by telephone, facsimile, telex or
telegraph, confirmed in writing.

7. Indemnification.

            (a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all


                                       20
<PAGE>

expenses whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), joint or several, to
which it may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or any related preliminary prospectus
or the Prospectus, or in any supplement thereto or amendment thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through Bear,
Stearns & Co. Inc. expressly for use therein. This indemnity agreement will be
in addition to any liability which the Company may otherwise have, including
under this Agreement.

            (b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, as originally filed
or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
Bear, Stearns & Co Inc. expressly for use therein; provided, however, that in no
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have, including under this Agreement. The Company
acknowledges that the statements set forth in the last sentence of the last
paragraph of the cover page regarding delivery of the Shares and in the third,
eighth, ninth, tenth, eleventh, twelfth and thirteenth paragraphs (which
thirteenth paragraph is furnished on behalf of Kelton International Ltd. only)
under the caption "Underwriting" in the Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter expressly
for use in the Registration Statement or in any amendment thereof, any


                                       21
<PAGE>

related preliminary prospectus or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.

            (c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement of such action
(but the failure to so notify an indemnifying party shall not relieve it from
any liability which it may otherwise have under this Section 7). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or in
addition to those available to one or all of the indemnifying parties (in which
case the indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses shall be borne by the indemnifying parties. It is
understood that the indemnifying party or parties shall not be liable for the
reasonable fees, disbursements and other charges of more than one counsel (in
addition to any local counsel) separate from their own counsel for all such
indemnified party or parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, and which counsel, in the event that the
indemnifying party is Bear Stearns & Co. Inc. shall be approved by Bear Stearns
& Co. Inc., whose approval shall not be unreasonably withheld. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.

8. Contribution.

            (a) In order to provide for contribution in circumstances in which
the indemnification provided for in Section 7 hereof is for any reason held to
be unavailable from any indemnifying party or is insufficient to hold harmless a
party indemnified thereunder, the Company and the Underwriters shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting, in the case of losses, claims, damages, liabilities and expenses
suffered by the Company, any contribution received by the Company from persons,
other than the Underwriters, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, officers of the Company who signed


                                       22
<PAGE>

the Registration Statement and directors of the Company) as incurred to which
the Company and one or more of the Underwriters may be subject, in such
proportions as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or, if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company (y) the underwriting discounts and commissions received
by the Underwriters, respectively, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company on the one hand
and of the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter be liable
or responsible for any amount in excess of the underwriting discount applicable
to the Shares purchased by such Underwriter hereunder, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to clauses (i) and (ii) of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties, notify each party or
parties from whom contribution may be sought, but the omission to so notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have under this Section 8 or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its consent; provided, however, that such consent was
not unreasonably withheld. The Company hereby designates CT Corporation, whose
address is 1633 Broadway, New York, New York, as its


                                       23
<PAGE>

authorized agent, upon which process may be served in any action, suit or
proceeding which may be instituted in any state or federal court in the State of
New York by any Underwriter or person controlling an Underwriter asserting a
claim for indemnification or contribution under or pursuant to Section 7 hereof
or this Section 8, and the Company shall accept the jurisdiction of such court
in such action, and waives, to the fullest extent permitted by applicable law,
any defense based upon lack of personal jurisdiction or venue together with any
right to trial by jury. A copy of any such process shall be sent or given to the
Company at the address for notices specified in Section 12 hereof.

            (b) The obligations of the Company under Sections 7 and 8 herein
shall be in addition to any liability which the Company may otherwise have.

      9. Default by an Underwriter.

            (a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares to which such default relates do not (after
giving effect to arrangements, if any, made by you pursuant to subsection (b)
below) exceed in the aggregate 10% of the total number of Firm Shares or
Additional Shares, as the case may be, the Firm Shares or Additional Shares to
which such default relates shall be purchased by the non-defaulting Underwriters
in proportion to the respective proportions which the numbers of Firm Shares set
forth opposite their respective names in Schedule I hereto bear to the aggregate
number of Firm Shares set forth opposite the names of the non-defaulting
Underwriters.

            (b) In the event that such default relates to more than 10% of the
total number of Firm Shares or Additional Shares, as the case may be, you may in
your discretion arrange for yourself or for another party or parties (including
any non-defaulting Underwriter or Underwriters who so agree) to purchase the
Firm Shares or Additional Shares to which such default relates on the terms
contained herein. In the event that within five calendar days after such default
you do not arrange for the purchase of the Firm Shares or Additional Shares to
which such default relates as provided in this Section 9, this Agreement or, in
the case of a default with respect to Additional Shares, the obligations of the
Underwriters to purchase, and of the Company to sell, the Additional Shares
shall thereupon terminate without liability on the part of the Company (except,
in each case, as provided in Section 5, 7(a) and 8 hereof) or the Underwriters
with respect thereto, but nothing in this Agreement shall relieve a defaulting
Underwriter or Underwriters of its or their liability, if any, to the other
Underwriters and the Company for damages occasioned by its or their default
hereunder.

            (c) In the event that the Firm Shares or Additional Shares to which
such default relates are to be purchased by the non-defaulting Underwriters or
are to be purchased by another party or parties as aforesaid, either you on the
one hand or the Company on the other hand shall have the right to postpone the
Closing Date or Additional Closing Date, as the case may be, for a period not
exceeding five Business Days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus which,
in the opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall


                                       24
<PAGE>

include any party substituted under this Section 9 with like effect as if it had
originally been a party to this Agreement with respect to such Firm Shares or
Additional Shares, as the case may be.

      10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5
hereof, the indemnity agreements contained in Section 7 hereof and the
contribution agreements contained in Section 8 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof, by or on behalf of
the Company or any of its officers and directors or any controlling person
thereof, and shall survive delivery of and payment for the Shares to and by the
Underwriters. The representations contained in Section 1 hereof and the
agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the
termination of this Agreement, including termination pursuant to Section 9 or 11
hereof.

      11. Effective Date of Agreement; Termination.

            (a) This Agreement shall become effective upon the later of (i) such
time as you and the Company shall have received notification of the
effectiveness of the Registration Statement and (ii) the execution of this
Agreement. If either the public offering price or the purchase price per Share
has not been agreed upon prior to 5:00 P.M., New York City time, on the fifth
full Business Day after the Registration Statement shall have become effective,
this Agreement shall thereupon terminate without liability to the Company or the
Underwriters except as herein expressly provided. Until this Agreement becomes
effective as aforesaid, it may be terminated by the Company by notifying you or
by you notifying the Company. Notwithstanding the foregoing, the provisions of
this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in
full force and effect.

            (b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or the obligations of the Underwriters to purchase the
Additional Shares at any time prior to the Additional Closing Date, as the case
may be, if (i) any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future materially
disrupt, the market for the Company's securities or securities in general; (ii)
if trading on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market by the New York Stock Exchange, the American Stock
Exchange or the Nasdaq Stock Market or by order of the Commission or any other
governmental authority having jurisdiction; (iii) if a banking moratorium has
been declared by a state or federal authority or if any new restriction
materially adversely affecting the distribution of the Firm Shares or the
Additional Shares has become effective; (iv) if any downgrading in the rating of
the Company's debt securities or preferred stock by any "nationally recognized
statistical rating-organization" (as defined for purposes of Rule 436(g) under
the Act has occurred; or (v) (A) if the United States becomes engaged in
hostilities or there is an escalation of hostilities involving the United States
or there is a declaration of a national emergency or war by the United States or
(B) if there has been a change in political, financial or economic conditions
and the effect of any such event in (A) or (B), in your judgment, makes it


                                       25
<PAGE>

impracticable or inadvisable to proceed with the offering, sale and delivery of
the Firm Shares or the Additional Shares, as the case may be, on the terms
contemplated by the Prospectus.

            (c) Any notice of termination pursuant to this Section 11 shall be
by telephone, facsimile, telex or telegraph, confirmed in writing by letter.

            (d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company agrees to reimburse the Underwriters, subject to demand by you, for all
out-of-pocket expenses (including the fees and expenses of their counsel)
incurred by the Underwriters in connection herewith.

      12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed or delivered, or sent by facsimile, telex or
telegraph and confirmed in writing by letter, to such Underwriter c/o Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention: Amos
Levy, Facsimile No. 212-272-9630; and if sent to the Company, shall be mailed or
delivered, or sent by facsimile, telex or telegraph and confirmed in writing by
letter, to the Company, 950 North Point Parkway, Suite 350, Alpharetta, Georgia
30005, Attention: Chief Executive Officer, Facsimile No. 770-343-9344.

      13. Agreements of Kelton International Ltd. Kelton International Ltd., one
of the Underwriters, covenants and agrees with the other Underwriters and the
Company:

            (a) That it is a foreign broker-dealer with a principal place of
business in the United Kingdom;

            (b) That it is not registered with the Commission as a
broker-dealer;

            (c) That it is not a member of the NASD;

            (d) That it has agreed not to sell any of the Shares offered
pursuant to the Registration Statement within the United States, its territories
or possessions or to nationals or residents of the United States; and

            (e) That it will comply with certain rules of NASD Regulation, Inc.
as if it were a member of the NASD.

      14. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8 hereof, and their respective successors and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim under
or in respect of or by virtue of this Agreement or any provision contained
herein. The term "successors and assigns" shall not include a purchaser, in its
capacity as such, of Shares from any of the Underwriters.


                                       26
<PAGE>

      15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.

      16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.


                                       27
<PAGE>

      If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.

                                        Very truly yours,

                                        NET.B@NK, INC.


                                        By:
                                           -------------------------------------
                                           Name:  D.R. Grimes
                                           Title: Vice Chairman and
                                                  Chief Executive Officer

Accepted as of the date first above written:

BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS, INC.
RAYMOND JAMES & ASSOCIATES, INC.
KELTON INTERNATIONAL LTD.

By: Bear, Stearns & Co. Inc.


By:
   -------------------------------------
   Name:
   Title:
<PAGE>

                                     SCHEDULE I

                                                       Number of Firm
                                                        Shares to Be
Name of Underwriter                                       Purchased
- -------------------                                       ---------

Bear, Stearns & Co. Inc.........................
BancBoston Robertson Stephens, Inc..............
Raymond James & Associates, Inc.................
Kelton International Ltd........................
                                                          ---------

                  Total                                   3,000,000
                                                          =========
<PAGE>

                                   SCHEDULE II

                 Names of Shareholders Subject to Lock-Up Agreement

Carolina First Corporation
Robert E. Bowers
Thomas L. Cable
Ward H. Clegg
D.R. Grimes
J. Stephen Heard
T. Stephen Johnson
Robin C. Kelton
Thomas H. Muller, Jr.
J. Joe Ricketts
Donald S. Shapleigh, Jr.
W. James Stokes
Jeffrey B. Watson
Mack I. Whittle, Jr.

<PAGE>

                                LOCK-UP AGREEMENT

BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS, INC.
RAYMOND JAMES & ASSOCIATES, INC.
KELTON INTERNATIONAL LTD.
As Underwriters
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York  10167

Ladies and Gentlemen:

      In consideration of the agreement of Bear, Stearns & Co. Inc., BancBoston
Robertson Stephens, Inc., Raymond James & Associates, Inc. and Kelton
International Ltd. to underwrite a proposed public offering (the "Offering") of
Common Stock, par value $.01 per share (the "Common Stock"), of Net.B@nk, Inc.,
a corporation organized and existing under the laws of the State of Georgia (the
"Company"), as contemplated by a registration statement filed with the
Securities and Exchange Commission on Form S-3 (No. 333-77969) (the
"Registration Statement"), the undersigned hereby agrees that the undersigned
will not, directly or indirectly, during a period of 90 days from the date of
the final prospectus for the Offering, without the prior written consent of
Bear, Stearns & Co. Inc., issue, sell, offer or agree to sell, grant any option
for the sale of, pledge, make any short sale, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended, or otherwise dispose of, any shares of Common Stock (or
securities convertible into, exercisable for or exchangeable for Common Stock)
of the Company or of any of its subsidiaries. The foregoing sentence shall not
apply to (A) the issuance of any shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
and referred to in the Registration Statement; (B) transfers of shares of Common
Stock to immediate family members or trusts for the benefit of such family
members, provided such transferee enters into a similar lock-up agreement; or
(C) shares of Common Stock issued in connection with a merger, recapitalization
or consolidation of the Company.

                                        Very truly yours,


                                        By:_____________________________________

                                Print Name:_____________________________________

                                      Date:_____________________________________

<PAGE>
                                  $100,000,000

                    % Convertible Subordinated Notes Due 2004

                                 NET.B@NK, INC.

                             UNDERWRITING AGREEMENT

                                                                   June __, 1999

BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS, INC.
RAYMOND JAMES & ASSOCIATES, INC.
KELTON INTERNATIONAL LTD.
as Underwriters
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York  10167

Ladies and Gentlemen:

      Net.B@nk, Inc., a corporation organized and existing under the laws of the
State of Georgia (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of $100,000,000 of its % Convertible
Subordinated Notes Due 2004 (the "Firm Notes"). In addition, for the sole
purpose of covering over-allotments in connection with the sale of the Firm
Notes, the Company proposes to grant to the Underwriters an option to purchase
up to an additional $15,000,000 of its % Convertible Subordinated Notes Due 2004
(the "Additional Notes"). The Firm Notes and any Additional Notes purchased by
the Underwriters are referred to herein collectively as the "Notes". The Notes
are more fully described in the Registration Statement referred to below.

      The Notes are to be issued pursuant to an indenture to be dated as of June
__, 1999 (the "Indenture") between the Company and SunTrust Bank, Atlanta, as
trustee (the "Trustee"), and will be convertible into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), on the terms set
forth in the Notes and the Indenture.

      The Notes will be registered under the Securities Act of 1933, as amended
(the "Act"). Concurrent with the Notes offering and by means of a separate
prospectus, the Company is
<PAGE>

offering 3,000,000 shares of Common Stock, plus an additional 450,000 shares of
Common Stock to cover over-allotments by the underwriters for that offering
(collectively, the "Shares"). The completion of the Notes offering and the
Common Stock offering do not depend on one another.

      1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters that:

            (a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement and two amendments
thereto, on Form S-3 (No. 333-77969), for the registration of the Notes under
the Act. Such registration statement, including the prospectus, financial
statements and schedules, exhibits and all other documents filed as a part
thereof, as amended at the time of effectiveness of the registration statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules
and Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement". Any registration statement filed pursuant
to Rule 462(b) of the Regulations is herein called the "462(b) Registration
Statement", and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The prospectus, in the form
first filed with the Commission pursuant to Rule 424(b) of the Regulations or
filed as part of the Registration Statement at the time of effectiveness if no
Rule 424(b) or Rule 434 filing is required, is herein called the "Prospectus".
The term "preliminary prospectus" as used herein means a preliminary prospectus
as described in Rule 430 of the Regulations. Any reference herein to the
Registration Statement, any preliminary prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 that were filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), on or before the effective date of
the Registration Statement, the date of such preliminary prospectus or the date
of the Prospectus, as the case may be, and any reference herein to the terms
"amend", "amendment" or "supplement" with respect to the Registration Statement,
any preliminary prospectus or the Prospectus shall be deemed to refer to and
include (i) the filing of any document under the Exchange Act after the
effective date of the Registration Statement, the date of such preliminary
prospectus or the date of the Prospectus, as the case may be, that is
incorporated therein by reference and (ii) any such document so filed. Neither
the Commission nor the Blue Sky or securities authority of any jurisdiction has
issued a stop order suspending the effectiveness of the Registration Statement,
preventing or suspending the use of any preliminary prospectus, the Prospectus,
the Registration Statement or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement or suspending the
registration or qualification of the Notes, nor, to the Company's knowledge, has
any of such authorities instituted or threatened to institute any proceedings
with respect to a stop order.

            (b) At the respective time of the effectiveness of the Registration
Statement or any 462(b) Registration Statement or the effectiveness of any
post-effective amendment to the Registration Statement, when the Prospectus is
first filed with the Commission pursuant to Rule 424(b) or Rule 434 of the
Regulations, when any supplement to or amendment of the Prospectus is filed with
the Commission, when any document filed under the Exchange Act is filed and at
the Closing Date and the Additional Closing Date, if any (as hereinafter
respectively defined), the Registration Statement, any 462(b) Registration
Statement and the Prospectus and any
<PAGE>

amendments thereof and supplements thereto complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and the Exchange Act and the respective rules and regulations thereunder and
does not or will not contain an untrue statement of a material fact and does not
or will not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein (i), in the case of the
Registration Statement, not misleading and (ii), in the case of the Prospectus,
in the light of the circumstances under which they were made, not misleading.
When any related preliminary prospectus was first filed with the Commission
(whether filed as part of the Registration Statement or any amendment thereto or
pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or
supplement thereto was first filed with the Commission, such preliminary
prospectus and any amendments thereof and supplements thereto complied in all
material respects with the applicable provisions of the Act and the Regulations
and the Exchange Act and the respective rules and regulations thereunder and did
not contain an untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Prospectus and any preliminary prospectus delivered to
the Underwriters for use in connection with the registration of the Notes was
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
No representation and warranty is made in this subsection (b), however, with
respect to any information contained in or omitted from the Registration
Statement or the Prospectus or any related preliminary prospectus or any
amendment thereof or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter through Bear, Stearns & Co. Inc. as herein stated expressly for use
in connection with the preparation thereof. If Rule 434 is used, the Company
will comply with the requirements of Rule 434.

            (c) Deloitte & Touche LLP, who have certified certain of the
financial statements and any supporting schedules included in the Registration
Statement, are independent public accountants, as required by the Act and the
Regulations.

            (d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other), shareholders' equity or results of operations of either the Company
or its sole subsidiary Net.B@nk, a federally-chartered stock savings bank (the
"Bank") (the effect of each such change or development being referred to herein
as a "Material Adverse Effect"), whether or not arising from transactions in the
ordinary course of business, and since the date of the latest balance sheet
presented in the Registration Statement and the Prospectus, neither the Company
nor the Bank has incurred or undertaken any liabilities or obligations, direct
or contingent, that are material to the Company or the Bank, respectively,
except for liabilities or obligations that are reflected in the Registration
Statement and the Prospectus.

            (e) This Agreement and the transactions contemplated hereby have
been duly and validly authorized by the Company, and this Agreement has been
duly and validly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the
<PAGE>

Company, enforceable against the Company in accordance with its terms. This
Agreement conforms in all material respects to the descriptions hereof contained
in the Prospectus.

            (f) The Indenture and the transactions contemplated thereby have
been duly and validly authorized by the Company. The Indenture, when executed
and delivered by the Company and, assuming due authorization, execution and
delivery by the Trustee, will constitute the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except to the extent (A) enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equitable principles and (B) the waiver
contained in Section 4.8 of the Indenture may be deemed unenforceable; the
Indenture has been (or will have been) duly qualified under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Indenture conforms in
all material respects to the descriptions thereof contained in the Prospectus
and qualifies under the Trust Indenture Act.

            (g) The Notes have been duly and validly authorized by the Company
and, when executed by the Company and authenticated by the Trustee and issued,
sold and delivered in accordance with this Agreement and the Indenture, will
have been duly and validly executed, authenticated, issued and delivered and
will constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their terms; and will be
entitled to the benefits of the Indenture.

            (h) The execution, delivery and performance of this Agreement, the
Indenture and the Notes (collectively, the "Transaction Documents") and the
consummation of the transactions contemplated hereby and thereby do not and will
not (i) conflict with or result in a breach of any of the terms and provisions
of, or constitute a default (or an event that with notice or lapse of time, or
both, would constitute a default) under, require approval or consent under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or the Bank, respectively, any agreement,
instrument, franchise, license or permit to which either of the Company or the
Bank is a party or by which any of the Company's or the Bank's respective
properties or assets may be bound; or (ii) violate or conflict with any
provision of the charter or by-laws of the Company or of the Bank; or (iii)
violate any decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over
either of the Company or the Bank or any of their respective properties or
assets. No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over either of the
Company or the Bank or any of their respective properties or assets is required
for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the issuance and
sale of the Notes to be sold and distributed by the Company hereunder, except
the registration under the Act of the Notes, the qualification of the Indenture
under the Trust Indenture Act and such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits as may be
required under state securities or Blue Sky laws or with the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and distribution of the Notes by the Underwriters.
<PAGE>

            (i) All of the outstanding shares of capital stock of the Company
are duly and validly authorized and issued, fully paid and nonassessable, and
none of such shares was issued in violation of or is now subject to any
preemptive or similar rights. The Company had, at March 31, 1999, an authorized
and outstanding capitalization as set forth in the Registration Statement and
the Prospectus. The Common Stock conforms to the description thereof contained
in the Registration Statement and the Prospectus. Except as disclosed in or
specifically contemplated by the Registration Statement and the Prospectus,
there are no outstanding options, warrants or other rights calling for the
issuance of, and no commitments, obligations, plans or arrangements to issue,
any shares of capital stock of the Company or any security convertible into or
exchangeable for capital stock of the Company. The outstanding stock options
relating to the Common Stock have been duly authorized by the Board of Directors
of the Company or a committee thereof and conform to the descriptions thereof
contained in the Registration Statement and the Prospectus. Other than the Bank,
the Company does not own, directly or indirectly, any capital stock or other
equity securities of any corporation or have any ownership interest in any
partnership, joint venture or other association. All offers and sales of the
Company's capital stock prior to the date hereof were at all relevant times duly
registered under the Act or were exempt from the registration requirements of
the Act and were duly registered or the subject of an available exemption from
the registration requirements of the applicable state securities or Blue Sky
laws.

            (j) All of the shares of the Common Stock issuable upon conversion
of the Notes have been duly and validly authorized and, when issued in
accordance with the terms of the Notes and the Indenture, will be duly and
validly issued, fully paid and nonassessable and will conform to the
descriptions thereof contained in the Registration Statement and the Prospectus.
The shares of Common Stock issuable on conversion of the Notes have been
reserved for issuance and no further approval or authority of the shareholders
or the Board of Directors of the Company will be required for the issuance of
such Common Stock.

            (k) No event has occurred nor has any circumstance arisen which, had
the Notes already been issued on the date hereof, would constitute a Default or
an Event of Default (as such terms are defined in the Indenture).

            (l) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so qualified
or in good standing that will not in the aggregate have a Material Adverse
Effect on the Company and the Bank taken as a whole. The Company is duly
registered under the Savings and Loan Holding Company Act ("SLHCA") and the
Georgia Bank Holding Company Act ("GBHCA"). Neither the Company nor the Bank is
subject to any current formal arrangement or memorandum of understanding with,
or cease and desist order by, any banking or similar agency.

            (m) The Bank has been duly organized and is validly existing as a
federally-chartered stock savings bank under the laws of the United States. The
Bank is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned, leased
or licensed) or the nature or conduct of its business
<PAGE>

makes such qualification necessary, except for those failures to be so qualified
or in good standing which will not in the aggregate have a Material Adverse
Effect on the Bank. The Bank is a member in good standing of the Federal Home
Loan Bank of Atlanta (the "FHLB of Atlanta"), and the Bank's deposit accounts
are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the
fullest extent provided under applicable law. No proceeding for the termination
or revocation of such insurance is pending or threatened.

            (n) Each of the Company and the Bank has all requisite power and
authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all public,
regulatory or governmental agencies and bodies, to own, lease and operate its
respective properties and conduct its respective business as now being conducted
and as described in the Registration Statement and the Prospectus, and no such
consent, approval, authorization, order, registration, qualification, license or
permit contains a materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus. All of the outstanding shares of
capital stock of the Bank are duly and validly issued, fully paid and
nonassessable and are owned by the Company free and clear of any liens,
mortgages, pledges, charges, security interests, claims, encumbrances or other
defects in title whatsoever, except as are disclosed in the Registration
Statement and the Prospectus.

            (o) Neither the Company nor the Bank is in violation of its charter
or by-laws, as the case may be, or in default in the performance or observance
of any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness or in any
material indenture, mortgage, deed of trust, loan or credit agreement, lease,
joint venture or other agreement or instrument to which either of the Company or
the Bank is a party or by which any of its respective properties may be bound,
or in violation of any law, order, rule, regulation, writ, injunction, judgment
or decree of any court or governmental agency or body, the violation of which
would have a Material Adverse Effect on the Company or the Bank.

            (p) There is no litigation or governmental proceeding to which
either of the Company or the Bank is a party or to which any property of the
Company or the Bank is subject or which is pending or, to the knowledge of the
Company, contemplated against either the Company or the Bank that in each case
is required to be described in the Prospectus but is not so described.

            (q) Neither the Company nor the Bank has taken, nor will take,
directly or indirectly, any action designed to cause or result in, or that
constitutes or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Notes to facilitate the sale
or resale of the Notes.

            (r) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company and its
consolidated subsidiary as of the dates indicated and the results of their
operations for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis; and any supporting schedules included in the Registration
Statement present fairly the information
<PAGE>

required to be stated therein. The selected consolidated financial data and the
summary consolidated financial data included in the Registration Statement and
the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the financial statements included in
the Registration Statement and the Prospectus. No other financial statements are
required by Form S-3 or otherwise to be included in the Registration Statement
or the Prospectus other than those included therein.

            (s) Each of the Company and the Bank has filed all federal, state,
local and foreign tax returns that are required to be filed and have paid all
taxes shown thereon and all assessments received by either of them to the extent
that such taxes have become due and are not being contested in good faith.
Except as disclosed in the Registration Statement and the Prospectus, there is
no tax deficiency that has been or might reasonably be expected to be asserted
or threatened against the Company or the Bank.

            (t) Each of the Company and the Bank has good title in fee simple to
all items of real property and good and marketable title to all personal
property owned by it, in each case free and clear of all liens, encumbrances and
defects except such as are described or referred to in the Prospectus or such as
do not materially affect the value of such property and do not interfere with
the use made or proposed to be made of such property by the Company or the Bank,
respectively. Any real property and buildings held under lease by either of the
Company or the Bank is held under valid, existing and enforceable leases with
such exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company or the Bank,
respectively.

            (u) Each of the Company and the Bank owns or possesses adequate
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade names and
other intellectual property (collectively, "Intellectual Property") necessary to
carry on the business it now operates, and neither the Company nor the Bank has
received any notice or is otherwise aware of (i) any claim, action or demand of
any person in the United States or elsewhere or any proceeding in the United
States or elsewhere, pending or threatened, that (A) challenges the ownership
interests of the Company or the Bank in any of the Intellectual Property or (B)
alleges that any product or service of the Company or the Bank infringes or
misappropriates the Intellectual Property rights of others, which claim, action,
demand or proceeding (including, without limitation, infringement,
misappropriation and unfair competition), if the subject of any unfavorable
decision, ruling or finding, or invalidity or inadequacy could reasonably be
expected to have, in the aggregate with all other such claims, actions, demands
and proceedings, a Material Adverse Effect on the Company or the Bank,
respectively or (ii) any facts or circumstances that would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or the Bank.

            (v) No relationship, direct or indirect, exists between or among the
Company or the Bank, on the one hand, and the directors, officers, shareholders,
customers or suppliers of the Company or the Bank, on the other hand, that is
required by the Act to be described in the Registration Statement and the
Prospectus that is not so described.
<PAGE>

            (w) The Common Stock currently outstanding is listed on the Nasdaq
National Market.

            (x) Except as described in the Prospectus, no holder of securities
of the Company has any rights to the registration of securities of the Company
as a result of the filing of the Registration Statement or otherwise in
connection with the sale of the Notes contemplated hereby.

            (y) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended.

            (z) There are no existing or, to the knowledge of the Company,
threatened labor disputes with any employees of the Company or the Bank that are
likely, in the aggregate, to have a Material Adverse Effect on either the
Company or the Bank.

            (aa) Each of the Company and the Bank (i) is in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"); (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
respective business; and (iii) is in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance, failure
to receive required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals will not in
the aggregate have a Material Adverse Effect on either the Company or the Bank.

            (bb) Each employee benefit plan, within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
that is maintained, administered or contributed to by either of the Company or
the Bank for employees or former employees of the Company or the Bank,
respectively, has been maintained in compliance with its respective terms and
the requirements of any applicable statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Internal Revenue Code of 1986, as
amended, (the "Code"). No prohibited transaction, within the meaning of Section
406 of ERISA or Section 4975 of the Code, has occurred with respect to any such
plan, excluding transactions effected pursuant to a statutory or administrative
exemption. For each such plan that is subject to the funding rules of Section
412 of the Code or Section 302 of ERISA, no "accumulated funding deficiency", as
defined in Section 412 of the Code, has been incurred, whether or not waived,
and the fair market value of the assets of each such plan (excluding for these
purposes accrued but unpaid contributions) exceeded the present value of all
benefits accrued under such plan, as determined using reasonable actuarial
assumptions.

            (cc) Each of the Company and the Bank maintains a system of internal
accounting controls that, taken as a whole, are sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit the preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (iii) access to assets is permitted
<PAGE>

only in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

            (dd) Each of the Company and the Bank maintains insurance of the
types and in the amounts generally deemed adequate for its respective business,
including, without limitation, insurance covering real and personal property
owned or leased by it against theft, damage, destruction, acts of vandalism and
all other material risks customarily insured against, all of which insurance is
in full force and effect. Neither the Company nor the Bank has any reason to
believe that it will not be able to renew existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its respective business.

            (ee) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.

            (ff) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement or the Prospectus, at the time they were
or hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission under the Exchange Act, and, when read together
with the other information in the Prospectus, at the time the Registration
Statement and any amendments thereto become effective and at the Closing Date
and the Additional Closing Date, if any, will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

            (gg) The descriptions in the Registration Statement and the
Prospectus of the contracts, leases and other legal documents therein described
present fairly in all material respects the information required to be shown,
and there are no contracts, leases or other documents of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.

            (hh) The Company will comply with Rule 463 of the Regulations.

      2. Purchase, Sale and Delivery of the Notes.

            (a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, severally and not jointly, the principal
amount of the Notes set forth opposite the respective names of the Underwriters
in Schedule I hereto (plus any additional number of Notes that they may
individually become obligated to purchase pursuant to the provisions of Section
9 hereof) at a purchase price equal to % of such principal amount, plus accrued
interest, if any, from ________, 1999.

            (b) Payment of the purchase price for and delivery of the Notes
shall be made at the offices of Morrison & Foerster LLP, 1290 Avenue of the
Americas, 40th Floor, New York
<PAGE>

10104, or at such other place as shall be agreed upon by you at 10:00 A.M., New
York City time, on the third Business Day (as permitted under Rule 15c6-1 under
the Exchange Act) (unless postponed in accordance with the provisions of Section
9 hereof) following the date of the effectiveness of the Registration Statement
(or, if the Company has elected to rely upon Rule 430A of the Regulations, the
third Business Day (as permitted under Rule 15c6-1 under the Exchange Act) after
the determination of the public offering price of the Notes), or such other time
not later than ten Business Days after such date as shall be agreed upon by you
and the Company (such time and date of payment and delivery being herein called
the "Closing Date"). As used herein, the term "Business Day" means any day other
than a day on which banks are permitted or required to be closed in New York
City. Payment shall be made by wire transfer in same day funds against delivery
to you at the offices of Morrison & Foerster LLP, 1290 Avenue of the Americas,
40th Floor, New York 10104 for the respective accounts of the Underwriters of
certificates for the Notes to be purchased by them.

