PURCHASE AND ASSUMPTION AGREEMENT

THIS AGREEMENT, dated as of November 12, 2002, by and among FLAG FINANCIAL CORPORATION, a Georgia corporation ("Purchaser"), BANKERS’ CAPITAL GROUP, LLC, a Georgia limited liability company ("BCG"), and GULFSTREAM FINANCIAL SERVICES, INC., a Florida corporation ("Gulfstream").

WITNESSETH:

WHEREAS, BCG and Gulfstream are the owners of certain loans and other assets;

WHEREAS, Purchaser desires to acquire from BCG and Gulfstream such loans and other assets described herein and assume such liabilities upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.1

Transferred Assets

(a)

As of the Effective Time (as defined in Section 2.1 below) and upon the terms and conditions set forth herein, BCG and Gulfstream will sell, assign, transfer, convey and deliver to Purchaser, and Purchaser will purchase from BCG and Gulfstream, as applicable, all of the following assets identified in this Agreement and the Exhibits hereto (collectively, the "Assets"):

(1)

All right, title and interest of BCG in the furniture, fixtures, leasehold improvements, equipment and other tangible personal property listed in Exhibit 1.1(a)(1) (the "Personal Property");

(2)

All loans owned by BCG and interests therein held by Gulfstream transferred pursuant to Section 1.4 and listed in Exhibit 1.1(a)(2) (the "Loans");

(3)

The exit fees associated with the Loans (the "Exit Fees"); and

(4)

Goodwill of BCG.

(5)

BCG’s prepaid lease and deposit on property at 3475 Piedmont Road, Suite 550, Atlanta, Ga, 30305 described in Exhibit 1.1 (a)(5).

(b)

Only assets included in section 1.1 (a) and described further in the related exhibits are being transferred. BCG and Gulfstream each have assets that will be retained and are not contemplated in this transaction.

Section 1.2

Purchase Price

(a)

As consideration for the purchase described herein, including line of business expertise and various assets and liabilities, Purchaser shall pay BCG and Gulfstream, at the Closing unless otherwise specified below, a purchase price (the "Purchase Price") of $2,905,500 in cash, with $2,675,910 to be paid to BCG and $229,590 to be paid to Gulfstream. Purchaser reserves the right to allocate the Purchase Price on its books at the Closing based on interest rates as of that date in view of the financial nature of some of the Assets.

(b)

In addition, Purchaser shall assume, as of the Effective Date, all of the duties, obligations and liabilities of BCG relating to the sublease of the premises located at 3475 Piedmont Road, Suite 550, Atlanta, Georgia, 30305 as set forth on Exhibit 1.2(b) (the "sub-lease").

Section 1.3

Timing of Payment

Purchaser will pay $1,405,500 of the Purchase Price to BCG and Gulfstream at the Closing, with BCG receiving $1,175,910 and Gulfstream receiving $229,590. Purchaser will pay the remaining $1,500,000 of the Purchase Price (the "Earn-Out Amount") part annually on each of May 31, 2003, May 31, 2004 and May 31, 2005 (each an "Anniversary Date") as described in clause (a) below.

(a)

The percentage of the Earn-Out Amount to be paid to BCG on each Anniversary Date will be calculated by dividing (A) calculated annual revenues (average outstanding balances on the Sundowner Loan and the LaMancha Loan, which are described in Exhibit 2.2 b(2) , and on new loans made after May 31, 2002, as of the applicable Anniversary Date, multiplied by an assumed 1.50% spread on such balances, plus actual fees generated by such loans for the prior fiscal year) by (B) $2,160,000.

(b)

If Purchaser is acquired prior to the full payment of the Earn-Out Amount and the acquiror terminates payments prior to full payment of the Earn-Out Amount, Purchaser will pay any portion of the Earn-Out Amount that is then due prior to the closing of that acquisition and will require the prospective acquiror to pay to BCG 50% of any then remaining unpaid balance of the Earn-Out Amount.

