**EXHIBIT
10.26**
 NONQUALIFIED STOCK OPTION NO.
____________
 
 
 **FLAG
FINANCIAL CORPORATION**
 **1994
DIRECTORS STOCK INCENTIVE PLAN**
 
 **NONQUALIFIED
STOCK OPTION AGREEMENT**
 
 
 This
Nonqualified Stock Option Agreement (the “Agreement”) is entered into as of the
______ day of _______________, _______ by and between FLAG Financial Corporation
(the “Company”) and  (“Optionee”).
 
 *W I T
N E S S E T H* :
 
 WHEREAS,
the Company has adopted the FLAG Financial Corporation 1994 Directors Stock
incentive Plan (the “Plan”) which is administered by a committee appointed by
the Company’s Board of Directors (the “Committee”); and
 
 WHEREAS,
effective as of _______________, _______, the Committee granted to Optionee a
nonqualified stock option under, and in accordance with, the terms of the Plan
to reward Optionee for his efforts on behalf of the Company and to encourage his
continued loyalty and diligence; and
 
 WHEREAS,
to comply with the terms of the Plan and to further the interests of the Company
and Optionee, the parties hereto have set forth the terms of such option in
writing in this Nonqualified Stock Option Agreement;
 
 NOW,
THEREFORE, for and in consideration of the premises and mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as
follows:
 
 1. Grant
of Option .
 
 Effective
as of ______________, _______, the Committee granted Optionee a nonqualified
stock option. Under that option and subject to the terms and conditions set
forth herein, Optionee shall have the right to purchase ________ shares of the
$0.01 par value common stock of the Company (the “Common Stock”); such ________
shares hereinafter are referred to as the “Optioned Shares”, and this option
hereinafter is referred to as the “Option”. The Option is intended to be a
nonqualified stock option.
 
 2. Option
Price .
 
 The price
per share for each of the Optioned Shares shall be $  (the
“Option Price”).
 
 3. Exercise
of Option .
 
 (a) General . The
Option may be exercised by Optionee’s delivery to the Secretary of the Company
of a written notice of exercise executed by Optionee (the “Notice of Exercise”).
The Notice of Exercise shall be substantially in the form set forth as Exhibit
A, attached hereto and made a part hereof, and shall identify the Option and the
number of Optioned Shares that are being exercised.
 
 (b) Beginning
of Exercise Period . The
Option shall be immediately exercisable as of the date of grant.
 
 (c) Partial
Exercise .
Optionee may exercise the Option for less than the full number of exercisable
Optioned Shares, but such exercise may not be made for less than 100 shares or
the total remaining shares subject to the Option, if less than 100
shares.
 
 4. Termination
of Option .
 
 Notwithstanding
any provisions to the contrary herein, the Option shall not be exercisable
either in whole or in part after the earliest of:
 
 (a) Ten years
from the date of grant;
 
 (b) The date
that is immediately prior to the first anniversary of the date on which Optionee
dies (i) while a director of the Company, (ii) within the three-month period
that begins on the date on which Optionee ceases to be a director of the Company
for any reason other than death or disability (as determined by the Committee in
its sole discretion) or (iii) within the one-year period that begins on the date
on which Optionee ceases to be a director of the Company due to disability (as
determined by the Committee in its sole discretion);
 
 (c) The date
of expiration of the one-year period that begins on the date on which Optionee
ceases to be a director of the Company due to disability (as determined by the
Committee in its sole discretion) or retirement; provided, if Optionee dies
during such one-year period, the terms of subsection (b) shall
control;
 
 (d) The date
of expiration of the three-month period that begins on the date on which
Optionee ceases to be a director of the Company for any reason other than death
or disability (as determined by the Committee in its sole
discretion);
 
 (e) The date
on which the Company gives notice (or is deemed to have given notice) to
Optionee of his termination of service as a director for cause, all as described
in Section 5(h)(i) of the Plan; or
 
 (f) Such
other earlier date as may be required under the terms of the Plan or set forth
in Schedule I hereto.
 
 5. Option
Non-Transferable .
 
 The
Option shall not be transferable by Optionee other than by will or by the laws
of descent and distribution, and any purported transfer shall be null and void.
During the lifetime of Optionee, the Option shall be exercisable only by
Optionee (or, if he becomes disabled or otherwise incapacitated, by the guardian
of his property or his duly appointed attorney-in-fact), and shall not be
assignable or transferable by Optionee and, subject to Section 6 hereof, no
other person shall acquire any rights in the Option.
 