            (c) Neither the consummation of the transactions contemplated hereby
nor the sale, issuance, execution or delivery of the Notes will violate
Regulation T, U or X of the Board of Governors of the Federal Reserve System.

            (d) In addition, the Company hereby grants to the Underwriters the
option to purchase up to $15,000,000 in principal amount of Additional Notes,
for the sole purpose of covering over-allotments in the sale of Firm Notes by
the Underwriters, at the same purchase price to be paid by the Underwriters for
the Firm Notes as set forth in Section 2(a). This option may be exercised at any
time, or from time to time, in whole or in part, on or before the thirtieth day
following the date of the Prospectus, by written notice by you to the Company.
Such notice shall set forth the aggregate principal amount of the Additional
Notes as to which the option is being exercised and the date and time, as
reasonably determined by you, when the Additional Notes are to be delivered
(such date and time herein referred to as the "Additional Closing Date");
provided, however, that an Additional Closing Date shall not be earlier than the
Closing Date or earlier than the second full Business Day after the date on
which the option shall have been exercised nor later than the eighth full
Business Day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). The principal amount of the Additional Notes to be sold to
each Underwriter shall be that principal amount that bears the same ratio to the
aggregate principal amount of Additional Notes being purchased as the principal
amount of Firm Notes set forth opposite the name of such Underwriter in Schedule
I hereto (or such number increased as set forth in Section 9 hereof) bears to
the aggregate principal amount of Firm Notes, subject, however, to such
adjustments to eliminate any fractional amounts as you in your sole discretion
shall make.

            (e) At or prior to the Closing Date and any Additional Closing Date
hereunder, the Company shall execute and deliver for authentication the Notes to
be purchased and sold on such date and shall deposit such Notes with the Trustee
or Custodian for Depository Trust Company ("DTC") for the account or accounts of
participants in DTC purchasing beneficial interests therein in one or more
certificates in global or definitive form in such denominations and registered
in such names as the Underwriters request upon notice to the Company at least
two business days prior to such date. Certificates evidencing the Notes shall be
registered in the name of Cede & Co. as nominee for DTC and in such authorized
denominations as you may
<PAGE>

request in writing at least two full business days prior to the Closing Date or
applicable Additional Closing Date, as the case may be. The Company will permit
you to inspect such certificates at the offices of Morrison & Foerster LLP at
least one full business day prior to the Closing Date and each Additional
Closing Date.

      3. Offering. Upon the Company's authorization of the release of the Firm
Notes, the Underwriters propose to offer the Notes for sale to the public upon
the terms set forth in the Prospectus.

      4. Covenants of the Company.

            (a) The Company covenants and agrees with the Underwriters that:

                  (i) If the Registration Statement has not yet been declared
      effective, the Company will use its best efforts to cause the Registration
      Statement and any amendments thereto to become effective as promptly as
      possible, and if Rule 430A is used or the filing of the Prospectus is
      otherwise required under Rule 424(b) or Rule 434, the Company will file
      the Prospectus (properly completed if Rule 430A has been used) pursuant to
      Rule 424(b) or Rule 434 within the prescribed time period and will provide
      evidence satisfactory to you of such timely filing. If the Company elects
      to rely on Rule 434, the Company will prepare and file a term sheet that
      complies with the requirements of Rule 434.

      The Company will notify you immediately (and, if requested by you, will
confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective; (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information; (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus; (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor, (v) of the receipt of any comments from the
Commission; and (vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes for sale in any
jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time, the
Company will make every reasonable effort to prevent the issuance of any such
stop order and, if issued, to obtain the lifting of such order as soon as
possible. The Company will not file any amendment to the Registration Statement,
any filing under Rule 462(b) of the Regulations, or any amendment of or
supplement to the Prospectus (including the prospectus required to be filed
pursuant to Rule 424(b) or Rule 434 of the Regulations) that differs from the
prospectus on file at the time of the effectiveness of the Registration
Statement before or after the effective date of the Registration Statement or
file any document under the Exchange Act if such document would be deemed to be
incorporated by reference into the Prospectus to which you shall reasonably
object in writing after being timely furnished in advance a copy thereof.

                  (ii) If at any time when a prospectus relating to the Notes is
      required to be delivered under the Act any event shall have occurred as a
      result of which the
<PAGE>

      Prospectus as then amended or supplemented would, in the judgment of the
      Underwriters or the Company, include an untrue statement of a material
      fact or omit to state any material fact required to be stated therein or
      necessary to make the statements therein, in the light of the
      circumstances under which they were made, not misleading, or if it shall
      be necessary at any time to amend or supplement the Prospectus or
      Registration Statement to comply with the Act or the Regulations, or to
      file under the Exchange Act so as to comply therewith any document
      incorporated by reference in the Registration Statement or the Prospectus
      or in any amendment thereof or supplement thereto, the Company will notify
      you promptly and prepare and file with the Commission an appropriate
      amendment or supplement (in form and substance satisfactory to you) that
      will correct such statement or omission or that will effect such
      compliance and will use its best efforts to have any amendment to the
      Registration Statement declared effective as soon as possible.

                  (iii) The Company will promptly deliver to you three signed
      copies of the Registration Statement, including exhibits and all documents
      incorporated by reference therein and all amendments thereto, and the
      Company will promptly deliver to each of the Underwriters such number of
      copies of any preliminary prospectus, the Prospectus, the Registration
      Statement, all amendments of and supplements to such documents, if any,
      and all documents incorporated by reference in the Registration Statement
      and Prospectus or any amendment thereof or supplement thereto, without
      exhibits, as you may reasonably request.

                  (iv) The Company will endeavor in good faith, in cooperation
      with you, at or prior to the time of effectiveness of the Registration
      Statement, to qualify the Notes for offering and sale under the securities
      laws relating to the offering or sale of the Notes of such jurisdictions
      as you may designate and to maintain such qualification in effect for so
      long as required for the distribution thereof; except that in no event
      shall the Company be obligated in connection therewith to qualify as a
      foreign corporation or to execute a general consent to service of process.

                  (v) The Company will make generally available (within the
      meaning of Section 11(a) of the Act) to its security holders and to you as
      soon as practicable, but not later than 45 days after the end of its
      fiscal quarter in which the first anniversary date of the effective date
      of the Registration Statement occurs, an earning statement (in form
      complying with the provisions of Rule 158 of the Regulations) covering a
      period of at least twelve consecutive months beginning after the effective
      date of the Registration Statement.

                  (vi) During a period of three years from the effective date of
      the Registration Statement, the Company will furnish to you copies of (A)
      all reports to its shareholders and (B) all reports, financial statements
      and proxy or information statements filed by the Company with the
      Commission or any national securities exchange.

                  (vii) The Company will apply the proceeds from the sale of the
      Notes as set forth under "Use of Proceeds" in the Prospectus.
<PAGE>

                  (viii) The Company will use its best efforts to cause the
      Common Stock issuable upon conversion of the Notes to maintain its status
      of being quoted on the Nasdaq National Market so long as any of the Notes
      or Common Stock are outstanding.

                  (ix) The Company, during the period when the Prospectus is
      required to be delivered under the Act or the Exchange Act, will file all
      documents required to be filed with the Commission pursuant to Section 13,
      14 or 15 of the Exchange Act within the time periods required by the
      Exchange Act and the rules and regulations thereunder.

                  (x) The Company is familiar with the Investment Company Act of
      1940, as amended, and the rules and regulations thereunder, and has in the
      past conducted its affairs, and will in the future conduct its affairs, in
      such a manner so as to ensure that the company was not and will not be an
      "investment company" or an entity "controlled" by an "investment company"
      within the meaning of the Investment Company Act of 1940, as amended.

                  (xi) The Company will not take, prior to the termination of
      the underwriting arrangement contemplated by this Agreement, directly or
      indirectly, any action designed to cause or result in, or which
      constitutes or which might reasonably be expected to constitute, the
      stabilization or manipulation of the price of the Notes to facilitate the
      sale or resale of the Notes.

                  (xii) The Company will use its best efforts to do and perform
      all things required or necessary to be done and performed under this
      Agreement by the Company prior to or after the Closing Date or any
      Additional Closing Date, as the case may be, and to satisfy all conditions
      precedent to the delivery of the Notes.

                  (xiii) During the period of 90 days from the date of the
      Prospectus, the Company will not, without the prior written consent of
      Bear, Stearns & Co. Inc., directly or indirectly, issue, sell, offer or
      agree to sell, except pursuant to any stock option or incentive plan
      described in the Prospectus or the sale of the Shares, grant any option
      for the sale of, pledge, make any short sale, establish an open "put
      equivalent position" within the meaning of Rule 16a-1(h) under the
      Exchange Act or otherwise dispose of or transfer, whether directly or
      indirectly, any shares of Common Stock or any securities convertible into,
      or exchangeable or exercisable for Common Stock, except as provided in the
      prospectus relating to the sale of the Shares, and the Company will obtain
      the undertaking of each of its executive officers and directors and such
      of its shareholders as have been heretofore designated by you and listed
      in Schedule II attached hereto not to engage in any of the aforementioned
      transactions on their own behalf.

      5. Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder those in connection with (i) preparing,
printing, duplicating, filing and distributing the Registration Statement, as
originally filed and all amendments thereof (including all exhibits thereto),
any preliminary prospectus, the Prospectus and any amendments or supplements
thereto (including, without limitation, fees and expenses of the Company's
accountants and counsel), the
<PAGE>

underwriting documents (including this Agreement and the Master Agreement among
Underwriters and the Master Selling Agreement) and all other documents related
to the public offering of the Notes (including those supplied to the
Underwriters in quantities as hereinabove stated); (ii) the issuance, transfer
and delivery of the Notes to the Underwriters, including any transfer or other
taxes payable thereon; (iii) the qualification of the Notes under state or
foreign securities or Blue Sky laws, including the costs of printing and mailing
any preliminary or final "Blue Sky Survey" and the fees of counsel for the
Underwriters and such counsel's disbursements in relation thereto; (iv) filing
fees of the Commission and the NASD; (v) the cost of printing the Notes; (vi)
the costs and charges of the Trustee and DTC; (vii) the cost and charges of any
transfer agent, registrar or fiscal paying agent; (viii) the fees and
disbursements of the Company's accountants and the fees and expenses of counsel
for the Company; (ix) all miscellaneous expenses referred to in Part II of the
Registration Statement, (x) costs related to travel and lodging incurred by the
Company and its representatives relating to meetings with and presentations to
prospective purchasers of the Notes reasonably determined by the Underwriters to
be necessary or desirable to effect the sale of the Notes; (xi) any fees charged
by rating agencies for rating the Notes; and (xii) all other costs and expenses
incident to the performance of the Company's obligations hereunder (including
costs incurred in closing the purchase of the Additional Notes, if any) that are
not otherwise specifically provided for in this Section 5.

      6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Notes and the Additional Notes, as
provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6, "Closing Date" shall refer to the
Closing Date for the Firm Notes and any Additional Closing Date, if different,
for the Additional Notes), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Morrison & Foerster LLP
("Underwriters' Counsel") pursuant to this Section 6 of any material
misstatement or omission, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:

            (a) The Registration Statement, including any Rule 462(b)
Registration Statement, shall have become effective not later than, if pricing
pursuant to Rule 430A, 5:30 P.M., New York City time, on the date of this
Agreement, or at such later time and date as shall have been consented to in
writing by you; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement, if the Company shall have elected
to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus shall have
been filed with the Commission in a timely fashion in accordance with Section
4(a)(i) hereof; and at or prior to the Closing Date, no stop order suspending
the effectiveness of the Registration Statement or any post-effective amendment
thereof shall have been issued and no proceedings therefor shall have been
initiated or threatened by the Commission.

            (b) At the Closing Date, you shall have received the opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel for the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:

                  (i) The Company has been duly incorporated and is validly
      existing as a corporation in good standing under the laws of its
      jurisdiction of incorporation. The
<PAGE>

      Company is duly qualified and in good standing as a foreign corporation in
      each jurisdiction in which the character or location of its properties
      (owned, leased or licensed) or the nature or conduct of its business makes
      such qualification necessary, except for those failures to be so qualified
      or in good standing which will not in the aggregate have a Material
      Adverse Effect on the Company and the Bank taken as a whole. The Company
      is duly registered under the SLHCA and the GBHCA. Neither the Company nor
      the Bank is subject to any current formal arrangement or memorandum of
      understanding with, or cease and desist order by, any banking or similar
      agency.

                  (ii) The Bank has been duly organized and is validly existing
      as a federally-chartered stock savings bank under the laws of the United
      States. The Bank is duly qualified and in good standing as a foreign
      corporation in each jurisdiction in which the character or location of its
      properties (owned, leased or licensed) or the nature or conduct of its
      business makes such qualification necessary, except for those failures to
      be so qualified or in good standing which will not in the aggregate have a
      Material Adverse Effect on the Bank. The Bank is a member in good standing
      of the FHLB of Atlanta, the Bank's deposit accounts are insured by the
      FDIC and, to such counsel's knowledge, no proceeding for the termination
      or revocation of such insurance is pending or threatened.

                  (iii) Each of the Company and the Bank has all requisite
      corporate authority to own, lease and license its properties and conduct
      its business as now being conducted and as described in the Registration
      Statement and the Prospectus. All of the outstanding shares of capital
      stock of the Bank have been duly and validly issued, are fully paid and
      nonassessable and are owned directly or indirectly by the Company, free
      and clear of any lien, encumbrance, claim, security interest, restriction
      on transfer, shareholders' agreement, voting trust or other defect of
      title whatsoever except as described in the Registration Statement and the
      Prospectus, and none of such shares was issued in violation of or is now
      subject to any preemptive or similar rights.

                  (iv) The Company's authorized capital stock is accurately set
      forth in the Registration Statement and the Prospectus. All of the
      outstanding shares of capital stock of the Company are duly and validly
      authorized and issued, are fully paid and nonassessable, and none of such
      shares was issued in violation of or is now subject to any preemptive or
      similar rights. The Common Stock conforms as to legal matters in all
      material respects to the descriptions thereof contained in the
      Registration Statement and the Prospectus. Other than the Bank, the
      Company does not own, directly or indirectly, any capital stock or other
      equity securities of any corporation or any ownership interest in any
      partnership, joint venture or other association. All offers and sales of
      the Company's capital stock prior to the date hereof, thus excluding the
      Shares, were at all relevant times duly registered under the Act or were
      exempt from the registration requirements of the Act and were duly
      registered or the subject of an available exemption from the registration
      requirements of the applicable state securities or Blue Sky laws,
      provided, however, that such counsel need not express any opinion with
      respect to the registration or availability of an exemption under
      applicable state securities or Blue Sky laws for shares of Common Stock
      issued pursuant to an underwritten public offering.
<PAGE>

                  (v) The Common Stock issuable upon conversion of the Notes to
      be sold under this Agreement to the Underwriters is duly authorized for
      listing on the Nasdaq National Market.

                  (vi) This Agreement has been duly and validly authorized,
      executed and delivered by the Company and, assuming due authorization,
      execution and delivery by the Underwriters, is a valid and binding
      agreement of the Company.

                  (vii) The Indenture has been duly and validly authorized,
      executed and delivered by the Company and, assuming due authorization,
      execution and delivery by the Trustee, is a valid and binding agreement of
      the Company, enforceable against the Company in accordance with its terms,
      except to the extent (A) enforcement may be limited by bankruptcy,
      insolvency, reorganization, moratorium and other laws relating to or
      affecting creditors' rights generally and by general equitable principles,
      including principles of commercial reasonableness, good faith and fair
      dealing (regardless of whether enforcement is sought in a proceeding at
      law or equity) and (B) the waiver contained in Section 4.8 of the
      Indenture may be deemed unenforceable. The Indenture conforms in all
      material respects to the descriptions thereof contained in the Prospectus
      and has been (or will have been) duly qualified under the Trust Indenture
      Act.

                  (viii) The Notes have been duly and validly authorized and
      executed by the Company and, when authenticated by the Trustee and issued,
      sold and delivered in accordance with this Agreement and the Indenture,
      will be duly and validly executed, authenticated, issued and delivered and
      will constitute the legal, valid and binding obligation of the Company,
      enforceable against the Company in accordance with their terms and
      entitled to the benefits of the Indenture, except to the extent (A)
      enforcement may be limited by bankruptcy, insolvency, reorganization,
      moratorium and other laws relating to or affecting creditors' rights
      generally and by general equitable principles, including principles of
      commercial reasonableness, good faith and fair dealing (regardless of
      whether enforcement is sought in a proceeding at law or equity) and (B)
      the waiver contained in Section 4.8 of the Indenture may be deemed
      unenforceable. The Notes conform in all material respects to the
      descriptions thereof contained in the Prospectus.

                  (ix) All of the shares of the Common Stock issuable upon
      conversion of the Notes have been duly and validly authorized and, when
      issued in accordance with the terms of the Notes and the Indenture, will
      be duly and validly issued, fully paid and nonassessable and will conform
      in all material respects to the descriptions thereof contained in the
      Prospectus and the Registration Statement. The shares of Common Stock
      issuable on conversion of the Notes have been reserved for issuance and no
      further approval or authority of the shareholders or the Board of
      Directors of the Company will be required for such issuance of Common
      Stock.

                  (x) To such counsel's best knowledge, there is no litigation
      or governmental or other action, suit, proceeding or investigation before
      any court or before or by any public, regulatory or governmental agency or
      body pending or threatened against, or involving the respective properties
      or businesses of, the Company or the Bank
<PAGE>

      which is of a character required to be disclosed in the Registration
      Statement and the Prospectus which has not been properly disclosed
      therein.

                  (xi) The execution, delivery, and performance of this
      Agreement and the Transaction Documents and the consummation of the
      transactions contemplated hereby and thereby by the Company do not and
      will not (A) conflict with or result in a breach of any of the terms and
      provisions of, or constitute a default (or an event which with notice or
      lapse of time, or both, would constitute a default) under, require
      approval or consent under, or result in the creation or imposition of any
      lien, charge or encumbrance upon any property or assets of either of the
      Company or the Bank pursuant to, any agreement, instrument, franchise,
      license or permit known to such counsel to which either of the Company or
      the Bank is a party or by which any of such persons or its respective
      properties or assets may be bound, except where such conflict, breach,
      default or other circumstance contemplated above would not have a Material
      Adverse Effect on the Company and the Bank taken as a whole; (B) violate
      or conflict with any provision of the charter or by-laws of either of the
      Company or the Bank; or (C) to the best knowledge of such counsel, violate
      any judgment, decree, order, statute, rule or regulation of any court or
      any public, governmental or regulatory agency or body having jurisdiction
      over either of the Company or the Bank or any of its respective properties
      or assets, except where such violation would not have a Material Adverse
      Effect on the Company and the Bank taken as a whole. No consent, approval,
      authorization, order, registration, filing, qualification, license or
      permit of or with any court or any public, governmental, or regulatory
      agency or body having jurisdiction over either of the Company or the Bank,
      or any of their respective properties or assets, is required for the
      execution, delivery and performance of this Agreement or the consummation
      of the transactions contemplated hereby, including the issuance, sale and
      delivery of the Notes, except (1) such consents, approvals,
      authorizations, orders, registrations, filings, qualifications, licenses
      and permits as may be required under state securities or Blue Sky laws or
      by the NASD in connection with the purchase and distribution of the Notes
      by the Underwriters (as to which such counsel need express no opinion),
      (2) such as have been made or obtained under the Trust Indenture Act or
      the Act and (3) such as will not, if not obtained, have a Material Adverse
      Effect on the Company or the Bank or on the consummation of the
      transactions contemplated hereby.

                  (xii) The Company is not, and solely as a result of the
      consummation of the transactions contemplated hereby will not be, subject
      to registration as an "investment company" under the Investment Company
      Act of 1940, as amended.

                  (xiii) The Registration Statement and the Prospectus and any
      amendments thereof or supplements thereto (other than the financial
      statements and schedules and other financial data included or incorporated
      by reference therein, as to which no opinion need be rendered) comply as
      to form in all material respects with the requirements of the Act and the
      Regulations. The documents filed under the Exchange Act and incorporated
      by reference in the Registration Statement and the Prospectus or any
      amendment thereof or supplement thereto (other than the financial
      statements and schedules and other financial data included or incorporated
      by reference therein, as to which no opinion need be rendered) when they
      became effective or were filed with the
<PAGE>

      Commission, as the case may be, complied as to form in all material
      respects with the Act or the Exchange Act, as applicable, and the rules
      and regulations of the Commission thereunder.

                  (xiv) The Registration Statement is effective under the Act,
      all filings required by Rule 424(b) of the Regulations have been made and,
      to the best knowledge of such counsel, no stop order suspending the
      effectiveness of the Registration Statement or any post-effective
      amendment thereof or supplement thereto has been issued and no proceedings
      therefor have been initiated or threatened by the Commission.

                  (xv) Except as disclosed in or specifically contemplated by
      the Registration Statement and the Prospectus, to such counsel's best
      knowledge, there are no outstanding options, warrants or other rights
      calling for the issuance of, and no commitments, obligations, plans or
      arrangements to issue, any shares of capital stock of the Company or any
      security convertible into or exchangeable for capital stock of the
      Company.

                  (xvi) The statements in the Registration Statement and the
      Prospectus under the captions "Prospectus Summary", "Business--Supervision
      and Regulation, --Legal Proceedings", "Management", "Description of the
      Notes", "Description of Capital Stock", "Legal Matters" and in Item 15 of
      Part II of the Registration Statement, insofar as such statements
      constitute a summary of the terms of the Notes and the Common Stock and
      legal matters, documents or proceedings referred to therein, fairly
      present in all material respects the information called for with respect
      to such terms, legal matters, documents or proceedings.

                  (xvii) The form of certificate used to evidence the Common
      Stock complies in all material respects with all applicable statutory
      requirements and with any applicable requirements of the articles of
      incorporation or by-laws of the Company.

                  (xviii) Each of the Company and the Bank has good title in fee
      simple to all items of personal property owned by it, in each case free
      and clear of all liens, encumbrances and defects except such as are
      described or referred to in the Registration Statement or the Prospectus
      or such as do not materially affect the value of such property and do not
      interfere with the use made or proposed to be made of such property by the
      Company or the Bank, respectively. Any real property and buildings held
      under lease by either of the Company or the Bank are held under valid,
      existing and enforceable leases with such exceptions as are not material
      and do not interfere with the use made or proposed to be made of such
      property and buildings by the Company or the Bank, respectively.

                  (xix) Neither the consummation of the transactions
      contemplated hereby nor the sale, issuance, execution or delivery of the
      Notes will violate Regulation T, U or X of the Board of Governors of the
      Federal Reserve System.

                  (xx) The descriptions in the Registration Statement and the
      Prospectus of the contracts, leases and other legal documents therein
      described present fairly in all
<PAGE>

      material respects the information required to be shown and there are no
      contracts, leases or other documents known to such counsel of a character
      required to be described in the Registration Statement or the Prospectus
      or to be filed as exhibits to the Registration Statement which are not
      described or filed as required.

                  (xxi) To the knowledge of such counsel, except as described in
      the Prospectus, no holder of securities of the Company has any rights to
      the registration of securities of the Company as a result of the filing of
      the Registration Statement or the Prospectus or otherwise in connection
      with the sale of the Notes contemplated hereby.

      In addition, such opinion shall also contain a statement that such counsel
has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and that no facts have come to the
attention of such counsel that would lead such counsel to believe that either
the Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any
amendment thereof made prior to the Closing Date as of the date of such
amendment, contained an untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date (or any
amendment thereof or supplement thereto made prior to the Closing Date as of the
date of such amendment or supplement) and as of the Closing Date contained or
contains an untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief or
opinion with respect to the financial statements and schedules and other
financial data included or incorporated by reference therein). Such counsel
shall also state in its opinion that it has no reason to believe that any of the
documents filed under the Exchange Act and incorporated by reference in the
Registration Statement and the Prospectus or any amendment thereof or supplement
thereto (other than the financial statements and schedules and other financial
data included or incorporated by reference therein, as to which no opinion need
be rendered), when such documents became effective or were so filed, as the case
may be, contained, in the case of a registration statement which became
effective under the Act, an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or, in the case of other documents which were
filed under the Exchange Act with the Commission, an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such documents were so filed, not misleading.

            (c) All proceedings taken in connection with the sale of the Firm
Notes and the Additional Notes as hereby contemplated shall be satisfactory in
form and substance to you and to Underwriters' Counsel, and the Underwriters
shall have received from said Underwriters' Counsel a favorable opinion, dated
as of the Closing Date, with respect to the sale of the Notes, the Registration
Statement and the Prospectus and such other related matters as you may
reasonably require, and the Company shall have furnished to Underwriters'
Counsel such documents as request for the purpose of enabling them to pass upon
such matters.
<PAGE>

            (d) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date, to the effect that (i) the conditions set forth in subsection (a)
of this Section 6 have been satisfied; (ii) as of the date hereof and as of the
Closing Date, the representations and warranties of the Company set forth in
Section 1 hereof are accurate; (iii) as of the Closing Date, the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed; and (iv) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company and the
Bank have not sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has not been any prospective
material adverse change, or any development involving a material adverse change,
in the business prospects, properties, operations, condition (financial or
otherwise), or results of operations of the Company and the Bank taken as a
whole, except in each case as described in or contemplated by the Prospectus.

            (e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter from Deloitte & Touche LLP, independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, stating that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the Regulations and that the answer to Item 10 of the Registration Statement is
correct insofar as it relates to them and that they have performed a review of
the unaudited interim financial information of the Company for the three months
ended March 31, 1999 and at March 31, 1999, in accordance with Statements on
Auditing Standards No. 71 and stating in effect that:

                  (i) in their opinion, the audited consolidated financial
      statements and schedules of the Company included in and incorporated by
      reference in the Registration Statement and the Prospectus and covered by
      their opinion therein comply as to form in all material respects with the
      applicable accounting requirements of the Act and the Exchange Act and the
      applicable published rules and regulations of the Commission thereunder;

                  (ii) on the basis of procedures consisting of a reading of the
      latest available unaudited interim consolidated financial statements of
      the Company and the Bank, their limited review (in accordance with
      standards established under Statement of Accounting Standards No. 71) of
      the unaudited financial information for the three-month period ended March
      31, 1999 (and as at March 31, 1999), carrying out certain procedures (but
      not an examination in accordance with generally accepted auditing
      standards) which would not necessarily reveal matters of significance with
      respect to the comments set forth in such letter, a reading of the minutes
      of meetings and consents of the shareholders and boards of directors of
      the Company and the Bank and the committees of such boards subsequent to
      March 31, 1999, inquiries of officers and other employees of the Company
      and the Bank who have responsibility for financial and accounting matters
      of the Company and the Bank with respect to transactions and events
      subsequent to March 31, 1999 to a date not more than five days prior to
      the date of such letter, nothing has come to their attention that would
      cause them to believe that: (A) the unaudited consolidated financial
      statements and schedules of the Company presented in the Registration
<PAGE>

      Statement and the Prospectus do not comply as to form in all material
      respects with the applicable accounting requirements of the Act and, if
      applicable, the Exchange Act and the applicable published rules and
      regulations of the Commission thereunder or that such unaudited
      consolidated financial statements are not fairly presented in conformity
      with GAAP, except to the extent certain footnote disclosures have been
      omitted in accordance with applicable rules of the Commission under the
      Exchange Act, applied on a basis substantially consistent with that of the
      audited consolidated financial statements incorporated by reference in the
      Registration Statement and the Prospectus; (B) with respect to the period
      subsequent to March 31, 1999, there was, as of the date of the most recent
      available monthly consolidated financial statements of the Company and the
      Bank, and as of a specified date not more than five days prior to the date
      of such letter, any decrease in deposits, total assets or shareholders'
      equity of the Company, in each case as compared with the amounts shown in
      the March 31, 1999 balance sheet incorporated by reference in the
      Registration Statement and the Prospectus, except for increases or
      decreases which the Registration Statement and the Prospectus disclose
      have occurred or may occur or which are set forth in such letter; or (C)
      that during the period from March 31, 1999 to the date of the most recent
      available monthly consolidated financial statements of the Company and the
      Bank, and to a specified date not more than five days prior to the date of
      such letter, there was any decrease, as compared with the corresponding
      period in the prior fiscal year, in net interest income, non-interest
      income or net income, except for decreases which the Registration
      Statement and the Prospectus disclose have occurred or may occur or which
      are set forth in such letter; and

                  (iii) they have compared specific dollar amounts, numbers of
      shares, percentages of revenues and earnings and other financial
      information pertaining to the Company and its subsidiary set forth in the
      Registration Statement and the Prospectus, which have been specified by
      you prior to the date of this Agreement, to the extent that such amounts,
      numbers, percentages and information may be derived from the general
      accounting and financial records of the Company and the Bank or from
      schedules furnished by the Company, and excluding any questions requiring
      an interpretation by legal counsel, with the results obtained from the
      application of specified readings, inquiries, and other appropriate
      procedures specified by you set forth in such letter, and found them to be
      in agreement.

            (f) You shall have received from each person who is a director or
executive officer of the Company and such shareholders as have been heretofore
designated by you and listed in Schedule II hereto, an agreement to the effect
that such person will not, without the prior written consent of Bear, Stearns &
Co. Inc., directly or indirectly, sell, offer or agree to sell, grant any option
for the sale of, pledge, make any short sale, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable or exercisable for Common Stock (or securities which are
convertible into, exercisable for or exchangeable for Common Stock) for a period
of 90 days after the date of the Prospectus, except in connection with (A) the
issuance of any shares of Common Stock upon the exercise of an option or warrant
or the conversion of a security outstanding on the date hereof and referred to
in the Registration Statement, (B) transfers of shares of Common Stock to
immediate family members or trusts for the benefit of such family members,
provided such transferee enters into a similar lock-up
<PAGE>

agreement or (C) shares of Common Stock issued in connection with a merger,
recapitalization or consolidation of the Company.

            (g) Prior to the Closing Date, the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.

            (h) The Bank shall have guaranteed the obligations of the Company
under this Agreement, in such form that is reasonably satisfactory to you.

      If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to you or to Underwriters'
Counsel pursuant to this Section 6 shall not be in all material respects
reasonably satisfactory in form and substance to you and to Underwriters'
Counsel, all obligations of the Underwriters hereunder may be cancelled by you
on, or at any time prior to, the Closing Date and the obligations of the
Underwriters to purchase the Additional Shares may be cancelled by you on, or at
any time prior to, the Additional Closing Date. Notice of such cancellation
shall be given to the Company in writing or by telephone, facsimile, telex or
telegraph, confirmed in writing.

