<PAGE>


                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as October
31, 2008, by and among JEFFERSON FEDERAL BANK, a federally-chartered savings
bank and a wholly-owned subsidiary of Jefferson Bancshares, Inc. (the "Bank")
and RANDAL R. GREENE (the "Executive") and JEFFERSON BANCSHARES, INC., a
Tennessee corporation and holding company of the Bank, as guarantor (the
"Corporation"). This Agreement will be effective as of the consummation of the
transaction contemplated in the Agreement and Plan of Merger by and between
Jefferson Bancshares, Inc. and State of Franklin Bancshares, Inc. dated
September 4, 2008 (the "Merger").

         WHEREAS, the Executive serves in position of substantial
responsibility;

         WHEREAS, the Bank wishes to assure the services of the Executive for
the period provided in this Agreement; and

         WHEREAS, the Executive is willing and desires to serve in the employ of
the Bank for said period; and

         WHEREAS, the Executive acknowledges upon execution of this Agreement
and consummation of the Merger, he will not be entitled to any benefits provided
for under the Change in Control Agreement by and between State of Franklin
Bancshares, Inc. and Executive dated September 19, 2003.

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

                                   ARTICLE 1
                                   EMPLOYMENT

         1.1  EMPLOYMENT. The Bank hereby employs the Executive to serve as
              ----------
President of the Tri-Cities division of the Bank according to the terms and
conditions of this Agreement and for the period stated in Section 1.3 of this
Agreement. The Executive hereby accepts employment according to the terms and
conditions of this Agreement and for the period stated in Section 1.3 of this
Agreement.

         1.2  DUTIES. The Executive shall report directly to the President and
              ------
Chief Executive Officer of the Bank. The Executive shall serve the Bank
faithfully, diligently, competently, and to the best of the Executive's ability.
The Executive shall exclusively devote full working time, energy, and attention
to the business of the Bank and to the promotion of the interests of the Bank
and the Corporation throughout the term of this Agreement. Without the prior
written consent of the board of directors of the Bank, during the term of this
Agreement the Executive shall not render services to or for any person, firm,
corporation, or other entity or organization in exchange for compensation,
regardless of the form in which the compensation is paid and regardless of
whether it is paid directly or indirectly to the Executive. Nothing in this
Section 1.2 shall prevent the Executive from managing personal investments and
affairs, provided that doing so does not interfere with the proper performance
of the Executive's duties and responsibilities under this Agreement.

         1.3  TERM.
              ----

         (a)  The term of this Agreement shall be (i) the initial term,
consisting of the period commencing on the closing date of the Merger (the
"Effective Date") and ending on June 30, 2010, plus (ii) any and all extensions
of the initial term made pursuant to this Section 1.3.

<PAGE>


         (b)  Commencing on June 25, 2009, and continuing on each anniversary of
that date, the disinterested members of the boards of directors of the Bank and
the Corporation may extend the Agreement for an additional year such that the
remaining term of the Agreement shall be twenty four (24) months, unless
Executive elects not to extend the term of this Agreement by giving written
notice in accordance with Section 8.4 of this Agreement. The Board of Directors
of the Bank will review the Agreement and Executive's performance annually for
purposes of determining whether to extend the Agreement and the rationale and
results thereof shall be included in the minutes of the Board's meeting. The
Board of Directors of the Bank shall give notice to Executive as soon as
possible after such review as to whether the Agreement is to be extended.

                                    ARTICLE 2
                            COMPENSATION AND BENEFITS

         2.1  BASE SALARY. In consideration of the Executive's performance of
              -----------
the obligations under this Agreement, the Bank shall pay or cause to be paid to
the Executive a salary at the annual rate of not less than $205,000, payable
according to the regular payroll practices of the Bank. The Executive's salary
shall be subject to annual review. The Executive's salary, as the same may be
modified from time to time, is referred to in this Agreement as the "Base
Salary." All compensation under this Agreement shall be subject to customary
income tax withholding and such other employment taxes as are imposed by law.