Section 1.4

Loans Transferred

(a)

BCG and Gulfstream will transfer to Purchaser as of the Effective Time, subject to the terms and conditions of this Agreement, all of BCG’s and Gulfstream’s respective right, title and interest in (including collateral relating thereto) the Loans. Such Loans (as well as any security interests and Exit Fees related thereto) shall be transferred by means of a blanket (collective) assignment and not individually (except as may be otherwise required by law). Purchaser shall inform BCG and Gulfstream not less than 30 calendar days prior to the Effective Time of any case in which individual assignments will be required by law.

(b)

In connection with the transfer of any Loans requiring notice to the borrower, Purchaser, BCG and Gulfstream agree to comply with all notice and reporting requirements of the loan documents or of any law or regulation.

(c)

All Loans will be transferred without recourse and without any warranties or representations as to their collectibility or the creditworthiness of any of the obligors of such Loans.

(d)

Purchaser will at its expense issue new coupon books for payment of Loans for which BCG and Gulfstream provide coupon books with instructions to utilize Purchaser’s coupons and to destroy coupons furnished by BCG and Gulfstream.

(e)

After the Effective Time, BCG and Gulfstream will forward to Purchaser loan payments received by BCG and Gulfstream in connection with the Loans.

(f)

As of the Effective Time, BCG and Gulfstream shall transfer and assign all files, documents and records related to the Loans to Purchaser, including the original promissory notes and security agreements, and Purchaser will be responsible for maintaining and safeguarding all such materials in accordance with applicable law and sound banking practices.

(g)

If the balance due on any Loan purchased pursuant to this Section 1.4 has been reduced by BCG or Gulfstream as a result of a payment by check received prior to the Effective Time, which item is returned after the Effective Time, the asset value represented by the Loan transferred shall be correspondingly increased and an amount in cash equal to such increase shall be paid by Purchaser to BCG or Gulfstream, as applicable, promptly upon demand.

(h)

Each of BCG and Gulfstream shall grant to Purchaser as of the Effective Time a limited power of attorney, in substantially the form attached hereto as Exhibit 1.4(h) (the "Power of Attorney").

Section 1.5

Records and Data Processing

(a)

As of the Effective Time, Purchaser shall become responsible for maintaining the files, documents and records referred to in this Agreement. Purchaser will preserve and safekeep them as required by applicable law and sound banking practice for the joint benefit of BCG, Gulfstream and Purchaser. After the Effective Time, Purchaser will permit BCG, Gulfstream and their respective representatives, for reasonable cause, at reasonable times and upon reasonable notice and at BCG’s and/or Gulfstream’s expense, to examine, inspect, copy and reproduce any such files, documents or records as they deem reasonably necessary.

(b)

As of the Effective Time, BCG and Gulfstream will permit Purchaser and its representatives, for reasonable cause, at reasonable times and upon reasonable notice and at Purchaser’s expense, to examine, inspect, copy and reproduce files, documents or records retained by BCG and Gulfstream regarding the Assets as Purchaser deems reasonably necessary.

Section 1.6

Taxes and Fees; Proration of Certain Expenses

Purchaser shall be responsible for the payment of all fees and taxes related to this transaction, except that Purchaser shall not be responsible for, or have any liability with respect to, BCG’s or Gulfstream’s legal fees and expenses or for taxes on any income to BCG or Gulfstream arising out of this transaction. Expenses related to the Assets shall be prorated between the parties as of May 31, 2002. To the extent any such item has been prepaid by BCG or Gulfstream for a period extending beyond May 31, 2002, there shall be a proportionate monetary adjustment in favor of the prepaying party.

Section 1.7

Option to Purchase Participation Interests

Purchaser shall have the right to purchase the following interests from BCG and Gulfstream within 60 days after the Closing Date at a purchase price equal to the outstanding principal and accrued interest on such interests:

John & Carol King, loan dated August 11, 2000 in the original amount of $19,000,000.

Section 1.8

Liabilities

On and after the Effective Time, Purchaser will assume and discharge BCG’s duties and obligations under the sub-lease. Purchaser shall obtain all consents required for it to assume BCG’s duties and obligations under the sub-lease.