      7. Indemnification.

            (a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which it may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or any related preliminary prospectus
or the Prospectus, or in any supplement thereto or amendment thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through Bear,
Stearns & Co. Inc. expressly for use therein. This indemnity agreement will be
in addition to any liability which the Company may otherwise have, including
under this Agreement.

            (b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act against any losses,
liabilities, claims, damages and expenses whatsoever as
<PAGE>

incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, as originally filed or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter through Bear, Stearns & Co Inc. expressly for use
therein; provided, however, that in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Notes purchased by such Underwriter hereunder. This indemnity will be in
addition to any liability which any Underwriter may otherwise have, including
under this Agreement. The Company acknowledges that the statements set forth in
the last paragraph of the cover page regarding delivery of the Notes and in the
third, eighth, ninth, tenth, eleventh and twelfth paragraphs (which twelfth
paragraph is furnished on behalf of Kelton International Ltd. only) under the
caption "Underwriting" in the Prospectus constitute the only information
furnished in writing by or on behalf of any Underwriter expressly for use in the
Registration Statement or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be.

            (c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement of such action
(but the failure to so notify an indemnifying party shall not relieve it from
any liability which it may otherwise have under this Section 7). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or in
addition to those available to one or all of the indemnifying parties (in which
case the indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses shall be borne by the indemnifying parties. It is
<PAGE>

understood that the indemnifying party or parties shall not be liable for the
reasonable fees, disbursements and other charges of more than one counsel (in
addition to any local counsel) separate from their own counsel for all such
indemnified party or parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, and which counsel, in the event that the
indemnifying party is Bear Stearns & Co. Inc. shall be approved by Bear Stearns
& Co. Inc., whose approval shall not be unreasonably withheld. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.

      8. Contribution.

            (a) In order to provide for contribution in circumstances in which
the indemnification provided for in Section 7 hereof is for any reason held to
be unavailable from any indemnifying party or is insufficient to hold harmless a
party indemnified thereunder, the Company and the Underwriters shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting, in the case of losses, claims, damages, liabilities and expenses
suffered by the Company, any contribution received by the Company from persons,
other than the Underwriters, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, officers of the Company who signed the
Registration Statement and directors of the Company) as incurred to which the
Company and one or more of the Underwriters may be subject, in such proportions
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other hand from the offering of the
Notes or, if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company (y) the underwriting discounts and commissions received
by the Underwriters, respectively, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company on the one hand
and of the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter be liable
or responsible for any amount in excess of the underwriting discount applicable
to the Notes purchased by such
<PAGE>

Underwriter hereunder, and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 8 and the
preceding sentence, no Underwriter shall be required to contribute any amount in
excess of the amount by which the aggregate principal amount of the Notes
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to clauses (i) and (ii) of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties, notify each party or
parties from whom contribution may be sought, but the omission to so notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have under this Section 8 or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its consent; provided, however, that such consent was
not unreasonably withheld. The Company hereby designates CT Corporation, whose
address is 1633 Broadway, New York, New York, as its authorized agent, upon
which process may be served in any action, suit or proceeding which may be
instituted in any state or federal court in the State of New York by any
Underwriter or person controlling an Underwriter asserting a claim for
indemnification or contribution under or pursuant to Section 7 hereof or this
Section 8, and the Company shall accept the jurisdiction of such court in such
action, and waives, to the fullest extent permitted by applicable law, any
defense based upon lack of personal jurisdiction or venue together with any
right to trial by jury. A copy of any such process shall be sent or given to the
Company at the address for notices specified in Section 13 hereof.

            (b) The obligations of the Company under Sections 7 and 8 herein
shall be in addition to any liability which the Company may otherwise have.

      9. Default by an Underwriter.

            (a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Notes or Additional Notes hereunder, and if the Firm
Notes or Additional Notes to which such default relates do not (after giving
effect to arrangements, if any, made by you pursuant to subsection (b) below)
exceed in the aggregate 10% of the aggregate principal amount of Firm Notes or
Additional Notes, as the case may be, the Firm Notes or Additional Notes to
which such default relates shall be purchased by the non-defaulting Underwriters
in proportion to the respective principal amount of Firm Notes set forth
opposite their respective names in Schedule I hereto bear to the aggregate
principal amount of Firm Notes set forth opposite the names of the
non-defaulting Underwriters.
<PAGE>

            (b) In the event that such default relates to more than 10% of the
aggregate principal amount of Firm Notes or Additional Notes, as the case may
be, you may in your discretion arrange for yourself or for another party or
parties (including any non-defaulting Underwriter or Underwriters who so agree)
to purchase the Firm Notes or Additional Notes to which such default relates on
the terms contained herein. In the event that within five calendar days after
such default you do not arrange for the purchase of the Firm Notes or Additional
Notes to which such default relates as provided in this Section 9, this
Agreement or, in the case of a default with respect to Additional Shares, the
obligations of the Underwriters to purchase, and of the Company to sell, the
Additional Notes shall thereupon terminate without liability on the part of the
Company (except, in each case, as provided in Section 5, 7(a) and 8 hereof) or
the Underwriters with respect thereto, but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their liability, if
any, to the other Underwriters and the Company for damages occasioned by its or
their default hereunder.

            (c) In the event that the Firm Notes or Additional Notes to which
such default relates are to be purchased by the non-defaulting Underwriters or
are to be purchased by another party or parties as aforesaid, either you on the
one hand or the Company on the other hand shall have the right to postpone the
Closing Date or Additional Closing Date, as the case may be, for a period not
exceeding five Business Days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus which,
in the opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include any
party substituted under this Section 9 with like effect as if it had originally
been a party to this Agreement with respect to such Firm Notes or Additional
Notes, as the case may be.

      10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5
hereof, the indemnity agreements contained in Section 7 hereof and the
contribution agreements contained in Section 8 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof, by or on behalf of
the Company or any of its officers and directors or any controlling person
thereof, and shall survive payment for the Notes by the Underwriters. The
representations contained in Section 1 hereof and the agreements contained in
Sections 5, 7, 8 and 11(d) hereof shall survive the termination of this
Agreement, including termination pursuant to Section 9 or 11 hereof.

      11. Effective Date of Agreement; Termination.

            (a) This Agreement shall become effective upon the later of (i) such
time as you and the Company shall have received notification of the
effectiveness of the Registration Statement and (ii) the execution of this
Agreement. If either the coupon rate or the conversion rate has not been agreed
upon prior to 5:00 P.M., New York City time, on the fifth full Business Day
after the Registration Statement shall have become effective, this Agreement
shall thereupon terminate without liability to the Company or the Underwriters,
except as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you
notifying the Company. Notwithstanding the
<PAGE>

foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8
hereof shall at all times be in full force and effect.

            (b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or the obligations of the Underwriters to purchase the
Additional Notes at any time prior to the Additional Closing Date, as the case
may be, if (i) any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future materially
disrupt, the market for the Company's securities or securities in general; (ii)
if trading on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market by the New York Stock Exchange, the American Stock
Exchange or the Nasdaq Stock Market or by order of the Commission or any other
governmental authority having jurisdiction; (iii) if a banking moratorium has
been declared by a state or federal authority or if any new restriction
materially adversely affecting the distribution of the Firm Notes or the
Additional Notes has become effective; (iv) if any downgrading in the rating of
the Company's debt securities or preferred stock by any "nationally recognized
statistical rating-organization" (as defined for purposes of Rule 436(g) under
the Act) has occurred; or (v) (A) if the United States becomes engaged in
hostilities or there is an escalation of hostilities involving the United States
or there is a declaration of a national emergency or war by the United States or
(B) if there has been a change in political, financial or economic conditions
and the effect of any such event in (A) or (B), in your judgment, makes it
impracticable or inadvisable to proceed with the offering, sale and delivery of
the Firm Notes or the Additional Notes, as the case may be, on the terms
contemplated by the Prospectus.

            (c) Any notice of termination pursuant to this Section 11 shall be
by telephone, facsimile, telex or telegraph, confirmed in writing by letter.

            (d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (other than pursuant to (i) notification by you as provided in
Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if the sale of
the Notes provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth herein is not satisfied or because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof, the Company agrees to
reimburse the Underwriters, subject to demand by you, for all out-of-pocket
expenses (including the fees and expenses of their counsel) incurred by the
Underwriters in connection herewith.

      12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed or delivered, or sent by facsimile, telex or
telegraph and confirmed in writing by letter, to such Underwriter c/o Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention: Amos
Levy, Facsimile No. 212-272-9630; and if sent to the Company, shall be mailed or
delivered, or sent by facsimile, telex or telegraph and confirmed in writing by
letter, to the Company, 950 North Point Parkway, Suite 350, Alpharetta, Georgia
30005, Attention: Chief Executive Officer, Facsimile No. 770-343-9344.
<PAGE>

      13. Agreements of Kelton International Ltd. Kelton International Ltd., one
of the Underwriters, covenants and agrees with the other Underwriters and the
Company:

            (a) That it is a foreign broker-dealer with a principal place of
business in the United Kingdom;

            (b) That it is not registered with the Commission as a
broker-dealer;

            (c) That it is not a member of the NASD;

            (d) That it has agreed not to sell any of the Notes offered pursuant
to the Registration Statement within the United States, its territories or
possessions or to nationals or residents of the United States; and

            (e) That it will comply with certain rules of NASD Regulation, Inc.
as if it were a member of the NASD.

      14. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8 hereof, and their respective successors and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim under
or in respect of or by virtue of this Agreement or any provision contained
herein. The term "successors and assigns" shall not include a purchaser, in its
capacity as such, of Notes from any of the Underwriters.

      15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.

      16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.
<PAGE>

      If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.

                                    Very truly yours,

                                    NET.B@NK, INC.


                                    By:
                                       -----------------------------------
                                       Name:  D.R. Grimes
                                       Title: Vice Chairman and
                                              Chief Executive Officer

Accepted as of the date first above written:

BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS, INC.
RAYMOND JAMES & ASSOCIATES, INC.
KELTON INTERNATIONAL LTD.

By: Bear, Stearns & Co. Inc.


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

<PAGE>

                                   SCHEDULE I

                                                       Principal Amount of Firm
Name of Underwriter                                     Notes to Be Purchased
- -------------------                                     ---------------------

Bear, Stearns & Co. Inc.........................
BancBoston Robertson Stephens, Inc..............
Raymond James & Associates, Inc.................
Kelton International Ltd........................

                                       Total
                                                             -------------
                                                              $100,000,000
                                                             =============
<PAGE>

                                   SCHEDULE II

               Names of Shareholders Subject to Lock-Up Agreement

Carolina First Corporation
Robert E. Bowers
Thomas L. Cable
Ward H. Clegg
D.R. Grimes
J. Stephen Heard
T. Stephen Johnson
Robin C. Kelton
Thomas H. Muller, Jr.
J. Joe Ricketts
Donald S. Shapleigh, Jr.
W. James Stokes
Jeffrey B. Watson
Mack I. Whittle, Jr.

<PAGE>

                                LOCK-UP AGREEMENT
                         Convertible Subordinated Notes



BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS INC.
RAYMOND JAMES & ASSOCIATES, INC.
KELTON INTERNATIONAL LTD.
As Representatives
of the several Underwriters
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York  10167

Ladies and Gentlemen:

                  In consideration of the agreement of the several Underwriters,
for which Bear, Stearns & Co. Inc., BancBoston Robertson Stephens Inc., Raymond
James & Associates, Inc., and Kelton International Ltd. intend to act as
Representatives to underwrite a proposed public offering (the "Offering") of
Convertible Subordinated Notes Due 2004, of Net.B@nk, Inc., a corporation
organized and existing under the laws of the State of Georgia (the "Company"),
as contemplated by a registration statement filed with the Securities and
Exchange Commission on Form S-3 (No. 333-77969) (the "Registration Statement"),
the undersigned hereby agrees that the undersigned will not, directly or
indirectly, during a period of 90 days from the date of the final prospectus for
the Offering, without the prior written consent of Bear, Stearns & Co. Inc.,
directly or indirectly, issue, sell, offer or agree to sell, grant any option
for the sale of, pledge, make any short sale, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended, or otherwise dispose of, any shares of the Company's Common
Stock (or securities convertible into, exercisable for or exchangeable for
Common Stock) of the Company or of any of its subsidiaries. The foregoing
sentence shall not apply to (A) the issuance of any shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof and referred to in the Registration Statement, (B) transfers
of shares of Common Stock to immediate family members or trusts for the benefit
of such family members, provided such transferee enters into a similar lock-up
agreement or (C) shares of Common Stock issued in connection with a merger,
recapitalization or consolidation of the Company.

                                  Very truly yours,



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


                                  Print Name:
                                             --------------------------


                                  Date:
                                       --------------------------------




<PAGE>

                                                                     Exhibit 4.4

================================================================================

                                 NET.B@NK, INC.

                                     Issuer

                                       AND

                             SUNTRUST BANK, ATLANTA

                                     Trustee

                                    INDENTURE

                            Dated as of June __, 1999

                 _____% Convertible Subordinated Notes Due 2004

================================================================================

<PAGE>

                             CROSS-REFERENCE TABLE*

Trust Indenture Act Section                            Indenture Section
- ---------------------------                            -----------------

310(a)(1)............................................          7.10
  (a)(2).............................................          7.10
  (a)(3).............................................          N.A.
  (a)(4).............................................          N.A.
  (a)(5).............................................          7.10
  (b)................................................           7.9
  (c)................................................          N.A.
311(a)...............................................          7.14
  (b)................................................          7.14
  (c)................................................          N.A.
312(a)...............................................   2.5(a); 5.1
  (b)................................................          16.4
  (c)................................................          16.4
313(a)...............................................           7.2
  (b)(1).............................................          N.A.
  (b)(2).............................................           7.2
  (c)................................................           7.2
  (d)................................................           7.2
314(a)...............................................   4.9(a); 4.7
  (b)................................................          N.A.
  (c)(1).............................................          16.6
  (c)(2).............................................          16.6
  (c)(3).............................................          N.A.
  (d)................................................          N.A.
  (e)................................................          16.7
  (f)................................................          N.A.
315(a)...............................................        7.1(b)
  (b)................................................           6.8
  (c)................................................        7.1(a)
  (d)................................................        7.1(c)
  (e)................................................           6.9
316(a)(last sentence)................................           8.4
  (a)(1)(A)..........................................           6.7
  (a)(1)(B)..........................................           6.7
  (a)(2).............................................          N.A.
  (b)................................................           6.4
  (c)................................................           9.2
317(a)...............................................           6.2


                                        i
<PAGE>

  (b)................................................           4.4
318(a)...............................................   16.9; 16.10

                           N.A. means Not applicable.

- ----------
*  This Cross-Reference Table is not part of the Indenture.


                                       ii
<PAGE>

                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----

                                   ARTICLE I

                                  DEFINITIONS

Section 1.1    Definitions...................................................1
Section 1.2    Incorporation by Reference of Trust Indenture Act.............6
Section 1.3    Rules of Construction.........................................7

                                   ARTICLE II

                         ISSUE, DESCRIPTION, EXECUTION,
                       REGISTRATION AND EXCHANGE OF NOTES

Section 2.1    Designation, Amount and Issue of Notes........................7
Section 2.2    Form of Notes.................................................7
Section 2.3    Date and Denomination of Notes; Payments of Interest..........9
Section 2.4    Execution of Notes...........................................10
Section 2.5    Exchange and Registration of Transfer of Notes;
               Depositary...................................................11
Section 2.6    Mutilated, Destroyed, Lost or Stolen Notes...................13
Section 2.7    Temporary Notes..............................................14
Section 2.8    Cancellation of Notes Paid, Etc..............................15
Section 2.9    CUSIP Numbers................................................15

                                   ARTICLE III

                       REDEMPTION AND REPURCHASE OF NOTES

Section 3.1    Right of Redemption..........................................15
Section 3.2    Notice of Redemption; Selection of Notes.....................16
Section 3.3    Payment of Notes Called for Redemption.......................17
Section 3.4    Conversion Arrangement on Call for Redemption................18
Section 3.5    Repurchase of Notes Upon a Change of Control.................19

                                   ARTICLE IV

                       PARTICULAR COVENANTS OF THE COMPANY

Section 4.1    Payment of Principal, Premium and Interest...................20
Section 4.2    Maintenance of Office or Agency..............................21
Section 4.3    Appointments to Fill Vacancies in Trustee's Office...........21
Section 4.4    Provisions as to Paying Agent................................21
Section 4.5    Corporate Existence..........................................22
Section 4.6    Maintenance of Status of Net.B@nk as Insured Depository
               Institution..................................................23
Section 4.7    Commission and Other Reports.................................23


                                      iii
<PAGE>

                                                                          Page
                                                                          ----

Section 4.8    Stay, Extension and Usury Laws...............................23
Section 4.9    Compliance Statement; Notice of Defaults.....................24
Section 4.10   Taxes........................................................24
Section 4.11   Insurance....................................................24

                                    ARTICLE V

                                 NOTEHOLDERS' LISTS

Section 5.1    Noteholders' Lists...........................................24

                                     ARTICLE VI

                              DEFAULTS AND REMEDIES

Section 6.1    Events of Default............................................25
Section 6.2    Payments of Notes on Default; Suit Therefor..................26
Section 6.3    Application of Monies Collected by Trustee...................28
Section 6.4    Proceedings by Noteholder....................................29
Section 6.5    Proceedings by Trustee.......................................30
Section 6.6    Remedies Cumulative and Continuing...........................30
Section 6.7    Direction of Proceedings and Waiver of Defaults by
               Majority of Noteholders......................................30
Section 6.8    Notice of Defaults...........................................31
Section 6.9    Undertaking to Pay Costs.....................................31

                                   ARTICLE VII

                               CONCERNING THE TRUSTEE

Section 7.1    Duties and Responsibilities of Trustee.......................31
Section 7.2    Reports by Trustee to Holders................................32
Section 7.3    Reliance on Documents, Opinions, Etc.........................32
Section 7.4    No Responsibility for Recitals, Etc..........................34
Section 7.5    Trustee, Paying Agents, Conversion Agents or Registrar
               May Own Notes................................................34
Section 7.6    Monies to Be Held in Trust...................................34
Section 7.7    Compensation and Expenses of Trustee.........................34
Section 7.8    Officers' Certificate as Evidence............................35
Section 7.9    Conflicting Interests of Trustee.............................35
Section 7.10   Eligibility of Trustee.......................................35
Section 7.11   Resignation or Removal of Trustee............................36
Section 7.12   Acceptance by Successor Trustee..............................37
Section 7.13   Successor, by Merger, Etc....................................37
Section 7.14   Limitation on Rights of Trustee as Creditor..................38


                                       iv
<PAGE>

                                                                          Page
                                                                          ----

                                    ARTICLE VIII

                             CONCERNING THE NOTEHOLDERS

Section 8.1    Action by Noteholders........................................38
Section 8.2    Proof of Execution by Noteholders............................38
Section 8.3    Who Are Deemed Absolute Owners...............................38
Section 8.4    Company-Owned Notes Disregarded..............................39
Section 8.5    Revocation of Consents, Future Holders Bound.................39

                                     ARTICLE IX

                              NOTEHOLDERS' MEETINGS

Section 9.1    Purposes for Which Meetings May be Called....................40
Section 9.2    Manner of Calling Meetings; Record Date......................40
Section 9.3    Call of Meeting by Company or Noteholders....................40
Section 9.4    Who May Attend and Vote at Meetings..........................41
Section 9.5    Manner of Voting at Meetings and Record To Be Kept...........41
Section 9.6    Exercise of Rights of Trustee and Noteholders Not To Be
               Hindered or Delayed..........................................41

                                    ARTICLE X

                             SUPPLEMENTAL INDENTURES

Section 10.1   Supplemental Indentures Without Consent of Noteholders.......42
Section 10.2   Supplemental Indentures With Consent of Noteholders..........43
Section 10.3   Effect of Supplemental Indentures............................44
Section 10.4   Notation on Notes............................................44
Section 10.5   Evidence of Compliance of Supplemental Indenture To Be
               Furnished Trustee............................................44

                                     ARTICLE XI

                      CONSOLIDATION, MERGER, SALE, CONVEYANCE,
                                 TRANSFER AND LEASE

Section 11.1   Company May Consolidate, Etc. on Certain Terms...............44
Section 11.2   Successor Company To Be Substituted..........................45
Section 11.3   Opinion of Counsel To Be Given to Trustee....................45


                                        v
<PAGE>

                                                                          Page
                                                                          ----

                                   ARTICLE XII

                      SATISFACTION AND DISCHARGE OF INDENTURE;
                                  UNCLAIMED MONEYS

Section 12.1   Legal Defeasance and Covenant Defeasance of the Notes........45
Section 12.2   Termination of Obligations upon Cancellation of the Notes....47
Section 12.3   Survival of Certain Obligations..............................48
Section 12.4   Acknowledgment of Discharge by Trustee.......................48
Section 12.5   Application of Trust Assets..................................48
Section 12.6   Repayment to the Company; Unclaimed Money....................49
Section 12.7   Reinstatement................................................49

                                  ARTICLE XIII

                    IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
                             OFFICERS AND DIRECTORS

Section 13.1   Indenture and Notes Solely Corporate Obligations.............49

                                   ARTICLE XIV

                               CONVERSION OF NOTES

Section 14.1   Right to Convert.............................................50
Section 14.2   Exercise of Conversion Privilege; Issuance of Common
               Stock on Conversion; No Adjustment for Interest or
               Dividends....................................................50
Section 14.3   Cash Payments in Lieu of Fractional Shares...................52
Section 14.4   Conversion Price.............................................52
Section 14.5   Adjustment of Conversion Price...............................52
Section 14.6   Effect of Reclassification, Consolidation, Merger or Sale....60
Section 14.7   Taxes on Shares Issued.......................................61
Section 14.8   Reservation of Shares; Shares to Be Fully Paid; Listing
               of Common Stock..............................................61
Section 14.9   Responsibility of Trustee....................................61
Section 14.10  Notice to Holders Prior to Certain Actions...................62

                                   ARTICLE XV

                                  SUBORDINATION

Section 15.1   Agreement to Subordinate.....................................63
Section 15.2   Certain Definitions..........................................63
Section 15.3   Liquidation; Dissolution; Bankruptcy.........................64
Section 15.4   Default on Senior Indebtedness...............................64
Section 15.5   When Distribution Must Be Paid Over..........................65
Section 15.6   Notice by Company............................................65


                                       vi
<PAGE>

                                                                          Page
                                                                          ----

Section 15.7   Subrogation..................................................65
Section 15.8   Relative Rights..............................................66
Section 15.9   Subordination May Not Be Impaired by Company.................66
Section 15.10  Distribution or Notice to Representative.....................66
Section 15.11  Rights of Trustee and Paying Agent...........................66
Section 15.12  Authorization to Effect Subordination........................67
Section 15.13  Conversions Not Deemed Payment...............................67
Section 15.14  Amendments...................................................68

                                   ARTICLE XVI

                            MISCELLANEOUS PROVISIONS

Section 16.1   Provisions Binding on Company's Successors...................68
Section 16.2   Official Acts by Successor Company...........................68
Section 16.3   Addresses for Notices, Etc...................................68
Section 16.4   Communications by Holders with Other Holders.................69
Section 16.5   Governing Law................................................69
Section 16.6   Evidence of Compliance with Conditions Precedent;
               Certificates to Trustee......................................69
Section 16.7   Legal Holidays...............................................69
Section 16.8   No Security Interest Created.................................70
Section 16.9   Trust Indenture Act..........................................70
Section 16.10  Trust Indenture Act Controls.................................70
Section 16.11  Benefits of Indenture........................................70
Section 16.12  Table of Contents, Headings, Etc.............................70
Section 16.13  Authenticating Agent.........................................70
Section 16.14  Execution in Counterparts....................................71


                                       vii





<PAGE>

      INDENTURE, dated as of June __, 1999, between NET.B@NK, INC., a Georgia
corporation (the "Company"), and SUNTRUST BANK, ATLANTA, a Georgia banking
corporation with trust powers (the "Trustee").

      WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issuance of its _____% Convertible Subordinated Notes Due 2004
(the "Notes"), in an aggregate principal amount not to exceed $100,000,000 (up
to $115,000,000 aggregate principal amount, assuming the full exercise of the
over-allotment option granted to the underwriters of the public offering of the
Notes), and, to provide the terms and conditions upon which the Notes are to be
authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture;

      NOW, THEREFORE, in consideration of the terms and conditions hereof and of
the purchase and acceptance of the Notes by the holders thereof, the Company
agrees with the Trustee for the equal and proportionate benefit of the
respective holders from time to time of the Notes (except as otherwise provided
below) as follows:

                                    ARTICLE I

                                   DEFINITIONS

      Section 1.1 Definitions. The terms defined in this Section 1.1 (except as
otherwise expressly provided herein or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto,
shall have the respective meanings specified in this Section 1.1. The words
"herein," "hereof," "hereunder" and words of similar import refer to this
Indenture as a whole and not to any particular Article or Section.

      Acquisition Price shall mean the weighted average price paid by the person
or group in acquiring the Voting Stock.

      Affiliate of any specified person shall mean any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purpose of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

      Board of Directors shall mean the Board of Directors of the Company or a
committee of such Board of Directors duly authorized to act for it hereunder.

      Board Resolution shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

      Business Day shall mean a day, other than a Saturday, a Sunday or a day on
which the banking institutions in the State and City of New York or in the State
of Georgia are authorized

<PAGE>

or obligated by law or executive order to close or a day that is declared a
national, New York or Georgia state holiday.

      Capital Stock of any person shall mean any and all shares, interests,
participations or other equivalents (however designated) of such person's
corporate stock or any and all equivalent ownership interests in a person (other
than a corporation) whether now outstanding or issued after the date hereof.

      Change of Control shall have the meaning specified in Section 3.5(d).

      Change of Control Notice shall have the meaning specified in Section
3.5(b).

      Change of Control Offer shall have the meaning specified in Section
3.5(a).

      Change of Control Purchase Date shall have the meaning specified in
Section 3.5(a).

      Closing Price with respect to conversion of the Notes shall have the
meaning specified in Section 14.5(g).

      Commission shall mean the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, the body performing
such duties at such time.

      Common Stock shall mean any stock of any class of the Company that does
not have a preference in respect of dividends or of amounts payable in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Company and that is not subject to redemption by the Company. Subject to the
provisions of Section 14.6, however, shares issuable on conversion of Notes
shall include only shares of the class designated as common stock of the Company
at the date of this Indenture or shares of any class or classes resulting from
any reclassification or reclassifications thereof and that do not have a
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and that are not subject to redemption by the Company; provided that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion that the total
number of shares of such class resulting from all such reclassification bears to
the total number of shares of all such classes resulting from all such
reclassifications.

      Company shall mean Net.B@nk, Inc., a Georgia corporation and, subject to
the provisions of Article XI, shall include its successors and assigns.

      Conversion Price shall have the meaning specified in Section 14.4.

      Corporate Trust Office of the Trustee, or other similar term, shall mean
the office of the Trustee at which at any particular time its corporate trust
business shall be principally


                                       2
<PAGE>

administered, which office is, at the date as of which this Indenture is dated,
located at 25 Park Place, 24th Floor, Atlanta, Georgia 30303, Attention:
Corporate Trust Administration.

      Current Market Price with respect to conversion of the Notes shall have
the meaning specified in Section 14.5(g).

      Custodian shall mean the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.

      Default shall mean any event that is, or after notice or passage of time,
or both, would be, an Event of Default.

      Defaulted Interest shall have the meaning specified in Section 2.3.

      Definitive Notes or in definitive form shall have the meanings specified
in Section 2.2, any reference to Notes "in definitive form" shall mean
definitive Notes, and any reference to securities "in definitive form" shall
mean definitive Notes or Common Stock as the context requires.

      Depositary shall mean, with respect to the Notes issuable or issued in
whole or in part in global form, the person specified in Section 2.5(b) as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.

      Event of Default shall mean any event specified in Sections 6.1(a) through
(f).

      Exchange Act shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

      Fair market value with respect to conversion of the Notes shall have the
meaning specified in Section 14.5(g).

      Fiscal Year means the annual period adopted by the Company as its fiscal
year for financial reporting and other purposes. The current fiscal year of the
Company is the annual period ending on December 31.

      Global Note shall mean any and all Notes in global form.

      Indenture shall mean this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented.

      Make-Whole Payment shall have the meaning specified in Section 3.1(a).

      Nonpayment Default shall have the meaning specified in Section 15.4(b).


                                       3
<PAGE>

      Note or Notes shall mean any Note or Notes, as the case may be,
authenticated and delivered under this Indenture.

      Noteholder or holder as applied to any Note, or other similar terms (but
excluding the term "beneficial holder"), shall mean any person in whose name at
the time a particular Note is registered on the Note registrar's books.

      Note register shall have the meaning specified in Section 2.5(a).

      Notice Date shall have the meaning specified in Section 3.1(a).

      Officers' Certificate when used with respect to the Company, shall mean a
certificate signed by the Chief Executive Officer, the President, the Chief
Operating Officer or the Chief Financial Officer and any Treasurer or Secretary
or any Assistant Treasurer or Assistant Secretary of the Company, that is
delivered to the Trustee. Each such certificate shall include the statements
provided for in Section 16.6 if and to the extent required by the provisions of
such Section.

      Opinion of Counsel shall mean an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company or other counsel
acceptable to the Trustee, that is delivered to the Trustee. Each such opinion
shall include the statements provided for in Section 16.6 if and to the extent
required by the provisions of such Section.

      Outstanding with reference to Notes as of any particular time shall mean,
subject to the provisions of Section 8.4, all Notes authenticated and delivered
by the Trustee under this Indenture, except:

            (a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;

            (b) Notes, or portions thereof, for which monies in the necessary
amount shall have been deposited in trust with the Trustee for payment or
redemption; provided that if such Notes are to be redeemed prior to the maturity
thereof, notice of such redemption shall have been given pursuant to Article III
or provisions satisfactory to the Trustee shall have been made for giving such
notice;

            (c) Notes paid pursuant to Section 2.6 hereof or Notes in lieu of or
in substitution for which other Notes shall have been authenticated and
delivered pursuant to the terms of Section 2.6, unless proof satisfactory to the
Trustee is presented that any such Notes are held by bona fide holders in due
course; and

            (d) Notes converted into Common Stock pursuant to Article XIV and
Notes not deemed outstanding pursuant to Section 3.2.

      Payment Blockage Notice shall have the meaning specified in Section
15.4(b).

      Payment Default shall have the meaning specified in Section 15.4(a).


                                       4
<PAGE>

      Person shall mean an individual, a corporation, a limited liability
company, an association, a partnership, a joint venture, a joint stock company,
a trust, an unincorporated organization or a government or an agency or a
political subdivision thereof.

      Predecessor Note of any particular Note shall mean every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for purposes of this definition, any Note authenticated
and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note
shall be deemed to evidence the same debt as the lost, destroyed or stolen Note.