         2.2  BONUSES. In lieu of any bonus normally provided to permanent
              -------
full-time employees of the Bank, the Bank agrees to provide a bonus program to
the Executive which will provide the Executive with the opportunity to earn up
to 25% of the Executive's base salary, on an annual basis, the amount of which
shall be determined by specific performance standards and a formula agreed to by
Executive and the Bank annually. Performance standards shall be measured on a
fiscal year basis, and no bonus shall be payable if Executive is not employed on
June 30 of the fiscal year in question; provided, however, in the event of death
of the Executive, the bonus for the fiscal year of Executive's death shall be
prorated on a quarterly basis, using the information for the quarter(s)
completed prior to Executive's death.

         2.3  BENEFIT PLANS AND PERQUISITES. For as long as the Executive is
              -----------------------------
employed by the Bank, the Executive shall be eligible (x) to participate in any
and all officer or employee compensation, incentive compensation and benefit
plans in effect from time to time, including without limitation plans providing
retirement, medical, dental, disability, and group life benefits and including
stock-based compensation, incentive, or bonus plans existing on the date of this
Agreement or adopted after the date of this Agreement, provided that the
Executive satisfies the eligibility requirements for any the plans or benefits,
and (y) to receive any and all other fringe and other benefits provided from
time to time, including the specific items described in (a) through (c) below.

         (a)  Reimbursement of business expenses. The Executive shall be
              ----------------------------------
entitled to reimbursement for all reasonable business expenses incurred while
performing his obligations under this Agreement, including but not limited to
all reasonable business travel and entertainment expenses incurred while acting
at the request of or in the service of the Bank and reasonable expenses for
attendance at annual and other periodic meetings of trade associations. Expenses
will be reimbursed if they are submitted in accordance with the Bank's policies
and procedures. In addition, Executive will receive an allowance of $3,600 per
year for miscellaneous expense, including but not limited to dues in
professional, social and civic organizations.

                                       2

<PAGE>

         (b)  Facilities. The Bank will furnish the Executive with the working
              ----------
facilities and staff customary for executive officers with the comparable titles
and duties of the Executive as set forth in Sections 1.1 and 1.2 of this
Agreement and as are necessary for the Executive to perform his duties. The
location of such facilities and staff shall be at the principal administrative
offices of the Corporation, or at such other site or sites customary for such
offices.

         (c)  Automobile. The Bank shall provide the Executive with, and the
              ----------
Executive shall have the primary use of, an automobile owned or leased by the
Bank and the Bank shall pay (or reimburse the Executive) for all expenses of
insurance, registration, operation and maintenance of the automobile. The
Executive shall comply with reasonable reporting and expense limitations on the
use of such automobile, as the Bank may establish from time to time, and the
Bank shall annually include on the Executive's Form W-2 any amount attributable
to the Executive's personal use of such automobile.

         2.4  VACATION; LEAVE. The Executive shall be entitled to sick leave and
              ---------------
four (4) weeks paid annual vacation in accordance with policies established from
time to time by the Bank. In addition to paid vacations and other leave, the
boards of directors may grant the Executive a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as the
boards of directors may determine.

         2.5  INSURANCE. The Bank shall maintain or cause to be maintained
              ---------
liability insurance covering the Executive throughout the term of this
Agreement.

         2.6  SIGNING BONUS. In consideration of the specialized knowledge
              -------------
developed by the Executive during his tenure with State of Franklin Bancshares,
Inc. ("Franklin"), his specific contributions to the success of Franklin and as
a significant inducement to his willingness to continue employment with the Bank
and Corporation following the Merger, the Bank will pay the Executive $50,000 on
the closing date of the Merger, less applicable tax withholding.

                                    ARTICLE 3
                             EMPLOYMENT TERMINATION

         3.1  TERMINATION BECAUSE OF DEATH.
              ----------------------------

         (a)  Death. The Executive's employment shall terminate automatically at
              -----
the Executive's death. If the Executive dies in active service to the Bank, the
Executive's estate shall receive any sums due to the Executive as base salary
and reimbursement of expenses through the end of the month in which his death
occurred.

         (b)  Disability. The Bank will make annual payments not to exceed
              ----------
$2,900 to maintain the disability insurance coverage implemented by the State of
Franklin Savings Bank prior to the Merger.

