SEPARATION
AGREEMENT





THIS SEPARATION AGREEMENT (hereinafter
“Agreement”) is made and entered into by and between Gregory B. Jones (“Mr.
Jones”) and Cornerstone Community Bank and Cornerstone Bancshares, Inc.
(collectively “Cornerstone”), in order to reach an amicable termination of their
employment relationship and to promote harmonious relations in the
future.





1.           Resignation.  Mr.
Jones agrees that his employment with Cornerstone and his position as an officer
and/or director of Cornerstone will terminate by his resignation effective
November 12, 2009 (hereinafter, the “Resignation Date”) irrevocably and
forever.  Mr. Jones further agrees that the Key Executive Employment
and Severance Agreement dated as of March 1, 1999 between Mr. Jones and
Cornerstone Community Bank (the "Employment Agreement") is also terminated
effective November 12, 2009. Thereafter, except as
otherwise provided herein, no future compensation, allowances, or benefits will
accrue in his favor.





2.           Separation Pay.  In
full satisfaction of Cornerstone Community Bank’s obligations under the
Employment Agreement, and provided that Mr. Jones signs this Agreement and does
not revoke it, Cornerstone will pay to Mr. Jones his salary in the gross amount
of  Nine Thousand Two Hundred Thirty and 77/100 Dollars ($9,230.77)
per bi-weekly pay period, as Separation Pay, less appropriate withholding for
FICA, Medicare, and federal taxes, for the period from November 13, 2009 through
May 7, 2010 (for a total of 13 bi-weekly pay periods).  All payments
of Separation Pay will be made by direct deposit to Mr. Jones’ bank account
according to Cornerstone’s normal payroll procedures and cycle, provided that
such payments will not start until after the seven (7) day revocation period
(referenced in Paragraph 15  below) has expired.  The
Separation Pay outlined above will be in addition to Mr. Jones’ regular salary
and fringe benefits, including, without limitation, payment for unused, accrued
vacation days, through the Resignation Date.  Except as specifically
set forth in this paragraph, Mr. Jones acknowledges that the Separation Pay and
Benefits being paid under this Agreement supplant any commissions, bonuses or
other compensation, to which he might otherwise be entitled.





3.           Separation
Benefits.  Mr. Jones agrees that all of his employee welfare
benefits, including, without limitation, his Cornerstone group health insurance
coverage, will cease as of the Resignation Date.  Thereafter, Mr.
Jones and/or his dependents may be eligible to continue health insurance
benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), and
Cornerstone will provide proper notice to Mr. Jones and/or his dependents of his
notice of continuation rights under COBRA.  Provided that Mr. Jones
signs this Agreement and does not revoke it, and upon Mr. Jones’ election to
continue his health insurance coverage in accordance with COBRA, Cornerstone
will reimburse him for  the cost of such continuation coverage through
May 31, 2010, or until Mr. Jones becomes eligible for replacement coverage,
whichever occurs sooner.





4.           Retirement
Plans.  To the extent that Mr. Jones may be participating in
the Cornerstone Bancshares, Inc. 401(k) Plan, for purposes of the Plan, November
12, 2009 shall be Mr. Jones’ "Termination of Employment" date.




______
      Mr. Jones
            Cornerstone
      ______


1





5.           Stock Options.The
parties agree that any stock options granted to Mr. Jones will remain
exercisable in accordance with the terms and conditions of any applicable stock
option agreements between Cornerstone and Mr. Jones.





6.           Neutral Job Reference and
Non-Disparagement.  In the event that Cornerstone is contacted
for references concerning Mr. Jones’ employment at Cornerstone, such inquiries
shall be referred to Miller Welborn or Marsha Yessick, who will provide a
neutral reference, divulging only Mr. Jones’ dates of employment and positions
held.  Mr. Jones agrees that he will not make any verbal or written
statements of any nature whatsoever that are disparaging, negative, or
unfavorable about Cornerstone, its management, operations, products, services,
directors, officers, employees or agents.





