Document:

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                                                                   EXHIBIT 10.3

                KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT

This agreement, made and entered into as of this 1st day of March, 1999, by and
between Cornerstone Community Bank, Inc., a Tennessee chartered state bank,
(the "Bank"), which is a 100% wholly owned affiliate of Cornerstone Bancshares,
Inc., (the "Company"), and Nathaniel Francis (Frank) Hughes (the "Executive").

WHEREAS, the Executive has been employed by the Bank as an executive officer,
and the Bank enters into this agreement as additional incentive to the
Executive to continue as an executive employee of the Bank; and,

WHEREAS, the parties desire by this written agreement to set forth their
understanding as to their respective rights and obligations in the event of a
Change-in-Control with respect to the Bank or the Company.

NOW, THEREFORE, the undersigned parties agree as follows:

1.       Definitions:

         a.       Change-in-Control of the Bank or Company. A Change-in-Control
                  occurs when:

                  (i)      The shareholders of the Bank or the Company approve
                           a merger or consolidation of either entity with any
                           other entity as a result of which less than 50% of
                           the outstanding voting securities of the surviving
                           entity are owned by the former shareholders of the
                           Bank or the Company; or,

                  (ii)     The shareholders of the Company approve the sale of
                           substantially all of the Bank's assets to an entity
                           that is not a wholly owned affiliate of the Company.

         b.       Code. The term "Code" means the Internal Revenue Code of
                  1986, as amended.

         c.       Merger Agreement. The "Merger Agreement" means that agreement
                  entered into by the Bank or the Company and the Negotiating
                  Successor Entity defining the terms, conditions, rights,
                  warranties and responsibilities of the entities involved in
                  the proposed merger or consolidation. The "Merger Agreement"
                  must be approved by the Board of Directors of the Bank or the
                  Company prior to the date of the Change-in-Control.

         d.       Negotiating Successor Entity. The "Negotiating Successor
                  Entity" is the entity expected to be the surviving entity
                  subsequent to the date of the Change-in-Control, as defined
                  above, excluding affiliates of the Bank or the Company.

         e.       Termination Date. Except as otherwise provided the term
                  "Termination Date" means the date the Executive's employment
                  is terminated.

2.       Term of Agreement. This agreement shall be effective as of this 1st
         day of March, 1999, and continue for the term of three (3) years,
         which term may be extended for additional periods or cancelled as
         determined by the Board of Directors of the Bank or the Company. If
         this agreement should expire within nine (9) months of the date of
         Change-in-Control, then this agreement shall automatically be extended
         to the date of Change-in-Control.

3.       Continuation of Employment. As a precondition of any Merger Agreement,
         Company or Bank shall require the Negotiating Successor Entity to
         negotiate with the Executive. The Executive has an obligation to
         negotiate with the Negotiating Successor Entity and accept a position,
         if a position of executive status in the Chattanooga area is offered,
         and this offer is documented by a continuing employee agreement ("the
         Employment Agreement"). Executive status is defined as Vice President
         level or above. The Employment Agreement will define among other
         things, but not be limited to, salary, title, responsibilities,
         employment location, employment benefits, death benefits, disability
         benefits, expense and interest with respect to enforcement of the
         Employment Agreement, non-compete definitions, definitions of "Cause"
         for termination by the Negotiating Successor Entity and definitions of
         "Good Reason" for termination by the Executive. The terms as agreed to
         by the Executive and the Negotiating Successor Entity will be included
         in the Merger Agreement. It is the intention of this agreement that
         the terms of the Employment Agreement be included in the Merger
         Agreement or incorporated by reference prior to the final approval by
         the Board of Directors of the

