Exhibit 4.2


    EXHIBIT
      4.2

     

     

    
    

     

    
      

    

     

     

    GUARANTEE
      AGREEMENT

    


    


    between

    


    


    FLAG
      FINANCIAL CORPORATION,

    As
      Guarantor,

    


    


    and

    


    


    WILMINGTON
      TRUST COMPANY,

    As
      Guarantee Trustee

    


    


    Dated
      as
      of November
      10,
      2005 

     

    
 

    


    


    FLAG
      FINANCIAL STATUTORY TRUST III

     

    
      
        

      

    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    TABLE
      OF
      CONTENTS

    


    
      	
              ARTICLE
                I

            	
              INTERPRETATION
                AND DEFINITIONS

            	
              2

            
	
              SECTION
                1.1

            	
              Interpretation

            	
              2

            
	
              SECTION
                1.2

            	
              Definitions

            	
              2

            
	 	 	 
	
              ARTICLE
                II

            	
              REPORTS

            	
              6

            
	
              SECTION
                2.1

            	
              List
                of Holders.

            	
              6

            
	
              SECTION
                2.2

            	
              Periodic
                Reports to the Guarantee Trustee

            	
              6

            
	
              SECTION
                2.3

            	
              Event
                of Default; Waiver

            	
              6

            
	
              SECTION
                2.4

            	
              Event
                of Default; Notice

            	
              6

            
	 	 	 
	
              ARTICLE
                III

            	
              POWERS,
                DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

            	
              7

            
	
              SECTION
                3.1

            	
              Powers
                and Duties of the Guarantee Trustee

            	
              7

            
	
              SECTION
                3.2

            	
              Certain
                Rights of the Guarantee Trustee

            	
              8

            
	
              SECTION
                3.3

            	
              Compensation

            	
              10

            
	
              SECTION
                3.4

            	
              Indemnity

            	
              10

            
	
              SECTION
                3.5

            	
              Securities

            	
              11

            
	 	 	 
	
              ARTICLE
                IV

            	
              GUARANTEE
                TRUSTEE

            	
              11

            
	
              SECTION
                4.1

            	
              Guarantee
                Trustee; Eligibility

            	
              11

            
	
              SECTION
                4.2

            	
              Appointment,
                Removal and Resignation of the Guarantee Trustee

            	
              12

            
	 	 	 
	
              ARTICLE
                V

            	
              GUARANTEE

            	
              12

            
	
              SECTION
                5.1

            	
              Guarantee

            	
              12

            
	
              SECTION
                5.2

            	
              Waiver
                of Notice and Demand

            	
              13

            
	
              SECTION
                5.3

            	
              Obligations
                Not Affected

            	
              13

            
	
              SECTION
                5.4

            	
              Rights
                of Holders

            	
              14

            
	
              SECTION
                5.5

            	
              Guarantee
                of Payment

            	
              14

            
	
              SECTION
                5.6

            	
              Subrogation

            	
              14

            
	
              SECTION
                5.7

            	
              Independent
                Obligations

            	
              14

            
	
              SECTION
                5.8

            	
              Enforcement

            	
              15

            
	 	 	 
	
              ARTICLE
                VI

            	
              COVENANTS
                AND SUBORDINATION

            	
              15

            
	
              SECTION
                6.1

            	
              Dividends,
                Distributions and Payments

            	
              15

            
	
              SECTION
                6.2

            	
              Subordination

            	
              16

            
	
              SECTION
                6.3

            	
              Pari
                Passu Guarantees

            	
              16

            
	 	 	 
	
              ARTICLE
                VII

            	
              TERMINATION

            	
              16

            
	
              SECTION
                7.1

            	
              Termination

            	
              16

            
	 	 	 
	
              ARTICLE
                VIII

            	
              MISCELLANEOUS

            	
              17

            
	
              SECTION
                8.1

            	
              Successors
                and Assigns

            	
              17

            
	
              SECTION
                8.2

            	
              Amendments

            	
              17

            
	
              SECTION
                8.3

            	
              Notices

            	
              17

            
	
              SECTION
                8.4

            	
              Benefit

            	
              18

            


    


    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    


    
      	
              SECTION
                8.5

            	
              Governing
                Law

            	
              18

            
	
              SECTION
                8.6

            	
              Submission
                to Jurisdiction

            	
              18

            
	
              SECTION
                8.7

            	
              Counterparts

            	
              19

            


    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    


    GUARANTEE
      AGREEMENT,
      dated
      as of November 10, 2005, executed and delivered by Flag Financial Corporation,
      a
      Georgia corporation (the “Guarantor”)
      having
      its principal office at 3475 Piedmont Road, N.E., Suite 550, Atlanta, Georgia
      30305, and WILMINGTON
      TRUST COMPANY,
      a
      Delaware banking corporation, as trustee (in such capacity, the “Guarantee
      Trustee”),
      for
      the benefit of the Holders (as defined herein) from time to time of the
      Preferred Securities (as defined herein) of Flag Financial Statutory Trust
      III,
      a Delaware statutory trust (the “Issuer”).

    


    W I
      T N E S S E T H :

    


    WHEREAS,
      pursuant to an Amended and Restated Trust Agreement, dated as of the date hereof
      (the “Trust
      Agreement”),
      among
      the Guarantor, as Depositor, the Property Trustee, the Delaware Trustee and
      the
      Administrative Trustees named therein and the holders from time to time of
      the
      Preferred Securities (as hereinafter defined), the Issuer is issuing $15,000,000
      aggregate Liquidation Amount (as defined in the Trust Agreement) of its Floating
      Rate Preferred Securities (Liquidation Amount $1,000 per preferred security)
      (the “Preferred
      Securities”)
      representing preferred undivided beneficial interests in the assets of the
      Issuer and having the terms set forth in the Trust Agreement;

    


    WHEREAS,
      the
      Preferred Securities will be issued by the Issuer and the proceeds thereof,
      together with the proceeds from the issuance of the Issuer’s Common Securities
      (as defined below), will be used to purchase the Notes (as defined in the Trust
      Agreement) of the Guarantor; and

    


    WHEREAS,
      as
      incentive for the Holders to purchase Preferred Securities the Guarantor desires
      irrevocably and unconditionally to agree, to the extent set forth herein, to
      pay
      to the Holders of the Preferred Securities the Guarantee Payments (as defined
      herein) and to make certain other payments on the terms and conditions set
      forth
      herein.