7.           General Release.  In
exchange for the valuable consideration set forth herein, Mr. Jones agrees to
release Cornerstone, together with its current or former officers, directors,
agents, owners, employees, attorneys, successors, affiliates, subsidiaries,
surviving entity or entities by reason of any merger or acquisition, heirs,
executors, administrators, spouses, and assigns, from any and all charges,
complaints, claims, liabilities, obligations, actions, causes of action, suits,
demands, costs, losses, damages and expenses, of any nature whatsoever, known or
unknown, including, but in no way limited to, any claims under Title VII of the
Civil Rights Act of 1964 (Title VII); the Age Discrimination in Employment Act
(ADEA); the Americans with Disabilities Act (ADA); the Employee Retirement
Income Security Act of 1974, as amended (ERISA); 42 U.S.C. §1981; the
Occupational Safety and Health Act, 29 U.S.C. §651 et seq. (OSHA); the federal
False Claims Act; the Family and Medical Leave Act; the Tennessee Human Rights
Act; the Tennessee Public Protection Act; any claim based on express or implied
contract; any claims of promissory estoppel; any action arising in tort,
including, but in no way limited to, libel, slander, defamation, intentional
infliction of emotional distress, or negligence; any claim for wrongful
discharge, any constitutional claims, or any claim under all laws relating to
the violation of public policy, retaliation or compensation; any claims arising
under employment, discrimination or whistleblower laws; or any claims under
other applicable federal, state or local law, regulation, ordinance or order, at
common law or otherwise arising out of their employment relationship or the
termination of their employment relationship, which Mr. Jones now has, owns or
holds, or claims to have, own or hold, or which he at any time heretofore had,
owned or held, or claimed to have, own or hold against them.  It is
agreed that this is a general release and it is to be broadly construed as a
release of all claims; provided that, this section expressly does not include a
release of any claims that cannot be released hereunder by law.  Mr.
Jones hereby acknowledges that Cornerstone has in no way interfered withhisright to take any leave
to which he may have been entitled by law or under Cornerstone
policies.  Mr. Jones further acknowledges that Cornerstone has allowed
him to take any such leave for which he was eligible and which he
requested.  Mr. Jones further acknowledges that he has reported any
and all workplace injuries that he has incurred or suffered to
date.





8.           Confidentiality.  In
further consideration for the above Separation Pay and Separation Benefits, Mr.
Jones agrees that he will keep the terms and amount of this Agreement completely
confidential, and that he will not hereafter disclose any information concerning
this Agreement to any person or entity other than his spouse, his attorneys and
his tax advisors, except as required by law; provided, that those individuals
will be deemed to be his agents and, therefore, also bound by this
Agreement.  Mr. Jones further recognizes and acknowledges that strict
confidentiality is of the essence of this Agreement, and that Cornerstone would
suffer immediate and irreparable harm in the event of any breach of that
confidentiality.




______
      Mr. Jones
            Cornerstone
      ______


2





9.           Non-disclosure of Confidential
Information.  As further consideration for the benefits
conferred upon Mr. Jones by this Agreement, Mr. Jones agrees that he will not
divulge, furnish or make accessible to anyone or use in any way any confidential
or secret knowledge or information of Cornerstone that Mr. Jones has acquired or
become acquainted with during his employment by Cornerstone, whether developed
by himself or by others concerning any products, financial information,
techniques, data, ideas, trade secrets, confidential or secret designs,
processes, formulae, plans, devices or material (whether or not patented or
patentable) directly or indirectly useful in any aspect of the business of
Cornerstone; any customer information, marketing information, business plans,
merchandising information, pricing information, strategies, or supplier lists of
Cornerstone; any confidential or secret development or research work of
Cornerstone; any other confidential information or secret aspects of the
business of Cornerstone; or any information relating to personal matters, stock
ownership, contracts, investments, legal matters or business affairs of
Cornerstone which are of a proprietary or confidential nature, or maintained as
information not generally disclosed to the public, whether communicated orally
or in writing (collectively, the “Confidential Information”).  Mr.
Jones acknowledges that Confidential Information constitutes a unique and
valuable asset of Cornerstone and represents a substantial investment of time
and expense by Cornerstone, and that any disclosure or other use of such
Confidential Information other than for the sole benefit of Cornerstone would be
wrongful and would cause irreparable harm to Cornerstone.  Mr. Jones
will refrain from any acts or omissions that would reduce the value of such
Confidential Information to Cornerstone.  Mr. Jones further
acknowledges that this provision is of the essence of this Agreement, and that
Cornerstone would suffer irreparable harm in the event of any breach of this
provision.





10.        
Surrender of Materials Upon
Resignation.  Mr. Jones hereby agrees that, upon the
Resignation Date, he will immediately surrender to Cornerstone all personal
notes, drawings, manuals, documents, photographs, computer programs, discs or
the like, including all copies thereof, relating to any Confidential
Information.  In addition, Mr. Jones agrees to return to Cornerstone,
immediately upon the Resignation Date, all Cornerstone property.





11.         Non-Solicitation of Other Cornerstone
Employees.Mr. Jones further agrees
that for a period of one year after the Resignation Date, he will not directly
or indirectly solicit, assist or induce any of Cornerstone’s employees to
terminate their relationships with Cornerstone.  Mr. Jones also agrees
that for a period of one year after the Resignation Date, he will not directly
or indirectly solicit, assist or induce any of Cornerstone’s employees to become
employed by or associated with another bank or bank holding
company.  Mr. Jones agrees that he will not, directly or indirectly,
assist or encourage any other person in carrying out any activity that would be
prohibited by the foregoing provisions of this Paragraph 11, if such activity
were carried out by Mr. Jones either directly or indirectly.  Mr.
Jones acknowledges and agrees that Cornerstone has a valid need to protect its
business by prohibiting such solicitation and that these restrictions are both
reasonable and necessary to protect Cornerstone’s business. It is not the intent
of Cornerstone to prohibit Mr. Jones from obtaining employment in an industry
either related or unrelated to Cornerstone’s business.




______
      Mr. Jones
              Cornerstone
      ______




3





12.         Litigation.  Mr.
Jones agrees that it is an essential term and condition of this Agreement that
he cooperate with Cornerstone and its counsel in any claims and/or lawsuits
involving Cornerstone of which he may have particular knowledge or in which he
may be a witness.  Such cooperation includes meeting with Cornerstone
representatives and counsel to disclose such facts as Mr. Jones may know;
preparing with Cornerstone counsel for any deposition, trial, hearing or other
proceeding; attending any deposition, trial, hearing or other proceeding to
provide truthful testimony; and providing other assistance to Cornerstone and to
Cornerstone’s counsel in the defense or prosecution of litigation as may, in the
judgment of Cornerstone’s counsel, be necessary.  Cornerstone agrees
to reimburse Mr. Jones for reasonable and necessary expenses incurred by Mr.
Jones in the course of complying with this obligation of
cooperation.





13.         Mr. Jones’
Services.  Mr. Jones agrees that he will respond promptly and
fully to requests for information from Cornerstone, its attorneys or
accountants, for a period of one (1) year from the Resignation Date, with the
understanding that such requests will be scheduled at mutually convenient times
and places.  During the first six (6) months of the agreement, Mr.
Jones will not receive any additional compensation for his services other than
as provided in Paragraph 2.  Thereafter, Cornerstone shall compensate
Mr. Jones for his services at an hourly rate of $115.38.





14.         Remedies.Mr. Jones
agrees that the affirmative obligations and covenants specifically set forth in
paragraphs 6, 7, 8, 9, 10, 11, 12 and 13 of this Agreement are of the essence of
this Agreement; that each of such obligations and covenants is reasonable and
necessary to protect and preserve the interests and properties of Cornerstone;
and that irreparable loss and damage will be suffered by Cornerstone should Mr.
Jones breach any of such covenants.  In the event of a breach of any
of these provisions, this Agreement shall not be void; however, Cornerstone will
thereafter have no further obligations to him pursuant to this
Agreement.  Further, Cornerstone may bring an action in a court of
appropriate jurisdiction to enforce the applicable provision and to recover
appropriate damages and attorney fees.  In addition, Mr. Jones agrees
and consents that, in addition to all other remedies provided at law or in
equity, Cornerstone shall be entitled to a temporary restraining order and
temporary and permanent injunctions to prevent a breach or contemplated breach
of any of the aforementioned covenants.  The existence of any claim,
demand, action or cause of action of Mr. Jones against Cornerstone shall not
constitute a defense to the enforcement by Cornerstone of any of the covenants
or agreements herein.





15.         Opportunity to
Review.  As part of this Agreement, Mr. Jones understands that
he is waiving all claims for age discrimination under the Age Discrimination in
Employment Act (“ADEA”).  Further, Mr. Jones represents and
acknowledges that hehas carefully read and
understands all of the provisions of this Agreement, and that heis voluntarily entering
into this Agreement.  Mr. Jones represents and acknowledges that he
has been advised in writing to, and has been afforded the right and opportunity
to, consult with an attorney prior to executing this Agreement, that he has
twenty-one (21) days within which to consider this Agreement, that he has seven
(7) days following its execution within which to revoke this Agreement, and that
this Agreement, and the payments due thereunder, will not become effective until
after the revocation period has expired.  Mr. Jones further
acknowledges and confirms that the only consideration for his signing this
Agreement are the terms and conditions stated in writing in this Agreement, and
that no other promise or agreement of any kind, other than those set out in
writing in this Agreement, has been made to him by any person to cause him to
sign this Agreement.




______
      Mr. Jones
            Cornerstone
      ______


4





16.         Indemnification.  In
further consideration for the above, Mr. Jones agrees to indemnify and hold
Cornerstone harmless from and against any and all loss, cost, damage or expense,
including, without limitation, attorney fees, incurred by Cornerstone arising
out of any breach of this Agreement by Mr. Jones.  Cornerstone agrees
to indemnify and hold Mr. Jones harmless from and against any and all loss,
cost, damage or expense, including, without limitation, attorney fees, incurred
by Mr. Jones arising out of any breach of this Agreement by
Cornerstone.





17.         Non-admission.  This
Agreement will not in any way be construed as an admission by Cornerstone of any
acts of discrimination or misconduct whatsoever against Mr. Jones or any other
person, and Cornerstone specifically disclaims any liability to or
discrimination against Mr. Jones or any other person, on the part of itself, its
employees or its agents.  Similarly, this Agreement will not in any
way be construed as an admission by Mr. Jones of any acts of misconduct
whatsoever against Cornerstone or any other person, and Mr. Jones specifically
disclaims any liability to or discrimination against Cornerstone or any other
person.





18.         Governing Law.  This
Agreement will in all respects be interpreted, enforced and governed under the
laws of the State of Tennessee.





19.         Binding Effect.  All
covenants, representations, and agreements made by or on behalf of Mr. Jones and
Cornerstone contained in the Agreement will be binding upon the parties and
their respective spouses, successors, representatives, assigns, heirs and
estates.





20.         Entire
Agreement.  This Agreement sets forth the entire agreement
between the parties, and fully supersedes any and all prior agreements or
understandings between them pertaining to the subject matter
hereof.  It is agreed that this Agreement may be modified only by a
subsequent, written agreement, executed by both parties.





21.         Severability.  If
any one or more of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained
therein.




______
      Mr. Jones
              Cornerstone
      ______


5


22.         Disputes.  (a) Subject
to the provisions of this Paragraph 22, any controversy or claim (each, a
“Claim”) between Mr. Jones and Cornerstone arising out of or relating to or
concerning this Agreement (including the covenants contained in Paragraphs 6
through 13) or any aspect of this Agreement will be finally settled by
arbitration in Chattanooga, Tennessee administered by the American Arbitration
Association (the “AAA”) under its Commercial Arbitration Rules then in
effect.  However, the AAA’s Commercial Arbitration Rules will be
modified in the following ways:  (i) the arbitrator will agree to
treat as confidential all evidence and other information presented to him/her,
(ii) there will be no authority to award punitive damages (and Mr. Jones and
Cornerstone agree not to request any such award), (iii) the optional Rules for
Emergency Measures of Protections will apply, (iv) there will be no authority to
amend or modify the terms of this Agreement except as provided in Paragraph 20
(and Mr. Jones and Cornerstone agree not to request any such amendment or
modification), (v) the selection of the arbitrator, the arbitration hearing, the
parties’ closing statements and the submission of post-hearing briefs must be
concluded within nine (9) months after either party files a notice of
arbitration with the other party and (vi) a decision must be rendered within
thirty (30) days of the parties’ closing statements or submission of
post-hearing briefs.





(b)         Mr.
Jones or Cornerstone may bring an action or special proceeding in a state or
federal court of competent jurisdiction sitting in Chattanooga, Tennessee to
enforce any arbitration award under Paragraph 22(a).  Also, Mr. Jones
or Cornerstone may bring such an action or proceeding, in addition to their
rights under Paragraph 22(a) and whether or not an arbitration proceeding has
been or is ever initiated, to temporarily or preliminarily enforce any part of
Paragraphs 6 through 13.





(c)         Mr.
Jones and Cornerstone irrevocably submit to the exclusive jurisdiction of any
state or federal court located in Chattanooga, Tennessee over any action or
proceeding to compel arbitration or to enforce an arbitration
award.  Both Mr. Jones and Cornerstone (i) acknowledge that the forum
stated in this Paragraph 22(c) has a reasonable relation to this Agreement and
to the relationship between Mr. Jones and Cornerstone and that the submission to
the forum will apply even if the forum chooses to apply non-forum law, (ii)
waive, to the extent permitted by law, any objection to personal jurisdiction or
to the laying of venue of any action or proceeding covered by this Paragraph
22(c) in the forum stated in this Paragraph 22(c), (iii) agree not to commence
any such action or proceeding in any forum other than the forum stated in this
Paragraph 22(c) and (iv) agree that, to the extent permitted by law, a final and
non-appealable judgment in any such action or proceeding in any such court will
be conclusive and binding on Mr. Jones and Cornerstone.





(d)         To
the extent permitted by law, Mr. Jones and Cornerstone waive any and all rights
to a jury trial with respect to any Claim.










This
Agreement includes a waiver and general release of all known and unknown claims
and an agreement to arbitrate any disputes.  Mr. Jones acknowledges
that he has carefully read and understands this Agreement.  Mr. Jones
is advised to consult an attorney before executing this waiver and general
release of all claims.





The
undersigned have executed this Agreement on the dates reflected by their
signatures.





CORNERSTONE COMMUNITY BANKBy:
              /s/ Gregory B. Jones
              
              By:
              /s/ Wesley M. WelbornGregory B. JonesDate:
              11/12/2009
              
              Date:
              11/12/2009CORNERSTONE BANCSHARES, INC.By:
              /s/ Wesley M. WelbornDate:
              11/12/2009