 6. Death
of Optionee and Transfer of Option .
 
 In the
event of the death of Optionee while a director of the Company, within a period
of one year after the termination of his service as a director of the Company
due to disability (as determined by the Committee in its sole discretion), or
within a three-month period after the director ceases to be a director of the
Company for any reason other than for cause, all or any of the unexercised
portion of the Option owned by the deceased Optionee may be exercised by
Optionee’s personal representatives, heirs or legatees at any time prior to the
first anniversary of the date of the death of Optionee, but in no event later
than the date as of which such Option expires pursuant to Section 4 hereof. Such
exercise shall be effected in accordance with the terms hereof as if such
representative, heir or legatee was Optionee herein.
 
 7. Medium
and Time of Payment of Option Price .
 
 (a) General . The
Option Price shall be payable by Optionee (or his successors in accordance with
Section 6 hereof) upon exercise of the Option and shall be paid in cash, in
shares of the Common Stock (or by instructing the Company to retain shares as
payment), in other property or services acceptable to the Committee and allowed
under the terms of the Plan and applicable law, or any combination
thereof.
 
 (b) Payment
in Shares of the Common Stock . If
Optionee pays all or part of the Option Price with shares of the Common Stock,
the following conditions shall apply:
 
 (i) Optionee
shall deliver to the Secretary of the Company a certificate or certificates for
shares of the Common Stock duly endorsed for transfer to the Company with
signature guaranteed by a member firm of a national stock exchange or by a
national or state bank (or guaranteed or notarized in such other manner as the
Committee may require);
 
 (ii) Optionee
must have held any shares of the Common Stock used to pay the Option Price for
at least six months prior to the date such payment is made;
 
 (iii) Such
shares shall be valued on the basis of the fair market value of the Common Stock
on the date of exercise pursuant to the terms of the Plan; and
 
 (iv) The value
of such Common Stock shall be less than or equal to the Option Price. If
Optionee delivers Common Stock with a value that is less than the Option Price,
then Optionee shall pay the balance of the Option Price in a form allowed under
subsection (a) above.
 
 8. Agreement
of Optionee .
 
 Optionee
acknowledges that he has read Article 8 of the Plan and understands that certain
restrictions may apply with respect to shares of the Common Stock acquired by
him pursuant to his exercise of the Option (including restrictions on resale
applicable to “affiliates” under Rule 144 of the Securities Act of 1933, as
amended, and restrictions on resale applicable to shares of the Common Stock
that have not been registered under the Securities Act of 1933, as amended, and
applicable state securities laws). Optionee hereby agrees to execute such
documents and take such actions as the Company may require with respect to state
and federal securities laws and any restrictions on the resale of such shares
which may pertain.
 
 9. Delivery
of Stock Certificates .
 
 As
promptly as practical after the date of exercise of the Option and the receipt
by the Company of full payment therefor, the Company shall deliver to Optionee a
stock certificate representing the shares of the Common Stock acquired by
Optionee pursuant to his exercise of the Option.
 
 10. Notices .
 
 All
notices or other communications hereunder shall be in writing and shall be
effective (i) when personally delivered by courier (including overnight
carriers) or otherwise to the party to be given such notice or other
communication or (ii) on the third business day following the date deposited in
the United States mail if such notice or other communication is sent by
certified or registered mail with return receipt requested and postage thereon
fully prepaid. The addresses for such notices shall be as follows:
 
 If to the
Company:
 
 FLAG
Financial Corporation
 Attention:
Corporate Secretary
 101 North
Greenwood Street
 LaGrange,
Georgia 30240
 
 If to
Optionee:
     
 
 
 
 
 
 Any party
hereto, by notice of the other party hereunder, may change its address for
receipt of notices hereunder.
 
 11. Other
Terms and Conditions .
 
 In
addition to the terms and conditions set forth herein, the Option is subject to
and governed by the other terms and conditions set forth in the Plan and in any
Schedule I attached hereto, each of which is hereby incorporated by reference.
In the event of any conflict between the provisions of this Agreement and the
Plan, the Plan shall control. In the event of any conflict between the
provisions of this Agreement and Schedule I, Schedule I shall
control.
 
 12. Miscellaneous .
 
 (a) The
granting of the Option and the execution of this Agreement shall not give
Optionee any rights to similar grants in future years or any right to be
retained in the service of the Company or to interfere in any way with the right
of the Company to terminate Optionee’s services at any time.
 
 (b) Unless
and except as otherwise specifically provided in this Agreement or in Schedule I
attached hereto, Optionee shall have no rights of a stockholder with respect to
any shares covered by the Option until the date of issuance of a stock
certificate to him for such shares.
 
 (c) If any
term, provision, covenant or restriction contained in this Agreement or in any
Schedule I attached hereto is held by a court or a federal regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions contained in this Agreement or
in such Schedule I shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that this Agreement or any Schedule I will not permit Optionee
to acquire the full number of Optioned Shares as provided in Section 1 hereof,
it is the express intention of the Company to allow Optionee to acquire such
lesser number of shares as may be permissible without any amendment or
modification hereof.
 
 (d) This
Agreement shall be construed and enforced in accordance with the laws of
Delaware.
 
 (e) This
Agreement, together with the Plan and any Schedule I hereto, contains the entire
understanding among the parties and supersedes any prior understanding and
agreements between them representing the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral or written,
between and among the parties hereto relating to the subject matter hereof which
are not fully expressed herein, in the Plan and in any Schedule I attached
hereto.
 
 (f) Section
and other headings contained in this Agreement am for reference purposes only
and are in no way intended to describe, interpret, define or limit the scope,
extent or intent of this Agreement or any provision hereof.
 
 (g) This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original and all of which shall constitute one agreement, and the
signatures of any party or any counterpart shall be deemed to be a signature to,
and may be appended to, any other counterpart.
 
 
 IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the first
date written above.
 
 
 **FLAG
FINANCIAL CORPORATION**
 
 By: 
______________________
  Title: 
_____________________
 
 
 **OPTIONEE:**
 
 __________________________
 Signature
 
 __________________________
 Print or
type name
 
 
 
 
 
 
 *EXHIBIT
A*
 
 FLAG
FINANCIAL CORPORATION
 1994
DIRECTORS STOCK INCENTIVE PLAN
 
 NOTICE
OF EXERCISE FOR NONQUALIFIED STOCK OPTION AGREEMENT
 
 This
Notice of Exercise is given pursuant to the terms of the Nonqualified Stock
Option Agreement, dated ______________, _______, between FLAG Financial
Corporation (the “Company”) and the undersigned Optionee (the “Agreement”),
which Agreement represents Nonqualified Stock Option No. _________ and
which is made a part hereof and incorporated herein by reference.
 
 EXERCISE
OF OPTION .
Optionee hereby exercises his option to purchase  of his
Optioned Shares. Optionee hereby delivers, together with this written statement
of exercise, the full Option Price with respect to the exercised Optioned
Shares, which consists of: [COMPLETE ONLY ONE]
 
 □ cash in
the total amount of $    .
 
 □ ___________ shares Of
the Company’s Common Stock.
 
 □ cash in
the total amount of $______________ ;
 and ___________ s hares of
the Company’s Common Stock.
 
 □ other
(specify):
 
 ACKNOWLEDGEMENT .
Optionee hereby acknowledges that, to the extent he is an “affiliate” of the
Company (as that term is defined in Rule 144 promulgated under the Securities
Act of 1933, as amended) or to the extent that the Optioned Shares have not been
registered under the Securities Act of 1933, as amended, or applicable state
securities laws, any shares of the Company’s Common Stock acquired by him as a
result of his exercise of the Option pursuant to this Notice are subject to, and
the certificates representing such shares shall be legended to reflect, certain
trading restrictions under applicable securities laws (including particularly
the Securities and Exchange Commission’s Rule 144), all as described in Section
9 of the Plan, and Optionee hereby agrees to comply with all such restrictions
and to execute such documents or take such other actions as the Company may
require in connection with such restrictions.
 
 Executed
this _____ day of ________________, ________.
 
 OPTIONEE:
 
 _____________________
 Signature
  Print or
Type Name
 
 FLAG
Financial Corporation hereby acknowledges receipt of this Notice of Exercise and
receipt of payment in the form and amount indicated above, all on this ______
day of __________________, _______.
 
 FLAG
FINANCIAL CORPORATION
 
 By: 
________________________
 
 
 Title: 
_______________________