    


    NOW,
      THEREFORE, in
      consideration of the purchase by each Holder of Preferred Securities, which
      purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor
      executes and delivers this Guarantee Agreement to provide as follows for the
      benefit of the Holders from time to time of the Preferred
      Securities:


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    ARTICLE
      I

     

    INTERPRETATION AND
      DEFINITIONS

    


    
      	 	
              SECTION
                1.1

            	
              Interpretation.

            


    

    


    In
      this
      Guarantee Agreement, unless the context otherwise requires:

    


    (a)    capitalized
      terms used in this Guarantee Agreement but not defined in the preamble hereto
      have the respective meanings assigned to them in Section
      1.2;

    


    (b)    the
      words
“include”, “includes” and “including” shall be deemed to be followed by the
      phrase “without limitation”;

    


    (c)    all
      references to “the Guarantee Agreement” or “this Guarantee Agreement” are to
      this Guarantee Agreement as modified, supplemented or amended from time to
      time;

    


    (d)    all
      references in this Guarantee Agreement to Articles and Sections are to Articles
      and Sections of this Guarantee Agreement unless otherwise
      specified;

    


    (e)    the
      words
“hereby”, “herein”, “hereof” and “hereunder” and other words of similar import
      refer to this Guarantee Agreement as a whole and not to any particular Article,
      Section or other subdivision;

    


    (f)    
a
      reference to the singular includes the plural and vice versa; and

    


    (g)    the
      masculine, feminine or neuter genders used herein shall include the masculine,
      feminine and neuter genders.

    


    
      	 	
              SECTION
                1.2

            	
              Definitions.

            


    

    


    As
      used
      in this Guarantee Agreement, the terms set forth below shall, unless the context
      otherwise requires, have the following meanings:

    


    “Affiliate”
      of any
      specified Person means any other Person directly or indirectly controlling
      or
      controlled by or under direct or indirect common control with such specified
      Person; provided,
      that
      the Issuer shall not be deemed to be an Affiliate of the Guarantor. For the
      purposes 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.

    


    “Beneficiaries”
      means
      any Person to whom the Issuer is or hereafter becomes indebted or
      liable.


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    “Board
      of Directors”
      means
      either the board of directors of the Guarantor or any duly authorized committee
      of that board.

    


    “Common
      Securities”
      means
      the securities representing common undivided beneficial interests in the assets
      of the Issuer.

    


    “Debt”
      means
      with respect to any Person, whether recourse is to all or a portion of the
      assets of such Person, whether currently existing or hereafter incurred, and
      whether or not contingent and without duplication, (i) every obligation of
      such
      Person for money borrowed; (ii) every obligation of such Person evidenced by
      bonds, debentures, notes or other similar instruments, including obligations
      incurred in connection with the acquisition of property, assets or businesses;
      (iii) every reimbursement obligation of such Person with respect to letters
      of
      credit, bankers’ acceptances or similar facilities issued for the account of
      such Person; (iv) every obligation of such Person issued or assumed as the
      deferred purchase price of property or services (but excluding trade accounts
      payable arising in the ordinary course of business); (v) every capital lease
      obligation of such Person; (vi) all indebtedness of such Person, whether
      incurred on or prior to the date of this Guarantee Agreement or thereafter
      incurred, for claims in respect of derivative products, including interest
      rate,
      foreign exchange rate and commodity forward contracts, options, swaps and
      similar arrangements; (vii) every obligation of the type referred to in clauses
      (i) through (vi) of another Person and all dividends of another Person the
      payment of which, in either case, such Person has guaranteed or is responsible
      or liable for, directly or indirectly, as obligor or otherwise; and (viii)
      any
      renewals, extensions, refundings, amendments or modifications of any obligation
      of the type referred to in clauses (i) through (vii).

    


    “Event
      of Default”
      means a
      default by the Guarantor on any of its payment or other obligations under this
      Guarantee Agreement; provided, that except with respect to a default in payment
      of any Guarantee Payments, the Guarantor shall have received notice of default
      from the Guarantee Trustee and shall not have cured such default within thirty
      (30) days after receipt of such notice.

    


    “Guarantee
      Payments”
      means
      the following payments or distributions, without duplication, with respect
      to
      the Preferred Securities, to the extent not paid or made by or on behalf of
      the
      Issuer: (i) any accumulated and unpaid Distributions (as defined in the Trust
      Agreement) required to be paid on the Preferred Securities, to the extent the
      Issuer shall have funds on hand available therefor at such time, (ii) the
      Redemption Price with respect to any Preferred Securities to the extent the
      Issuer shall have funds on hand available therefor at such time, and (iii)
      upon
      a voluntary or involuntary termination, winding up or liquidation of the Issuer,
      unless Notes are distributed to the Holders, the lesser of (a) the aggregate
      of
      the Liquidation Amount of $1,000 per Preferred Security plus accumulated and
      unpaid Distributions on the Preferred Securities to the date of payment, to
      the
      extent that the Issuer shall have funds available therefor at such time and
      (b)
      the amount of assets of the Issuer remaining available for distribution to
      Holders in liquidation of the Issuer after satisfaction of liabilities to
      creditors of the Issuer in accordance with applicable law (in either case,
      the
“Liquidation
      Distribution”).


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


    “Guarantee
      Trustee”
      means
      Wilmington Trust Company in its capacity as trustee hereunder, until a Successor
      Guarantee Trustee, as defined below, has been appointed and has accepted such
      appointment pursuant to the terms of this Guarantee Agreement, and thereafter
      means each such Successor Guarantee Trustee.

    


    “Holder”
      means
      any holder, as registered on the books and records of the Issuer, of any
      Preferred Securities; provided,
      that,
      in determining whether the holders of the requisite percentage of Preferred
      Securities have given any request, notice, consent or waiver hereunder, “Holder”
shall not include the Guarantor, the Guarantee Trustee or any Affiliate of
      the
      Guarantor or the Guarantee Trustee.

    


    “Indenture”
      means
      the Junior Subordinated Indenture, dated as of the date hereof, as supplemented
      and amended, between the Guarantor and Wilmington Trust Company, as
      trustee.

    


    “List
      of Holders”
      has the
      meaning specified in Section
      2.1.

    


    “Majority
      in Liquidation Amount of the Preferred Securities”
      means a
      vote by the Holder(s), voting separately as a class, of more than fifty percent
      (50%) of the aggregate Liquidation Amount of all then outstanding Preferred
      Securities issued by the Issuer.

    


    “Obligations”
      means
      any costs, expenses or liabilities (but not including liabilities related to
      taxes) of the Issuer, other than obligations of the Issuer to pay to holders
      of
      any Trust Securities the amounts due such holders pursuant to the terms of
      the
      Trust Securities.