                                       3

<PAGE>

         3.2  INVOLUNTARY TERMINATION WITH CAUSE. The Bank may terminate the
              ----------------------------------
Executive's employment for Cause. If the Executive's employment terminates for
Cause, the Executive shall receive the Base Salary through the date on which
termination becomes effective and reimbursement of expenses to which the
Executive is entitled when termination becomes effective. The Executive shall
not be deemed to have been terminated for Cause under this Agreement unless and
until there is delivered to the Executive a copy of a resolution adopted at a
meeting of the board of directors of the Bank called and held for the purpose,
which resolution shall (x) contain findings that the Executive has committed an
act constituting Cause, and (y) specify the particulars thereof. The resolution
of the board of directors shall be deemed to have been duly adopted if and only
if it is adopted by the affirmative vote of a majority of the directors of the
Bank then in office excluding the Executive. Notice of the meeting and the
proposed termination for Cause shall be given to the Executive a reasonable time
before the meeting of the board of directors. The Executive and the Executive's
counsel (if the Executive chooses to have counsel present) shall have a
reasonable opportunity to be heard by the board of directors at the meeting. For
purposes of this Agreement "Cause" means any of the following:

         (1)  Personal dishonesty;
         (2)  Incompetence
         (3)  Willful misconduct;
         (4)  Breach of fiduciary duty involving personal profit;
         (5)  Intentional failure to perform stated duties;
         (6)  Willful violation of any law, rule or regulation (other than
              traffic violations or similar offenses) or final cease-and-desist
              order; or
         (7)  Material breach of any provision of this Agreement.

         3.3  VOLUNTARY TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON. If the
              ----------------------------------------------------------
Executive terminates employment without Good Reason, the Executive shall receive
the Base Salary and expense reimbursement to which the Executive is entitled
through the date on which termination becomes effective.

         3.4  INVOLUNTARY TERMINATION WITHOUT CAUSE AND VOLUNTARY TERMINATION
              ---------------------------------------------------------------
WITH GOOD REASON. With written notice to the Executive thirty (30) days in
----------------
advance, the Bank may terminate the Executive's employment without Cause.
Termination shall take effect at the end of the thirty (30) day period. With
advance written notice to the Bank as provided in clause (y), the Executive may
terminate employment for Good Reason. If the Executive's employment terminates
involuntarily without Cause or voluntarily but with Good Reason, the Executive
shall be entitled to the benefits specified in Article 4 of this Agreement. For
purposes of this Agreement a voluntary termination by the Executive shall be
considered a voluntary termination with Good Reason if the conditions stated in
both clauses (x) and (y) of this Section 3.4 are satisfied:

         (x)  a voluntary termination by the Executive shall be considered a
voluntary termination with Good Reason if any of the following occur without the
Executive's written consent, and the term Good Reason shall mean the occurrence
of any of the following without the Executive's written consent:

                  (1)      a material diminution of the Executive's Base Salary,

                  (2)      a material diminution of the Executive's authority,
                           duties, or responsibilities, or

                  (3)      a change in the geographic location at which the
                           Executive must perform services for the Bank by more
                           than 75 miles from such location at the Effective
                           Date.

                                       4

<PAGE>

         (y)  the Executive must give notice to the Bank of the existence of one
or more of the conditions described in clause (x) within sixty (60) days after
the initial existence of the condition, and the Bank shall have thirty (30) days
thereafter to remedy the condition. In addition, the Executive's voluntary
termination because of the existence of one or more of the conditions described
in clause (x) must occur within six (6) months after the initial existence of
the condition.

                                    ARTICLE 4
                             SEVERANCE COMPENSATION

         4.1  CASH SEVERANCE AFTER TERMINATION WITHOUT CAUSE OR TERMINATION FOR
              -----------------------------------------------------------------
GOOD REASON.
-----------

         (a)  Subject to the possibility that cash severance after employment
termination might be delayed under Section 4.1(b), if the Executive's employment
terminates involuntarily but without Cause or if the Executive voluntarily
terminates employment with Good Reason, the Executive shall for the unexpired
term of this Agreement and in accordance with the Bank's regular pay practices
continue to receive the Base Salary in effect at employment. However, the Bank
and the Executive acknowledge and agree that the compensation and benefits under
this Section 4.1 shall not be payable if compensation and benefits are payable
or shall have been paid to the Executive under Article 5 of this Agreement.