      Provisional Redemption shall have the meaning specified in Section 3.1(a).

      Provisional Redemption Date shall have the meaning specified in Section
3.1(a).

      Record Date with respect to conversion of the Notes shall have the meaning
specified in Section 14.5(g).

      Representative shall have the meaning specified in Section 15.2.

      Responsible Officer shall mean, with respect to the Trustee, an officer of
the Trustee assigned and duly authorized by the Trustee to administer its
corporate trust matters at the Corporate Trust Office of the Trustee.

      Securities Act shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

      Senior Indebtedness shall have the meaning specified in Section 15.2.

      Subsidiary of any specified person shall mean (i) a corporation a majority
of whose capital stock with voting power under ordinary circumstances to elect
directors is at the time directly or indirectly owned by such person or (ii) any
other person (other than a corporation) in which such person or such person and
a subsidiary or subsidiaries of such person or a subsidiary or subsidiaries of
such person directly or indirectly, at the date of determination thereof, has at
least majority ownership.

      Successor Company shall have the meaning specified in Section 11.1.

      Trading Day shall have the meaning specified in Section 14.5(g).

      Trust Indenture Act shall mean the Trust Indenture Act of 1939, as
amended, as it was in force on the date of execution of this Indenture, except
as provided in Sections 10.3 and 14.6; provided that if the Trust Indenture Act
of 1939 is amended after the date hereof, the term "Trust Indenture Act" shall
mean, to the extent required by such amendment, the Trust Indenture Act of 1939
as so amended.


                                       5
<PAGE>

      Trustee shall mean SunTrust Bank, Atlanta, its successors and any
corporation resulting from or surviving any consolidation or merger to which it
or its successors may be a party and any successor trustee at the time serving
as successor trustee hereunder.

      U.S. Government Obligations shall mean securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a person controlled or
supervised by, and acting as an agency or instrumentality of, the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such U.S. Government Obligation or a specific
payment of principal or interest on any such U.S. Government Obligation held by
such custodian for the account of the holder of such depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by such custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt.

      Voting Stock of any person shall mean stock of the class or classes
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of such person (irrespective of whether or not at the time
stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).

      The definitions of certain other terms are as specified in Section 12.1.

      Section 1.2 Incorporation by Reference of Trust Indenture Act.

      Whenever this Indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated by reference in, and made a part of, this
Indenture.

      The following Trust Indenture Act terms used in this Indenture have the
following meanings:

      indenture securities means the Notes;

      indenture security holder means a Holder of Notes;

      indenture to be qualified means this Indenture;

      indenture trustee or institutional trustee means the Trustee; and

      obligor on the Notes means the Company and any successor obligor under the
Trust Indenture Act.


                                       6
<PAGE>

      All other terms used in this Indenture that are defined by the Trust
Indenture Act, defined by a Trust Indenture Act reference to another statute or
defined by Commission rule under the Trust Indenture Act have the meanings so
assigned to them.

      Section 1.3 Rules of Construction.

      Unless the context otherwise requires:

            (a) a term has the meaning assigned to it;

            (b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles;

            (c) "or" is not exclusive;

            (d) provisions apply to successive events and transactions; and

            (e) words in the singular include the plural, and in the plural
include the singular.

                                   ARTICLE II

                   ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
                              AND EXCHANGE OF NOTES

      Section 2.1 Designation, Amount and Issue of Notes. The Notes shall be
designated as "____% Convertible Subordinated Notes Due 2004." The Notes are not
to exceed the aggregate principal amount of $100,000,000 (up to $115,000,000
aggregate principal amount assuming the full exercise of the over-allotment
option granted to the underwriters of the public offering of the Notes) upon the
execution of this Indenture, or from time to time thereafter, may be executed by
the Company and delivered to the Trustee for authentication, and the Trustee
shall thereupon authenticate and make available for delivery said Notes upon the
written order of the Company, signed by its (a) Chief Executive Officer,
President, Chief Operating Officer or Chief Financial Officer and (b) any
Treasurer or Secretary or any Assistant Secretary, without any further action by
the Company hereunder.

      Section 2.2 Form of Notes. (a) The Notes, including the form of Trustee's
certificate of authentication, shall be in the form annexed hereto as Exhibit A,
and any Notes represented by a global Note shall be in the form annexed hereto
as Exhibit B.

            (b) Any global Note shall represent such of the outstanding Notes as
shall be specified therein and shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be increased or reduced to reflect transfers or exchanges permitted
hereby. Any endorsement of a global Note to reflect the amount of any increase
or decrease in the amount of outstanding Notes represented thereby shall be made
by the Trustee or the Custodian, at the direction of the Trustee, in such manner
and upon written


                                       7
<PAGE>

instructions given by the holder of such Notes in accordance with this
Indenture. Payment of principal of and interest and premium, if any, on any
global Note shall be made in accordance with the provisions of Section 2.3.

            (c) Any of the Notes may have such letters, numbers or other marks
of identification and such notations, legends and endorsements as the Company
officers executing the same may approve (execution thereof to be conclusive
evidence of such approval) and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Notes may be listed, or to conform to usage.

      All Notes shall bear a legend in substantially the following form, in
capital letters and bold-face type:

      THIS NOTE AND ANY SHARES OF COMMON STOCK OF NET.B@NK, INC. ISSUABLE UPON
CONVERSION OF THIS NOTE ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR OTHER OBLIGATIONS
OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT ISSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

      Every global Note authenticated and delivered hereunder shall bear a
legend in substantially the following form, in capital letters and bold-face
type:

      THIS DEBENTURE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS DEBENTURE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS DEBENTURE IN WHOLE OR IN PART MAY
BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

      If the Depositary is The Depository Trust Company, the global Note
authenticated and delivered hereunder shall also bear a legend in substantially
the following form, in capital letters and bold-face type:

      UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED SIGNATORY OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. , HAS AN INTEREST HEREIN.


                                       8
<PAGE>

      The terms and provisions contained in the forms of Notes attached as
Exhibits A and B hereto shall constitute, and are hereby expressly made, a part
of this Indenture and to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.

      Section 2.3 Date and Denomination of Notes; Payments of Interest. The
Notes shall be issuable in registered form without coupons in denominations of
$1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication, shall bear interest from the date of
original issue and shall be payable semiannually on each June 1 and December 1,
beginning December 1, 1999, as specified on the faces of the forms of Notes
attached as Exhibits A and B.

      The person in whose name any Note (or its Predecessor Note) is registered
at the close of business on any record date with respect to any interest payment
date (including any Note that is converted after the record date and on or
before the interest payment date) shall be entitled to receive the interest
payable on such interest payment date notwithstanding the cancellation of such
Note upon any transfer, exchange or conversion subsequent to the record date and
prior to such interest payment date. Unless other arrangements are made,
interest will be paid by check mailed to the address of such person as it
appears on the Note register; provided that, with respect to any global Note or
any holder of Notes with an aggregate principal amount equal to or in excess of
$5,000,000, at the request (such request to include appropriate wire
instructions) of such holder in writing to the Trustee on or before the record
date preceding any interest payment date, interest on the global Note and such
holder's Notes, as applicable, shall be paid by wire transfer in immediately
available funds to an account in the continental United States and any such
request shall be deemed a continuing request unless and until revoked in
writing. The term "record date" with respect to any interest payment date shall
mean the May 15 or November 15 preceding the applicable June 1 or December 1.

      None of the Company, the Trustee or any paying agent shall have any
responsibility or liability for any aspect of the records relating to or payment
made on account of beneficial ownership interests in the global Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.

      Interest on the Notes shall be computed on the basis of a 360-day year
composed of twelve 30-day months.

      Any interest on any Note that is payable but is not punctually paid or
duly provided for on any applicable June 1 or December 1 (herein called
"Defaulted Interest") shall cease to be payable to the Noteholder on the
relevant record date by virtue of his having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (a) or (b) below:

            (a) The Company may elect to make payment of any Defaulted Interest
to the persons in whose names the Notes (or their respective Predecessor Notes)
are registered at the close of business on a special record date for the payment
of such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the


                                       9
<PAGE>

amount of Defaulted Interest to be paid on each Note and the date of the payment
(which shall be not less than 25 days after the receipt by the Trustee of such
notice, unless the Trustee shall consent to an earlier date) and, at the same
time, the Company shall deposit with the Trustee an amount of money equal to the
aggregate amount to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the persons entitled to such Defaulted Interest as in this clause
provided. Thereupon, the Trustee shall fix a special record date for the payment
of such Defaulted Interest, which shall be not more than 15 days and not less
than 10 days prior to the date of the payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such special record date and, in the name
and at the expense of the Company, shall cause notice of the payment of such
Defaulted Interest and the special record date therefor to be mailed,
first-class postage prepaid, to each Noteholder at his address as it appears in
the Note register, not less than 10 days prior to such special record date.
Notice of the proposed payment of such Defaulted Interest and the special record
date therefor having been so mailed, such Defaulted Interest shall be paid to
the persons in whose names the Notes (or their respective Predecessor Notes)
were registered at the close of business on such special record date and shall
no longer be payable pursuant to the following clause (b).

            (b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.

      Section 2.4 Execution of Notes. The Notes shall be signed in the name and
on behalf of the Company by its Chief Executive Officer, President, Chief
Operating Officer or Chief Financial Officer and attested by the signature of
its Treasurer, Secretary or any of its Assistant Secretaries or Assistant
Treasurers (any of which signatures may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear
thereon a certificate of authentication substantially in the form set forth on
the forms of Notes attached as Exhibits A and B hereto, manually executed by the
Trustee (or an authenticating agent appointed by the Trustee as provided by
Section 16.13), shall be entitled to the benefits of this Indenture or be valid
or obligatory for any purpose. Such certificate by the Trustee (or such an
authenticating agent) upon any Note executed by the Company shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.

      In case any officer of the Company who shall have signed any of the Notes
shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.


                                       10
<PAGE>

      Section 2.5 Exchange and Registration of Transfer of Notes; Depositary.

            (a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office and in any
other office or agency of the Company designated pursuant to Section 4.2 being
herein sometimes collectively referred to as the "Note register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Notes and of transfers of Notes. Such Note
register shall be in written form or in any form capable of being converted into
written form within a reasonable period of time. The Trustee is hereby appointed
"Note registrar" for the purpose of registering Notes and transfers of Notes as
herein provided. The Company may appoint one or more co-registrars.

      Upon surrender for registration of transfer of any Note to the Note
registrar or any co-registrar and satisfaction of the requirements for such
transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and make available for delivery, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denominations and of a like aggregate principal amount.

      Notes may be exchanged for other Notes of any authorized denominations and
of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at any such office or agency. Whenever any Notes are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
make available for delivery, the Notes that the Noteholder making the exchange
is entitled to receive bearing certificate numbers not contemporaneously
outstanding.

      All Notes presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company, the Trustee, the Note registrar
or any co-registrar) be duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Company, executed by the Noteholder
thereof or his attorney duly authorized in writing.

      No service charge shall be charged to the Noteholder for any exchange or
registration of transfer of Notes, but the Company may require payment of a sum
sufficient to cover any tax, assessments or other governmental charges that may
be imposed in connection therewith.

      None of the Company, the Trustee, the Note registrar or any co-registrar
shall be required to exchange or register a transfer of (i) any Notes for a
period of 15 days next preceding the mailing of a notice of redemption, (ii) any
Notes called for redemption or, if a portion of any Note is selected or called
for redemption, such portion thereof selected or called for redemption, (iii)
any Notes surrendered for conversion or, if a portion of any Note is surrendered
for conversion, such portion thereof surrendered for conversion or (iv) any
Notes surrendered for repurchase pursuant to Section 3.5 or, if a portion of any
Note is surrendered for repurchase pursuant to Section 3.5, such portion thereof
surrendered for repurchase pursuant to Section 3.5.

      All Notes issued upon any transfer or exchange of Notes shall be the valid
obligations of the Company, evidencing the same debt and entitled to the same
benefits under this Indenture as the Notes surrendered upon such registration of
transfer or exchange.


                                       11
<PAGE>

            (b) Each global Note authenticated under this Indenture shall be
registered in the name of the Depositary designated for such global Note or a
nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such global Note shall constitute a single Note for
all purposes of this Indenture.

      Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in this Section 2.5(b)), a global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.

      The Depositary shall be a clearing agency registered under the Exchange
Act.

      The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the global Notes. Initially, the global Notes shall
be issued to the Depositary, registered in the name of Cede & Co., as the
nominee of the Depositary, and deposited with the Trustee as Custodian for Cede
& Co.

      Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under this Indenture) shall have responsibility for the
performance by the Depositary or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.

      If at any time the Depositary for the global Notes notifies the Company
that it is unwilling or unable to continue as Depositary for such Notes, the
Company may appoint a successor Depositary with respect to such Notes. If a
successor Depositary for the Notes is not appointed by the Company within 90
days after the Company receives such notice, the Company shall execute, and the
Trustee, upon receipt of an Officers' Certificate for the authentication and
delivery of Notes, shall authenticate and make available for delivery, Notes in
definitive form, in an aggregate principal amount equal to the principal amount
of the global Notes in exchange for such global Notes.

      Definitive Notes issued in exchange for all or a part of a global Note
pursuant to this Section 2.5(b) shall be registered in such names and in such
authorized denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee. Upon
execution and authentication, the Trustee shall make available for delivery such
definitive Notes to the persons in whose names such definitive Notes are so
registered.

      At such time as all interests in global Notes have been redeemed,
converted, repurchased or canceled, such global Notes shall be, upon receipt
thereof, canceled by the Trustee in accordance with standing procedures and
instructions existing between the Depositary and the Custodian. At any time
prior to such cancellation, if any interest in a global Note is exchanged for
definitive Notes, redeemed, repurchased, converted, canceled or transferred to a
transferee who receives definitive Notes therefor or any definitive Note is
exchanged or transferred for part of a global Note, the principal amount of such
global Note shall, in accordance with the standing procedures and instructions
existing between the Depositary and the Custodian, be reduced or


                                       12
<PAGE>

increased, as the case may be, and an endorsement shall be made on such global
Note by the Trustee or the Custodian, at the direction of the Trustee, to
reflect such reduction or increase.

      The Company and the Trustee may for all purposes, including the making of
payments due on the Notes, deal with the Depositary as the authorized
representative of the Noteholders for the purposes of exercising the rights of
Noteholders hereunder. The rights of the owner of any beneficial interest in a
global Note shall be limited to those established by law and agreements between
such owner and depository participants; provided that no such agreement shall
give any rights to any person against the Company or the Trustee without the
written consent of the parties so affected. Multiple requests and directions
from and votes of, the Depositary as holder of notes in book entry form with
respect to any particular matter shall not be deemed inconsistent to the extent
they do not represent an amount of notes in excess of those held in the name of
the Depositary or its nominee.

      Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note
shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute, and upon its request, the Trustee or an authenticating
agent appointed by the Trustee shall authenticate and make available for
delivery a new Note bearing a number not contemporaneously outstanding in
exchange and substitution for the mutilated Note or in lieu of and in
substitution for the Note so destroyed, lost or stolen. The Company may charge
such applicant for the expenses of the Company in replacing a Note. In every
case the applicant for a substituted Note shall furnish to the Company, to the
Trustee and, if applicable, to such authenticating agent such security or
indemnity as may be required by them to save each of them harmless from any
loss, liability, cost or expense caused by or connected with such substitution,
and in every case of destruction, loss or theft, the applicant shall also
furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent evidence to their satisfaction of the destruction, loss or
theft of such Note and of the ownership thereof.

      The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note that has matured or is about to mature or has been
called for redemption or is about to be repurchased or converted into Common
Stock shall become mutilated or be destroyed, lost or stolen, the Company may,
instead of issuing a substitute Note, pay or authorize the payment of or convert
or authorize the conversion of the same (without surrender thereof, except in
the case of a mutilated Note), as the case may be, if the applicant for such
payment or conversion shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless from any loss, liability, cost or
expense caused by or connected with such substitution, and in case of
destruction, loss or theft, evidence satisfactory to the Company, the Trustee
and, if applicable, any paying agent or conversion agent of the destruction,
loss or theft of such Note and of the ownership thereof.


                                       13
<PAGE>

      Every substitute Note issued pursuant to the provisions of this Section
2.6 in lieu of any Note that is destroyed, lost or stolen shall constitute an
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be enforceable by anyone, and shall be entitled to all
the benefits of (but shall be subject to all the limitations set forth in) this
Indenture equally and proportionately with any and all other Notes duly issued
hereunder. To the extent permitted by law, all Notes shall be held and owned
upon the express condition that the foregoing provisions are exclusive with
respect to the replacement or payment or conversion of mutilated, destroyed,
lost or stolen Notes and shall preclude any and all other rights or remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.

      Section 2.7 Temporary Notes. Pending the preparation of definitive Notes,
the Company may execute and the Trustee or an authenticating agent appointed by
the Trustee shall, upon written request of the Company, authenticate and make
available for delivery temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination and shall be
substantially in the form of the definitive Notes but with such omissions,
insertions and variations as may be appropriate for temporary Notes, all as may
be determined by the Company. Every such temporary Note shall be executed by the
Company and authenticated by the Trustee or such authenticating agent upon the
same conditions and in substantially the same manner, and with the same effect,
as the definitive Notes. Without unreasonable delay the Company shall execute
and deliver to the Trustee or such authenticating agent definitive Notes (other
than in the case of Notes in global form) and thereupon any or all temporary
Notes (other than any such global Note) may be surrendered in exchange therefor,
at each office or agency maintained by the Company pursuant to Section 4.2 and
the Trustee or such authenticating agent shall authenticate and make available
for delivery in exchange for such temporary Notes an equal aggregate principal
amount of definitive Notes. Such exchange shall be made by the Company at its
own expense and without any charge therefor. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits and subject to the
same limitations under this Indenture as definitive Notes authenticated and
delivered hereunder.

      Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for the
purpose of payment, redemption, repurchase, conversion, exchange or registration
of transfer shall, if surrendered to the Company, any paying agent, any Note
registrar or any conversion agent, be surrendered to the Trustee and promptly
canceled by it or, if surrendered directly to the Trustee, shall be promptly
canceled by it and no Notes shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Indenture. If required by the
Company, the Trustee shall return canceled Notes to the Company. If the Company
shall acquire any of the Notes, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Notes unless
and until the same are delivered to the Trustee for cancellation.

      Section 2.9 CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
CUSIP numbers in notices of redemption as a convenience to holders; provided
that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as


                                       14
<PAGE>

contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Notes, and any such redemption
shall not be affected by any defect in or omission of such numbers. The Company
shall promptly notify the Trustee of any change in the CUSIP numbers.

                                  ARTICLE III

                       REDEMPTION AND REPURCHASE OF NOTES

      Section 3.1 Right of Redemption.

            (a) Provisional Redemption by the Company. The Notes may be redeemed
by the Company (a "Provisional Redemption"), in whole or in part, at any time
prior to June 5, 2002, upon notice as set forth in Section 3.2 of this
Indenture, at a redemption price equal to $1,000 per $1,000 principal amount of
Notes to be redeemed plus accrued and unpaid interest, if any, to the date of
redemption (the "Provisional Redemption Date") if the closing price of the
Common Stock shall have exceeded 150% of the Conversion Price then in effect for
at least 20 Trading Days within a period of 30 consecutive Trading Days ending
on the Trading Day prior to the date of mailing of the notice of redemption
pursuant to Section 3.2 (the "Notice Date"). Upon any such Provisional
Redemption, the Company shall make an additional payment in cash (the
"Make-Whole Payment") with respect to the Notes called for Provisional
Redemption to holders on the Notice Date in an amount equal to $____ per $1,000
principal amount of the Notes, less the amount of any interest actually paid on
such Notes prior to the Notice Date. The Company shall make the Make-Whole
Payment on all Notes called for Provisional Redemption, including any Notes
converted into Common Stock pursuant to the terms hereof after the Notice Date
and prior to the Provisional Redemption Date.

            (b) Optional Redemption by the Company. At any time on or after June
5, 2002, the Notes may be redeemed at the Company's option, upon notice as set
forth in Section 3.2, in whole at any time or in part from time to time, at the
following optional redemption prices (expressed as percentages of the principal
amount), together with accrued and unpaid interest to the date fixed for
redemption, if redeemed on or after:

Date                           Redemption Price
- ----                           ----------------

June 5, 2002                        _____%
June 1, 2003                        _____%

      Section 3.2 Notice of Redemption; Selection of Notes. In case the Company
shall desire to exercise the right to redeem all or, as the case may be, any
part of the Notes pursuant to Section 3.1, it shall fix a date for redemption
and, in the case of any redemption pursuant to Section 3.1, it or, at its
request accompanied by the proposed form of notice of redemption (which must be
received by the Trustee at least ten days prior to the date the Trustee is
requested to give notice as described below, unless a shorter period is agreed
to by the Trustee), the Trustee in the name of and at the expense of the
Company, shall mail or cause to be mailed a notice of such redemption at least
30 and not more than 60 days prior to the date fixed for redemption to the
holders of Notes so to be redeemed as a whole or in part at their last addresses
as the same


                                       15
<PAGE>

appear on the Note register; provided that if the Company shall give such
notice, it shall also give such notice, and notice of the Notes to be redeemed,
to the Trustee. Such mailing shall be by first class mail. The notice, if mailed
in the manner herein provided, shall be conclusively presumed to have been duly
given, whether or not the holder receives such notice. In any case, failure to
give such notice by mail or any defect in the notice to the holder of any Note
designated for redemption as a whole or in part shall not affect the validity of
the proceedings for the redemption of any other Note.

      Each such notice of redemption shall specify (a) the Notes to be redeemed
(including CUSIP numbers), (b) the aggregate principal amount of Notes to be
redeemed, (c) the date fixed for redemption, (d) the redemption price at which
Notes are to be redeemed, (e) the place or places of payment, (f) that payment
shall be made upon presentation and surrender of such Notes, (g) that interest
accrued to the date fixed for redemption and any Make-Whole Payment shall be
paid as specified in said notice and (h) that on and after said date, interest
thereon or on the portion thereof to be redeemed shall cease to accrue. Such
notice shall also state the current Conversion Price and the date on which the
right to convert such Notes or portions thereof into Common Stock shall expire.
If fewer than all the Notes are to be redeemed, the notice of redemption shall
identify the Notes to be redeemed. In case any Note is to be redeemed in part
only, the notice of redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that on and after the date fixed for
redemption, upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion thereof shall be issued. Any such notice of
redemption must contain a specific statement by the Trustee that no
representation or warranty is being made as to the correctness of the CUSIP
number either as printed on the Notes or as contained in the notice of
redemption and that reliance may be placed only on the other identification
numbers printed on the Notes.

      On or prior to the Business Day prior to the redemption date specified in
the notice of redemption given as provided in this Section 3.2, the Company
shall deposit with the Trustee or with one or more paying agents (or, if the
Company is acting as its own paying agent, set aside, segregate and hold in
trust as provided in Section 4.4) an amount of money sufficient to redeem on the
redemption date all the Notes so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued and unpaid interest to the date fixed
for redemption and any Make-Whole Payment. If any Note called for redemption is
converted pursuant hereto, any money deposited with the Trustee or any paying
agent or so segregated and held in trust for the redemption of such Note shall
be paid to the Company upon its request or, if then held by the Company, shall
be discharged from such trust.

      If fewer than all the Notes are to be redeemed, the Company shall give the
Trustee written notice in the form of an Officers' Certificate not fewer than 45
days (or such shorter period of time as may be acceptable to the Trustee) prior
to the redemption date as to the aggregate principal amount of Notes to be
redeemed.

      If fewer than all the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed (in principal amounts of $1,000 or
integral multiples thereof), by lot. If any Note selected for partial redemption
is converted in part after such selection, the


                                       16
<PAGE>

converted portion of such Note shall be deemed (so far as may be) to be the
portion to be selected for redemption. The Notes (or portions thereof) so
selected shall be deemed duly selected for redemption for all purposes hereof,
notwithstanding that any such Note is converted as a whole or in part before the
mailing of the notice of redemption.

      Upon any redemption of less than all the Notes, the Company and the
Trustee may treat as outstanding any Notes surrendered for conversion during the
period of 15 days next preceding the mailing of a notice of redemption and need
not treat as outstanding any Note authenticated and delivered during such period
in exchange for the unconverted portion of any Note converted in part during
such period.

      Section 3.3 Payment of Notes Called for Redemption. If notice of
redemption has been given as provided in Section 3.2, the Notes or portion of
Notes with respect to which such notice has been given shall, unless converted
into Common Stock pursuant to the terms hereof, become due and payable on the
date and at the place or places stated in such notice at the applicable
redemption price, together with interest thereon accrued to the date fixed for
redemption and any Make-Whole Payment, and on and after said date (unless the
Company shall default in the payment of such Notes at the redemption price,
together with interest thereon accrued to said date and any Make-Whole Payment),
interest on the Notes or portion of Notes so called for redemption shall cease
to accrue, and such Notes shall cease after the close of business on the
Business Day next preceding the date fixed for redemption to be convertible into
Common Stock and, except as provided in Sections 7.6 and 12.4, to be entitled to
any benefit or security under this Indenture, and the holders thereof shall have
no right in respect of such Notes except the right to receive the redemption
price thereof and unpaid interest thereon to the date fixed for redemption and
any Make-Whole Payment. On presentation and surrender of such Notes at the place
of payment specified in the notice, the said Notes or the specified portions
thereof shall be paid and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to the date fixed for redemption
and any Make-Whole Payment; provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable to the holders of
such Notes registered as such on the relevant record date subject to the terms
and provisions of Section 2.3 hereof.

      Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and make available for delivery to
the holder thereof, at the expense of the Company, a new Note or Notes, of
authorized denominations, in principal amount equal to the unredeemed portion of
the Notes so presented.

      If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid or
duly provided for, bear interest from the date fixed for redemption at the rate
borne by the Note and such Note shall remain convertible into Common Stock until
the principal and premium, if any, shall have been paid or duly provided for.

      Section 3.4 Conversion Arrangement on Call for Redemption. In connection
with any redemption of Notes, the Company may arrange for the purchase and
conversion of any Notes by an agreement with one or more investment bankers or
other purchasers to purchase such Notes


                                       17
<PAGE>

by paying to the Trustee in trust for the Noteholders, on or prior to the
Business Day prior to the date fixed for redemption, an amount not less than the
applicable redemption price, together with interest accrued to the date fixed
for redemption and any Make-Whole Payment, of such Notes. Notwithstanding
anything to the contrary contained in this Article III, the obligation of the
Company to pay the redemption price of such Notes, together with interest
accrued to the date fixed for redemption and any Make-Whole Payment, shall be
deemed to be satisfied and discharged to the extent such amount is so paid by
such purchasers. If such an agreement is entered into, a copy of which shall be
filed with the Trustee prior to the date fixed for redemption, any Notes not
duly surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such holders and (notwithstanding anything to the contrary
contained in Article XIV) surrendered by such purchasers for conversion, all as
of the time immediately prior to the close of business on the date fixed for
redemption (and the right to convert any such Notes shall be deemed to have been
extended through such time), subject to payment of the above amount as
aforesaid. At the direction of the Company, the Trustee shall hold and dispose
of any such amount paid to it in the same manner as it would monies deposited
with it by the Company for the redemption of Notes. Without the Trustee's prior
written consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Notes shall increase or otherwise affect any of
the powers, duties, responsibilities or obligations of the Trustee as set forth
in this Indenture, and the Company agrees to indemnify the Trustee from, and
hold it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Notes between the Company and such purchasers including the costs and expenses
incurred by the Trustee in the defense of any claim or liability arising out of
or in connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.

      Section 3.5 Repurchase of Notes Upon a Change of Control.

            (a) If a Change of Control shall occur at any time, then each holder
of Notes shall have the right to require that the Company repurchase such
holder's Notes in whole or in part in integral multiples of $1,000 at a purchase
price (the "Change of Control Purchase Price") in cash equal to 100% of the
principal amount of such Notes, plus accrued and unpaid interest thereon, if
any, to the purchase date (the "Change of Control Purchase Date") pursuant to
the offer described in Section 3.5(b) (the "Change of Control Offer") and in
accordance with the other procedures set forth in this Indenture.

            (b) Within 30 days following any Change of Control, the Company
shall, unless the Company shall have given each Noteholder notice of its
irrevocable intention to redeem all outstanding Notes as described in Section
3.1, notify the Trustee thereof and give written notice (the "Change of Control
Notice") of such Change of Control to each holder of Notes, by first-class mail,
postage prepaid, at the Noteholder's address appearing in the Note register,
stating, among other things, (i) that a Change of Control has occurred, (ii) the
Change of Control Purchase Price, (iii) the Change of Control Purchase Date
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act), (iv) that any Note not
tendered shall continue to accrue interest and to have all of the benefits of
this Indenture, (v) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Notes


                                       18
<PAGE>

accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date, (vi) that Noteholders
electing to have any Notes purchased pursuant to a Change of Control Offer shall
be required to surrender the Notes, with the form entitled "Option of Noteholder
to Elect Purchase" on the reverse of the Notes completed, to the Company at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Purchase Date, (vii) that
Noteholders shall be entitled to withdraw their election if the Company
receives, not later than the close of business on the second Business Day
preceding the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Noteholder, the principal
amount of Notes delivered for purchase, and a statement that such Noteholder is
withdrawing his election to have such Notes purchased, and (viii) that
Noteholders whose Notes are being purchased only in part shall be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.

      The Company shall comply with the requirements of Rule 13e-4 and 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes in connection with a Change of Control.

            (c) On the Change of Control Purchase Date, the Company shall, to
the extent lawful, (i) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Offer, and (ii) on or before the next Business
Day prior to the Change of Control Purchase Date, the Company shall deposit with
the Trustee an amount equal to the Change of Control Purchase Price in respect
of all Notes or portions thereof so tendered and deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof tendered to the Company. The
Trustee shall promptly mail to each Noteholder of Notes so accepted payment in
an amount equal to the Change of Control Purchase Price of such Notes, and the
Trustee shall promptly authenticate and mail to each Noteholder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note shall be in a principal amount of $1,000 or an
integral multiple thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.