    


    “Officers’
      Certificate”
      means,
      with respect to any Person, a certificate signed by the Chief Executive Officer,
      Chief Financial Officer, President or a Vice President of such Person, and
      by
      the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
      of such Person, and delivered to the Guarantee Trustee. Any Officers’
Certificate delivered with respect to compliance with a condition or covenant
      provided for in this Guarantee Agreement (other than the certificate provided
      pursuant to Section
      2.4)
      shall
      include:

    


    (a)    a
      statement that each officer signing the Officers’ Certificate has read the
      covenant or condition and the definitions relating thereto;

    


    (b)    a
      brief
      statement of the nature and scope of the examination or investigation undertaken
      by each officer in rendering the Officers’ Certificate;


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    (c)    a
      statement that each officer has made such examination or investigation as,
      in
      such officer’s opinion, is necessary to enable such officer 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, in the opinion of each officer, such condition or
      covenant has been complied with.

    


    “Person”
      means a
      legal person, including any individual, corporation, estate, partnership, joint
      venture, association, joint stock company, limited liability company, trust,
      unincorporated association, government or any agency or political subdivision
      thereof or any other entity of whatever nature.

    


    “Responsible
      Officer”
      means,
      with respect to the Guarantee Trustee, any Senior Vice President, any Vice
      President, any Assistant Vice President, the Secretary, any Assistant Secretary,
      the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust
      Officer or any other officer in the Corporate Trust Office of the Guarantee
      Trustee with direct responsibility for the administration of this Guarantee
      Agreement and also means, with respect to a particular corporate trust matter,
      any other officer to whom such matter is referred because of that officer’s
      knowledge of and familiarity with the particular subject.

    


    “Senior
      Debt”
      means
      the principal of and any premium and interest on (including interest accruing
      on
      or after the filing of any petition in bankruptcy or for reorganization relating
      to the Guarantor whether or not such claim for post-petition interest is allowed
      in such proceeding) all Debt of the Guarantor, whether incurred on or prior
      to
      the date of the Indenture or thereafter incurred, unless it is provided in
      the
      instrument creating or evidencing the same or pursuant to which the same is
      outstanding, that such obligations are not superior in right of payment to
      the
      Preferred Securities; provided,
      however,
      that if
      the Guarantor is subject to the regulation and supervision of an “appropriate
      Federal banking agency” within the meaning of 12 U.S.C. 1813(q), the Guarantor
      shall have received the approval of such appropriate Federal banking agency
      prior to issuing any such obligation if not otherwise generally approved;
provided
      further,
      that
      Senior Debt shall not include any other debt securities, and guarantees in
      respect of such debt securities, issued to any trust other than the Issuer
      (or a
      trustee of such trust), partnership or other entity affiliated with the
      Guarantor that is a financing vehicle of the Guarantor (a “financing entity”),
      in connection with the issuance by such financing entity of equity securities
      or
      other securities that are treated as equity capital for regulatory capital
      purposes guaranteed by the Guarantor pursuant to an instrument that ranks
pari
      passu
      with or
      junior in right of payment to this Guarantee Agreement, including, without
      limitation, securities issued by Flag Financial Corporation Statutory Trust
      and
      Flag Financial Statutory Trust II.

    


    “Successor
      Guarantee Trustee”
      means a
      successor Guarantee Trustee possessing the qualifications to act as Guarantee
      Trustee under Section 4.1.


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    


    “Trust
      Indenture Act”
      means
      the Trust Indenture Act of 1939, as amended and as in effect on the date of
      this
      Guarantee Agreement.

    


    Capitalized
      or otherwise defined terms used but not otherwise defined herein shall have
      the
      meanings assigned to such terms in the Trust Agreement as in effect on the
      date
      hereof.

    


    ARTICLE
      II

     

    REPORTS

    


    
      	 	
              SECTION
                2.1

            	
              List
                of Holders.

            


    

    


    The
      Guarantor shall furnish or cause to be furnished to the Guarantee Trustee at
      such times as the Guarantee Trustee may request in writing, within thirty (30)
      days after the receipt by the Guarantor of any such request, a list, in such
      form as the Guarantee Trustee may reasonably require, of the names and addresses
      of the Holders (the “List
      of Holders”)
      as of a
      date not more than fifteen (15) days prior to the time such list is furnished,
      in each case to the extent such information is in the possession or control
      of
      the Guarantor and is not identical to a previously supplied list of Holders
      or
      has not otherwise been received by the Guarantee Trustee in its capacity as
      such. The Guarantee Trustee may destroy any List of Holders previously given
      to
      it on receipt of a new List of Holders.

    


    
      	 	
              SECTION
                2.2

            	
              Periodic
                Reports to the Guarantee
                Trustee.

            


    

    


    The
      Guarantor shall deliver to the Guarantee Trustee, within one hundred and twenty
      (120) days after the end of each fiscal year of the Guarantor ending after
      the
      date of this Guarantee Agreement, an Officers’ Certificate covering the
      preceding fiscal year, stating whether or not to the knowledge of the signers
      thereof the Guarantor is in default in the performance or observance of any
      of
      the terms or provisions or any of the conditions of this Guarantee Agreement
      (without regard to any period of grace or requirement of notice provided
      hereunder) and, if the Guarantor shall be in default thereof, specifying all
      such defaults and the nature and status thereof of which they have
      knowledge.

    


    
      	 	
              SECTION
                2.3

            	
              Event
                of Default; Waiver.

            


    

    


    The
      Holders of a Majority in Liquidation Amount of the Preferred Securities may,
      on
      behalf of the Holders, waive any past Event of Default and its consequences.
      Upon such waiver, any such Event of Default shall cease to exist, and any Event
      of Default arising therefrom shall be deemed to have been cured, for every
      purpose of this Guarantee Agreement, but no such waiver shall extend to any
      subsequent or other default or Event of Default or impair any right consequent
      therefrom.

    


    
      	 	
              SECTION
                2.4

            	
              Event
                of Default; Notice.

            


    


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    


    (a)    The
      Guarantee Trustee shall, within ninety (90) days after the occurrence of a
      default, transmit to the Holders notices of all defaults actually known to
      the
      Guarantee Trustee, unless such defaults have been cured or waived before the
      giving of such notice, provided,
      that,
      except in the case of a default in the payment of a Guarantee Payment, the
      Guarantee Trustee shall be protected in withholding such notice if and so long
      as the Board of Directors, the executive committee or a trust committee of
      directors and/or Responsible Officers of the Guarantee Trustee in good faith
      determine that the withholding of such notice is in the interests of the
      Holders. For the purpose of this Section
      2.4,
      the
      term “default”
      means
      any event that is, or after notice or lapse of time or both would become, an
      Event of Default.