         (b)  If when employment termination occurs the Executive is a
"specified employee" within the meaning of Section 409A of the Internal Revenue
Code of 1986, as amended (the "Code") if the cash severance payment under
Section 4.1(a) would be considered deferred compensation under Section 409A of
the Code, and finally if an exemption from the six-month delay requirement of
Section 409A(a)(2)(B)(i) of the Code is not available, the Executive's continued
Base Salary under Section 4.1(a) for the first six months after employment
termination shall be paid to the Executive in a single lump sum without interest
on the first day of the seventh (7th) month after the month in which the
Executive's employment terminates. References in this Agreement to Section 409A
of the Code include rules, regulations, and guidance of general application
issued by the Department of the Treasury under Internal Revenue Section 409A of
the Code.

         4.2  POST-TERMINATION INSURANCE COVERAGE.
              -----------------------------------

         (a)  If the Executive's employment terminates involuntarily but without
Cause or voluntarily but with Good Reason, or because of disability, the Bank
shall continue or cause to be continued at the Bank's expense medical insurance
benefits for the Executive and any of his dependents covered at the time of his
termination. The medical insurance benefits shall continue until the first to
occur of (w) the Executive's return to employment with the Bank or another
employer, (x) the Executive's attainment of age 65, (y) the Executive's death,
or (z) the end of the term remaining under this Agreement when the Executive's
employment terminates.

         (b)  If (x) under the terms of the applicable policy or policies for
the insurance benefits specified in section 4.2(a) it is not possible to
continue coverage for the Executive and his dependents, or (y) when employment
termination occurs the Executive is a "specified employee" within the meaning of
Section 409A of the Code, if any of the continued insurance coverage benefits
specified in Section 4.2(a) would be considered deferred compensation under
Section 409A of the Code, and finally, if an exemption from the six-month delay
requirement of Section 409A(a)(2)(B)(i) of the Code is not available for that
particular insurance benefit, the Bank shall pay to the Executive in a single
lump sum an amount in cash equal to the present value of the Bank's projected
cost to maintain that particular insurance benefit (and associated income tax
gross-up benefit, if applicable) had the Executive's employment not terminated,
assuming continued coverage for 36 months. The lump-sum payment shall be made
thirty (30) days after employment termination or, if Section 4.1(b) applies, on
the first day of the seventh (7th) month after the month in which the
Executive's employment terminates.

                                       5

<PAGE>

                                    ARTICLE 5
                           CHANGE IN CONTROL BENEFITS

         5.1  CHANGE IN CONTROL BENEFITS. If a Change in Control occurs during
              --------------------------
the term of this Agreement and, thereafter, the Executive's employment
terminates involuntarily but without Cause or if the Executive voluntarily
terminates employment with Good Reason, the Bank shall make or cause to be made
a lump-sum payment to the Executive in an amount in cash equal to two (2) times
the Executive's base salary in effect as of his termination date following a
change in control, plus two (2) times the Executive's most recent bonus. If the
Executive receives payment under Section 5.1, the Executive shall not be
entitled to any additional severance benefits under Section 4.1 of this
Agreement. In addition, the Bank shall provide the Executive with the
post-termination insurance coverage described in Section 4.2(a) of this
Agreement, subject to the provisions of Section 4.2(b) of this Agreement.

         5.2  CHANGE IN CONTROL DEFINED. For purposes of this Agreement "Change
              -------------------------
in Control" means a change in control as defined in Internal Revenue Section
409A of the Code and rules, regulations, and guidance of general application
thereunder issued by the Department of the Treasury, including:

         (a)  Change in ownership: a change in ownership of the Corporation
              -------------------
occurs on the date any one person or group accumulates ownership of Corporation
stock constituting more than 50% of the total fair market value or total voting
power of Corporation stock,

         (b)  Change in effective control: (x) any one person or more than one
              ---------------------------
person acting as a group acquires within a 12-month period ownership of
Corporation stock possessing 30% or more of the total voting power of
Corporation stock, or (y) a majority of the Corporation's board of directors is
replaced during any 12-month period by directors whose appointment or election
is not endorsed in advance by a majority of the Corporation's board of
directors, or

         (c)  Change in ownership of a substantial portion of assets: a change
              ------------------------------------------------------
in ownership of a substantial portion of the Corporation's assets occurs if in a
12-month period any one person or more than one person acting as a group
acquires from the Corporation assets having a total gross fair market value
equal to or exceeding 40% of the total gross fair market value of all of the
Corporation's assets immediately before the acquisition or acquisitions. For
this purpose, gross fair market value means the value of the Corporation's
assets, or the value of the assets being disposed of, determined without regard
to any liabilities associated with the assets.