            (d) The term "Change of Control" shall mean an event or series of
events as a result of which (i) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act) acquires "beneficial ownership"
(as determined in accordance with Rule 13d-3 under the Exchange Act), directly
or indirectly, of shares representing more than 50% of the combined voting power
of the then outstanding Voting Stock or (ii) the Company consolidates with or
merges into any other person, or conveys, transfers or leases all or
substantially all of its assets to any person, or any other person merges into
the Company, and, in the case of any such transaction, the outstanding Common
Stock of the Company is changed or exchanged as a result, unless the
shareholders of the Company immediately before such transaction own, directly or
indirectly, immediately following such transaction, at least 51% of the combined
voting power of the outstanding voting securities of the person resulting from
such transaction in substantially the same proportion as their ownership of the
Voting Stock immediately before such transaction; provided that a Change of
Control shall not be deemed to


                                       19
<PAGE>

have occurred if either (x) the closing price per share of the Common Stock for
any five Trading Days within the period of 10 consecutive Trading Days ending
immediately after the later of the Change of Control or the public announcement
of the Change of Control (in the case of a Change of Control under clause (i)
above) or ending immediately before the Change of Control (in the case of a
Change of Control under clause (ii) above) shall equal or exceed 105% of the
Conversion Price of the Notes in effect on each such Trading Day, or (y) at
least 90% of the consideration (determined as of the date on which the Change of
Control is triggered and excluding cash payments for fractional shares) in the
transaction or transactions constituting the Change of Control consists of
shares of common stock traded on a national securities exchange or quoted on the
Nasdaq National Market and as a result of such transaction or transactions the
Notes become convertible solely into such common stock.

                                   ARTICLE IV

                       PARTICULAR COVENANTS OF THE COMPANY

      Section 4.1 Payment of Principal, Premium and Interest. The Company shall
duly and punctually pay or cause to be paid the principal of and premium, if
any, and interest on each of the Notes at the places, at the respective times
and in the manner provided herein and in the Notes. Each installment of interest
on the Notes due on any semi-annual interest payment date shall be payable (a)
in respect to Notes held of record by the Depositary or its nominee in same day
funds and (b) in respect of holders other than the Depositary or its nominee by
mailing checks for the interest payable to or upon the written order of the
holders of Notes entitled thereto as they shall appear on the Note register;
provided that, with respect to any holder of Notes with an aggregate principal
amount equal to or in excess of $5,000,000, at the request (such request to
include appropriate wire instructions) of such holder in writing to the Trustee,
interest on such holder's Notes shall be paid by wire transfer in immediately
available funds to an account in the continental United States of America and
any such request shall be deemed a continuing request unless and until revoked
in writing. An installment of principal or interest shall be considered paid on
the date due if the Trustee or paying agent (other than the Company, a
subsidiary of the Company or any Affiliate of any of them) holds on that date
money designated for and sufficient to pay the installment of principal or
interest and is not prohibited from paying such money to the holders of the
Notes pursuant to the terms of this Indenture.

      Section 4.2 Maintenance of Office or Agency. The Company may from time to
time designate one or more offices or agencies where the Notes may be
surrendered for registration of transfer or exchange or for presentation for
payment or for conversion or redemption and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of any such office or agency. If at any time the Company
shall fail to maintain any such office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.


                                       20
<PAGE>

      The Company hereby initially designates the Trustee as paying agent, Note
registrar and conversion agent and the Corporate Trust Office of the Trustee as
the office or agency of the Company for the purposes set forth in the first
paragraph of this Section 4.2.

      So long as the Trustee is the Note registrar, the Trustee agrees to mail,
or cause to be mailed, the notices set forth in Section 7.11(a) and the third
paragraph of Section 7.12.

      Section 4.3 Appointments to Fill Vacancies in Trustee's Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
shall appoint, in the manner provided in Section 7.11, a Trustee, so that there
shall at all times be a Trustee hereunder.

      Section 4.4 Provisions as to Paying Agent.

            (a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, the Company or the
Trustee, as the case may be, shall cause such paying agent to execute and
deliver to the Trustee an instrument in which such agent shall agree with the
Trustee, subject to the provisions of this Section 4.4:

                  (i) that it shall hold all sums held by it as such agent for
      the payment of the principal of, premium, if any, or interest on the Notes
      (whether such sums have been paid to it by the Company or by any other
      obligor on the Notes) in trust for the benefit of the holders of the
      Notes;

                  (ii) that it shall give the Trustee notice of any failure by
      the Company (or by any other obligor on the Notes) to make any payment of
      the principal of, premium, if any, or interest on the Notes when the same
      shall be due and payable; and

                  (iii) that at any time during the continuance of an Event of
      Default, upon request of the Trustee, it shall forthwith pay to the
      Trustee all sums so held in trust.

      The Company shall, before each due date of the principal of, premium, if
any, or interest on the Notes, deposit with the paying agent a sum sufficient to
pay such principal, premium, if any, or interest, and (unless such paying agent
is the Trustee) the Company shall promptly notify the Trustee of any failure to
take such action.

            (b) If the Company shall act as its own paying agent, it shall, on
or before each due date of the principal of, premium, if any, or interest or any
Make-Whole Payment on the Notes, set aside, segregate and hold in trust for the
benefit of the holders of the Notes a sum sufficient to pay such principal,
premium, if any, or interest so becoming due and shall notify the Trustee of any
failure to take such action and of any failure by the Company (or any other
obligor under the Notes) to make any payment of the principal of, premium, if
any, or interest or any Make-Whole Payment on the Notes when the same shall
become due and payable.


                                       21
<PAGE>

            (c) Anything in this Section 4.4 to the contrary notwithstanding,
the Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by the Company or any paying agent hereunder
as required by this Section 4.4, such sums to be held by the Trustee upon the
trusts herein contained and upon such payment by the Company or any paying agent
to the Trustee, the Company or such paying agent shall be released from all
further liability with respect to such sums.

            (d) Anything in this Section 4.4 to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section 4.4 is subject
to Sections 12.3 and 12.4.

      Section 4.5 Corporate Existence. Subject to Article XI, the Company shall
do or cause to be done all things necessary to preserve and keep in full force
and effect (a) its corporate existence, and the corporate or other existence of
any subsidiary of the Company, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such subsidiary and (b) the rights (charter and statutory), licenses and
franchises of the Company and its subsidiaries; provided that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate or other existence of any of its subsidiaries if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its subsidiaries, taken as a
whole, and that the loss thereof is not materially adverse to the Holders of the
Notes.

      Section 4.6 Maintenance of Status of Net.B@nk as Insured Depository
Institution. The Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect the status of Net.B@nk, its banking
subsidiary, as an insured depository institution and do or cause to be done all
things necessary to ensure that depository accounts of Net.B@nk are insured by
the Federal Deposit Insurance Corporation or any successor organization up to
the maximum amount permitted by 12 U.S.C. Section 1811 et seq. and the
regulations thereunder or any succeeding federal law, except as to individual
accounts or interests in employee benefit plans that are not entitled to
pass-through insurance under 12 U.S.C. Section 1821 (a)(1)(D).

      Section 4.7 Commission and Other Reports. The Company shall deliver to the
Trustee and each Holder, within 10 days after it files the same with the
Commission, copies of all reports and information (or copies of such portions of
any of the foregoing as the Commission may by rules and regulations prescribe),
if any, that the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act; provided that in the case of annual
reports, information may be incorporated by reference and furnished to Holders
at the time and in the manner in which such information is required to be
furnished to the Company's common shareholders. The Company agrees to continue
to comply with the filing and reporting requirements of the Commission as long
as any of the Notes are outstanding; provided, that if the Company is not
subject to the filing and reporting requirements of the Commission at any time,
(a) the Company shall provide the Trustee and each Holder with the reports and
information (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that are specified in Section
13 or 15(d) of the Exchange Act as if the Company were subject to such filing
and reporting requirements, and (b) the Company shall provide copies of such
reports and information to any prospective holder of the Notes promptly upon
written request and payment of reasonable costs of duplication and delivery. The
record date to identify


                                       22
<PAGE>

the Holders to whom such reports shall be furnished shall be no longer than 60
days prior to the date on which such reports are first mailed to the Holders on
the Notes. The Company shall also comply with the other provisions of the Trust
Indenture Act Section 314(a).

      Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).

      Section 4.8 Stay, Extension and Usury Laws. The Company (to the extent
that it may lawfully do so) shall not at any time insist upon, plead or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture; and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.

      Section 4.9 Compliance Statement; Notice of Defaults.

            (a) The Company shall deliver to the Trustee within 120 days after
the end of each Fiscal Year of the Company an Officers' Certificate stating
whether or not to the best knowledge of the signers thereof the Company is in
compliance (without regard to periods of grace or notice requirements) with all
conditions and covenants under this Indenture, and if the Company shall not be
in compliance, specifying such non-compliance and the nature and status thereof
of which such signer may have knowledge. The Company agrees to promptly notify
the Trustee of any change in the Fiscal Year.

            (b) The Company shall file with the Trustee written notice of the
occurrence of any default or Event of Default within ten days of its becoming
aware of any such default or Event of Default.

      Section 4.10 Taxes. The Company shall pay or discharge or cause to be paid
or discharged, before the same shall become delinquent, (a) all taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the Company
or its subsidiaries or upon the income, profits or property of the Company or
any such subsidiary and (b) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon the property of the Company or
any such subsidiary; provided that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which disputed amounts adequate reserves have
been made.


                                       23
<PAGE>

      Section 4.11 Insurance. The Company shall provide, or cause to be
provided, for itself and its subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, including, but
not limited to, products liability insurance and public liability insurance,
with reputable insurers or with the government of the United States of America
or an agency or instrumentality thereof, in such amounts with such deductibles
and by such methods as shall be determined in good faith by the Board of
Directors to be appropriate.

                                   ARTICLE V

                               NOTEHOLDERS' LISTS

      Section 5.1 Noteholders' Lists. The Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of holders of Notes and shall otherwise comply with Trust
Indenture Act Section 312(a). If the Trustee is not the Notes registrar, the
Company shall furnish or cause to be furnished to the Trustee on or before at
least seven Business Days preceding each interest payment date, redemption date,
purchase date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee reasonably may require of
the names and addresses of holders of Notes; and the Company shall otherwise
comply with Trust Indenture Act Section 312(a); provided however to the extent
there has been established a record date or special record date with respect to
such payment, any such list of holders shall be as of such record date or
special record date.

                                   ARTICLE VI

                              DEFAULTS AND REMEDIES

      Section 6.1 Events of Default. In case one or more of the following Events
of Default (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall have occurred and be continuing:

            (a) default in the payment of the principal of or premium, if any,
on the Notes when due at maturity, upon redemption or otherwise, including
failure by the Company to purchase the Notes when required under Section 3.5
(whether or not such payment shall be prohibited by Article XV of this
Indenture); or

            (b) default in the payment of any installment of interest on the
Notes as and when the same shall become due and payable (whether or not such
payment shall be prohibited by Article XV of this Indenture), and continuance of
such default for a period of 30 days; or

            (c) failure to provide a Change of Control Notice (whether or not
such Notice or payment pursuant to Section 3.5 shall be prohibited by Article XV
of this Indenture); or


                                       24
<PAGE>

            (d) failure on the part of the Company to duly observe or perform
any other covenant on the part of the Company in this Indenture (other than a
default in the performance or breach of a covenant that is specifically dealt
with elsewhere in this Section 6.1) that continues for a period of 90 days after
the date on which written notice of such failure, requiring the Company to
remedy the same, shall have been given to the Company by the Trustee, or to the
Company and a Responsible Officer of the Trustee by the holders of at least 25%
in aggregate principal amount of the Notes at the time outstanding (determined
in accordance with Section 8.4); or

            (e) the Company shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect, or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it or shall make a general assignment for the benefit of
creditors or shall fail generally to pay its debts as they become due; or

            (f) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 consecutive days;

then, and in each and every such case (other than an Event of Default specified
in Section 6.1(e) or (f)), unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding (determined
in accordance with Section 8.4), by notice in writing to the Company (and to the
Trustee if given by Noteholders), may declare the principal of and premium, if
any, on the Notes and the interest accrued thereon to be due and payable
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable, anything in this Indenture or in the Notes
contained to the contrary notwithstanding. If an Event of Default specified in
Section 6.1(e) or (f) occurs and is continuing, the principal of all the Notes
and the interest accrued thereon shall be immediately due and payable. The
foregoing provision is subject to the conditions that if, at any time after the
principal of the Notes shall have been so declared due and payable, and before
any judgment or decree for the payment of the monies due shall have been
obtained or entered as hereinafter provided, the Company shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments of
interest upon all Notes and the principal of and premium, if any, on any and all
Notes that shall have become due otherwise than by acceleration (with interest
on overdue installments of interest (to the extent that payment of such interest
is enforceable under applicable law) and on such principal and premium, if any,
at the rate borne by the Notes, to the date of such payment or deposit) and
amounts due to the Trustee pursuant to Section 7.7, and if any and all defaults
under this Indenture, other than the nonpayment of principal of, premium, if
any, and accrued interest on Notes that shall have become due by acceleration,
shall have been cured or waived pursuant to Section 6.7, then and in every such
case the holders of a majority in aggregate principal amount


                                       25
<PAGE>

of the Notes then outstanding, by written notice to the Company and to the
Trustee, may waive all defaults or Events of Default and rescind and annul such
declaration and its consequences; but no such waiver or rescission and annulment
shall extend to or shall affect any subsequent default or Event of Default, or
shall impair any right consequent thereto. The Company shall notify a
Responsible Officer of the Trustee, promptly upon becoming aware thereof, of any
Event of Default.

      In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned because
of such waiver or rescission and annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the holders of Notes and the Trustee shall be restored respectively to
their several positions and rights hereunder, and all rights, remedies and
powers of the Company, the holders of Notes and the Trustee shall continue as
though no such proceeding had been taken.

      Section 6.2 Payments of Notes on Default; Suit Therefor. The Company
covenants that (a) in case default shall be made in the payment of any
installment of interest upon any of the Notes as and when the same shall become
due and payable, and such default shall have continued for a period of 30 days,
or (b) in case default shall be made in the payment of the principal of or
premium, if any, on any of the Notes as and when the same shall have become due
and payable, whether at maturity of the Notes or in connection with any
redemption, by declaration or otherwise, then, upon demand of the Trustee, the
Company shall pay to the Trustee, for the benefit of the holders of the Notes,
the whole amount that then shall have become due and payable on all such Notes
for principal of, premium, if any, or interest, or both, as the case may be,
with interest upon the overdue principal of, premium, if any, and (to the extent
that payment of such interest is enforceable under applicable law) upon the
overdue installments of interest at the rate borne by the Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including reasonable compensation to the Trustee,
its agents, attorneys and counsel, and any expenses or liabilities incurred by
the Trustee hereunder other than through its negligence or bad faith. Until such
demand by the Trustee, the Company may pay the principal of and premium, if any,
and interest on the Notes to the registered holders, whether or not the Notes
are overdue.

      In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.

      In the case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Notes under Title
11 of the United States Code or any other applicable law, or in case a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or
similar official shall have been appointed for or taken possession of the
Company or such other obligor, the property of the Company or such


                                       26
<PAGE>

other obligor, or in the case of any other judicial proceedings relative to the
Company or such other obligor upon the Notes, or to the creditors or property of
the Company or such other obligor, the Trustee, irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand pursuant to the provisions of this Section 6.2, shall be entitled and
empowered, by intervention in such proceedings or otherwise, to file and prove a
claim or claims for the whole amount of principal, premium, if any, and interest
owing and unpaid in respect of the Notes and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
Noteholders allowed in such judicial proceedings relative to the Company or any
other obligor on the Notes, its or their creditors, or its or their property and
to collect and receive any monies or other property payable or deliverable on
any such claims and to distribute the same after the deduction of any amounts
due the Trustee under Section 7.7; and any receiver, assignee or trustee in
bankruptcy or reorganization, liquidator, custodian or similar official is
hereby authorized by each of the Noteholders to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Noteholders, to pay to the Trustee any amount due it
for reasonable compensation, expenses, advances and disbursements, including
counsel fees incurred by it up to the date of such distribution. To the extent
that such payment of reasonable compensation, expenses, advances and
disbursements out of the estate in any such proceedings shall be denied for any
reason, payment of the same shall be secured by a lien on, and shall be paid out
of, any and all distributions, dividends, monies, securities and other property
that the holders of the Notes may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.

      Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or adopt on behalf of any Noteholder any plan of
reorganization or arrangement affecting the Notes or the rights of any
Noteholder, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.

      All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes or the production thereof on any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.

      In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
holders of the Notes, and it shall not be necessary to make any holders of the
Notes parties to any such proceedings.

      Section 6.3 Application of Monies Collected by Trustee. Any monies
collected by the Trustee pursuant to this Article VI shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes


                                       27
<PAGE>

and stamping thereon the payment, if only partially paid, and upon surrender
thereof, if fully paid:

            First: To the payment of all amounts due the Trustee under this
      Indenture, including, without limitation Section 7.7;

            Second: Subject to the provisions of Article XV, in case the
      principal of the outstanding Notes shall not have become due and be
      unpaid, to the payment of interest on the Notes in default in the order of
      the maturity of the installments of such interest, with interest (to the
      extent that such interest has been collected by the Trustee) upon the
      overdue installments of interest at the rate borne by the Notes, such
      payments to be made ratably to the persons entitled thereto; and

            Third: Subject to the provisions of Article XV, in case the
      principal of the outstanding Notes shall have become due, by declaration
      or otherwise, and be unpaid, to the payment of the whole amount then due
      and unpaid upon the Notes for principal, premium, if any, and interest,
      with interest on the overdue principal and premium, if any, and (to the
      extent that such interest has been collected by the Trustee) upon overdue
      installments of interest at the rate borne by the Notes; and in case such
      monies shall be insufficient to pay in full the whole amounts so due and
      unpaid upon the Notes, then to the payment of such principal of, premium,
      if any, and interest without preference or priority of principal and
      premium, if any, over interest, or of interest over principal and premium,
      if any, or of any installment of interest over any other installment of
      interest, or of any Note over any other Note, ratably to the aggregate of
      such principal and premium, if any, and accrued and unpaid interest.

      Section 6.4 Proceedings by Noteholder. No holder of any Note shall have
any right by virtue of or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver, trustee,
liquidator, custodian or other similar official, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding, and no direction inconsistent
with such written request shall have been given to the Trustee pursuant to
Section 6.7; it being understood and intended, and being expressly covenanted by
the taker and holder of every Note with every other taker and holder and the
Trustee, that not one or more holders of Notes shall have any right in any
manner whatever by virtue of or by availing of any provision of this Indenture
to affect, disturb or prejudice the rights of any other holder of Notes, to
obtain or seek to obtain priority over or preference to any other such holder or
to enforce any right under this Indenture, except in the manner herein provided
and for the equal, ratable and common benefit of all holders of Notes (except as
otherwise provided herein). For the protection and


                                       28
<PAGE>

enforcement of this Section 6.4, each and every Noteholder and the Trustee shall
be entitled to such relief as can be given either at law or in equity.

      Notwithstanding any other provision of this Indenture and any provision of
any Note, the right of any holder of any Note to receive payment of the
principal of, premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder
except as otherwise set forth herein.

      Anything in this Indenture or the Notes to the contrary notwithstanding,
the holder of any Note, without the consent of either the Trustee or the holder
of any other Note, in his own behalf and for his own benefit, may enforce, and
may institute and maintain any proceeding suitable to enforce, his rights of
conversion as provided herein.

      Section 6.5 Proceedings by Trustee. In case of an Event of Default, the
Trustee may in its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.

      Section 6.6 Remedies Cumulative and Continuing. Except as provided in
Section 2.6, all powers and remedies given by this Article VI to the Trustee or
to the Noteholders shall, to the extent permitted by law, be deemed cumulative
and not exclusive of such powers and remedies or of any other powers and
remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Notes to exercise any right or
power accruing upon any default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such default or any acquiescence therein; and, subject to the
provisions of Section 6.4, every power and remedy given by this Article VI or by
law to the Trustee or to the Noteholders may be exercised from time to time, and
as often as shall be deemed expedient, by the Trustee or by the Noteholders.

      Section 6.7 Direction of Proceedings and Waiver of Defaults by Majority of
Noteholders. The holders of a majority in aggregate principal amount of the
Notes at the time outstanding (determined in accordance with Section 8.4) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee; provided that (a) such direction shall not be in
conflict with any rule of law or with this Indenture, (b) the Trustee may take
any other action deemed proper by the Trustee that is not inconsistent with such
direction and (c) such direction shall not in the estimation of the Trustee
involve it in personal liability. The holders of a majority in aggregate
principal amount of the Notes at the time outstanding (determined in accordance
with Section 8.4) may on behalf of the holders of all of the Notes waive any
past default or Event of Default hereunder and its consequences except (i) a
default in the payment of


                                       29
<PAGE>

interest or premium, if any, on, or the principal of, the Notes, (ii) a failure
by the Company to convert any Notes into Common Stock or (iii) a default in
respect of a covenant or provisions hereof that under Article X cannot be
modified or amended without the consent of the holders of all Notes then
outstanding. Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 6.7, said default or Event of Default shall
for all purposes of the Notes and this Indenture be deemed to have been cured
and to be not continuing and the Company, the Trustee and the holders of the
Notes shall be restored to their former positions and rights hereunder; but no
such waiver shall extend to any subsequent or other default or Event of Default
or impair any right consequent thereon.

      Section 6.8 Notice of Defaults. The Trustee shall, within 90 days after
the occurrence of a default, mail to all Noteholders, as the names and addresses
of such holders appear upon the Note register, notice of all defaults known to a
Responsible Officer, unless such defaults shall have been cured or waived before
the giving of such notice; provided that, except in the case of default in the
payment of the principal of, premium, if any, or interest on any of the Notes,
the Trustee shall be protected in withholding such notice if and so long as a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the interests of the
Noteholders.

      Section 6.9 Undertaking to Pay Costs. All parties to this Indenture agree,
and each holder of any Note by his acceptance thereof shall be deemed to have
agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or defenses
made by such party litigant; provided that the provisions of this Section 6.9
shall not apply to any suit instituted by the Trustee, to any suit instituted by
any Noteholder or group of Noteholders holding in the aggregate more than 10% in
principal amount of the Notes at the time outstanding (determined in accordance
with Section 8.4) or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of, premium, if any, or interest on
any Note on or after the due date expressed in such Note or to any suit for the
enforcement of the right to convert any Note in accordance with the provisions
of Article XIV.

                                  ARTICLE VII

                             CONCERNING THE TRUSTEE

      Section 7.1 Duties and Responsibilities of Trustee.

            (a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.

            (b) Except during the continuance of an Event of Default:


                                       30
<PAGE>

                  (i) the Trustee need perform only those duties that are
      specifically set forth in this Indenture and no others; and

                  (ii) in the absence of bad faith on its part, the Trustee may
      conclusively rely, as to the truth of the statements and the correctness
      of the opinions expressed therein, upon certificates or opinions furnished
      to the Trustee and conforming to the requirements of this Indenture;
      provided that in the case of any such certificates or opinions that by any
      provision hereof are specifically required to be furnished to the Trustee,
      the Trustee shall be under a duty to examine the same to determine whether
      or not they conform to the requirements of this Indenture (but need not
      confirm or investigate the accuracy of mathematical calculations or other
      facts stated therein).

            (c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:

                  (i) this paragraph (c) does not limit the effect of paragraph
      (b) of this Section 7.1;

                  (ii) the Trustee shall not be liable for any error of judgment
      made in good faith by an officer or officers of the Trustee unless it is
      proved that the Trustee was negligent in ascertaining the pertinent facts;
      and

                  (iii) the Trustee shall not be liable with respect to any
      action it takes or omits to take in good faith in accordance with a
      direction received by it pursuant to Section 6.7.

            (d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.1.

            (e) The Trustee may refuse to perform any duty or exercise any right
or power or expend or risk its own funds or otherwise incur any financial
liability unless it receives indemnity satisfactory to it against any loss,
liability or expense.

      Section 7.2 Reports by Trustee to Holders. Within 60 days after each May
15 commencing with the May 15 following the date of this Indenture, the Trustee
shall, but only if required by the Trust Indenture Act, mail to each Noteholder
a brief report dated as of such May 15 that complies with Trust Indenture Act
Section 313(a). The Trustee also shall comply with Trust Indenture Act Sections
313(b) and 313(c).

      The Company shall promptly notify the Trustee in writing if the Notes
become listed or delisted on any stock exchange or automatic quotation system.

      A copy of each report at the time of its mailing to Noteholders shall be
mailed to the Company and, to the extent required by Section 4.7 hereof and of
the Trust Indenture Act Section 313(d), filed with the Commission and each stock
exchange, if any, on which the Notes are listed.


                                       31
<PAGE>

      Section 7.3 Reliance on Documents, Opinions, Etc. Except as otherwise
provided in Section 7.1:

            (a) The Trustee may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, coupon or other paper or document
believed by it in good faith to be genuine and to have been signed or presented
by the proper party or parties;

            (b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed or required by the
Trust Indenture Act); and any resolution of the Board of Directors may be
evidenced to the Trustee by a copy thereof certified by the Secretary or an
Assistant Secretary of the Company;

            (c) The Trustee may consult with counsel of its selection and any
advice or opinion of counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in good
faith and in accordance with such advice or opinion of counsel;

            (d) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys, and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed by it with due care
hereunder; no Depositary, Custodian or paying agent who is not the Trustee shall
be deemed an agent of the Trustee, and the Trustee (in its capacity as Trustee)
shall not be responsible for any act or omission by any such Depositary,
Custodian or paying agent;

            (e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by the Indenture at the request or direction of
any of the holders pursuant to this Indenture unless such holders have offered
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities that would be incurred by it in compliance with such request or
direction.

            (f) Subject to the provisions of Section 7.1(c), the Trustee shall
not be liable for any action it takes or omits to take in good faith that it
believes to be authorized or within its rights or powers;

            (g) In connection with any request to transfer or exchange any Note,
the Trustee may request a direction (in the form of an Officers' Certificate)
from the Company and an Opinion of Counsel with respect to compliance with any
restrictions on transfer or exchange imposed by this Indenture, the Securities
Act, other applicable law or the rules and regulations of any exchange on which
the Notes or the capital stock may be traded, and the Trustee may rely and shall
be protected in acting upon such direction and in accordance with such Officers'
Certificate and Opinion of Counsel;

            (h) The Trustee may rely and shall be fully protected in acting upon
the determination and notice by the Company of the Conversion Price; and


                                       32
<PAGE>

            (i) The Trustee shall not be deemed to have knowledge of any Event
of Default or other fact or event upon the occurrence of which it may be
required to take action hereunder unless one of its Responsible Officers has
actual knowledge thereof.

            (j) The Trustee's privileges, protections and immunities from
liability and its rights to compensation and indemnification in connection with
the performance of its duties under this Indenture shall extend to the Trustee
when serving in the roles of paying agent, authenticating agent, conversion
agent and Note registrar, as well as to the Trustee's officers, directors,
employees and agents. Such privileges, protections, immunities and rights to
indemnification, together with the Trustee's right to compensation, shall
survive the Trustee's resignation or removal in any or all of the capacities it
may be serving hereunder and final payment of the Notes.

            (k) No recourse under or upon any obligation, covenant or agreement
of the Trustee in this Indenture or in any supplemental indenture shall be had
against any officer, director, employee or agent, as such, past, present or
future, of the Trustee or of any successor entity, either directly or through
the Trustee or any successor entity, whether by virtue of any constitution,
statute or rule of law, by the enforcement of any assessment or penalty or
otherwise, it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as consideration for, the
execution of this Indenture.

      Section 7.4 No Responsibility for Recitals, Etc. The recitals contained
herein and in the Notes (except in the Trustee's certificate of authentication)
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.

      Section 7.5 Trustee, Paying Agents, Conversion Agents or Registrar May Own
Notes. The Trustee, any paying agent, any conversion agent or any Note
registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.

      Section 7.6 Monies to Be Held in Trust. Subject to the provisions of
Section 12.4, all monies received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as may be
agreed to in writing from time to time by the Company and the Trustee.

      Section 7.7 Compensation and Expenses of Trustee. The Company shall pay to
the Trustee from time to time, and the Trustee shall be entitled to, such
compensation as the Company and the Trustee shall from time to time agree in
writing, for all services rendered by it hereunder in any capacity (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Company shall pay or reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or


                                       33
<PAGE>

made by the Trustee in accordance with any of the provisions of this Indenture
(including the reasonable fees and expenses of its counsel and of all persons
not regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence or bad faith. The Company also shall indemnify
each of the Trustee or any predecessor Trustee in any capacity under this
Indenture and its respective agents and any authenticating agent and their
respective officers, directors, employees and agents for, and to hold them
harmless against, any and all loss, liability, damage, claim or expense,
including taxes (other than taxes based on the income of the Trustee) and
reasonable counsel fees and expenses incurred without negligence or bad faith on
the part of the Trustee or any such other indemnified parties, as the case may
be, and arising out of or in connection with the acceptance or administration of
this trust or in any other capacity hereunder, including the costs and expenses
of defending themselves against any claim of liability in the premises. The
obligations of the Company under this Section 7.7 to compensate or indemnify the
Trustee and to pay or reimburse the Trustee for expenses, disbursements and
advances shall be secured by a lien prior to that of the Notes upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the benefit of the holders of particular Notes. The obligation of the
Company under this Section shall survive the satisfaction and discharge of this
Indenture.

      Section 7.8 Officers' Certificate as Evidence. Except as otherwise
provided in Section 7.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Trustee, be deemed to be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such Officers' Certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken or omitted by it under the
provisions of this Indenture upon the faith thereof.

      Section 7.9 Conflicting Interests of Trustee. In the event that the Trust
Indenture Act is applicable hereto, and if the Trustee has or shall acquire a
conflicting interest within the meaning of Trust Indenture Act Section 310(b)
and there exists an Event of Default hereunder (exclusive of any period of grace
or requirement of notice), the Trustee shall either eliminate such interest or
resign, to the extent and in the manner provided by, and subject to the
provisions of, the Trust Indenture Act and this Indenture.

      Section 7.10 Eligibility of Trustee. There shall at all times be a Trustee
hereunder that shall be a person that satisfied the requirements of Trust
Indenture Act Section 310(a)(1) and Section 310(a)(5) and that has a combined
capital and surplus of at least $50,000,000. If such person makes available to
the public reports of condition or audited financial statements at least
annually, then for the purposes of this Section, the combined capital and
surplus of such person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition or audited financial
statements. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article VII.

      Section 7.11 Resignation or Removal of Trustee.


                                       34
<PAGE>

            (a) The Trustee may at any time resign by giving written notice of
such resignation to the Company; and the Company shall mail, or cause to be
mailed, notice thereof to the holders of Notes at their addresses as they shall
appear on the Note register. Upon receiving such notice of resignation, the
Company shall promptly appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee.

            (b) In case at any time any of the following shall occur:

                  (i) the Trustee shall fail to comply with Section 7.9 after
      written request therefor by the Company or by any Noteholder who has been
      a bona fide holder of a Note or Notes for at least six months; or

                  (ii) the Trustee shall cease to be eligible in accordance with
      the provisions of Section 7.10 and shall fail to resign after written
      request therefor by the Company or by any such Noteholder; or

                  (iii) the Trustee shall become incapable of acting, or shall
      be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
      its property shall be appointed, or any public officer shall take charge
      or control of the Trustee or of its property or affairs for the purpose of
      rehabilitation, conservation or liquidation,

then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee or any Noteholder who
has been a bona fide holder of a Note or Notes for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, remove the Trustee and appoint a successor
trustee.