    


    (b)    The
      Guarantee Trustee shall not be deemed to have knowledge of any default or Event
      of Default unless the Guarantee Trustee shall have received written notice,
      or a
      Responsible Officer charged with the administration of this Guarantee Agreement
      shall have received written notice, of such default or Event of Default from
      the
      Guarantor or a Holder.

    


    ARTICLE
      III

     

    POWERS,
      DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

    


    
      	 	
              SECTION
                3.1

            	
              Powers
                and Duties of the Guarantee
                Trustee.

            


    

    


    (a)    This
      Guarantee Agreement shall be held by the Guarantee Trustee for the benefit
      of
      the Holders, and the Guarantee Trustee shall not transfer this Guarantee
      Agreement to any Person except a Holder exercising its rights pursuant to
Section
      5.4(d)
      or to a
      Successor Guarantee Trustee upon acceptance by such Successor Guarantee Trustee
      of its appointment to act as Successor Guarantee Trustee. The right, title
      and
      interest of the Guarantee Trustee shall automatically vest in any Successor
      Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its
      appointment hereunder, and such vesting and cessation of title shall be
      effective whether or not conveyancing documents have been executed and delivered
      pursuant to the appointment of such Successor Guarantee Trustee.

    


    (b)    The
      rights, immunities, duties and responsibilities of the Guarantee Trustee shall
      be as provided by this Guarantee Agreement and there shall be no other duties
      or
      obligations, express or implied, of the Guarantee Trustee. Notwithstanding
      the
      foregoing, no provisions of this Guarantee Agreement shall require the Guarantee
      Trustee to expend or risk its own funds or otherwise incur any financial
      liability in the performance of any of its duties hereunder, or in the exercise
      of any of its rights or powers, if it shall have reasonable grounds for
      believing that repayment of such funds or adequate indemnity against such risk
      or liability is not reasonably assured to it. Whether or not herein expressly
      so
      provided, every provision of this Guarantee Agreement relating to the conduct
      or
      affecting the liability of or affording protection to the Guarantee Trustee
      shall be subject to the provisions of this Section
      3.1.
      To the
      extent that, at law or in equity, the Guarantee Trustee has duties and
      liabilities relating to the Guarantor or the Holders, the Guarantee Trustee
      shall not be liable to any Holder for the Guarantee Trustee’s good faith
      reliance on the provisions of this Guarantee Agreement. The provisions of this
      Guarantee Agreement, to the extent that they restrict the duties and liabilities
      of the Guarantee Trustee otherwise existing at law or in equity, are agreed
      by
      the Guarantor and the Holders to replace such other duties and liabilities
      of
      the Guarantee Trustee.


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    


    (c)    No
      provision of this Guarantee Agreement shall be construed to relieve the
      Guarantee Trustee from liability for its own negligent action, negligent failure
      to act or own willful misconduct, except that:

    


    (i)    
the
      Guarantee Trustee shall not be liable for any error of judgment made in good
      faith by a Responsible Officer of the Guarantee Trustee, unless it shall be
      proved that the Guarantee Trustee was negligent in ascertaining the pertinent
      facts upon which such judgment was made; and

    


    (ii)    the
      Guarantee Trustee shall not be liable with respect to any action taken or
      omitted to be taken by it in good faith in accordance with the direction of
      the
      Holders of not less than a Majority in Liquidation Amount of the Preferred
      Securities relating to the time, method and place of conducting any proceeding
      for any remedy available to the Guarantee Trustee, or exercising any trust
      or
      power conferred upon the Guarantee Trustee under this Guarantee
      Agreement.

    


    
      	 	
              SECTION
                3.2

            	
              Certain
                Rights of the Guarantee
                Trustee.

            


    

    


    
      	 	
              (a)

            	
              Subject
                to the provisions of Section
                3.1:

            


    

    


    (i)    
the
      Guarantee Trustee may conclusively rely and shall be fully protected in acting
      or refraining from acting in good faith and in accordance with the terms hereof
      upon any resolution, certificate, statement, instrument, opinion, report,
      notice, request, direction, consent, order, bond, debenture, note, other
      evidence of indebtedness or other paper or document reasonably believed by
      it to
      be genuine and to have been signed, sent or presented by the proper party or
      parties;

    


    (ii)    any
      direction or act of the Guarantor contemplated by this Guarantee Agreement
      shall
      be sufficiently evidenced by an Officers’ Certificate unless otherwise
      prescribed herein;

    


    (iii)   the
      Guarantee Trustee may consult with counsel, and the advice of such counsel
      shall
      be full and complete authorization and protection in respect of any action
      taken, suffered or omitted to be taken by it hereunder in good faith and in
      reliance thereon and in accordance with such advice. Such counsel may be counsel
      to the Guarantee Trustee, the Guarantor or any of its Affiliates and may be
      one
      of its employees. The Guarantee Trustee shall have the right at any time to
      seek
      instructions concerning the administration of this Guarantee Agreement from
      any
      court of competent jurisdiction;


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    


    (iv)   the
      Guarantee Trustee shall be under no obligation to exercise any of the rights
      or
      powers vested in it by this Guarantee Agreement at the request or direction
      of
      any Holder, unless such Holder shall have provided to the Guarantee Trustee
      reasonable security or indemnity against the costs, expenses (including
      reasonable attorneys’ fees and expenses) and liabilities that might be incurred
      by it in complying with such request or direction, including such reasonable
      advances as may be requested by the Guarantee Trustee; provided,
      that,
      nothing contained in this Section 3.2(a)(iv)
      shall be
      taken to relieve the Guarantee Trustee, upon the occurrence of an Event of
      Default, of its obligation to exercise the rights and powers vested in it by
      this Guarantee Agreement;

    


    (v)    the
      Guarantee Trustee shall not be bound to make any investigation into the facts
      or
      matters stated in any resolution, certificate, statement, instrument, opinion,
      report, notice, request, direction, consent, order, bond, debenture, note,
      other
      evidence of indebtedness or other paper or document, but the Guarantee Trustee,
      in its discretion, may make such further inquiry or investigation into such
      facts or matters as it may see fit, and if the Guarantee Trustee shall determine
      to make such inquiry or investigation, it shall be entitled to examine the
      books, records and premises of the Guarantor, personally or by agent or
      attorney;