<PAGE>   2

         Bank or the Company of the Merger Agreement. If an Employment
         Agreement is finalized between the Executive and the Negotiating
         Successor Entity, it must include at a minimum the following items:

         a.       The Executive shall receive an Employment Agreement for two
                  years from the date of the Change-in-Control;

         b.       The Executive shall receive an annual salary not less than
                  100% of the Executive's aggregated annual base compensation
                  as in effect as of the date of the Change-in-Control;

         c.       The Executive shall be reimbursed, according to standard
                  policies in effect on the date of the Change-in-Control, for
                  any and all reasonable and necessary expenses incurred by the
                  Executive on behalf of the Bank, the Company or the
                  Negotiating Successor Entity including, but not limited to,
                  travel expenses;

         d.       The Executive shall be included in any and all benefit plans
                  providing general benefits for the employees, including, but
                  not limited to, group life insurance, medical insurance,
                  dental insurance, long-term disability insurance, pension,
                  profit-sharing. The Executive shall be provided any and all
                  other benefits and perquisites made available to other
                  employees of comparable status and position offered by the
                  Negotiating Successor Entity;

         e.       The Executive shall receive annually not less than the amount
                  of paid vacation and holidays received annually on the date
                  of the Change-in-Control, or such amount of paid vacation and
                  holidays as may be made available to other employees of
                  comparable status and position; and,

         f.       The Executive shall be included in all plans providing
                  special benefits to other employees of comparable status and
                  position, including but not limited to, profit-sharing,
                  bonus, deferred compensation, incentive compensation, stock
                  options.

4.       Payment Upon Termination. If the Negotiating Successor Entity does not
         offer the Executive an Employment Agreement in accordance with
         paragraph 3 above, the following will be the terms for a Payment upon
         Termination due to the Executive:

                  (i)      All salary earned or accrued but not yet paid
                           through the Termination Date;

                  (ii)     Reimbursement for any and all expenses incurred by
                           the Executive on behalf of the Bank, the Company or
                           the Negotiating Successor Entity, but not yet paid,
                           through the Termination Date;

                  (iii)    Any and all cash benefits previously earned, but not
                           yet paid, including any deferred compensation,
                           accrued pension, bonus or incentive compensation
                           through the Termination Date;

                  (iv)     All other payments and benefits to which the
                           Executive may be entitled under the terms of any
                           benefit plan of the Bank or the Company;

                  (v)      All incentive stock options, restricted stock and
                           stock appreciation rights to which the Executive may
                           be entitled will become immediately vested at 100%;
                           and,

                  (vi)     A lump sum payment, equal to two (2) times the
                           Executive's annualized base compensation then in
                           effect at the Termination Date.

         a.       If the Negotiating Successor Entity and the Executive fail to
                  reach an understanding on the terms and conditions of the
                  Employment Agreement because the Executive does not negotiate
                  in "Good-Faith", the Executive's termination date will be the
                  date of Change-in-Control. The Payment Upon Termination will
                  include items 3(i) to 3(iv) from above. "Good Faith" shall
                  mean the Executive should negotiate with the Negotiating
                  Successor Entity for an Employment Agreement with similar
                  terms and conditions as are applicable at the Bank or Company
                  on the date immediately preceding the Change-in-Control.

         b.       It is the intention of the Bank and the Company that no
                  portion of the Payment Upon Termination be deemed to be a
                  parachute payment as defined in Section 280G(b)(2) of the
                  Code, as amended. The Payment Upon Termination shall not
                  exceed the maximum limit imposed by Section 4999 of the Code,
                  as amended.

         c.       The Payment upon Termination will be paid in full by the 15th
                  day following the Termination Date.

<PAGE>   3

         d.       It is the intention of this agreement that the terms of the
                  Payment Upon Termination be included in the Merger Agreement
                  prior to the final approval by the Board of Directors of the
                  Bank or the Company of the Merger Agreement.

5.       Non-competition. In the event of payment pursuant to paragraph 4, for
         (1) year following the Termination Date the executive agrees not to
         become engaged in any business or activities within the Chattanooga
         Standard Metropolitan Statistical Area, which is directly or
         indirectly in competition with any business or activity engaged in by
         the Negotiating Successor Entity.

6.       Enforcement. The provisions of this agreement shall be regarded as
         divisible, and if any of said provisions or any parts of any
         provisions are declared invalid or unenforceable by a court of
         competent jurisdiction, the validity and enforceability of the
         remaining agreement shall not be affected.