            (c) The holders of a majority in aggregate principal amount of the
Notes at the time outstanding may at any time remove the Trustee and nominate a
successor trustee, which shall be deemed appointed as successor trustee unless
within ten days after notice to the Company of such nomination the Company
objects thereto, in which case the Trustee so removed or any Noteholder, upon
the terms and conditions and otherwise as provided in the next paragraph, may
petition any court of competent jurisdiction for an appointment of a successor
trustee.

      If no successor trustee shall have been so appointed and have accepted
appointment within 60 days after removal or the mailing of such notice of
resignation to the Noteholders, the Trustee resigning or being removed may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or, in the case of either resignation or removal, any Noteholder who
has been a bona fide holder of a Note or Notes for at least six months may, on
behalf of himself and all others similarly situated, petition any such court for
the appointment of


                                       35
<PAGE>

a successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.

            (d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 7.11 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 7.12.

      Section 7.12 Acceptance by Successor Trustee. Any successor trustee
appointed as provided in Section 7.11 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon, the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but on the written request of the Company
or of the successor trustee, the Trustee ceasing to act shall, upon payment of
any amounts then due it pursuant to the provisions of Section 7.7, execute and
deliver an instrument transferring to such successor trustee all the rights and
powers of the Trustee so ceasing to act. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien
upon all property and funds held or collected by such trustee as such, except
for funds held in trust for the benefit of holders of particular Notes, to
secure any amounts then due it pursuant to the provisions of Section 7.7.

      No successor trustee shall accept appointment as provided in this Section
7.12 unless at the time of such acceptance such successor trustee shall be
qualified under the provisions of Section 7.9 and eligible under the provisions
of Section 7.10.

      Upon acceptance of appointment by a successor trustee as provided in this
Section 7.12, the Company shall mail or cause to be mailed notice of the
succession of such Trustee hereunder to the holders of Notes at their addresses
as they shall appear on the Note register. If the Company fails to mail such
notice within ten days after acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be mailed at the expense of the
Company.

      Section 7.13 Successor, by Merger, Etc. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor to
the Trustee hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided such corporation
shall be qualified under the provisions of Section 7.9 and eligible under the
provisions of Section 7.10.

      Section 7.14 Limitation on Rights of Trustee as Creditor. If and when the
Trustee shall be or become a creditor of the Company (or any other obligor upon
the Notes) and the Trust Indenture Act is applicable hereto, the Trustee shall
be subject to the provisions of Trust Indenture Act Section 311(a) or, if
applicable, Trust Indenture Act Section 311(b) regarding the collection of the
claims against the Company (or any such other obligor).


                                       36
<PAGE>

                                  ARTICLE VIII

                           CONCERNING THE NOTEHOLDERS

      Section 8.1 Action by Noteholders. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article IX or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date as the record date for determining holders
entitled to take such action. The record date shall be not more than 15 days
prior to the date of commencement of solicitation of such action.

      Section 8.2 Proof of Execution by Noteholders. Subject to the provisions
of Sections 7.1, 7.2 and 9.5, proof of the execution of any instrument by a
Noteholder or by agent or proxy shall be sufficient if made in accordance with
such reasonable rules and regulations as may be prescribed by the Trustee or in
such manner as shall be satisfactory to the Trustee. The holding of Notes shall
be proved by the Note register or by a certificate of the Note registrar.

      The record of any Noteholders' meeting shall be proved in the manner
provided in Section 9.5.

      Section 8.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any
paying agent, any conversion agent and any Note registrar may deem the person in
whose name such Note shall be registered upon the books of the Company to be,
and may treat such person as, the absolute owner of such Note (whether or not
such Note shall be overdue and notwithstanding any notation of ownership or
other writing thereon) for the purpose of receiving payment of or on account of
the principal of, premium, if any, and interest on such Note, for conversion of
such Note and for all other purposes; and neither the Company nor the Trustee
nor any paying agent nor any conversion agent nor any Note registrar shall be
affected by any notice to the contrary. All such payments so made to any holder
for the time being, or upon order of such holder, shall be valid and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for monies payable upon any such Note.

      The Depositary shall be deemed to be the owner of any global Note for all
purposes, including receipt of notices to Noteholders and payment of principal
of, premium, if any, and interest on the Notes. None of the Company, the Trustee
(in its capacity as Trustee), any paying agent or the Note registrar (or
co-registrar) shall have any responsibility for any aspect of the records
relating to or payments made on account of beneficial interests of a global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests; provided that the foregoing shall not apply to
the Trustee or any other person acting in its capacity as Custodian.


                                       37
<PAGE>

      Section 8.4 Company-Owned Notes Disregarded. In determining whether the
holders of the requisite aggregate principal amount of Notes have concurred in
any direction, consent, waiver or other action under this Indenture, Notes that
are owned by the Company or any other obligor on the Notes or by any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Notes shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, consent, waiver or other
action, only Notes that a Responsible Officer actually knows are so owned shall
be so disregarded. Notes so owned that have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 8.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledger's right to vote
such Notes and that the pledgee is not the Company, any other obligor on the
Notes or a person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor. In
the case of a dispute as to such right, any decision by the Trustee taken upon
the advice of counsel shall be full protection to the Trustee. Upon request of
the Trustee, the Company shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Notes, if any, known by the Company to
be owned or held by or for the account of any of the above described persons;
and subject to Section 7.1, the Trustee shall be entitled to accept such
Officers' Certificate as conclusive evidence of the facts therein set forth and
of the fact that all Notes not listed therein are outstanding for the purpose of
any such determination.

      Section 8.5 Revocation of Consents, Future Holders Bound. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
8.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection with
such action, any holder of a Note that is shown by the evidence to be included
in the Notes the holders of which have consented to such action may, by filing
written notice with the Trustee at its Corporate Trust Office and upon proof of
holding as provided in Section 8.2, revoke such action so far as concerns such
Note. Except as aforesaid, any such action taken by the holder of any Note shall
be conclusive and binding upon such holder and upon all future holders and
owners of such Note and of any Notes issued in exchange or substitution
therefor, irrespective of whether any notation in regard thereto is made upon
such Note or any Note issued in exchange or substitution therefor.

                                   ARTICLE IX

                              NOTEHOLDERS' MEETINGS

      Section 9.1 Purposes for Which Meetings May be Called. A meeting of
Noteholders may be called at any time and from time to time pursuant to the
provisions of this Article IX for any of the following purposes:

            (a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to consent to the waiving of any default
hereunder and its consequences, or to take any other action authorized to be
taken by Noteholders pursuant to any of the provisions of Article VI;


                                       38
<PAGE>

            (b) to remove the Trustee and appoint a successor trustee pursuant
to the provisions of Article VII;

            (c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.2; or

            (d) to take any other action authorized to be taken by or on behalf
of the holders of any specified aggregate principal amount of the Notes under
any other provisions of this Indenture or under applicable law.

      Section 9.2 Manner of Calling Meetings; Record Date. The Trustee may at
any time call a meeting of Noteholders to take any action specified in Section
9.1, to be held at such time and at such place in the City of New York, State of
New York, as the Trustee shall determine. Notice of every meeting of the
Noteholders, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting, shall be mailed not less
than 30 nor more than 60 days prior to the date fixed for the meeting to such
Noteholders at their addresses as such addresses appear in the Note register.
For the purpose of determining Noteholders entitled to notice of any meeting of
Noteholders, the Trustee shall fix in advance a date as the record date for such
determination, such date to be a Business Day not more than ten days prior to
the date of the mailing of such notice as hereinabove provided. Only persons in
whose name any Note shall be registered in the Note register at the close of
business on a record date fixed by the Trustee as aforesaid, or by the Company
or the Noteholders as provided in Section 9.3, shall be entitled to notice of
the meeting of Noteholders with respect to which such record date was so fixed.

      Section 9.3 Call of Meeting by Company or Noteholders. In case at any time
the Company, pursuant to a resolution of its Board of Directors or the holders
of at least 10% in aggregate principal amount of the Notes then outstanding
shall have requested the Trustee to call a meeting of Noteholders to take any
action authorized in Section 9.1 by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have mailed notice of such meeting within 20 days after receipt of such request,
then the Company or the holders of Notes in the amount above specified, as the
case may be, may fix the record date with respect to, and determine the time and
the place for, such meeting and may call such meeting to take any action
authorized in Section 9.1, by mailing notice thereof as provided in Section 9.2.
The record date fixed as provided in the preceding sentence shall be set forth
in a written notice to the Trustee and shall be a Business Day not less than 15
nor more than 20 days after the date on which the original request is sent to
the Trustee.

      Section 9.4 Who May Attend and Vote at Meetings. Only persons entitled to
receive notice of a meeting of Noteholders and their respective proxies duly
appointed by an instrument in writing shall be entitled to vote at such meeting.
The only persons who shall be entitled to be present or to speak at any meeting
of Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel. When a determination of
Noteholders entitled to vote at any meeting of Noteholders has been made as
provided in this Section, such determination shall apply to any adjournments
thereof.


                                       39
<PAGE>

      Section 9.5 Manner of Voting at Meetings and Record To Be Kept. The vote
upon any resolution submitted to any meeting of Noteholders shall be by written
ballots on each of which shall be subscribed the signature of the Noteholder or
proxy casting such ballot and the identifying number or numbers of the Notes
held or represented in respect of which such ballot is cast. The chairman of the
meeting shall appoint two inspectors of votes who shall count all votes cast at
the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Noteholders shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was mailed as provided in Section 9.2. The record
shall show the identifying numbers of the Notes voting in favor of or against
any resolution. Each counterpart of such record shall be signed and verified by
the affidavits of the chairman and secretary of the meeting and one of the
counterparts shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee.

      Any counterpart record so signed and verified shall be conclusive evidence
of the matters therein stated and shall be the record referred to in clause (b)
of Section 8.1.

      Section 9.6 Exercise of Rights of Trustee and Noteholders Not To Be
Hindered or Delayed. Nothing in this Article IX contained shall be deemed or
construed to authorize or permit, by reason of any call of a meeting of
Noteholders or any rights expressly or impliedly conferred hereunder to make
such call, any hindrance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Noteholders under any of the
provisions of this Indenture or of the Notes.

                                   ARTICLE X

                             SUPPLEMENTAL INDENTURES

      Section 10.1 Supplemental Indentures Without Consent of Noteholders. The
Company, when authorized by a Board Resolution, and the Trustee may from time to
time and at any time enter into an indenture or indentures supplemental hereto
for one or more of the following purposes:

            (a) to make provision with respect to the conversion rights of the
holders of Notes pursuant to the requirements of Section 14.6;

            (b) subject to Article XV, to convey, transfer, assign, mortgage or
pledge to the Trustee, as security for the Notes, any property or assets;

            (c) to evidence the succession of another person to the Company, or
successive successions, and the assumption by the Successor Company of the
covenants, agreements and obligations of the Company pursuant to Article XI;


                                       40
<PAGE>

            (d) to add to the covenants of the Company such further covenants,
restrictions or conditions as the Board of Directors and the Trustee shall
consider to be for the benefit of the holders of Notes and to make the
occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions or conditions a default or an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture; provided that in respect of any such additional
covenant, restriction or condition, such supplemental indenture may provide for
a particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such default or may limit the remedies available to
the Trustee upon such default;

            (e) to provide for the issuance under this Indenture of Notes in
coupon form (including Notes registrable as to principal only) and to provide
for exchangeability of such Notes with the Notes issued hereunder in fully
registered form and to make all appropriate changes for such purpose;

            (f) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture that may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture that shall not adversely affect the interests of
the holders of the Notes;

            (g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or

            (h) to modify, eliminate or add to the provisions of this Indenture
to such extent necessary to effect the qualification of this Indenture under the
Trust Indenture Act (if applicable), or under any similar federal statute
hereafter enacted (if applicable).

      The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, to make any further appropriate agreements
and stipulations that may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any supplemental indenture
that affects the Trustee's own rights, duties, protections, privileges,
liabilities or immunities under this Indenture or otherwise.

      Any supplemental indenture authorized by the provisions of this Section
10.1 may be executed by the Company and the Trustee without the consent of the
holders of any of the Notes at the time outstanding, notwithstanding any of the
provisions of Section 10.2.

      Section 10.2 Supplemental Indentures With Consent of Noteholders. With the
consent (evidenced as provided in Article VIII) of the holders of not less than
a majority in aggregate principal amount of the Notes at the time outstanding,
the Company, when authorized by a Board Resolution and the Trustee may from time
to time and at any time enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or any supplemental
indenture or of modifying in any manner the rights of the holders of the Notes;
provided that, without the


                                       41
<PAGE>

consent of the holders of all Notes then outstanding, no such supplemental
indenture shall (a) extend the fixed maturity of any Note, or reduce the rate or
extend the time of payment of interest thereon, or reduce the principal amount
thereof or premium, if any, thereon or reduce any amount payable on redemption
thereof, alter the obligation of the Company to redeem the Notes at the option
of the holder upon the occurrence of a Change of Control or impair or affect the
right of any Noteholder to institute suit for the payment thereof or make the
principal thereof or interest or premium, if any, thereon payable in any coin or
currency other than that provided in the Notes, modify the subordination
provisions in a manner adverse to the holders of the Notes, or impair the right
to convert the Notes into Common Stock subject to the terms set forth herein
without the consent of the holder of each Note so affected or (b) reduce the
aforesaid percentage of Notes, the holders of which are required to consent to
any such supplemental indenture.

      Upon the request of the Company, accompanied by a copy of a Board
Resolution certified by its Secretary or Assistant Secretary authorizing the
execution of any such supplemental indenture, and upon the filing with the
Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee
shall join with the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties,
protections, privileges, liability or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.

      It shall not be necessary for the consent of the Noteholders under this
Section 10.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.

      Section 10.3 Effect of Supplemental Indentures. Any supplemental indenture
executed pursuant to the provisions of this Article X shall comply with the
Trust Indenture Act, as then in effect, if such supplemental indenture is then
required to so comply. Upon the execution of any supplemental indenture pursuant
to the provisions of this Article X, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitation of rights, obligations, duties and immunities under this Indenture of
the Trustee, the Company and the holders of Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.

      Section 10.4 Notation on Notes. Notes authenticated and delivered after
the execution of any supplemental indenture pursuant to the provisions of this
Article X may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture, but they need not do so. If the
Company or the Trustee shall determine to add such a notation, new Notes so
modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained in any such
supplemental indenture may, at the Company's expense, be prepared and executed
by the Company, authenticated by the Trustee (or an authenticating agent duly
appointed by the Trustee pursuant to Section 16.13) and delivered in exchange
for the Notes then outstanding, upon surrender of such Notes then outstanding.


                                       42
<PAGE>

      Section 10.5 Evidence of Compliance of Supplemental Indenture To Be
Furnished Trustee. The Trustee shall be furnished with and, subject to the
provisions of Sections 7.1 and 7.2, may rely upon an Officers' Certificate and
an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant hereto complies with the requirements of this Article X.

                                   ARTICLE XI

                    CONSOLIDATION, MERGER, SALE, CONVEYANCE,
                               TRANSFER AND LEASE

      Section 11.1 Company May Consolidate, Etc. on Certain Terms. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease
all or substantially all of its assets (determined on a consolidated basis),
whether in a single transaction or a series of related transactions, to any
person unless: (a) either the Company is the resulting, surviving or transferee
person (the "Successor Company") or the Successor Company is a person organized
and existing under the laws of the United States or any State thereof or the
District of Columbia, and the Successor Company (if not the Company) expressly
assumes by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under this
Indenture and the Notes, including the rights pursuant to Article XIV hereof,
(b) immediately after giving effect to such transaction, no Event of Default has
happened and is continuing and (c) the Company delivers to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.

      Section 11.2 Successor Company To Be Substituted. In case of any such
consolidation, merger, sale, conveyance, transfer or lease and upon the
assumption by the Successor Company, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due and
punctual payment of the principal of, premium, if any, and interest on all of
the Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such Successor
Company shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party hereto. When a Surviving
Person duly assumes all the obligations of the Company pursuant to their
Indenture and the Notes, the predecessor shall be released from all such
obligations.

      Section 11.3 Opinion of Counsel To Be Given to Trustee. The Trustee,
subject to Sections 7.1 and 7.2, shall receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or lease and any such assumption complies with the
provisions of this Article XI.

                                  ARTICLE XII

                    SATISFACTION AND DISCHARGE OF INDENTURE;
                                UNCLAIMED MONIES

      Section 12.1 Legal Defeasance and Covenant Defeasance of the Notes.


                                       43
<PAGE>

            (a) The Company may, at its option by Board Resolution, at any time,
with respect to the Notes, elect to have either paragraph (b) or paragraph (c)
below be applied to the outstanding Notes upon compliance with the conditions
set forth in paragraph (d).

            (b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Notes on the date the conditions set forth below are satisfied (hereinafter,
"legal defeasance"). For this purpose, such legal defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of the Sections of and matters under this
Indenture referred to in clauses (i) and (ii) below and to have satisfied all
its other obligations under such Notes and this Indenture insofar as such Notes
are concerned, except for the following, which shall survive until otherwise
terminated or discharged hereunder: (i) the rights of holders of outstanding
Notes to receive solely from the trust fund described in paragraph (d) below and
as more fully set forth in such paragraph, payments in respect of the principal
of, premium, if any, and interest on such Notes when such payments are due and
(ii) obligations listed in Section 12.3.

            (c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Sections 3.5 and 4.6 and
Article XI with respect to the outstanding Notes on and after the date the
conditions set forth in paragraph (d) are satisfied (hereinafter, "covenant
defeasance"), and the Notes shall thereafter be deemed to be not "outstanding"
for the purpose of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder.
For this purpose, such covenant defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document, and such omission to
comply shall not constitute a default or an Event of Default under Section 6.1,
but, except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby.

            (d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Notes:

                  (i) The Company shall have irrevocably deposited in trust with
      the Trustee, pursuant to an irrevocable trust and security agreement in
      form and substance satisfactory to the Trustee, cash or U.S. Government
      Obligations maturing as to principal and interest at such times, or a
      combination thereof, in such amounts as are sufficient, without
      consideration of the reinvestment of such interest and after payment of
      all federal, state and local taxes or other charges or assessments in
      respect thereof payable by the Trustee, in the opinion of a nationally
      recognized firm of independent public accountants expressed in a written
      certification thereof (in form and substance reasonably satisfactory to
      the Trustee) delivered to the Trustee, to pay the principal of, premium,
      if any, and


                                       44
<PAGE>

      interest on the outstanding Notes on the dates on which any such payments
      are due and payable in accordance with the terms of this Indenture and of
      the Notes;

                  (ii) (A) No Event of Default shall have occurred or be
      continuing on the date of such deposit, and (B) no default or Event of
      Default under Section 6.1(e) or 6.1(f) shall occur on or before the 123rd
      day after the date of such deposit;

                  (iii) Such deposit shall not result in a default under this
      Indenture or a breach or violation of, or constitute a default under, any
      other instrument or agreement to which the Company is a party or by which
      it or its property is bound;

                  (iv) In the case of a legal defeasance under paragraph (b)
      above, the Company has delivered to the Trustee an Opinion of Counsel
      stating that (A) the Company has received from, or there has been
      published by, the Internal Revenue Service a ruling or (B) since the date
      of this Indenture, there has been a change in the applicable federal
      income tax law, in either case to the effect that, and based thereon such
      opinion shall confirm that, the holders of the Notes shall not recognize
      income, gain or loss for federal income tax purposes as a result of such
      deposit, defeasance and discharge and shall be subject to federal income
      tax on the same amounts and in the same manner and at the same times as
      would have been the case if such deposit, defeasance and discharge had not
      occurred; and, in the case of a covenant defeasance under paragraph (c)
      above, the Company shall deliver to the Trustee an Officers' Certificate
      and an Opinion of Counsel, in form and substance reasonably satisfactory
      to the Trustee, to the effect that holders of the Notes shall not
      recognize income, gain or loss for federal income tax purposes as a result
      of such deposit and defeasance and shall be subject to federal income tax
      on the same amounts, in the same manner and at the same times as would
      have been the case if such deposit and defeasance had not occurred;

                  (v) The holders shall have a perfected security interest under
      applicable law in the cash or U.S. Government Obligations deposited
      pursuant to Section 12.1(d)(i) above;

                  (vi) The Company shall have delivered to the Trustee an
      Opinion of Counsel, in form and substance reasonably satisfactory to the
      Trustee, to the effect that, after the passage of 123 days following the
      deposit, the trust funds shall not be subject to any applicable
      bankruptcy, insolvency, reorganization or similar law affecting creditors'
      rights generally;

                  (vii) Such defeasance shall not cause the Trustee to have a
      conflicting interest with respect to any securities of the Company; and

                  (viii) The Company has delivered to the Trustee an Officers'
      Certificate and an Opinion of Counsel, each stating that all conditions
      precedent


                                       45
<PAGE>

      specified herein relating to the defeasance contemplated by this Section
      12.1 have been complied with;

provided that no deposit under clause (i) shall be effective to terminate the
obligations of the Company under the Notes or this Indenture prior to the
passage of 123 days following such deposit.

      Section 12.2 Termination of Obligations upon Cancellation of the Notes. In
addition to the Company's rights under Section 12.1, the Company may terminate
all of its obligations under this Indenture (subject to Section 12.3) when:

            (a) (i) all Notes theretofore authenticated and delivered (other
than Notes that have been destroyed, lost or stolen and that have been replaced
or paid as provided in Section 2.6) have been delivered to the Trustee for
cancellation, and (ii) the Company has paid or caused to be paid all other sums
payable hereunder and under the Notes by the Company; or

                  (b) (i) the Notes not previously delivered to the Trustee for
cancellation shall have become due and payable or are by their terms to become
due and payable within one year or are to be called for redemption under
arrangements satisfactory to the Trustee upon delivery of notice, (ii) the
Company shall have irrevocably deposited with the Trustee, as trust funds, cash,
in an amount sufficient to pay principal of and interest on the outstanding
Notes, to maturity or redemption, as the case may be, (iii) such deposit shall
not result in a breach or violation of, or constitute a default under, any
agreement or instrument pursuant to which the Company is a party or by which it
or its property is bound and (iv) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions related to such defeasance have been complied with.

      Section 12.3 Survival of Certain Obligations. Notwithstanding the
satisfaction and discharge of this Indenture and of the Notes referred to in
Section 12.1 or 12.2, the respective obligations of the Company and the Trustee
under Sections 2.3, 2.4, 2.5, 2.6, 3.1, 4.2, 5.1, 6.4, 6.9, 7.6, 7.7, 7.11,
12.5, 12.6, 12.7 and Article XIV shall survive until the Notes are no longer
Outstanding, and thereafter, the obligations of the Company and the Trustee
under Sections 6.9, 7.6, 7.7, 12.5, 12.6 and 12.7 shall survive. Nothing
contained in this Article XII shall abrogate any of the rights, obligations or
duties of the Trustee under this Indenture.

      Section 12.4 Acknowledgment of Discharge by Trustee. Subject to Section
12.7, after (i) the conditions of Section 12.1 or 12.2 have been satisfied, (ii)
the Company has paid or caused to be paid all other sums payable hereunder by
the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon written
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified in Section
12.3.

      Section 12.5 Application of Trust Assets. The Trustee shall hold any cash
or U.S. Government Obligations deposited with it in the irrevocable trust
established pursuant to Section 12.1 or 12.2, as the case may be. The Trustee
shall apply the deposited cash or the U.S.


                                       46
<PAGE>

Government Obligations, together with earnings thereon in accordance with this
Indenture and the terms of the irrevocable trust agreement established pursuant
to Section 12.1 or 12.2, as the case may be, to the payment of principal of,
premium, if any, and interest on the Notes. The cash or U.S. Government
Obligations so held in trust and deposited with the Trustee in compliance with
Section 12.1 or 12.2, as the case may be, shall not be part of the trust estate
under this Indenture, but shall constitute a separate trust fund for the benefit
of all holders entitled thereto. Except as specifically provided herein, the
Trustee shall not be requested to invest any amounts held by it for the benefit
of the holders or pay interest on uninvested amounts to any holder.

      The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 12.1 hereof or Section 12.2 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the holders of outstanding
Notes.

      Section 12.6 Repayment to the Company; Unclaimed Money. Subject to
applicable laws governing escheat of such property, and upon termination of the
trust established pursuant to Section 12.1 hereof or 12.2 hereof, as the case
may be, the Trustee shall promptly pay to the Company upon written request any
excess cash or U.S. Government Obligations held by it. Additionally, if amounts
for the payment of principal, premium, if any, or interest remains unclaimed for
two years, the Trustee shall pay such amounts back to the Company forthwith.
Thereafter, all liability of the Trustee with respect to such amounts shall
cease. After payment to the Company, holders entitled to such payment must look
to the Company for such payment as general creditors unless an applicable
abandoned property law designates another person.

      Section 12.7 Reinstatement. If the Trustee is unable to apply any cash or
U.S. Government Obligations in accordance with Section 12.1 or 12.2 by reason of
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to Section
12.1 or 12.2 until such time as the Trustee is permitted to apply all such cash
or U.S. Government Obligations in accordance with Section 12.1 or 12.2, as the
case may be; provided that if the Company makes any payment of principal of,
premium, if any, or interest on any Notes following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the holders of
such Notes to receive such payment from the amounts held by the Trustee.

                                  ARTICLE XIII

                    IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
                             OFFICERS AND DIRECTORS

      Section 13.1 Indenture and Notes Solely Corporate Obligations. No recourse
for the payment of the principal of, or premium, if any, or interest on any
Note, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any


                                       47
<PAGE>

incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or of any successor entity, either directly or through
the Company or any successor entity, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issuance of the Notes.

                                   ARTICLE XIV

                               CONVERSION OF NOTES

      Section 14.1 Right to Convert. Subject to and upon compliance with the
provisions of this Indenture, the holder of any Note shall have the right, at
the option of such holder, at any time through the close of business on the
Business Day immediately preceding the maturity date (except that, with respect
to any Note or portion of a Note that shall be called for redemption or
delivered for repurchase, such right shall terminate immediately prior to the
close of business on the last Business Day before the date fixed for redemption
of such Note or portion of a Note unless the Company shall default in payment
due upon redemption thereof) to convert the principal amount of any such Note,
or any portion of such principal amount that is $1,000 or an integral multiple
thereof, into that number of fully paid and nonassessable shares of Common Stock
(as such shares shall then be constituted) obtained by dividing the aggregate
principal amount of the Notes or portion thereof surrendered for conversion by
the Conversion Price in effect at such time rounded to the nearest 1/100,000th
of a share (with .0000005 being rolled upward), by surrender of the Note so to
be converted in whole or in part in the manner provided in Section 14.2. A
holder of Notes is not entitled to any rights of a holder of Common Stock until
such holder has converted such holder's Notes to Common Stock and only to the
extent such Notes are deemed to have been converted to Common Stock under this
Article XIV.

      Section 14.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege with respect to any Note in definitive form, the holder of
any such Note to be converted in whole or in part shall surrender such Note,
duly endorsed, at an office or agency maintained by the Company pursuant to
Section 4.2, accompanied by the funds, if any, required by the penultimate
paragraph of this Section 14.2, and shall give written notice of conversion in
the form provided on the form of Note (or such other notice that is acceptable
to the Company) to the office or agency that the holder elects to convert such
Note or the portion thereof specified in said notice. Such notice shall also
state the name or names (with address) in which the certificate or certificates
for shares of Common Stock that shall be issuable on such conversion shall be
issued and shall be accompanied by transfer taxes, if required pursuant to
Section 14.7. Each such Note surrendered for conversion shall, unless the shares
issuable on conversion are to be issued in the name of the holder of such Note
as it appears on the Note register, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or his duly authorized attorney.

      In order to exercise the conversion privilege with respect to any interest
in a global Note, the beneficial holder must complete the appropriate
instruction form for conversion pursuant to


                                       48
<PAGE>

the Depositary's book-entry conversion program and follow the other procedures
set forth in such program.

      As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or Notes
(or portion thereof) so converted), the Company shall issue and shall deliver to
such holder at the office or agency maintained by the Company for such purpose
pursuant to Section 4.2, a certificate or certificates for the number of full
shares issuable upon the conversion of such Note (or portion thereof) in
accordance with the provisions of this Article XIV and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 14.3. In case any Note of a
denomination greater than $1,000 shall be surrendered for partial conversion,
and subject to Section 2.3, the Company shall execute and the Trustee shall
authenticate and make available for delivery to the holder of the Note so
surrendered, without charge to him, a new Note or Notes in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.

      Each conversion shall be deemed to have been effected as to any such Note
(or portion thereof) on the date on which the requirements set forth above in
this Section 14.2 have been satisfied as to such Note (or portion thereof), and
the person in whose name any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become on
said date the holder of record of the shares represented thereby; provided that
any such surrender on any date when the stock transfer books of the Company
shall be closed shall constitute the person in whose name the certificates are
to be issued as the record holder thereof for all purposes on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Price in effect on the date upon which such Note
shall have been surrendered.

      Any Note or portion thereof surrendered for conversion during the period
from the close of business on the record date for any interest payment date
through the opening of business on the next succeeding interest payment date
shall (unless such Note or portion thereof being converted shall have been
called for redemption on a date during the period from the close of business on
or after any record date to the close of business on the Business Day following
the corresponding payment date) be accompanied by payment, in funds acceptable
to the Company, of an amount equal to the interest otherwise payable on such
interest payment date on the principal amount being converted; provided that no
such payment need be made if there shall exist at the time of conversion an
Event of Default under subsection (a) or (b) of Section 6.1 hereof. An amount
equal to such payment shall be paid by the Company on such interest payment date
to the holder of such Note at the close of business on such record date;
provided that if the Company shall default in the payment of interest on such
interest payment date, such amount shall be paid to the person who made such
required payment. The interest payment with respect to a Note called for
redemption on a date during the period from the close of business on or after
any record date to the close of business on the business Day following the
corresponding payment date shall be payable on the corresponding interest
payment date to the registered Holder at the close of business on that record
date (notwithstanding the conversion of such Note


                                       49
<PAGE>

before the corresponding interest payment date) and a Holder who elects to
convert need not include funds equal to the interest paid. Except as provided
above in this Section 14.2, no adjustment shall be made for interest accrued on
any Note converted or for dividends on any shares issued upon the conversion of
such Note as provided in this Article XIV.

      Upon the conversion of an interest in a global Note, the Trustee, or the
Custodian at the direction of the Trustee, shall make a notation on such global
Note as to the reduction in the principal amount represented thereby.

      Section 14.3 Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same holder, the number of fully paid and
non-assessable shares of Common Stock issuable upon conversion of a Note shall
be determined by dividing the aggregate principal amount of the Note or portion
thereof surrendered for conversion by the Conversion Price in effect at such
time. The aggregate number of shares of Common Stock issuable upon conversion
shall be rounded to the nearest 1/100,000th of a share (with .0000005 being
rolled upward). If any fractional share of stock would be issuable upon the
conversion of any Note or Notes, the Company shall make an adjustment therefor
in cash at the current market value thereof. The current market value of a share
of Common Stock shall be determined by multiplying the fractional share by the
Closing Price on the Trading Day immediately preceding the date on which the
Notes (or specified portions thereof) are deemed to have been converted.