    


    (vi)  
the
      Guarantee Trustee may execute any of the trusts or powers hereunder or perform
      any duties hereunder either directly or by or through its agents, attorneys,
      custodians or nominees and the Guarantee Trustee shall not be responsible for
      any misconduct or negligence on the part of any such agent, attorney, custodian
      or nominee appointed with due care by it hereunder;

    


    (vii)  
whenever
      in the administration of this Guarantee Agreement the Guarantee Trustee shall
      deem it desirable to receive instructions with respect to enforcing any remedy
      or right hereunder, the Guarantee Trustee (A) may request instructions from
      the
      Holders of a Majority in Liquidation Amount of the Preferred Securities, (B)
      may
      refrain from enforcing such remedy or right or taking such other action until
      such instructions are received and (C) shall be protected in acting in
      accordance with such instructions;

    


    (viii)  
except
      as
      otherwise expressly provided by this Guarantee Agreement, the Guarantee Trustee
      shall not be under any obligation to take any action that is discretionary
      under
      the provisions of this Guarantee Agreement; 


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    


    (ix)   whenever,
      in the administration of this Guarantee Agreement, the Guarantee Trustee shall
      deem it desirable that a matter be proved or established before taking,
      suffering or omitting to take any action hereunder, the Guarantee Trustee
      (unless other evidence is herein specifically prescribed) may, in the absence
      of
      bad faith on its part, request and rely upon an Officers’ Certificate which,
      upon receipt of such request from the Guarantee Trustee, shall be promptly
      delivered by the Guarantor; and

    


    (x)    the
      Guarantee Trustee shall have no duty to see to any recording, filing or
      registration of any instrument or other writing (or any rerecording, refilling
      or reregistration thereof).

    


    (b)    No
      provision of this Guarantee Agreement shall be deemed to impose any duty or
      obligation on the Guarantee Trustee to perform any act or acts or exercise
      any
      right, power, duty or obligation conferred or imposed on it in any jurisdiction
      in which it shall be illegal, or in which the Guarantee Trustee shall be
      unqualified or incompetent in accordance with applicable law, to perform any
      such act or acts or to exercise any such right, power, duty or obligation.
      No
      permissive power or authority available to the Guarantee Trustee shall be
      construed to be a duty to act in accordance with such power and
      authority.

    


    
      	 	
              SECTION
                3.3

            	
              Compensation.

            


    

    


    The
      Guarantor agrees to pay to the Guarantee Trustee from time to time reasonable
      compensation for all services rendered by it hereunder (which compensation
      shall
      not be limited by any provisions of law in regard to the compensation of a
      trustee of an express trust) and to reimburse the Guarantee Trustee upon request
      for all reasonable expenses, disbursements and advances (including the
      reasonable fees and expenses of its attorneys and agents) incurred or made
      by
      the Guarantee Trustee in accordance with any provisions of this Guarantee
      Agreement.

    


    
      	 	
              SECTION
                3.4

            	
              Indemnity.

            


    

    


    The
      Guarantor agrees to indemnify and hold harmless the Guarantee Trustee (including
      in its individual capacity) and any of its Affiliates and any of their officers,
      directors, shareholders, employees, representatives or agents from and against
      any loss, damage, liability, tax (other than income, franchise or other taxes
      imposed on amounts paid pursuant to Section
      3.3),
      penalty, expense or claim of any kind or nature whatsoever incurred without
      negligence, bad faith or willful misconduct on its part, arising out of or
      in
      connection with the acceptance or administration of this Guarantee Agreement,
      including the costs and expenses of defending itself against any claim or
      liability in connection with the exercise or performance of any of its rights,
      powers or duties hereunder. The Guarantee Trustee will not claim or exact any
      lien or charge on any Guarantee Payments as a result of any amount due to it
      under this Guarantee Agreement. This indemnity shall survive the termination
      of
      this Agreement or the resignation or removal of the Guarantee
      Trustee.


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


    In
      no
      event shall the Guarantee Trustee be liable for any indirect, special, punitive
      or consequential loss or damage of any kind whatsoever, including, but not
      limited to, lost profits, even if the Guarantee Trustee has been advised of
      the
      likelihood of such loss or damage and regardless of the form of
      action.

    


    In
      no
      event shall the Guarantee Trustee be liable for any failure or delay in the
      performance of its obligations hereunder because of circumstances beyond its
      control, including, but not limited to, acts of God, flood, war (declared or
      undeclared), terrorism, fire, riot, embargo or government action, including
      any
      laws, ordinances, regulations, governmental action or the like which delay,
      restrict or prohibit the providing of the services contemplated by this
      Guarantee Agreement.

    


    
      	 	
              SECTION
                3.5

            	
              Securities.

            


    

    


    The
      Guarantee Trustee or any other agent of the Guarantee Trustee, in its individual
      or any other capacity, may become the owner or pledgee of Common or Preferred
      Securities.

    


    ARTICLE
      IV

     

    GUARANTEE
      TRUSTEE

    


    
      	 	
              SECTION
                4.1

            	
              Guarantee
                Trustee; Eligibility.

            


    

    


    
      	 	
              (a)

            	
              There
                shall at all times be a Guarantee Trustee which
                shall:

            


    

    


    (i)    not
      be an
      Affiliate of the Guarantor; and

    


    (ii)    be
      a
      corporation organized and doing business under the laws of the United States
      or
      of any State thereof, authorized to exercise corporate trust powers, having
      a
      combined capital and surplus of at least fifty million dollars ($50,000,000),
      subject to supervision or examination by Federal or State authority and having
      an office within the United States. If such corporation publishes reports of
      condition at least annually, pursuant to law or to the requirements of such
      supervising or examining authority, then, for the purposes of this Section
      4.1,
      the
      combined capital and surplus of such corporation shall be deemed to be its
      combined capital and surplus as set forth in its most recent report of condition
      so published.

    


    (b)    If
      at any
      time the Guarantee Trustee shall cease to be eligible to so act under
Section
      4.1(a),
      the
      Guarantee Trustee shall immediately resign in the manner and with the effect
      set
      out in Section
      4.2(c).

    


    (c)    If
      the
      Guarantee Trustee has or shall acquire any “conflicting interest” within the
      meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee
      shall either eliminate such interest or resign in the manner and with the effect
      set out in Section
      4.2(c).

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      	 	
              SECTION
                4.2

            	
              Appointment,
                Removal and Resignation of the Guarantee
                Trustee.

            


    

    


    (a)    Subject
      to Section
      4.2(b),
      the
      Guarantee Trustee may be appointed or removed without cause at any time by
      the
      Guarantor, except during an Event of Default.

    


    (b)    The
      Guarantee
      Trustee shall not be removed until a Successor Guarantee Trustee has been
      appointed and has accepted such appointment by written instrument executed
      by
      such Successor Guarantee Trustee and delivered to the Guarantor.

    


    (c)    The
      Guarantee Trustee appointed hereunder shall hold office until a Successor
      Guarantee Trustee shall have been appointed or until its removal or resignation.
      The Guarantee Trustee may resign from office (without need for prior or
      subsequent accounting) by an instrument in writing executed by the Guarantee
      Trustee and delivered to the Guarantor, which resignation shall not take effect
      until a Successor Guarantee Trustee has been appointed and has accepted such
      appointment by instrument in writing executed by such Successor Guarantee
      Trustee and delivered to the Guarantor and the resigning Guarantee
      Trustee.

    


    (d)    If
      no
      Successor Guarantee Trustee shall have been appointed and accepted appointment
      as provided in this Section
      4.2
      within
      thirty (30) days after delivery to the Guarantor of an instrument of
      resignation, the resigning Guarantee Trustee may petition, at the expense of
      the
      Guarantor, any court of competent jurisdiction for appointment of a Successor
      Guarantee Trustee. Such court may thereupon, after prescribing such notice,
      if
      any, as it may deem proper, appoint a Successor Guarantee Trustee. 

    


    ARTICLE
      V

     

    GUARANTEE

    


    
      	 	
              SECTION
                5.1

            	
              Guarantee.

            


    

    


    (a)    The
      Guarantor irrevocably and unconditionally agrees to pay in full to the Holders
      the Guarantee Payments (without duplication of amounts theretofore paid by
      or on
      behalf of the Issuer), as and when due, regardless of any defense (except for
      the defense of payment by the Issuer), right of set-off or counterclaim which
      the Issuer may have or assert. The Guarantor’s obligation to make a Guarantee
      Payment may be satisfied by direct payment of the required amounts by the
      Guarantor to the Holders or by causing the Issuer to pay such amounts to the
      Holders. The Guarantor shall give prompt written notice to the Guarantee Trustee
      in the event it makes any direct payment to the Holders
      hereunder.


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    


    (b)    The
      Guarantor hereby also agrees to assume any and all Obligations of the Issuer,
      and, in the event any such Obligation is not so assumed, subject to the terms
      and conditions hereof, the Guarantor hereby irrevocably and unconditionally
      guarantees to each Beneficiary the full payment, when and as due, of any and
      all
      Obligations to such Beneficiaries. This Guarantee is intended to be for the
      Beneficiaries who have received notice hereof.

    


    
      	 	
              SECTION
                5.2

            	
              Waiver
                of Notice and Demand.

            


    

    


    The
      Guarantor hereby waives notice of acceptance of the Guarantee Agreement and
      of
      any liability to which it applies or may apply, presentment, demand for payment,
      any right to require a proceeding first against the Guarantee Trustee, Issuer
      or
      any other Person before proceeding against the Guarantor, protest, notice of
      nonpayment, notice of dishonor, notice of redemption and all other notices
      and
      demands.

    


    
      	 	
              SECTION
                5.3

            	
              Obligations
                Not Affected.

            


    

    


    The
      obligations, covenants, agreements and duties of the Guarantor under this
      Guarantee Agreement shall in no way be affected or impaired by reason of the
      happening from time to time of any of the following:

    


    (a)    the
      release or waiver, by operation of law or otherwise, of the performance or
      observance by the Issuer of any express or implied agreement, covenant, term
      or
      condition relating to the Preferred Securities to be performed or observed
      by
      the Issuer;

    


    (b)    the
      extension of time for the payment by the Issuer of all or any portion of the
      Distributions (other than an extension of time for payment of Distributions
      that
      results from the extension of any interest payment period on the Notes as
      provided in the Indenture), Redemption Price, Liquidation Distribution or any
      other sums payable under the terms of the Preferred Securities or the extension
      of time for the performance of any other obligation under, arising out of,
      or in
      connection with, the Preferred Securities;

    


    (c)    any
      failure, omission, delay or lack of diligence on the part of the Holders to
      enforce, assert or exercise any right, privilege, power or remedy conferred
      on
      the Holders pursuant to the terms of the Preferred Securities, or any action
      on
      the part of the Issuer granting indulgence or extension of any
      kind;

    


    (d)    the
      voluntary
      or involuntary liquidation, dissolution, sale of any collateral, receivership,
      insolvency, bankruptcy, assignment for the benefit of creditors, reorganization,
      arrangement, composition or readjustment of debt of, or other similar
      proceedings affecting, the Issuer or any of the assets of the
      Issuer;

    


    (e)    any
      invalidity of, or defect or deficiency in, the Preferred
      Securities;


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    


    (f)    the
      settlement or compromise of any obligation guaranteed hereby or hereby incurred;
      or

    


    (g)   any
      other
      circumstance whatsoever that might otherwise constitute a legal or equitable
      discharge or defense of a guarantor, it being the intent of this Section
      5.3
      that the
      obligations of the Guarantor hereunder shall be absolute and unconditional
      under
      any and all circumstances.

    


    There
      shall be no obligation of the Holders to give notice to, or obtain the consent
      of, the Guarantor with respect to the happening of any of the
      foregoing.

    


    
      	 	
              SECTION
                5.4

            	
              Rights
                of Holders.

            


    

    


    The
      Guarantor expressly acknowledges that: (a) this Guarantee Agreement will be
      deposited with the Guarantee Trustee to be held for the benefit of the Holders;
      (b) the Guarantee Trustee has the right to enforce this Guarantee Agreement
      on
      behalf of the Holders; (c) the Holders of a Majority in Liquidation Amount
      of
      the Preferred Securities have the right to direct the time, method and place
      of
      conducting any proceeding for any remedy available to the Guarantee Trustee
      in
      respect of this Guarantee Agreement or exercising any trust or power conferred
      upon the Guarantee Trustee under this Guarantee Agreement; and (d) any Holder
      may institute a legal proceeding directly against the Guarantor to enforce
      its
      rights under this Guarantee Agreement, without first instituting a legal
      proceeding against the Guarantee Trustee, the Issuer or any other
      Person.

    


    
      	 	
              SECTION
                5.5

            	
              Guarantee
                of Payment.

            


    

    


    This
      Guarantee Agreement creates a guarantee of payment and not of collection. This
      Guarantee Agreement will not be discharged except by payment of the Guarantee
      Payments in full (without duplication of amounts theretofore paid by the Issuer)
      or upon distribution of Notes to Holders as provided in the Trust
      Agreement.

    


    
      	 	
              SECTION
                5.6

            	
              Subrogation.

            


    

    


    The
      Guarantor shall be subrogated to all (if any) rights of the Holders against
      the
      Issuer in respect of any amounts paid to the Holders by the Guarantor under
      this
      Guarantee Agreement and shall have the right to waive payment by the Issuer
      pursuant to Section
      5.1;
      provided,
      that,
      the Guarantor shall not (except to the extent required by mandatory provisions
      of law) be entitled to enforce or exercise any rights it may acquire by way
      of
      subrogation or any indemnity, reimbursement or other agreement, in all cases
      as
      a result of payment under this Guarantee Agreement, if, at the time of any
      such
      payment, any amounts are due and unpaid under this Guarantee Agreement. If
      any
      amount shall be paid to the Guarantor in violation of the preceding sentence,
      the Guarantor agrees to hold such amount in trust for the Holders and to pay
      over such amount to the Holders.

    


    
      	 	
              SECTION
                5.7

            	
              Independent
                Obligations.

            


    


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    


    The
      Guarantor acknowledges that its obligations hereunder are independent of the
      obligations of the Issuer with respect to the Preferred Securities and that
      the
      Guarantor shall be liable as principal and as debtor hereunder to make Guarantee
      Payments pursuant to the terms of this Guarantee Agreement notwithstanding
      the
      occurrence of any event referred to in subsections (a) through (g), inclusive,
      of Section
      5.3.

    


    
      	 	
              SECTION
                5.8

            	
              Enforcement.

            


    

    


    A
      Beneficiary may enforce the Obligations of the Guarantor contained in
Section
      5.1(b)
      directly
      against the Guarantor, and the Guarantor waives any right or remedy to require
      that any action be brought against the Issuer or any other person or entity
      before proceeding against the Guarantor.

    


    ARTICLE
      VI

    


    COVENANTS
      AND SUBORDINATION

    


    
      	 	
              SECTION
                6.1

            	
              Dividends,
                Distributions and Payments.

            


    

    


    So
      long
      as any Preferred Securities remain outstanding, if there shall have occurred
      and
      be continuing an Event of Default or the Guarantor shall have entered into
      an
      Extension Period as provided for in the Indenture and such period, or any
      extension thereof, shall have commenced and be continuing, then the Guarantor
      may not (a) declare or pay any dividends or distributions on, or redeem,
      purchase, acquire or make liquidation payment with respect to, any of the
      Guarantor’s capital stock or (b) make any payment of principal of or any
      interest or premium on or repay, repurchase or redeem any debt securities of
      the
      Guarantor that rank pari
      passu
      in all
      respects with or junior in interest to the Preferred Securities (other than
      (i)
      repurchases, redemptions or other acquisitions of shares of capital stock of
      the
      Guarantor in connection with any employment contract, benefit plan or other
      similar arrangement with or for the benefit of any one or more employees,
      officers, directors or consultants, in connection with a dividend reinvestment
      or stockholder stock purchase plan or in connection with the issuance of capital
      stock of the Guarantor (or securities convertible into or exercisable for such
      capital stock) as consideration in an acquisition transaction entered into
      prior
      to the occurrence of such Event of Default or the applicable Extension Period,
      (ii) as a result of an exchange or conversion of any class or series of the
      Guarantor’s capital stock (or any capital stock of a subsidiary of the
      Guarantor) for any class or series of the Guarantor’s capital stock or any class
      of series of the Guarantor’s indebtedness for any class or series of the
      Guarantor’s capital stock, (iii) the purchase of fractional interests in shares
      of the Guarantor’s capital stock pursuant to the conversions or exchange
      provisions of such capital stock or the security being converted or exchanged,
      (iv) any declaration of a dividend in connection with any rights plan, the
      issuance of rights, stock or other property under any rights plan or the
      redemption or repurchase of rights pursuant thereto, or (v) any dividend in
      the
      form of stock, warrants, options or other rights where the dividend stock or
      the
      stock issuable upon exercise of such warrants, options or other rights is the
      same stock as that on which the dividend is being paid or ranks pari
      passu
      with or
      junior to such stock).

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
      	 	
              SECTION
                6.2

            	
              Subordination.

            


    

    


    The
      obligations of the Guarantor under this Guarantee Agreement will constitute
      unsecured obligations of the Guarantor and will rank subordinate and junior
      in
      right of payment to all Senior Debt of the Guarantor.

    


    
      	 	
              SECTION
                6.3

            	
              Pari
                Passu Guarantees.

            


    

    


    (a)    The
      obligations of the Guarantor under this Guarantee Agreement shall rank
pari
      passu
      with the
      obligations of the Guarantor under any similar guarantee agreements issued
      by
      the Guarantor with respect to preferred securities (if any) similar to the
      Preferred Securities, issued by trusts other than the Issuer established or
      to
      be established by the Guarantor (if any), in each case similar to the Issuer,
      including, without limitation, the Guarantee Agreement, dated April 15, 2004,
      issued by the Guarantor with respect to the preferred securities issued by
      Flag
      Financial Corporation Statutory Trust and the Guarantee Agreement, dated July
      18, 2005, issued by the Guarantor with respect to the preferred securities
      issued by Flag Financial Corporation Statutory Trust II.

    


    (b)    The
      right
      of the Guarantor to participate in any distribution of assets of any of its
      subsidiaries upon any such subsidiary’s liquidation or reorganization or
      otherwise is subject to the prior claims of creditors of that subsidiary, except
      to the extent the Guarantor may itself be recognized as a creditor of that
      subsidiary. Accordingly, the Guarantor’s obligations under this Guarantee will
      be effectively subordinated to all existing and future liabilities of the
      Guarantor’s subsidiaries, and claimants should look only to the assets of the
      Guarantor for payments thereunder. This Guarantee does not limit the incurrence
      or issuance of other secured or unsecured debt of the Guarantor, including
      Senior Debt of the Guarantor, under any indenture or agreement that the
      Guarantor may enter into in the future or otherwise.

    


    ARTICLE
      VII

     

    TERMINATION

    


    
      	 	
              SECTION
                7.1

            	
              Termination.

            


    

    


    This
      Guarantee Agreement shall terminate and be of no further force and effect upon
      (a) full payment of the Redemption Price of all Preferred Securities, (b) the
      distribution of Notes to the Holders in exchange for all of the Preferred
      Securities or (c) full payment of the amounts payable in accordance with the
      Trust Agreement upon liquidation of the Issuer. Notwithstanding the foregoing,
      this Guarantee Agreement will continue to be effective or will be reinstated,
      as
      the case may be, if at any time any Holder must restore payment of any sums
      paid
      with respect to Preferred Securities or this Guarantee Agreement. The
      obligations of the Guarantor under Sections
      3.3
      and
3.4
      shall
      survive any such termination or the resignation and removal of the Guarantee
      Trustee.


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    


    ARTICLE
      VIII

     

    MISCELLANEOUS

    


    
      	 	
              SECTION
                8.1

            	
              Successors
                and Assigns.

            


    

    


    All
      guarantees and agreements contained in this Guarantee Agreement shall bind
      the
      successors, assigns, receivers, trustees and representatives of the Guarantor
      and shall inure to the benefit of the Holders of the Preferred Securities then
      outstanding. Except in connection with a consolidation, merger or sale involving
      the Guarantor that is permitted under Article VIII of the Indenture and pursuant
      to which the successor or assignee agrees in writing to perform the Guarantor’s
      obligations hereunder, the Guarantor shall not assign its rights or delegate
      its
      obligations hereunder without the prior approval of the Holders of a Majority
      in
      Liquidation Amount of the Preferred Securities.

    


    
      	 	
              SECTION
                8.2

            	
              Amendments.

            


    

    


    Except
      with respect to any changes that do not adversely affect the rights of the
      Holders in any material respect (in which case no consent of the Holders will
      be
      required), this Guarantee Agreement may only be amended with the prior approval
      of the Guarantor, the Guarantee Trustee and the Holders of not less than a
      Majority in Liquidation Amount of the Preferred Securities. The provisions
      of
      Article VI of the Trust Agreement concerning meetings or consents of the Holders
      shall apply to the giving of such approval.

    


    
      	 	
              SECTION
                8.3

            	
              Notices.

            


    

    


    Any
      notice, request or other communication required or permitted to be given
      hereunder shall be in writing, duly signed by the party giving such notice,
      and
      delivered, telecopied or mailed by first class mail as follows:

    


    (a)    if
      given
      to the Guarantor, to the address or facsimile number set forth below or such
      other address, facsimile number or to the attention of such other Person as
      the
      Guarantor may give notice to the Guarantee Trustee and the Holders:

    


    Flag
      Financial Corporation

    3475
      Piedmont Road, N.E., Suite 550

    Atlanta,
      Georgia 30305

    Facsimile
      No.: (404) 745-0314

    Attention:
      Chief Financial Officer

    


    (b)    if
      given
      to the Issuer, at the Issuer’s address or facsimile number set forth below or
      such other address, facsimile number or to the attention of such other Person
      as
      the Issuer may give notice to the Guarantee Trustee and the
      Holders:


    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    


    Flag
      Financial Statutory Trust III

    c/o
      Flag
      Financial Corporation

    3475
      Piedmont Road, N.E., Suite 550

    Atlanta,
      Georgia 30305

    Facsimile
      No.: (404) 745-0314

    Attention:
      Administrative Trustee

    


    (c)    if
      given
      to the Guarantee Trustee, at the address or facsimile number set forth below
      or
      such other address, facsimile number or to the attention of such other Person
      as
      the Guarantee Trustee may give notice to the Guarantor and the
      Holders:

    


    Wilmington
      Trust Company 

    Rodney
      Square North, 1100 North Market Street

    Wilmington,
      Delaware 19890-0001

    Facsimile
      No.: (302) 636-4140

    Attention:
      Corporate Capital Markets

    


    (d)    if
      given
      to any Holder, at the address set forth on the books and records of the
      Issuer.

    


    All
      notices hereunder shall be deemed to have been given when received in person,
      telecopied with receipt confirmed, or mailed by first class mail, postage
      prepaid, except that if a notice or other document is refused delivery or cannot
      be delivered because of a changed address of which no notice was given, such
      notice or other document shall be deemed to have been delivered on the date
      of
      such refusal or inability to deliver.

    


    
      	 	
              SECTION
                8.4

            	
              Benefit.

            


    

    


    This
      Guarantee Agreement is solely for the benefit of the Holders and is not
      separately transferable from the Preferred Securities.

     

    
      	 	
              SECTION
                8.5

            	
              Governing
                Law.

            


    

     

    This
      Guarantee Agreement and the rights and obligations of each party hereto, shall
      be construed and enforced in accordance with and governed by the laws of the
      State of New York without reference to its conflict of laws provisions (other
      than Section 5-1401 of the General Obligations Law).

    
       

      
        	 	
                SECTION
                  8.6

              	Submission to
                Jurisdiction.


      

    

    


    ANY
      LEGAL
      ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH RESPECT TO OR
      ARISING OUT OF THIS GUARANTEE AGREEMENT MAY BE BROUGHT IN OR REMOVED TO THE
      COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF THE
      UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE
      SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS
      GUARANTEE AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS
      PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
      COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT
      OF OR
      IN CONNECTION WITH THIS GUARANTEE AGREEMENT.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    
      	 	
              SECTION
                8.7

            	
              Counterparts.

            


    

    


    This
      instrument may be executed in any number of counterparts, each of which so
      executed shall be deemed to be an original, but all such counterparts shall
      together constitute but one and the same instrument.

    


    [THE
      NEXT
      PAGE IS THE SIGNATURE PAGE]


    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    


    In
      Witness Whereof,
      the
      undersigned have executed this Guarantee Agreement as of the date first above
      written.

    


    
      	 	
              FLAG
                FINANCIAL CORPORATION

            	 
	 	 	 	 
	 	
              By:
                

            	
              /s/
                Joseph W. Evans

            	 
	 	 	
              Name 
                Joseph W. Evans

            	 
	 	 	
              Title:   Chairman
                and Chief Executive Officer

            	 
	 	 	 	 
	 	 	 	 
	 	
              WILMINGTON
                TRUST COMPANY,
                not in its individual capacity, but solely as Guarantee
                Trustee

            	 
	 	 	 
	 	 	 
	 	
              By:
                

            	
              /s/
                W. T. Morris, II

            	 
	 	 	
              Name 
                W. Thomas Morris, II

            	 
	 	 	
              Title:  
                Senior Financial Services Officer