         Notwithstanding the foregoing, the Merger is not considered a change in
control for purposes of this Agreement.

         5.3  POTENTIAL LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES.
              ------------------------------------------------------------
Notwithstanding any other provisions of this Agreement, in the event that (x)
the aggregate payments or benefits to be made or afforded to the Executive under
this Agreement or otherwise, which are deemed to be parachute payments as
defined in Section 280G of the Code or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute payment" under
Section 280G of the Code; and (y) if such Termination Benefits were reduced to
an amount (the "Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times the Executive's "base
amount," as determined in accordance with Section 280G of the Code and the
Non-Triggering Amount less the product of the marginal rate of any applicable
state and federal income tax and the Non-Triggering Amount would be greater than
the aggregate value of the Termination Benefits (without such reduction) minus
(1) the amount of tax required to be paid by the Executive thereon by Section
4999 of the Code and further minus (2) the product of the Termination Benefits
and the marginal rate of any applicable state and federal income tax, then the
Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall
be determined by the Executive. Notwithstanding the foregoing, the Bank shall
not pay the Executive Termination Benefits in excess of three (3) times his
average annual compensation (or such other amount that may be permitted pursuant
to applicable regulation or regulatory guidance). Any payment of Termination
Benefits in excess of three (3) times the Executive average annual compensation


                                       6

<PAGE>


shall be made by the Corporation. The Corporation's independent public
accountants will determine the value of any reduction in the payments and
benefits; the Bank will pay for the accountants' opinion. If the Bank and/or the
Executive do not agree with the accountants' opinion, the Bank will pay to the
Executive the maximum amount of payments and benefits pursuant to Sections 4 and
5 of this Agreement or otherwise, as selected by Executive, that the opinion
indicates have a high probability of not causing any of the payments and
benefits to be non-deductible and subject to the excise tax imposed under
Section 4999 of the Code. The Bank may also request, and the Executive has the
right to demand that, a ruling from the IRS as to whether the disputed payments
and benefits have such tax consequences. The Bank will promptly prepare and file
the request for a ruling from the IRS, but in no event will the Bank make this
filing later than thirty (30) days from the date of the accountant's opinion
referred to above. The request will be subject to the Executive's approval prior
to filing; the Executive shall not unreasonably withhold his approval. The Bank
and the Executive agree to be bound by any ruling received from the IRS and to
make appropriate payments to each other to reflect any IRS rulings, together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code. Nothing contained in this Agreement shall result in a reduction of
any payments or benefits to which the Executive may be entitled upon termination
of employment other than pursuant to Sections 4 and 5 hereof, or a reduction in
the payments and benefits specified, below zero.

                                    ARTICLE 6
                        CONFIDENTIALITY AND CREATIVE WORK

         6.1  NON-DISCLOSURE. The Executive covenants and agrees not to reveal
              --------------
to any person, firm, or corporation any confidential information of any nature
concerning the Bank or its business, or anything connected therewith. As used in
this Article 6 the term "confidential information" means all of the Bank's and
the Bank's affiliates' confidential and proprietary information and trade
secrets in existence on the date hereof or existing at any time during the term
of this Agreement, including but not limited to:

         (a)  the whole or any portion or phase of any business plans, financial
information, purchasing data, supplier data, accounting data, or other financial
information,

         (b)  the whole or any portion or phase of any marketing or sales
information, sales records, customer lists, prices, sales projections, or other
sales information, and

         (c)  trade secrets, as defined from time to time by the laws of
Tennessee. This Section 6.1 does not prohibit disclosure required by an order of
a court having jurisdiction or a subpoena from an appropriate governmental
agency or disclosure made by the Executive in the ordinary course of business
and within the scope of the Executive's authority.

         6.2  RETURN OF MATERIALS. The Executive agrees to immediately deliver
              -------------------
or return to the Bank upon termination, upon expiration of this Agreement, or as
soon thereafter as possible, all written information and any other similar items
furnished by the Bank or prepared by the Executive in connection with the
Executive's services hereunder and to immediately delete all electronically
stored data of the Bank maintained on the Executive's personal computers and to
return all Bank-provided computers or communication devices (i.e., laptop,
Blackberry, PDA, etc.). The Executive will retain no copies thereof after
termination of this Agreement or termination of the Executive's employment.

                                       7

<PAGE>

         6.3  CREATIVE WORK. The Executive agrees that all creative work and
              -------------
work product, including but not limited to all technology, business management
tools, processes, software, patents, trademarks, and copyrights developed by the
Executive during the term of this Agreement, regardless of when or where such
work or work product was produced, constitutes work made for hire, all rights of
which are owned by the Bank or the Corporation. The Executive hereby assigns to
the Bank and the Corporation all rights, title, and interest, whether by way of
copyrights, trade secret, trademark, patent, or otherwise, in all such work or
work product, regardless of whether the same is subject to protection by patent,
trademark, or copyright laws.

         6.4  AFFILIATES' CONFIDENTIAL INFORMATION IS COVERED; CONFIDENTIALITY
              ----------------------------------------------------------------
OBLIGATION SURVIVES TERMINATION. For purposes of this Agreement, the term
-------------------------------
"affiliate" of the Corporation includes any entity that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with the Corporation or the Bank. The rights and obligations set
forth in this Article 6 shall survive termination of this Agreement.

         6.5  INJUNCTIVE RELIEF. The Executive acknowledges that it is
              -----------------
impossible to measure in money the damages that will accrue to the Bank and the
Corporation if the Executive fails to observe the obligations imposed by this
Article 6. Accordingly, if the Bank institutes an action to enforce the
provisions hereof, the Executive hereby waives the claim or defense that an
adequate remedy at law is available to the Bank, and the Executive agrees not to
urge in any such action the claim or defense that an adequate remedy at law
exists. The confidentiality and remedies provisions of this Article 6 shall be
in addition to and shall not be deemed to supersede or restrict, limit, or
impair the Bank's rights under applicable state or federal statute or regulation
dealing with or providing a remedy for the wrongful disclosure, misuse, or
misappropriation of trade secrets or proprietary or confidential information.

                                    ARTICLE 7
                    COMPETITION AFTER EMPLOYMENT TERMINATION

         7.1  COVENANT NOT TO SOLICIT EMPLOYEES. The Executive agrees not to,
              ---------------------------------
directly or indirectly, solicit or employ the services of any officer or
employee of the Bank or the Corporation or any of their affiliates (including an
individual who was an officer or employee of the Bank or the Corporation or any
of their affiliates during the one year period following the Executive's
termination) for two (2) years after the Executive's employment termination.

         7.2  COVENANT NOT TO COMPETE.
              -----------------------

         (a)  The Executive covenants and agrees not to compete directly or
indirectly with the Bank or the Corporation or any of their affiliates for two
(2) years after employment termination. For purposes of this Section 7.2:

              (1)   the term COMPETE means:

                    (i)   providing financial products or services on behalf of
                          any financial institution for any person residing in
                          the territory,

                                       8

<PAGE>
                    (ii)  assisting (other than through the performance of
                          ministerial or clerical duties) any financial
                          institution in providing financial products or
                          services to any person residing in the territory, or

                    (iii) inducing or attempting to induce any person who was a
                          customer of the Bank or the Corporation or any of
                          their affiliates at the date of the Executive's
                          employment termination to seek financial products or
                          services from another financial institution.

              (2)   the words DIRECTLY or INDIRECTLY mean:

                    (i)   acting as a consultant, officer, director, independent
                          contractor, or employee of any financial institution
                          in competition with the Bank or the Corporation in the
                          territory, or

                    (ii)  communicating to such financial institution the names
                          or addresses or any financial information concerning
                          any person who was a customer of the Bank or the
                          Corporation when the Executive's employment
                          terminated.

              (3)   the term CUSTOMER means any person to whom the Bank or the
                    Corporation is providing financial products or services on
                    the date of the Executive's employment termination or within
                    one year thereafter.

              (4)   the term FINANCIAL INSTITUTION means any bank, savings
                    association, or bank or savings association holding company,
                    or any other institution, the business of which is engaging
                    in activities that are financial in nature or incidental to
                    such financial activities as described in Section 4(k) of
                    the Bank Holding Company Act of 1956, other than the
                    Corporation or any of its affiliates.

              (5)   FINANCIAL PRODUCT OR SERVICE means any product or service
                    that a financial institution or a financial holding company
                    could offer by engaging in any activity that is financial in
                    nature or incidental to such a financial activity under
                    Section 4(k) of the Bank Holding Company Act of 1956 and
                    that is offered by the Bank or an affiliate on the date of
                    the Executive's employment termination, including but not
                    limited to banking activities and activities that are
                    closely related and a proper incident to banking.

              (6)   the term PERSON means any individual or individuals,
                    corporation, partnership, fiduciary or association.

              (7)   the term TERRITORY means the area within a 50-mile radius of
                    any office of the Bank or the Corporation at the date of the
                    Executive's employment termination.

         (b)  If any provision of this section or any word, phrase, clause,
sentence or other portion thereof (including, without limitation, the
geographical and temporal restrictions contained therein) is held to be
unenforceable or invalid for any reason, the unenforceable or invalid provision
or portion shall be modified or deleted so that the provisions hereof, as
modified, are legal and enforceable to the fullest extent permitted under
applicable law.

                                       9

<PAGE>

         (c)  The Executive acknowledges that the willingness of the Bank and
the Corporation to enter into this Agreement and to make the payments
contemplated by Articles 3 and 4 of this Agreement is conditioned on the
Executive's acceptance of the covenants set forth in Articles 6 and 7 of this
Agreement and that the Bank or the Corporation would not have entered into this
Agreement without such covenants in force.

         7.3  INJUNCTIVE AND OTHER RELIEF. Because of the unique character of
              ---------------------------
the services to be rendered by the Executive hereunder, the Executive
understands that the Bank would not have an adequate remedy at law for the
material breach or threatened breach by the Executive of any one or more of the
Executive's covenants in this Article 7. Accordingly, the Executive agrees that
the Bank's remedies for a breach of this Article 7 include, but are not limited
to, (x) forfeiture of any money representing accrued salary, contingent
payments, or other fringe benefits (including any amount payable pursuant to
Article 4) due and payable to the Executive during the period of any breach by
Executive, and (y) a suit in equity by the Bank to enjoin the Executive from the
breach or threatened breach of such covenants. The Executive hereby waives the
claim or defense that an adequate remedy at law is available to the Bank and the
Executive agrees not to urge in any such action the claim or defense that an
adequate remedy at law exists. Nothing herein shall be construed to prohibit the
Bank from pursuing any other or additional remedies for the breach or threatened
breach.

         7.4  ARTICLE 7 SURVIVES TERMINATION BUT IS VOID AFTER A CHANGE IN
              ------------------------------------------------------------
CONTROL. The rights and obligations set forth in this Article 7 shall survive
-------
termination of this Agreement.

                                   ARTICLE 8
                                 MISCELLANEOUS

         8.1  SUCCESSORS AND ASSIGNS.
              ----------------------

         (a)  This Agreement shall be binding upon the Bank and any successor to
the Bank, including any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Bank by purchase, merger,
consolidation, reorganization, or otherwise. But this Agreement and the Bank's
obligations under this Agreement are not otherwise assignable, transferable, or
delegable by the Bank. By agreement in form and substance satisfactory to the
Executive, the Bank shall require any successor to all or substantially all of
the business or assets of the Bank expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Bank would be required
to perform had no succession occurred.

         (b)  This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and legatees.

         (c)  Without written consent of the other parties, no party shall
assign, transfer, or delegate this Agreement or any rights or obligations under
this Agreement, except as expressly provided herein. Without limiting the
generality or effect of the foregoing, the Executive's right to receive payments
hereunder is not assignable or transferable, whether by pledge, creation of a
security interest, or otherwise, except for a transfer by the Executive's will
or by the laws of descent and distribution. If the Executive attempts an
assignment or transfer that is contrary to this Section 8.1, the Bank shall have
no liability to pay any amount to the assignee or transferee.

         8.2  GOVERNING LAW, JURISDICTION AND FORUM. This Agreement shall be
              -------------------------------------
construed under and governed by the internal laws of the State of Tennessee,
without giving effect to any conflict of laws provision or rule that would cause
the application of the laws of any jurisdiction other than Tennessee. By
entering into this Agreement, the Executive acknowledges that the Executive is
subject to the jurisdiction of both the federal and state courts in Tennessee.

                                       10

<PAGE>

         8.3  ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
              ----------------
of the parties concerning the employment of the Executive by the Bank. Any oral
or written statements, representations, agreements, or understandings made or
entered into prior to or contemporaneously with the execution of this Agreement
are hereby rescinded, revoked, and rendered null and void by the parties.
Further, upon execution of this Agreement, the Change in Control Agreement by
and between the Executive and State of Franklin Bancshares, Inc. dated September
19, 2003, will be null and void.

         8.4  NOTICES. All notices, requests, demands, and other communications
              -------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid. Unless otherwise changed by notice, notice
shall be properly addressed to the Executive if addressed to the address of the
Executive on the books and records of the Bank at the time of the delivery of
such notice, and properly addressed to the Bank if addressed to the board of
directors of the Corporation and the Bank at the Bank's executive offices.

         8.5  SEVERABILITY. If there is a conflict between any provision of this
              ------------
Agreement and any statute, regulation, or judicial precedent, the latter shall
prevail, but the affected provisions of this Agreement shall be curtailed and
limited solely to the extent necessary to bring them within the requirements of
law. If any provisions of this Agreement is held by a court of competent
jurisdiction to be indefinite, invalid, void or voidable, or otherwise
unenforceable, the remainder of this Agreement shall continue in full force and
effect unless that would clearly be contrary to the intentions of the parties or
would result in an injustice.

         8.6  CAPTIONS AND COUNTERPARTS. The captions in this Agreement are
              -------------------------
solely for convenience. The captions do not define, limit, or describe the scope
or intent of this Agreement. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

         8.7  NO DUTY TO MITIGATE. The Executive shall not be required to
              -------------------
mitigate the amount of any payment provided for in this Agreement by seeking
other employment. Moreover, provided the Executive is not in breach of any
obligation under Articles 6 and 7 of this Agreement, the amount of any payment
provided for in this Agreement shall not be reduced by any compensation earned
or benefits provided as the result of employment of the Executive or as a result
of the Executive being self-employed after employment termination.

         8.8  AMENDMENT AND WAIVER. This Agreement may not be amended, released,
              --------------------
discharged, abandoned, changed, or modified in any manner, except by an
instrument in writing signed by each of the parties hereto. The failure of any
party hereto to enforce at any time any of the provisions of this Agreement
shall not be construed to be a waiver of any such provision, nor affect the
validity of this Agreement or any part thereof or the right of any party
thereafter to enforce each and every such provision. No waiver or any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.

         8.9  COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 409A. The Bank and
              --------------------------------------------------
the Executive intend that their exercise of authority or discretion under this
Agreement shall comply with Section 409A of the Code. If any provision of this
Agreement does not satisfy the requirements of Section 409A of the Code, such
provision shall nevertheless be applied in a manner consistent with those
requirements. If any provision of this Agreement would subject the Executive to


                                       11

<PAGE>


additional tax or interest under Section 409A of the Code, the Bank shall reform
the provision. However, the Bank shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting
the Executive to additional tax or interest, and the Bank shall not be required
to incur any additional compensation expense as a result of the reformed
provision.

         8.10  SOURCE OF PAYMENTS. All payments provided in this Agreement shall
               ------------------
be timely paid in cash or check from the general funds of the Bank. The
Corporation, however, guarantees all payments and the provision of all amounts
and benefits due hereunder to the Executive and, if such payments are not timely
paid or provided by the Bank, such amounts and benefits shall be paid or
provided by the Corporation.

         8.11  REQUIRED PROVISIONS. In the event any of the foregoing provisions
               -------------------
of this Agreement conflict with the terms of this Section 8.11, this Section
8.11 shall prevail. Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to, and conditioned upon, their compliance
with 12 U.S.C. Section 1828(k) and FDIC Regulation 12 C.F.R. Part 359, Golden
Parachute and Indemnification Payments.

                            [signature page follows]







                                       12
<PAGE>


         IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date first written above.


                                        JEFFERSON FEDERAL BANK



                                        /s/ Anderson L. Smith
                                        ----------------------------------------
                                        Name:   Anderson L. Smith
                                        Title:  President and Chief Executive
                                                Officer



                                        /s/ Randal R. Greene
                                        ----------------------------------------
                                        RANDAL R. GREENE



                                        JEFFERSON BANCSHARES, INC.
                                        (as guarantor)



                                        /s/ Anderson L. Smith
                                        ----------------------------------------
                                        Name:   Anderson L. Smith
                                        Title:  President and Chief Executive
                                                Officer






                                       13