      Section 14.4 Conversion Price. The Conversion Price shall be as specified
in the forms of Notes (herein called the "Conversion Price") attached as
Exhibits A and B hereto, subject to adjustment as provided in this Article XIV.

      Section 14.5 Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Company as follows:

            (a) In case the Company shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii) subdivide
or split its outstanding Common Stock into a greater number of shares, (iii)
combine its outstanding Common Stock into a smaller number of shares or (iv)
issue any shares of capital stock by reclassification of its Common Stock, the
Conversion Price in effect immediately prior thereto shall be adjusted so that
the Holder of any Notes thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock or other shares of capital stock
of the Company that such Holder would have owned or have been entitled to
receive after the occurrence of any of the events described above had such Notes
been surrendered for conversion immediately prior to the occurrence of such
event or the Record Date therefor, whichever is earlier. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
close of business on the Record Date for determination of shareholders entitled
to receive such dividend or distribution in the case of a dividend or
distribution (except as provided in Section 14.5(k)) and shall become effective
immediately after the close of business on the effective date in the case of a
subdivision, split, combination or reclassification. Any shares of Common Stock
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the close of


                                       50
<PAGE>

business on the Record Date for such dividend for purposes of calculating the
number of outstanding shares of Common Stock under Sections 14.5(b) and (c).

            (b) In case the Company shall issue rights, options or warrants to
all holders of its outstanding shares of Common Stock entitling them (for a
period expiring within 45 days after the date fixed for determination of
shareholders entitled to receive such rights, options or warrants) to subscribe
for or purchase shares of Common Stock at a price per share less than the
Current Market Price on the Record Date fixed for determination of shareholders
entitled to receive such rights, options or warrants, the Conversion Price shall
be adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect at the opening of business on the day after the
Record Date by a fraction the numerator of which shall be the number of shares
of Common Stock outstanding at the close of business on the Record Date plus the
number of shares that the aggregate offering price of the total number of shares
so offered would purchase at such Current Market Price, and the denominator of
which shall be the number of shares of Common Stock outstanding on the close of
business on the Record Date plus the total number of additional shares of Common
Stock so offered for subscription or purchase. Such adjustment shall become
effective immediately after the opening of business on the day following the
Record Date fixed for determination of shareholders entitled to receive such
rights, options or warrants. To the extent that shares of Common Stock are not
delivered after the expiration or termination of such rights, options or
warrants, the Conversion Price shall be readjusted to the Conversion Price that
would then be in effect had the adjustments made upon the issuance of such
rights, options or warrants been made on the basis of delivery of only the
number of shares of Common Stock actually delivered. In the event that such
rights, options or warrants are not so issued, the Conversion Price shall again
be adjusted to be the Conversion Price that would then be in effect if such date
fixed for the determination of shareholders entitled to receive such rights,
options or warrants had not been fixed. In determining whether any rights,
options or warrants entitle the holders to subscribe for or purchase shares of
Common Stock at less than such Current Market Price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account all consideration received for such rights, options or warrants,
the value of such consideration, if other than cash, to be determined by the
Board of Directors.

            (c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.

            (d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which Section 14.5(a)
applies) or evidences of its indebtedness or assets (including securities, but
excluding any rights, options or warrants referred to in Section 14.5(b), and
excluding any dividend or distribution (i) in connection with the liquidation,


                                       51
<PAGE>

dissolution or winding-up of the Company, whether voluntary or involuntary, (ii)
exclusively in cash or (iii) referred to in Section 14.5(a) (any of the
foregoing hereinafter in this Section 14.5(d) called the "Securities")), then,
in each such case, the Conversion Price shall be reduced so that the same shall
be equal to the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the Record Date with respect to
such distribution by a fraction of which the numerator shall be the Current
Market Price on such date less the fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution) on such date of the portion of the Securities so distributed
applicable to one share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective immediately prior to
the opening of business on the day following the Record Date; provided that in
the event the then fair market value (as so determined) of the portion of the
Securities so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each Noteholder
shall have the right to receive upon conversion the amount of Securities such
holder would have received had such holder converted each Note on such date. In
the event that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price that would
then be in effect if such dividend or distribution had not been declared. If the
Board of Directors determines the fair market value of any distribution for
purposes of this Section 14.5(d) by reference to the actual or when issued
trading market for any securities comprising all or part of such distribution,
it must in doing so consider the prices in such market over the same period used
in computing the Current Market Price pursuant to Section 14.5(g) to the extent
possible.

      Notwithstanding the foregoing provisions of this Section 14.5(d), no
adjustment shall be made hereunder for any distribution of Securities if the
Company makes proper provision so that each Noteholder who converts a Note (or
any portion thereof) after the Record Date for determination of shareholders
entitled to receive such distribution shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon such
conversion, the amount and kind of Securities that such holder would have been
entitled to receive if such holder had, immediately prior to such Record Date,
converted such Note into Common Stock; provided that, with respect to any
Securities that are convertible, exchangeable or exercisable, the foregoing
provision shall only apply to the extent (and so long as) the Securities
receivable upon conversion of such Note would be convertible, exchangeable or
exercisable, as applicable, without any loss of rights or privileges for a
period of at least 60 days following conversion of such Note.

      Rights, options or warrants distributed by the Company to all holders of
Common Stock entitling the holders thereof to subscribe for or purchase shares
of the Company's capital stock (either initially or under specified
circumstances), which rights, options or warrants, until the occurrence of a
specified event or events (the "Trigger Event") (i) are deemed to be transferred
with such shares of Common Stock, (ii) are not exercisable and (iii) are also
issued in respect of future issuances of Common Stock, shall not be deemed
distributed for purposes of this Section 14.5(d) (and no adjustment to the
Conversion Price under Section 14.5(d) shall be required) until the occurrence
of the earliest Trigger Event. In addition, in the event of any distribution of
rights, options or warrants, or any Trigger Event with respect thereto, that
shall have resulted in an adjustment to the Conversion Price under this Section
14.5(d), (1) in the case of any such rights, options or warrants that shall all
have been redeemed or repurchased without exercise by


                                       52
<PAGE>

any holders thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger Event,
as the case may be, as though it were a cash distribution, equal to the per
share redemption or repurchase price received by a holder of Common Stock with
respect to such rights, options or warrants (assuming such holder had retained
such rights, options or warrants), made to all holders of Common Stock as of the
date of such redemption or repurchase, and (2) in the case of such rights,
options or warrants all of which shall have expired or been terminated without
exercise by any holder thereof, the Conversion Price shall be readjusted as if
such issuance had not occurred.

      For purposes of this Section 14.5(d) and Sections 14.5(a) and (b), any
dividend or distribution to which this Section 14.5(d) is applicable that also
includes shares of Common Stock, or rights, options or warrants to subscribe for
or purchase shares of Common Stock (or both), shall be deemed instead to be (i)
a dividend or distribution of the evidences of indebtedness, assets or shares of
capital stock other than such shares of Common Stock or rights, options or
warrants (and any Conversion Price reduction required by this Section 14.5(d)
with respect to such dividend or distribution shall then be made) immediately
followed by (ii) a dividend or distribution of such shares of Common Stock or
such rights, options or warrants (and any further Conversion Price reduction
required by Sections 14.5(a) and (b) with respect to such dividend or
distribution shall then be made) except (1) the Record Date of such dividend or
distribution shall be substituted as "the date fixed for the determination of
shareholders entitled to receive such dividend or distribution" and "the date
fixed for such determination" within the meaning of Sections 14.5(a) and (b) and
(2) any shares of Common Stock included in such dividend or distribution shall
not be deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 14.5(a).

            (e) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock cash (excluding any cash that is distributed
upon a merger or consolidation to which Section 14.6 applies or as part of a
distribution referred to in Section 14.5(d) for which an adjustment to the
Conversion Price is provided therein) in an aggregate amount that, together with
(i) the aggregate amount of any other such distributions to all holders of its
Common Stock made exclusively in cash within the 12 months preceding the date of
payment of such distribution, and in respect of which no adjustment pursuant to
this Section 14.5(e) has been made, and (ii) the aggregate of any cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) of consideration
payable in respect of any tender offer, by the Company or any of its
subsidiaries for all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to Section 14.5(f) has been made, exceeds 20.0% of
the product of the Current Market Price (determined as provided in Section
14.5(g)) on the Record Date with respect to such distribution times the number
of shares of Common Stock outstanding on such date, then, and in each such case,
immediately after the close of business on such date, unless the Company elects
to reserve such cash for distribution to the holders of the Notes upon the
conversion of the Notes so that any such holder converting Notes shall receive
upon such conversion, in addition to the shares of Common Stock to which such
holder is entitled, the amount of cash that such holder would have received if
such holder had, immediately prior to the Record Date for such distribution of
cash, converted its Notes into Common Stock, the Conversion Price shall be
reduced so that the same


                                       53
<PAGE>

shall equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such date by a fraction (1) the
numerator of which shall be equal to the Current Market Price on the Record Date
less an amount equal to the quotient of (x) the excess of such combined amount
over such 20.0% and (y) the number of shares of Common Stock outstanding on the
Record Date and (2) the denominator of which shall be equal to the Current
Market Price on such date; provided that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price of the Common Stock on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each Noteholder
shall have the right to receive upon conversion the amount of cash such holder
would have received had such holder converted each Note on the Record Date. In
the event that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price that would
then be in effect if such dividend or distribution had not been declared.

      (f) In case a tender offer made by the Company or any of its subsidiaries
for all or any portion of the Common Stock shall expire and such tender offer
(as amended upon the expiration thereof) shall require the payment to
shareholders (based on the acceptance (up to any maximum specified in the terms
of the tender offer) of Purchased Shares (as defined below)) of an aggregate
consideration having a fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) that combined together with (1) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution), as of the expiration
of such tender offer, of consideration payable in respect of any other tender
offer, by the Company or any of its subsidiaries for all or any portion of the
Common Stock expiring within the 12 months preceding the expiration of such
tender offer, and in respect of which no adjustment pursuant to this Section
14.5(f) has been made, and (ii) the aggregate amount of any distributions to all
holders of the Company's Common Stock made exclusively in cash within 12 months
preceding the expiration of such tender offer, and in respect of which no
adjustment pursuant to Section 14.5(e) has been made, exceeds 20.0% of the
product of the Current Market Price as of the last time (the "Expiration Time")
tenders could have been made pursuant to such tender offer (as it may be
amended) times the number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the day after the date of the
Expiration Time, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the date of the Expiration Time by
a fraction of which the numerator shall be the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time multiplied by
the Current Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time and the denominator shall be the sum of (1) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
shareholders based on the acceptance (up to any maximum specified in the terms
of the tender offer) of all shares validly tendered and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (2) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) on the Expiration
Time and the Current Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time, such reduction to become effective immediately
prior to the opening of business on the day following the Expiration Time. In
the event that the Company is obligated to purchase shares


                                       54
<PAGE>

pursuant to any such tender offer, but the Company is permanently prevented by
applicable law from effecting any such purchases or all such purchases are
rescinded, the Conversion Price shall again be adjusted to be the Conversion
Price that would then be in effect if such tender offer had not been made.

            (g) For purposes of this Section 14.5, the following terms shall
have the meaning indicated:

                  (i) "Closing Price" with respect to any securities on any day
      shall mean the closing sale price regular way on such day or, in case no
      such sale takes place on such day, the average of the reported closing bid
      and asked prices, regular way, in each case on the New York Stock
      Exchange, or, if such security is not listed or admitted to trading on
      such Exchange, on the principal national security exchange or quotation
      system on which such security is quoted or listed or admitted to trading,
      or, if not quoted or listed or admitted to trading on any national
      securities exchange or quotation system, the average of the closing bid
      and asked prices of such security on the over-the-counter market on the
      day in question as reported by the National Quotation Bureau Incorporated,
      or a similar generally accepted reporting service, or if not so available,
      in such manner as furnished by any New York Stock Exchange member firm
      selected from time to time by the Board of Directors for that purpose, or
      a price determined in good faith by the Board of Directors, whose
      determination shall be conclusive and described in a Board Resolution.

                  (ii) "Current Market Price" shall mean the average of the
      daily Closing Prices per share of Common Stock for the ten consecutive
      Trading Days immediately prior to the date in question; provided that (1)
      if the "ex" date (as hereinafter defined) for any event (other than the
      issuance or distribution or other event requiring such computation) that
      requires an adjustment to the Conversion Price pursuant to Section
      14.5(a), (b), (c), (d), (e) or (f) occurs during such ten consecutive
      Trading Days, the Closing Price for each Trading Day prior to the "ex"
      date for such other event shall be adjusted by multiplying such Closing
      Price by the same fraction by which the Conversion Price is so required to
      be adjusted as a result of such other event, (2) if the "ex" date for any
      event (other than the issuance, distribution or other event requiring such
      computation) that requires an adjustment to the Conversion Price pursuant
      to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or after the "ex"
      date for the issuance or distribution requiring such computation and prior
      to the day in question, the Closing Price for each Trading Day on and
      after the "ex" date for such other event shall be adjusted by multiplying
      such Closing Price by the reciprocal of the fraction by which the
      Conversion Price is so required to be adjusted as a result of such other
      event and (3) if the "ex" date for the issuance, distribution or other
      event requiring such computation is prior to the day in question, after
      taking into account any adjustment required pursuant to clause (1) or (2)
      of this proviso, the Closing Price for each Trading Day on or after such
      "ex" date shall be adjusted by adding thereto the amount of any cash and
      the fair market value (as determined by the Board of Directors in a manner
      consistent with any determination of such value


                                       55
<PAGE>

      for purposes of Section 14.5(d) or (f), whose determination shall be
      conclusive and described in a Board Resolution) of the evidences of
      indebtedness, shares of capital stock or assets being distributed
      applicable to one share of Common Stock as of the close of business on the
      day before such "ex" date. For purposes of any computation under Section
      14.5(f), the Current Market Price of the Common Stock on any date shall be
      deemed to be the average of the daily Closing Prices per share of Common
      Stock for such day and the next two succeeding Trading Days; provided that
      if the "ex" date for any event (other than the tender or exchange offer
      requiring such computation) that requires an adjustment to the Conversion
      Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or
      after the Expiration Time for the tender or exchange offer requiring such
      computation and prior to the day in question, the Closing Price for each
      Trading Day on and after the "ex" date for such other event shall be
      adjusted by multiplying such Closing Price by the reciprocal of the
      fraction by which the Conversion Price is so required to be adjusted as a
      result of such other event. For purposes of this paragraph, the term "ex"
      date, (x) when used with respect to any issuance or distribution, means
      the first date on which the Common Stock trades regular way on the
      relevant exchange or in the relevant market from which the Closing Price
      was obtained without the right to receive such issuance or distribution,
      (y) when used with respect to any subdivision or combination of shares of
      Common Stock, means the first date on which the Common Stock trades
      regular way on such exchange or in such market after the time at which
      such subdivision or combination becomes effective and (z) when used with
      respect to any tender or exchange offer means the first date on which the
      Common Stock trades regular way on such exchange or in such market after
      the expiration of such offer. Notwithstanding the foregoing, whenever
      successive adjustments to the Conversion Price are called for pursuant to
      this Section 14.5, such adjustments shall be made to the Current Market
      Price as may be necessary or appropriate to effectuate the intent of this
      Section 14.5 and to avoid unjust or inequitable results as determined in
      good faith by the Board of Directors.

                  (iii) "Fair market value" shall mean the amount that a willing
      buyer would pay a willing seller in an arm's-length transaction.

                  (iv) "Record Date" shall mean, with respect to any dividend,
      distribution or other transaction or event in which the holders of Common
      Stock have the right to receive any cash, securities or other property or
      in which the Common Stock (or other applicable security) is exchanged for
      or converted into any combination of cash, securities or other property,
      the date fixed for determination of shareholders entitled to receive such
      cash, securities or other property (whether such date is fixed by the
      Board of Directors or by statute, contract or otherwise).

                  (v) "Trading Day" shall mean (1) if the applicable security is
      listed or admitted for trading on the New York Stock Exchange or another
      national security exchange, a day on which the New York Stock Exchange or
      such other national security exchange is open for business or (2) if the
      applicable


                                       56
<PAGE>

      security is quoted on the Nasdaq National Market, a day on which trades
      may be made thereon or (3) if the applicable security is not so listed,
      admitted for trading or quoted, any day other than a Saturday or Sunday or
      a day on which banking institutions in the State of New York are
      authorized or obligated by law or executive order to close.

            (h) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 14.5(a), (b), (c), (d), (e) and (f), as
the Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. To the extent permitted by
applicable law, the Company from time to time may reduce the Conversion Price by
any amount for any period of time if the period is at least 20 Business Days,
the reduction is irrevocable during the period and the Board of Directors shall
have made a determination that such reduction would be in the best interests of
the Company, which determination shall be conclusive and described in a Board
Resolution. Whenever the Conversion Price is reduced pursuant to the preceding
sentence, the Company shall mail to the Trustee and all holders of record of the
Notes a notice of the reduction at least 15 days prior to the date the reduced
Conversion Price takes effect, and such notice shall state the reduced
Conversion Price and the period it shall be in effect.

            (i) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
price; provided that any adjustments that by reason of this Section 14.5(i) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article XIV shall be made by
the Company and shall be made to the nearest 1/100,000 (with 0.0000005 being
rolled upward).

      No adjustment need be made for a change in the par value, or to or from no
par value, of the Common Stock.

      To the extent the Notes become convertible into cash, assets, property or
securities (other than Common Stock of the Company), no adjustment need be made
thereafter as to the cash, assets, property or such securities (except as such
securities may otherwise by their terms provide), and interest shall not accrue
on such cash.

            (j) Whenever the Conversion Price is adjusted as herein provided,
the Company shall promptly file with the Trustee and any conversion agent other
than the Trustee an Officers' Certificate setting forth the Conversion Price
both before and after such adjustment and setting forth in reasonable detail the
facts upon which such adjustment is based. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Note at his last
address appearing on the Note register provided for in Section 2.5, within 20
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of any such adjustment.


                                       57
<PAGE>

            (k) In any case in which this Section 14.5 provides that an
adjustment shall become effective immediately after a Record Date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
holder of any Note converted after such Record Date and before the occurrence of
such event the additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and above the Common
Stock issuable upon such conversion before giving effect to such adjustment and
(ii) paying to such holder any amount in cash in lieu of any fraction pursuant
to Section 14.3.

      Section 14.6 Effect of Reclassification, Consolidation, Merger or Sale. If
any of the following events occur, namely (a) any reclassification or change of
outstanding shares of Common Stock (other than a change in par value, or to or
from no par value, as a result of a subdivision or combination), (b) any
consolidation, merger or combination of the Company with another person as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock or (c) any sale or conveyance of the properties
and assets of the Company as, or substantially as, an entirety (determined on a
consolidated basis) to any other person as a result of which holders of Common
Stock shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, then the
Company or the successor or purchasing person, as the case may be, shall execute
with the Trustee a supplemental indenture (which shall comply with the Trust
Indenture Act as in force at the date of execution of such supplemental
indenture if such supplemental indenture is then required to so comply)
providing that the Notes shall be convertible into the kind and amount of shares
of stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance by a holder of a number of shares of Common Stock issuable upon
conversion of such Notes (assuming, for such purposes, a sufficient number of
authorized shares of Common Stock available to convert all such Notes)
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance, assuming such holder of Common Stock did not
exercise his rights of election, if any, as to the kind or amount of securities,
cash or other property receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance (provided that, if the
kind or amount of securities, cash or other property receivable upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
is not the same for each share of Common Stock in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purposes of this Section 14.6 the kind and amount of securities, cash or other
property receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance for each non-electing share shall be deemed to
be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such supplemental indenture shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article XIV.

      The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on the
Note register provided for in Section 2.5, within 20 days after execution
thereof. Failure to deliver such notice shall not affect the legality or
validity of such supplemental indenture.

      The above provisions of this Section 14.6 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.


                                       58
<PAGE>

      Section 14.7 Taxes on Shares Issued. The issuance of stock certificates on
conversions of Notes shall be made without charge to the converting Noteholder
for any transfer or similar tax in respect of the issue thereof. The Company
shall not, however, be required to pay any tax that may be payable in respect of
any transfer involved in the issue and delivery of stock in any name other than
that of the holder of any Note converted, and the Company shall not be required
to issue or deliver any such stock certificate unless and until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

      Section 14.8 Reservation of Shares; Shares to Be Fully Paid; Listing of
Common Stock. The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient shares to
provide for the conversion of the Notes from time to time as such Notes are
presented for conversion.

      Before taking any action that would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company shall take all corporate
action that may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.

      The Company covenants that all shares of Common Stock that may be issued
upon conversion of Notes shall, upon issuance, be fully paid and nonassessable
by the Company and free from all taxes, liens and charges with respect to the
issuance thereof.

      The Company further covenants that it shall, if permitted by the rules of
the Nasdaq National Market and each securities exchange upon which the Common
Stock is listed or quoted, list and keep listed or have and keep quoted, so long
as the Common Stock shall be so listed or quoted on such market and exchange or
exchanges, all Common Stock issuable upon conversion of the Notes.

      Section 14.9 Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist that may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and any other conversion agent shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, that may at any time
be issued or delivered upon the conversion of any Note; and the Trustee and any
other conversion agent make no representations with respect thereto. Subject to
the provisions of Section 7.1, neither the Trustee nor any conversion agent
shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any Note for the purpose of conversion or
to comply with any of the duties, responsibilities or covenants of the Company
contained in this Article XIV. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any responsibility
to


                                       59
<PAGE>

determine whether a supplemental indenture under Section 14.6 needs to be
entered into or the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 14.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to in
such Section 14.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 7.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with respect
thereto.

      Section 14.10 Notice to Holders Prior to Certain Actions. If:

            (a) the Company makes any distribution or dividend that would
require an adjustment in the Conversion Price pursuant to Section 14.5; or

            (b) the Company takes any action that would require a supplemental
indenture pursuant to Section 14.6; or

            (c) there shall occur the voluntary or involuntary dissolution,
liquidation or winding-up of the Company,

the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register, as promptly as
possible but in any event at least 15 days prior to the applicable date
hereinafter specified, a notice stating (i) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights, options or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights,
options or warrants are to be determined or (ii) the date on which such
reclassification, change, consolidation, merger, sale, conveyance, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur
and the date as of which it is expected that holders of record of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, change, consolidation, merger,
sale, conveyance, transfer, dissolution, liquidation or winding-up. Neither the
failure to give such notice nor any defect therein shall affect the legality or
validity of the proceedings referenced in clauses (a) through (c) of this
Section 14.10.

                                   ARTICLE XV

                                  SUBORDINATION

      Section 15.1 Agreement to Subordinate. The Company agrees, and each
Noteholder by accepting a Note agrees, that the indebtedness evidenced by the
Notes is subordinated in right of payment, to the extent and in the manner
provided in this Article XV, to the prior payment in full of all Senior
Indebtedness and that the subordination is for the benefit of the holders of
Senior Indebtedness.


                                       60
<PAGE>

      Section 15.2 Certain Definitions. For purposes of this Article XV, the
following terms shall have the meaning indicated:

            (a) "Representative" shall mean the indenture trustee or other
trustee, agent or representative for any Senior Indebtedness.

            (b) "Senior Indebtedness" with respect to the Notes means the
principal of, premium, if any, and interest on, and any fees, costs, expenses
and any other amounts (including indemnity payments) related to the following,
whether outstanding on the date hereof or hereafter incurred or created: (i)
indebtedness, matured or unmatured, whether or not contingent, of the Company
for money borrowed evidenced by notes or other written obligations, (ii) any
interest rate contract, interest rate swap agreement or other similar agreement
or arrangement designed to protect the Company or any of its subsidiaries
against fluctuations in interest rates, (iii) indebtedness, matured or
unmatured, whether or not contingent, of the Company evidenced by notes,
debentures, bonds or similar instruments or letters of credit (or reimbursement
agreements in respect thereof), (iv) obligations of the Company as lessee under
capitalized leases and under leases of property made as part of any sale and
leaseback transactions, (v) indebtedness of others of any of the kinds described
in the preceding clauses (i) through (iv) assumed or guaranteed by the Company
and (vi) renewals, extensions, modifications, amendments, and refundings of, and
indebtedness and obligations of a successor person issued in exchange for or in
replacement of, indebtedness or obligations of the kinds described in the
preceding clauses (i) through (v), unless the agreement pursuant to which any
such indebtedness described in clauses (i) through (v) is created, issued,
assumed or guaranteed expressly provides that such indebtedness is not senior or
superior in right of payment to the Notes; provided that the following shall not
constitute Senior Indebtedness: (1) any indebtedness or obligation of the
Company in respect of the Notes, (2) any indebtedness of the Company to any of
its subsidiaries or other Affiliates; (3) any indebtedness that is subordinated
or junior in any respect to any other indebtedness of the Company; and (4) any
indebtedness incurred for the purchase of goods or materials in the ordinary
course of business.

      For the purposes of this Indenture, Senior Indebtedness shall not be
deemed to have been paid in full until the holders of the Senior Indebtedness
shall have indefeasibly received payment in full in cash of all Senior
Indebtedness; provided that if any holder of Senior Indebtedness agrees to
accept payment in full of such Senior Indebtedness for consideration other than
cash, such holder shall be deemed to have indefeasibly received payment in full
of such Senior Indebtedness. The provisions of this Article XV shall continue to
be effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Indebtedness is rescinded or must otherwise be returned by any
holder of Senior Indebtedness upon the insolvency, bankruptcy or organization of
the Company or otherwise, all as though such payment had not been made.

      A distribution may consist of cash, securities or other property, by
set-off or otherwise.

      Section 15.3 Liquidation; Dissolution; Bankruptcy. Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, in an assignment for the benefit of
creditors or any marshalling of the Company's


                                       61
<PAGE>

assets and liabilities, (a) holders of Senior Indebtedness shall be entitled to
receive payment in full of all amounts due or to become due thereon before
Noteholders shall be entitled to receive any payment with respect to the
principal of, premium, if any, or interest on the Notes (except that Noteholders
may receive securities that are subordinated to at least the same extent as the
Notes to Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness) and (b) until all Senior Indebtedness (as provided in clause (a)
above) is paid in full, any distribution to which Noteholders would be entitled
but for this Article shall be made to holders of Senior Indebtedness (except
that Noteholders may receive securities that are subordinated to at least the
same extent as the Notes to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness), as their interests may appear.

      Section 15.4 Default on Senior Indebtedness. The Company may not make any
payment upon or in respect of the Notes (except in such subordinated securities)
and may not acquire from the Trustee or any Noteholder any Note for cash or
property (other than securities that are subordinated to at least the same
extent as the Note to Senior Indebtedness and any securities issued in exchange
for Senior Indebtedness) until all Senior Indebtedness has been paid in full if:

            (a) a default in the payment of the principal of, premium, if any,
or interest on Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "Payment Default"); or

            (b) a default, other than a Payment Default, on Senior Indebtedness
occurs and is continuing that permits holders of the Senior Indebtedness as to
which such default relates to accelerate its maturity (a "Nonpayment Default")
and the Trustee receives a notice of the default (a "Payment Blockage Notice")
from the Representative or Representatives of holders of at least a majority in
principal amount of Senior Indebtedness then outstanding. No Nonpayment Default
that existed or was continuing on the date of delivery of any such Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice. No new period of payment blockage may be commenced
within 360 days after the receipt by the Trustee of any prior Payment Blockage
Notice.

      The Company may and shall resume payments on and distributions in respect
of the Notes and may acquire them upon the earlier of:

                  (i) in the case of a Payment Default, upon the date on which
      the default is cured or waived, or

                  (ii) in the case of a Nonpayment Default, 179 days after the
      date on which the applicable Payment Blockage Notice is received, unless
      the maturity of such Senior Indebtedness has been accelerated,

if this Article XV otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.

      Section 15.5 When Distribution Must Be Paid Over. Subject to the
provisions of Section 15.11, if the Trustee (or paying agent if other than the
Trustee) or any Noteholder


                                       62
<PAGE>

receives any payment of principal of, premium, if any, or interest with respect
to the Notes at a time when such payment is prohibited by Section 15.3 or 15.4
hereof, such payment shall be held by the Trustee (or paying agent if other than
the Trustee) or such Noteholder, in trust for the benefit of, and immediately
shall be paid over and delivered, upon written request, to the holders of Senior
Indebtedness as their interests may appear or their Representative under the
indenture or other agreement (if any) pursuant to which Senior Indebtedness may
have been issued, as their respective interests may appear, for application to
the payment of all Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.

      With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform only such obligations on the part of the Trustee as are specifically
set forth in this Article XV, and no implied covenants or obligations with
respect to the holders of Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Indebtedness. The Trustee shall not be liable to any
such holders of Senior Indebtedness if the Trustee shall pay over or distribute
to or on behalf of Noteholders or the Company or any other person money or
assets to which any holders of Senior Indebtedness shall be entitled by virtue
of this Article XV, except if such payment is made as a result of the willful
misconduct or gross negligence of the Trustee.

      Section 15.6 Notice by Company. The Company shall promptly notify the
Trustee and the paying agent of any facts known to the Company that would cause
a payment of any principal or interest with respect to the Notes to violate this
Article XV, but failure to give such notice shall not affect the subordination
of the Notes to the Senior Indebtedness as provided in this Article XV.

      Section 15.7 Subrogation. After all Senior Indebtedness is paid in full
and until the Notes are paid in full, Noteholders shall be subrogated (equally
and ratably with all other Indebtedness pari passu with the Notes) to the rights
of holders of Senior Indebtedness to receive distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to the
Noteholders have been applied to the payment of Senior Indebtedness. A
distribution made under this Article XV to holders of Senior Indebtedness that
otherwise would have been made to Noteholders is not, as between the Company and
Noteholders, a payment by the Company on the Notes.

      Section 15.8 Relative Rights. This Article XV defines the relative rights
of Noteholders and holders of Senior Indebtedness. Nothing in this Indenture
shall:

            (a) impair, as between the Company and the Noteholders, the
obligation of the Company, which is absolute and unconditional, to pay principal
of, premium, if any, and interest on the Notes in accordance with their terms;

            (b) affect the relative rights of Noteholders and creditors of the
Company other than their rights in relation to holders of Senior Indebtedness;
or


                                       63
<PAGE>

            (c) prevent the Trustee or any Noteholder from exercising its
available remedies upon a default or Event of Default, subject to the rights of
holders and owners of Senior Indebtedness to receive distributions and payments
otherwise payable to Noteholders.

      If the Company fails because of this Article XV to pay principal of,
premium, if any, or interest on a Note on the due date, the failure is still a
default or Event of Default.

