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                                                                    EXHIBIT 10.2

                        Stock Option Assumption Agreement

Dear Optionee:

         As you know, on October 31, 2008 (the "Closing Date"), State of
Franklin Bancshares, Inc. ("State of Franklin"), a Tennessee corporation, will
merge with and into Jefferson Bancshares, Inc. ("Jefferson Bancshares"), a
Tennessee corporation (the "Merger"). Pursuant to Section 2.11(b) of the
Agreement and Plan of Merger by and between State of Franklin and Jefferson
Bancshares (the "Merger Agreement"), (i) all of your State of Franklin stock
options with an exercise price of $13.50 or less outstanding as of the Closing
Date will be converted into the same number of options to purchase shares of
common stock of Jefferson Bancshares and (ii) all of your State of Franklin
stock options with an exercise price of more than $13.50 outstanding as of the
Closing Date will be cancelled. This Agreement evidences the assumption and
cancellation of the State of Franklin stock options required by the Merger
Agreement.

ASSUMPTION OF STOCK OPTIONS

         In accordance with Section 2.11(b) of the Merger Agreement, all of your
State of Franklin stock options listed on Exhibit A to this Agreement (your
"Assumed Options") will be converted on the Closing Date into the same number of
options to purchase common stock of Jefferson Bancshares. In connection with
Jefferson Bancshares' assumption of these options, unless the context otherwise
requires, any references in the State of Franklin Stock Incentive Plan (the
"Plan") and your related Option Agreement (your "Option Agreement") under the
Plan: (i) to the "Company" or the "Corporation" shall now mean Jefferson
Bancshares, (ii) to "Stock," "Common Stock" or "Shares" shall now mean shares of
Jefferson Bancshares common stock, (iii) to the "Board of Directors" or the
"Board" shall now mean the Board of Directors of Jefferson Bancshares and (iv)
to the "Committee" shall now mean the Compensation Committee of the Jefferson
Bancshares Board of Directors. All references in your Option Agreement and the
Plan relating to your status as an employee of State of Franklin will now refer
to your status as an employee of Jefferson Bancshares or any present or future
subsidiary of Jefferson Bancshares. To the extent your Option Agreement allowed
you to deliver shares of State of Franklin common stock as payment for the
exercise price, shares of Jefferson Bancshares common stock may be delivered as
payment of the adjusted exercise price, and the period for which such shares
were held as State of Franklin common stock prior to the Merger will be taken
into account.

         The grant date, vesting commencement date, vesting schedule, exercise
price and number of shares underlying your Assumed Options will remain the same
as set forth in your Option Agreement. However, pursuant to Section 2.11(b) of
the Merger Agreement, your Assumed Options WILL NOW EXPIRE ON OCTOBER 31, 2011,
the third anniversary of the Closing Date. All other provisions which govern
either the exercise or the termination of your Assumed Options will remain the
same as set forth in your Option Agreement, and the provisions of the Option
Agreement (except as expressly modified by this Agreement and the Merger
Agreement) will govern and control your rights under this Agreement to purchase
shares of Jefferson Bancshares common stock.

         To exercise your Assumed Options, you must deliver to the Jefferson
Bancshares' Human Resources Department (i) a written notice of exercise for the
number of shares of Jefferson Bancshares common stock you want to purchase, (ii)
the exercise price, and (iii) all applicable withholding taxes. Payment of
withholding taxes (where applicable) may be tendered in shares of Jefferson
Bancshares common stock or cash. The exercise notice and payment should be
delivered to the following address:

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                           Jefferson Bancshares, Inc.
                           Human Resources Department
                                120 Evans Avenue
                           Morristown, Tennessee 37814

CANCELLATION OF STOCK OPTIONS

         In accordance with Section 2.11(b) of the Merger Agreement, you agree
that all of your State of Franklin stock options listed on Exhibit B to this
Agreement (your "Canceled Options") will be canceled on the Closing Date without
any payment made in exchange therefor. Accordingly, as of the Closing Date, all
of your Canceled Options shall terminate in their entirety and will thereafter
be null and void and you shall have no interests or rights thereunder.

                                      * * *

         If you have any questions regarding this Agreement or your Assumed
Options or Canceled Options, please contact Jane P. Hutton at (423) 586-8421.


                                      JEFFERSON BANCSHARES, INC.



                                      By:
                                          --------------------------------------
                                          A duly authorized officer of Jefferson
                                          Bancshares, Inc.


ACKNOWLEDGMENT

         The undersigned acknowledges receipt of the foregoing Stock Option
Assumption and Cancellation Agreement and understands that all rights and
liabilities with respect to each of his or her Assumed Options hereby assumed by
Jefferson Bancshares, Inc. are as set forth in the Option Agreement, the Plan,
and such Stock Option Assumption and Cancellation Agreement.



Dated: ____________________, 2008     By:
                                          --------------------------------------
                                          Optionee


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                                                                      EXHIBIT A


                OPTIONEE'S OUTSTANDING OPTIONS TO PURCHASE SHARES
                     OF STATE OF FRANKLIN COMMON STOCK WITH
                       AN EXERCISE PRICE OF $13.50 OR LESS

Date of Option Grant            Number of Options            Exercise Price
--------------------            -----------------            --------------











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                                                                      EXHIBIT B


                OPTIONEE'S OUTSTANDING OPTIONS TO PURCHASE SHARES
                     OF STATE OF FRANKLIN COMMON STOCK WITH
                    AN EXERCISE PRICE OF GREATER THAN $13.50

Date of Option Grant            Number of Options            Exercise Price
--------------------            -----------------            --------------