7.       Amendment or Cancellation. The Bank or the Company shall retain the
         right to terminate the employment of the Executive at any time for
         sufficient cause. This agreement may not be amended, modified or
         cancelled within nine (9) months of the date of Change-in-Control
         except by written instrument executed by the Bank and the Executive.

8.       Venue and Governing Law. This agreement and the rights and obligations
         hereunder shall be governed by and construed in accordance with the
         laws of the State of Tennessee. Any action concerning this agreement
         shall be brought in the federal or state courts located in the County
         of Hamilton, Tennessee, and each party consents to the venue and
         jurisdiction of such courts.

9.       Notice. Notices given pursuant to this agreement shall be in writing
         and shall be deemed given when received and if mailed, shall be mailed
         by United States registered or certified mail, if to the Bank or the
         Company, to:

                                      Cornerstone Community Bank
                                      5319 Highway 153
                                      Hixson, TN  37343

         or if to the Executive, at the address set forth below the Executive's
         signature line of this agreement.

10.      No Waiver. No waiver by either party at any time of any breach by the
         other party of, or compliance with, any condition or provision of this
         agreement to be performed by the other party shall be deemed a waiver
         of similar or dissimilar provisions or conditions at the same time or
         any prior or subsequent time.

11.      Company Consent. This agreement is conditioned upon the consent of the
         Company and the Company's agreement to implement those provisions of
         the agreement over which it has control.

12.      Headings. The headings herein contained are for reference only and
         shall not affect the meaning or interpretation of any provision of
         this agreement.

13.      Entire Agreement. This agreement expresses the entire agreement of the
         parties with respect to the subject matter hereof.

<PAGE>   4

IN WITNESS WHEREOF, the parties have executed this agreement as of the day and
year first written above.

CORNERSTONE COMMUNITY BANK

EXECUTIVE:

By: Nathaniel Francis Hughes
   ----------------------------------
Title: Executive Vice President and
       Chief Financial Officer<PAGE>   1

                                                                   EXHIBIT 10.4

                KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT

This agreement, made and entered into as of this 1st day of March, 1999, by and
between Cornerstone Community Bank, Inc., a Tennessee chartered state bank,
(the "Bank"), which is a 100% wholly owned affiliate of Cornerstone Bancshares,
Inc., (the "Company"), and Jerry D. Lee (the "Executive").

WHEREAS, the Executive has been employed by the Bank as an executive officer,
and the Bank enters into this agreement as additional incentive to the
Executive to continue as an executive employee of the Bank; and,

WHEREAS, the parties desire by this written agreement to set forth their
understanding as to their respective rights and obligations in the event of a
Change-in-Control with respect to the Bank or the Company.

NOW, THEREFORE, the undersigned parties agree as follows:

1.       Definitions:

         a.       Change-in-Control of the Bank or Company. A Change-in-Control
                  occurs when:

                  (i)      The shareholders of the Bank or the Company approve
                           a merger or consolidation of either entity with any
                           other entity as a result of which less than 50% of
                           the outstanding voting securities of the surviving
                           entity are owned by the former shareholders of the
                           Bank or the Company; or,

                  (ii)     The shareholders of the Company approve the sale of
                           substantially all of the Bank's assets to an entity
                           that is not a wholly owned affiliate of the Company.

         b.       Code. The term "Code" means the Internal Revenue Code of
                  1986, as amended.

         c.       Merger Agreement. The "Merger Agreement" means that agreement
                  entered into by the Bank or the Company and the Negotiating
                  Successor Entity defining the terms, conditions, rights,
                  warranties and responsibilities of the entities involved in
                  the proposed merger or consolidation. The "Merger Agreement"
                  must be approved by the Board of Directors of the Bank or the
                  Company prior to the date of the Change-in-Control.

         d.       Negotiating Successor Entity. The "Negotiating Successor
                  Entity" is the entity expected to be the surviving entity
                  subsequent to the date of the Change-in-Control, as defined
                  above, excluding affiliates of the Bank or the Company.

         e.       Termination Date. Except as otherwise provided the term
                  "Termination Date" means the date the Executive's employment
                  is terminated.

2.       Term of Agreement. This agreement shall be effective as of this 1st
         day of March, 1999, and continue for the term of three (3) years,
         which term may be extended for additional periods or cancelled as
         determined by the Board of Directors of the Bank or the Company. If
         this agreement should expire within nine (9) months of the date of
         Change-in-Control, then this agreement shall automatically be extended
         to the date of Change-in-Control.

3.       Continuation of Employment. As a precondition of any Merger Agreement,
         Company or Bank shall require the Negotiating Successor Entity to
         negotiate with the Executive. The Executive has an obligation to
         negotiate with the Negotiating Successor Entity and accept a position,
         if a position of executive status in the Chattanooga area is offered,
         and this offer is documented by a continuing employee agreement ("the
         Employment Agreement"). Executive status is defined as Vice President
         level or above. The Employment Agreement will define among other
         things, but not be limited to, salary, title, responsibilities,
         employment location, employment benefits, death benefits, disability
         benefits, expense and interest with respect to enforcement of the
         Employment Agreement, non-compete definitions, definitions of "Cause"
         for termination by the Negotiating Successor Entity and definitions of
         "Good Reason" for termination by the Executive. The terms as agreed to
         by the Executive and the Negotiating Successor Entity will be included
         in the Merger Agreement. It is the intention of this agreement that
         the terms of the Employment Agreement be included in the Merger
         Agreement or incorporated by reference prior to the final approval by
         the Board of Directors of the

<PAGE>   2

         Bank or the Company of the Merger Agreement. If an Employment
         Agreement is finalized between the Executive and the Negotiating
         Successor Entity, it must include at a minimum the following items:

         a.       The Executive shall receive an Employment Agreement for two
                  years from the date of the Change-in-Control;

         b.       The Executive shall receive an annual salary not less than
                  100% of the Executive's aggregated annual base compensation
                  as in effect as of the date of the Change-in-Control;

         c.       The Executive shall be reimbursed, according to standard
                  policies in effect on the date of the Change-in-Control, for
                  any and all reasonable and necessary expenses incurred by the
                  Executive on behalf of the Bank, the Company or the
                  Negotiating Successor Entity including, but not limited to,
                  travel expenses;

         d.       The Executive shall be included in any and all benefit plans
                  providing general benefits for the employees, including, but
                  not limited to, group life insurance, medical insurance,
                  dental insurance, long-term disability insurance, pension,
                  profit-sharing. The Executive shall be provided any and all
                  other benefits and perquisites made available to other
                  employees of comparable status and position offered by the
                  Negotiating Successor Entity;

         e.       The Executive shall receive annually not less than the amount
                  of paid vacation and holidays received annually on the date
                  of the Change-in-Control, or such amount of paid vacation and
                  holidays as may be made available to other employees of
                  comparable status and position; and,

         f.       The Executive shall be included in all plans providing
                  special benefits to other employees of comparable status and
                  position, including but not limited to, profit-sharing,
                  bonus, deferred compensation, incentive compensation, stock
                  options.

4.       Payment Upon Termination. If the Negotiating Successor Entity does not
         offer the Executive an Employment Agreement in accordance with
         paragraph 3 above, the following will be the terms for a Payment upon
         Termination due to the Executive:

                  (i)      All salary earned or accrued but not yet paid
                           through the Termination Date;

                  (ii)     Reimbursement for any and all expenses incurred by
                           the Executive on behalf of the Bank, the Company or
                           the Negotiating Successor Entity, but not yet paid,
                           through the Termination Date;

                  (iii)    Any and all cash benefits previously earned, but not
                           yet paid, including any deferred compensation,
                           accrued pension, bonus or incentive compensation
                           through the Termination Date;

                  (iv)     All other payments and benefits to which the
                           Executive may be entitled under the terms of any
                           benefit plan of the Bank or the Company;

                  (v)      All incentive stock options, restricted stock and
                           stock appreciation rights to which the Executive may
                           be entitled will become immediately vested at 100%;
                           and,

                  (vi)     A lump sum payment, equal to two (2) times the
                           Executive's annualized base compensation then in
                           effect at the Termination Date.

         a.       If the Negotiating Successor Entity and the Executive fail to
                  reach an understanding on the terms and conditions of the
                  Employment Agreement because the Executive does not negotiate
                  in "Good-Faith", the Executive's termination date will be the
                  date of Change-in-Control. The Payment Upon Termination will
                  include items 3(i) to 3(iv) from above. "Good Faith" shall
                  mean the Executive should negotiate with the Negotiating
                  Successor Entity for an Employment Agreement with similar
                  terms and conditions as are applicable at the Bank or Company
                  on the date immediately preceding the Change-in-Control.

         b.       It is the intention of the Bank and the Company that no
                  portion of the Payment Upon Termination be deemed to be a
                  parachute payment as defined in Section 280G(b)(2) of the
                  Code, as amended. The Payment Upon Termination shall not
                  exceed the maximum limit imposed by Section 4999 of the Code,
                  as amended.

         c.       The Payment upon Termination will be paid in full by the 15th
                  day following the Termination Date.

<PAGE>   3

         d.       It is the intention of this agreement that the terms of the
                  Payment Upon Termination be included in the Merger Agreement
                  prior to the final approval by the Board of Directors of the
                  Bank or the Company of the Merger Agreement.

5.       Non-competition. In the event of payment pursuant to paragraph 4, for
         (1) year following the Termination Date the executive agrees not to
         become engaged in any business or activities within the Chattanooga
         Standard Metropolitan Statistical Area, which is directly or
         indirectly in competition with any business or activity engaged in by
         the Negotiating Successor Entity.

6.       Enforcement. The provisions of this agreement shall be regarded as
         divisible, and if any of said provisions or any parts of any
         provisions are declared invalid or unenforceable by a court of
         competent jurisdiction, the validity and enforceability of the
         remaining agreement shall not be affected.

7.       Amendment or Cancellation. The Bank or the Company shall retain the
         right to terminate the employment of the Executive at any time for
         sufficient cause. This agreement may not be amended, modified or
         cancelled within nine (9) months of the date of Change-in-Control
         except by written instrument executed by the Bank and the Executive.

8.       Venue and Governing Law. This agreement and the rights and obligations
         hereunder shall be governed by and construed in accordance with the
         laws of the State of Tennessee. Any action concerning this agreement
         shall be brought in the federal or state courts located in the County
         of Hamilton, Tennessee, and each party consents to the venue and
         jurisdiction of such courts.

9.       Notice. Notices given pursuant to this agreement shall be in writing
         and shall be deemed given when received and if mailed, shall be mailed
         by United States registered or certified mail, if to the Bank or the
         Company, to:

                                      Cornerstone Community Bank
                                      5319 Highway 153
                                      Hixson, TN  37343

         or if to the Executive, at the address set forth below the Executive's
         signature line of this agreement.

10.      No Waiver. No waiver by either party at any time of any breach by the
         other party of, or compliance with, any condition or provision of this
         agreement to be performed by the other party shall be deemed a waiver
         of similar or dissimilar provisions or conditions at the same time or
         any prior or subsequent time.

11.      Company Consent. This agreement is conditioned upon the consent of the
         Company and the Company's agreement to implement those provisions of
         the agreement over which it has control.

12.      Headings. The headings herein contained are for reference only and
         shall not affect the meaning or interpretation of any provision of
         this agreement.

13.      Entire Agreement. This agreement expresses the entire agreement of the
         parties with respect to the subject matter hereof.

<PAGE>   4

IN WITNESS WHEREOF, the parties have executed this agreement as of the day and
year first written above.

CORNERSTONE COMMUNITY BANK

EXECUTIVE:

By: Jerry D. Lee
   ----------------------------------
Title: Executive Vice President and
       Senior Loan Administrator

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