      Section 15.9 Subordination May Not Be Impaired by Company. No right of any
holder of Senior Indebtedness to enforce the subordination of the indebtedness
evidenced by the Notes shall be impaired by any act or failure to act by the
Company or any holder of Notes or by the failure of the Company or any holder of
Notes to comply with this Indenture.

      Section 15.10 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative.

      Upon any payment or distribution of assets of the Company referred to in
this Article XV, the Trustee and the Noteholders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other person making any distribution to the Trustee or to the Noteholders for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
XV.

      Section 15.11 Rights of Trustee and Paying Agent. Notwithstanding the
provisions of this Article XV or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment or distribution by the Trustee, and the
Trustee and the paying agent may continue to make payments on the Notes, unless
a Responsible Officer shall have received at the Corporate Trust Office at least
three Business Days prior to the date of such payment written notice of facts
that would cause the payment of any principal, premium, if any, and interest
with respect to the Notes to violate this Article XV. Only the Company or a
Representative may give the notice. Nothing in this Article XV shall impair the
claims of, or payments to, the Trustee under or pursuant to this Indenture,
including, without limitation, Section 7.7 hereof.

      The Trustee shall be entitled to rely on the delivery to it of a written
notice by a person representing such person to be a holder of Senior
Indebtedness (or a trustee or agent on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee or
agent on behalf of any such holder). In the event that the Trustee determines in
good faith that further evidence is required with respect to the right of any
person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XV, the Trustee may request such person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such person, the extent to which such person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such person under this Article XV, and if such
evidence is not furnished, the Trustee may defer any payment which it may be
required to make for the benefit of such person pursuant to the


                                       64
<PAGE>

terms of this Indenture pending judicial determination as to the rights of such
person to receive such payment.

      The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
paying agent, any authenticating agent, any conversion agent, any Note registrar
and their successors may do the same with like rights.

      Section 15.12 Authorization to Effect Subordination. Each holder of a Note
by the holder's acceptance thereof authorizes and directs the Trustee on the
holder's behalf to take such action as may be necessary or appropriate to effect
subordination as provided in this Article XV and appoints the Trustee to act as
the holder's attorney-in-fact for any and all such purposes. Without limiting
the foregoing, each Representative is hereby irrevocably authorized and
empowered (in its own name or in the name of the Noteholders or the Trustee or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution referred to in Section 15.3 above and give
acquittance therefor and to file claims and proofs of claim and take such other
action as it may deem necessary or advisable for the exercise or enforcement of
any of the rights or interests of the holders or owners of the Senior
Indebtedness hereunder; provided that for purposes of this Section 15.12 holders
or owners of Senior Indebtedness may act only through such Representative.

      Section 15.13 Conversions Not Deemed Payment. For the purposes of this
Article XV only, the issuance and delivery of Common Stock upon conversion of
the Notes in accordance with Article XIV shall not be deemed to constitute a
payment or distribution on account of the principal of or interest on the Notes
or on account of the purchase or other acquisition of Notes. Nothing contained
in this Article or elsewhere in this Indenture or in the Notes is intended to or
shall impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the holders, the right, which is absolute and unconditional, of
the holder of any Note to convert such Note in accordance with Article XIV.

      Section 15.14 Amendments. The provisions of this Article XV shall not be
amended or modified without the written consent of the holders of Senior
Indebtedness.

                                  ARTICLE XVI

                            MISCELLANEOUS PROVISIONS

      Section 16.1 Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements in this Indenture made by the
Company shall bind its successors and assigns whether so expressed or not.

      Section 16.2 Official Acts by Successor Company. Any act or proceeding by
any provision of this Indenture authorized or required to be done or performed
by any board (including the Board of Directors), committee or officer of the
Company shall and may be done and performed with like force and effect by the
like board, committee or officer of any corporation that shall at the time be
the lawful sole successor of the Company.


                                       65
<PAGE>

      Section 16.3 Addresses for Notices, Etc. Any notice or demand that by any
provision of this Indenture is required or permitted to be given or served by
the Trustee or by the holders of Notes on the Company shall be deemed to have
been sufficiently given or made, for all purposes if given or served by being
sent by prepaid overnight delivery or being deposited postage prepaid by
registered or certified mail in a post office letter box addressed (until
another address is filed by the Company with the Trustee) to Net.B@nk, Inc., 950
North Point Parkway, Alpharetta, Georgia 30005, Attention: Chief Executive
Officer with a copy to Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree
Street, N.E., Atlanta, Georgia 30303, Attention: Walter G. Moeling IV, Esq. Any
notice, direction, request or demand hereunder to or upon the Trustee shall be
deemed to have been sufficiently given or made, for all purposes, if given or
served by being sent by prepaid overnight delivery or being deposited postage
prepaid by registered or certified mail in a post office letter box addressed to
the Corporate Trust Office of the Trustee, which office is, at the date as of
which this Indenture is dated, located at 25 Park Place, 24th Floor, Atlanta,
Georgia 30303, Attention: Corporate Trust Administration.

      The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.

      Any notice or communication mailed to a Noteholder shall be mailed to him
by first class mail, postage prepaid, at the address of such Noteholder as it
appears on the Note register and shall be sufficiently given to such Noteholder
if so mailed within the time prescribed.

      Failure to mail a notice or communication to a Noteholder or any defect in
it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.

      Section 16.4 Communications by Holders with Other Holders. Noteholders may
communicate pursuant to Trust Indenture Act Section 312(b) with other
Noteholders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Note registrar and any other person shall have the
protection of Trust Indenture Act Section 312(c).

      Section 16.5 Governing Law. This Indenture and each Note shall be deemed
to be a contract made under the substantive laws of New York and for all
purposes shall be construed in accordance with the substantive laws of New York
without regard to conflicts of laws principles thereof.

      Section 16.6 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture,
including those actions set forth in Trust Indenture Act Section 314(c), the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the Opinion of such Counsel, all such conditions precedent have been complied
with.

      Each certificate or opinion provided for in this Indenture and delivered
to the Trustee with respect to compliance with a condition or covenant provided
for in this Indenture shall


                                       66
<PAGE>

include: (a) a statement that the person making such certificate or opinion has
read such covenant or condition, (b) a brief statement as to the nature and
scope of the examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based, (c) a statement that, in the
opinion of such person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with and (d) a statement as to whether
or not, in the opinion of such person, such condition or covenant has been
complied with.

      Section 16.7 Legal Holidays. In any case where any interest payment date,
date fixed for redemption, stated maturity or Change of Control Purchase Date of
any Note or the last date on which a Holder has the right to convert his Notes
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) payment of interest or principal (and premium, if
any) or conversion of the Notes need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the interest payment date, date fixed for redemption, Change of Control Purchase
Date, or at the stated maturity, or on such last day for conversion; provided
that no interest shall accrue for the period from and after such interest
payment date, date fixed for redemption, Change of Control Purchase Date or
stated maturity, as the case may be.

      Section 16.8 No Security Interest Created. Nothing in this Indenture or in
the Notes, expressed or implied (other than the lien granted to the Trustee
pursuant to Section 7.7), shall be construed to constitute a security interest
under the Uniform Commercial Code or similar legislation, as now or hereafter
enacted and in effect, in any jurisdiction where property of the Company or its
subsidiaries is located.

      Section 16.9 Trust Indenture Act. This Indenture is hereby made subject
to, and shall be governed by, the provisions of the Trust Indenture Act required
to be part of and to govern indentures qualified under the Trust Indenture Act.

      Section 16.10 Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies, or conflicts with the duties imposed by operation
of the Trust Indenture Act, the imposed duties, upon qualification of this
Indenture under the Trust Indenture Act, shall control.

      Section 16.11 Benefits of Indenture. Nothing in this Indenture or in the
Notes, expressed or implied, shall give to any person, other than the parties
hereto, any paying agent, any authenticating agent, any conversion agent, any
Note registrar and their successors hereunder and the holders of Notes, any
benefit or any legal or equitable right, remedy or claim under this Indenture.

      Section 16.12 Table of Contents, Headings, Etc. The table of contents and
the titles and headings of the articles and sections of this Indenture have been
inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.

      Section 16.13 Authenticating Agent. The Trustee may appoint an
authenticating agent that shall be authorized to act on its behalf and subject
to its direction in the authentication and


                                       67
<PAGE>

delivery of Notes in connection with the original issuance thereof and transfers
and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7
and 3.3, as fully to all intents and purposes as though the authenticating agent
had been expressly authorized by this Indenture and those Sections to
authenticate and deliver Notes. For all purposes of this Indenture, the
authentication and delivery of Notes by the authenticating agent shall be deemed
to be authentication and delivery of such Notes "by the Trustee" and a
certificate of authentication executed on behalf of the Trustee by an
authenticating agent shall be deemed to satisfy any requirement hereunder or in
the Notes for the Trustee's certificate of authentication. Such authenticating
agent shall at all times be a person eligible to serve as Trustee hereunder
pursuant to Section 7.10.

      Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor company is otherwise eligible under this Section,
without the execution or filing of any paper or any further act on the part of
the parties hereto or the authenticating agent or such successor company.

      Any authenticating agent may at any time resign by giving written notice
of resignation to the Trustee and to the Company. The Trustee may at any time
terminate the agency of any authenticating agent by giving written notice of
termination to such authenticating agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time any
authenticating agent shall cease to be eligible under this Section, the Trustee
shall promptly appoint a successor authenticating agent (which may be the
Trustee), shall give written notice of such appointment to the Company and shall
mail notice of such appointment to all holders of Notes as the names and
addresses of such holders appear on the Note register.

      The Company agrees to pay to the authenticating agent from time to time
reasonable compensation for its services.

      The provisions of Sections 7.3, 7.4, 7.5, 8.3 and this Section 16.13 shall
be applicable to any authenticating agent.

      Section 16.14 Execution in Counterparts. This Indenture may be executed in
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.

      SunTrust Bank, Atlanta hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.

      IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly signed and attested, all as of the date first written above.

                                        NET.B@NK, INC.


                                        By:______________________________


                                       68
<PAGE>

                                        Name:
                                        Title:
Attest:

______________________________


                                       69
<PAGE>

                                        SUNTRUST BANK, ATLANTA, as Trustee


                                        By:______________________________
                                           Name:
                                           Title:


                                        By:______________________________
                                           Name:
                                           Title:


                                       70

<PAGE>


                                                                 EXHIBIT 5.1


                     POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
                           191 PEACHTREE STREET, N.E.
                                 SIXTEENTH FLOOR
                             ATLANTA, GEORGIA 30303
                                 (404) 572-6600

                                  June 1, 1999


Net.B@nk, Inc.
950 North Point Parkway
Suite 350
Alpharetta, Georgia  30005

         RE:  REGISTRATION OF 3,450,000 SHARES OF COMMON STOCK;
              REGISTRATION STATEMENT ON FORM S-3


Ladies and Gentlemen:

         We have acted as counsel to Net.B@nk, Inc., a Georgia corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended, pursuant to the Company's Registration Statement on Form S-3
(the "Registration Statement"), of up to 3,450,000 shares of common stock, $.01
par value ("Common Stock"), of the Company (the "Shares").

         In this capacity, we have examined the Registration Statement in the
form filed by the Company with the Securities and Exchange Commission (the
"Commission") on May 7, 1999, as amended by Amendment No. 1 thereto filed on May
14, 1999 and Amendment No. 2 thereto, which is to be filed with the Commission
on the date hereof, and the proposed form of Underwriting Agreement among Bear,
Stearns & Co. Inc., BancBoston Robertson Stephens, Inc., Raymond James &
Associates, Inc. and Kelton International Ltd., as underwriters, and the Company
(the "Underwriting Agreement") to be used in effecting the sale of the Shares,
and originals or copies, certified or otherwise identified to our satisfaction,
of such corporate records, agreements, documents and other instruments of the
Company relating to the authorization and issuance of the Shares and such other
matters as we have deemed relevant and necessary as a basis for the opinion
hereinafter set forth.

         In conducting our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents. The opinions set forth herein
are limited to the laws of the State of Georgia and the federal laws of the
United States of


<PAGE>

Net.B@nk, Inc.
June 1, 1999
Page 2

America.

         Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that the
Shares, when issued and delivered against payment therefor in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully paid and
non-assessable.

         We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus which is a part of the Registration Statement.


                                     Very truly yours,



                                    /s/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP


<PAGE>


                                                                EXHIBIT 5.2


                     POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
                           191 PEACHTREE STREET, N.E.
                                 SIXTEENTH FLOOR
                             ATLANTA, GEORGIA 30303
                                 (404) 572-6600

                                  June 1, 1999


Net.B@nk, Inc.
950 North Point Parkway
Suite 350
Alpharetta, Georgia  30005

         RE:  REGISTRATION OF $115,000,000 OF __% CONVERTIBLE
              SUBORDINATED NOTES DUE 2004;
              REGISTRATION STATEMENT ON FORM S-3


Ladies and Gentlemen:

         We have acted as counsel to Net.B@nk, Inc., a Georgia corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended, pursuant to the Company's Registration Statement on Form S-3
(the "Registration Statement"), of $115,000,000 of __% Convertible Subordinated
Notes Due 2004 of the Company (the "Notes"). These Notes are to be issued
pursuant to an Indenture (the "Indenture") to be entered into between the
Company and SunTrust Bank, Atlanta, as Trustee (the "Trustee").

         In this capacity, we have examined the Registration Statement (the
"Registration Statement") in the form filed by the Company with the Securities
and Exchange Commission (the "Commission") on May 7, 1999, as amended by
Amendment No. 1 thereto filed on May 14, 1999 and Amendment No. 2 thereto, which
is to be filed with the Commission on the date hereof ("Amendment No. 2"); the
proposed form of Underwriting Agreement among Bear, Stearns & Co. Inc.,
BancBoston Robertson Stephens, Inc., Raymond James & Associates, Inc. and Kelton
International Ltd., as underwriters, and the Company (the "Underwriting
Agreement") to be used in effecting the sale of the Notes and being filed as an
exhibit to Amendment No. 2; the form of the Indenture being filed as an exhibit
to Amendment No. 2; the forms of Notes being filed as exhibits to Amendment No.
2; and originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments of the Company relating to the authorization and issuance of the
Notes and the shares of common stock, par value $.01 per share ("Common Stock"),
of the Company issuable upon conversion of the Notes (the "Shares") and such
other matters as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.


<PAGE>


Net.B@nk, Inc.
June 1, 1999
Page 2


         In conducting our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents. The opinions set forth herein
are limited to the laws of the States of Georgia and New York and the federal
laws of the United States of America.

         Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that
when: (i) the Registration Statement becomes effective and the Indenture has
been qualified under the Trust Indenture Act of 1939, as amended; (ii) the
interest rate, maturity, redemption and other terms of the Notes as well as the
price at which the Notes are to be sold to the Underwriters pursuant to the
Underwriting Agreement and other matters relating to the issuance and sale of
the Notes have been approved by the Board of Directors of the Company or a
committee thereof; (iii) the Indenture and the Underwriting Agreement have been
duly executed and delivered; and (iv) the Notes have been duly executed by the
Company and authenticated by the Trustee in accordance with the terms of the
Indenture and delivered to and paid for by the Underwriters as contemplated by
the Underwriting Agreement, the Notes will be valid and binding obligations of
the Company, entitled to the benefits of the Indenture and enforceable against
the Company in accordance with their terms, except to the extent that (a)
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and (2) general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforceability is considered in a
proceeding at law or in equity) and (b) the waiver contained in Section 4.8 of
the Indenture may be deemed unenforceable.

         We are also of the opinion that the Shares have been duly and validly
authorized and that upon the occurrence of the events listed in clauses (i)
through (iv) in the foregoing paragraph and upon the issuance and delivery of
the Shares against payment therefor in accordance with the terms of the Notes
and the Indenture, the Shares will be validly issued, fully paid and
non-assessable.

         We hereby consent to the use of this opinion as Exhibit 5.2 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus which is a part of the Registration Statement.

                                  Very truly yours,



                                  /s/POWELL, GOLDSTEIN, FRAZER & MURPHY LLP



<PAGE>
                                                                    EXHIBIT 12.1

                                 NET.B@NK, INC.

   STATEMENT SETTING FORTH COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

 FOR THE PERIOD FROM FEBRUARY 20, 1996 (DATE OF INCORPORATION) TO DECEMBER 31,
 1996, FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998, AND FOR THE THREE MONTH
                     PERIODS ENDED MARCH 31, 1998 AND 1999.

<TABLE>
<CAPTION>
                                                  PERIOD FROM
                                                 FEBRUARY 20,                                         THREE MONTHS ENDED
                                                    1996 TO          YEAR ENDED DECEMBER 31,              MARCH 31,
                                                 DECEMBER 31,     ------------------------------  --------------------------
                                                     1996              1997            1998           1998          1999
                                               -----------------  --------------  --------------  ------------  ------------
<S>                                            <C>                <C>             <C>             <C>           <C>
Earnings available for fixed charges:
  Earnings (loss) before provision for income
    taxes....................................  $      (3,839,182) $   (5,577,439) $    2,139,182  $   (151,447) $  1,046,516
  Fixed charges--see below...................              5,945       1,290,366      11,461,102     1,312,326     4,570,530
                                               -----------------  --------------  --------------  ------------  ------------
    Total....................................  $      (3,833,237) $   (4,287,073) $   13,600,284  $  1,160,879  $  5,617,046
                                               -----------------  --------------  --------------  ------------  ------------
                                               -----------------  --------------  --------------  ------------  ------------

Fixed Charges:
  Interest expense...........................  $              --       1,259,743      11,424,432     1,303,628     4,559,707
  Rental expense.............................              5,945          30,623          36,670         8,698        10,823
                                               -----------------  --------------  --------------  ------------  ------------
    Total....................................  $           5,945  $    1,290,366  $   11,461,102  $  1,312,326  $  4,570,530
                                               -----------------  --------------  --------------  ------------  ------------
                                               -----------------  --------------  --------------  ------------  ------------
Ratio of Earnings to Fixed Charges...........             (644.8)           (3.3)            1.2          (0.9)          1.2
Deficiency                                            (3,839,182)     (5,577,439)                     (151,447)

<CAPTION>
                                                         PRO FORMA
                                               ------------------------------
                                                YEAR ENDED     THREE MONTHS
                                               DECEMBER 31,  ENDED MARCH 31,
                                                 1998(1)         1999(1)
                                               ------------  ----------------
<S>                                            <C>           <C>
Earnings available for fixed charges:
  Earnings (loss) before provision for income
    taxes....................................
  Fixed charges--see below...................
                                               ------------  ----------------
    Total....................................
                                               ------------  ----------------
                                               ------------  ----------------
Fixed Charges:
  Interest expense...........................
  Rental expense.............................
                                               ------------  ----------------
    Total....................................
                                               ------------  ----------------
                                               ------------  ----------------
Ratio of Earnings to Fixed Charges...........
Deficiency
</TABLE>


(1) The pro forma ratio of earnings to fixed charges reflects the issuance of
    $100,000,000 of convertible subordinated notes with an interest rate of
        %.

<PAGE>
                                                                    EXHIBIT 23.1

                         INDEPENDENT AUDITORS' CONSENT


We consent to the inclusion in this Amendment No. 2 to Registration Statement
No. 333-77969 of Net.B@nk, Inc. of our report dated February 16, 1999 (April 13,
1999 as to the third paragraph of Note 14) appearing in the Prospectuses, which
are part of such Registration Statement, and we also consent to the reference to
us under the heading "Experts" in such Prospectuses.


DELOITTE & TOUCHE LLP


Atlanta, Georgia
May 26, 1999


<PAGE>


                                                                 EXHIBIT 25.1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                               -------------------

                                    FORM T-1
                               -------------------

                       STATEMENT OF ELIGIBILITY UNDER THE
                  TRUST INDENTURE ACT OF 1939 OF A CORPORATION
                          DESIGNATED TO ACT AS TRUSTEE
                              ---------------------

          CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
                          PURSUANT TO SECTION 305(b)(2)
                               -------------------

                             SUNTRUST BANK, ATLANTA
               (Exact name of trustee as specified in its charter)

25 PARK PLACE, N.E.
SUITE 1100                                                      58-0466330
ATLANTA, GEORGIA                            30303            (I.R.S. employer
(Address of principal executive offices)  (Zip Code)        identification no.)
                               -------------------

                                 PHILIP DEMOUEY
                             SUNTRUST BANK, ATLANTA
                                  25 PARK PLACE
                                   24TH FLOOR
                           ATLANTA, GEORGIA 30303-2900
                                 (404) 588-7266
            (Name, address and telephone number of agent for service)
                               -------------------

                                 NET.B@NK, INC.

          GEORGIA                                             58-2224352

          (State or other                                   (IRS employer
     jurisdiction of incorporation                        identification no.)
          or organization)

        950 NORTH POINT PARKWAY
          ALPHARETTA, GEORGIA                                    30005
(Address of principal executive offices)                       (Zip Code)
                               -------------------

                  ___% Convertible Subordinated Notes due 2004
                       (Title of the indenture securities)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                                                      Registration No. 333-77969


<PAGE>


1.  GENERAL INFORMATION.

    Furnish the following information as to the trustee--

         Name and address of each examining or supervising authority to
         which it is subject.

         DEPARTMENT OF BANKING AND FINANCE,
         STATE OF GEORGIA
         ATLANTA, GEORGIA

         FEDERAL RESERVE BANK OF ATLANTA
         104 MARIETTA STREET, N.W.
         ATLANTA, GEORGIA

         FEDERAL DEPOSIT INSURANCE CORPORATION
         WASHINGTON, D.C.

         Whether it is authorized to exercise corporate trust powers.

         YES.

2.  AFFILIATIONS WITH OBLIGOR.

    If the obligor is an affiliate of the trustee, describe each such
affiliation.

    NONE.


16. LIST OF EXHIBITS.

    List below all exhibits filed as a part of this statement of
    eligibility; exhibits identified in parentheses are filed with the
    Commission and are incorporated herein by reference as exhibits hereto
    pursuant to Rule 7a-29 under the Trust Indenture Act of 1939, as
    amended, and Rule 24 of the Commission's Rules of Practice.

     (1) A copy of the Articles of Amendment and Restated Articles of
         Association of the trustee as now in effect. (Exhibit 1 to Form T-1,
         Registration No. 333-25463.)

     (2) A copy of the certificate of authority of the trustee to commence
         business. (included in Exhibit 1.)

     (3) A copy of the authorization of the trustee to exercise corporate trust
         powers. (included in Exhibit 1.)


<PAGE>


     (4) A copy of the existing by-laws of the trustee. (included in Exhibit 4
         to Form T-1, Registration No. 333-25463.)

     (6) The consent of the trustee required by Section 321(b) of the Trust
         Indenture Act of 1939.

     (7) A copy of the latest report of condition of the trustee published
         pursuant to law or the requirements of its supervising or examining
         authority as of the close of business on December 31, 1998.


<PAGE>


                                    SIGNATURE


         Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, SunTrust Bank, Atlanta, a banking corporation organized and existing
under the laws of the State of Georgia, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Atlanta and the State of Georgia,
on the 27th day of May, 1999.


                                       SUNTRUST BANK, ATLANTA



                                       By:  /s/ Philip Demouey
                                          ---------------------
                                          Philip DeMouey
                                          Vice President


<PAGE>


                              EXHIBIT 1 TO FORM T-1




                             ARTICLES OF ASSOCIATION
                                       OF
                             SUNTRUST BANK, ATLANTA


<PAGE>


                              EXHIBIT 2 TO FORM T-1




                            CERTIFICATE OF AUTHORITY
                                       OF
                             SUNTRUST BANK, ATLANTA
                              TO COMMENCE BUSINESS


<PAGE>


                              EXHIBIT 3 TO FORM T-1




                                  AUTHORIZATION
                                       OF
                             SUNTRUST BANK, ATLANTA
                       TO EXERCISE CORPORATE TRUST POWERS


<PAGE>


                              EXHIBIT 4 TO FORM T-1




                                     BY-LAWS
                                       OF
                             SUNTRUST BANK, ATLANTA


<PAGE>


                              EXHIBIT 6 TO FORM T-1




                               CONSENT OF TRUSTEE


         Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939 in connection with the proposed issuance of ___% Convertible
Subordinated Notes due 2004 of Net.B@nk, Inc., SunTrust Bank, Atlanta hereby
consents that reports of examinations by Federal, State, Territorial or District
Authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.

                                       SUNTRUST BANK, ATLANTA



                                       By:  /s/ Philip Demouey
                                          ---------------------
                                          Philip DeMouey
                                          Vice President


<PAGE>


                              EXHIBIT 7 TO FORM T-1




                               REPORT OF CONDITION


<PAGE>


SUNTRUST BANK ATLANTA       Call Date: 12/31/98    State #: 130330   FFIEC 031
P.O. BOX 4418 CENTER 632    Vendor ID: D           Cert #:  00867    RC-1
ATLANTA, GA 30302           Transit #: 61000104

CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1998

All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
                                                                        C400
SCHEDULE RC - BALANCE SHEET

<TABLE>
<CAPTION>

                                                    DOLLAR AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------
<S>                                                                                  <C>     <C>          <C>
ASSETS
1.   Cash and balances due from depository institutions (from Schedule RC-A):        RCFD
                                                                                     ----
     a.  Noninterest-bearing balances and currency and coin (1)                      0081     1,339,046   1.a
     b.  Interest-bearing balances (2)                                               0071         5,142   1.b
2.   Securities:
     a.  Held-to-maturity securities (from Schedule RC-B, column A)                  1754             0   2.a
     b.  Available-for-sale securities (from Schedule RC-B, column D)                1773     3,225,581   2.b
3.   Federal funds sold and securities purchased under agreements to resell          1350     1,217,838   3.

4.   Loans and lease financing receivables:                                          RCFD
                                                                                     ----
     a.  Loans and leases, net of unearned income (from Schedule RC-C)               2122    13,046,097   4.a
     b.  LESS: Allowance for loan and lease losses                                   3123       138,028   4.b
     c.  LESS: Allocated transfer risk reserve                                       3128             0   4.c
     d.  Loans and leases, net of unearned income,                                   RCFD
                                                                                     ----
         allowance, and reserve (item 4.a minus 4.b and 4.c)                         2125    12,908,069   4.d
5.   Trading assets (from Schedule RC-D)                                             3545        37,301   5.
6.   Premises and fixed assets (including capitalized leases)                        2145        97,749   6.
7.   Other real estate owned (from Schedule RC-M)                                    2150         1,624   7.
8.   Investments in unconsolidated subsidiaries and associated companies
     (from Schedule RC-M)                                                            2130        12,664   8.
9.   Customers' liability to this bank on acceptances outstanding                    2155       610,727   9.
10.  Intangible assets (from Schedule RC-M)                                          2143        14,321  10.
11.  Other assets (from Schedule RC-F)                                               2160       165,262  11.
12.  Total assets (sum of items 1 through 11)                                        2170    19,635,324  12.

</TABLE>

- -------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.


<PAGE>


SUNTRUST BANK ATLANTA       Call Date: 12/31/98    State #: 130330   FFIEC 031
P.O. BOX 4418 CENTER 632    Vendor ID: D           Cert #:  00867    RC-2
ATLANTA, GA 30302           Transit #: 61000104

SCHEDULE RC - CONTINUED

<TABLE>
<CAPTION>

                                                    DOLLAR AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------
<S>                                                                                  <C>     <C>          <C>
LIABILITIES
13.  Deposits:                                                                       RCON
                                                                                     ----
     a.  In domestic offices (sum of totals of columns A and C from Schedule RC-E,   2200     7,177,865    13.a
         part I)                                                                     RCON
                                                                                     ----
         (1) Noninterest-bearing (1)                                                 6631     3,082,972    13.a.1
         (2) Interest-bearing                                                        6636     4,094,893    13.a.2
     b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from          RCFN
                                                                                     ----
        Schedule RC-E, part II)                                                      2200     3,530,204    13.b
         (1) Noninterest-bearing                                                     6631             0    13.b.1
         (2) Interest-bearing                                                        6636     3,530,204    13.b.2
                                                                                     RCFD
                                                                                     ----
14.  Federal funds purchased and securities sold under agreements to repurchase      2800     4,245,132    14
                                                                                     RCON
                                                                                     ----
15.  a.  Demand notes issued to the U.S. Treasury                                    2840             0    15.a
                                                                                     RCFD
                                                                                     ----
     b.  Trading liabilities (from Schedule RC-D)                                    3548             0    15.b
16.  Other borrowed money (includes mortgage indebtedness and obligations under
     capitalized leases):
     a.  With a remaining maturity of one year or less                               2332       302,623    16.a
     b.  With a remaining maturity of more than one year through three years         A547         2,559    16.b
     c.  With a remaining maturity of more than three years                          A548         1,418    16.c
17.  Not applicable
18.  Bank's liability on acceptances executed and outstanding                        2920       610,727    18
19.  Subordinated notes and debentures(2)                                            3200       250,000    19
20.  Other liabilities (from Schedule RC-G)                                          2930     1,149,728    20
21.  Total liabilities (sum of items 13 through 20)                                  2948    17,270,268    21
22.  Not applicable
EQUITY CAPITAL
23.  Perpetual preferred stock and related surplus                                   3838             0    23
24.  Common stock                                                                    3230        21,601    24
25.  Surplus (exclude all surplus related to preferred stock)                        3839       703,406    25
26.  a.  Undivided profits and capital reserves                                      3632       598,887    26.a
     b.  Net unrealized holding gains (losses) on available-for-sale securities      8434     1,041,174    26.b
27.  Cumulative foreign currency translation adjustments                             3284             0    27
28,  Total equity capital (sum of items 23 through 27)                               3210     2,365,068    28
29.  Total liabilities and equity capital (sum of items 21 and 28)                   3300    19,635,324    29

</TABLE>

<TABLE>
<S>                                                                                                     <C>     <C>     <C>
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1.   Indicate in the box at the right the number of the statement below that best describes the         RCFD    Number
     most comprehensive level of auditing work performed for the bank by independent external           ----
     auditors as of any date during 1997                                                                6724      N/A   M.1

</TABLE>


1   = Independent audit of the bank conducted in accordance by other with
      generally accepted auditing standards by a certified state chartering
      public accounting firm which submits a report on the bank

2   = Independent audit of the bank's parent holding company external conducted
      in accordance with generally accepted auditing standards by a certified
      public accounting firm which statements by submits a report on the
      consolidated holding company (but not on the bank separately) preparation
      work)

3   = Directors' examination of the bank conducted in accordance with generally
      accepted auditing standards by a certified public accounting firm (may be
      required by state chartering authority)

4   = Directors' examination of the bank performed external auditors (may be
      required by authority)

5   = Review of the bank's financial statements by auditors

6   = Compilation of the bank's financial external auditors

7   = Other audit procedures (excluding tax

8   = No external audit work

- --------
(1) Includes total demand deposits and noninterest-bearing time and savings
    deposits.

(2) Includes limited-life preferred stock and related surplus,



© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission