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                                                                   EXHIBIT 10.1

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                         STATE OF FRANKLIN SAVINGS BANK
                              STOCK INCENTIVE PLAN

      (AS ASSUMED BY JEFFERSON BANCSHARES INC. EFFECTIVE OCTOBER 31, 2008)

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                                TABLE OF CONTENTS

Section                                                                     Page
  No.                                                                        No.
-------                                                                     ----

1.       Establishment and Purpose of the Plan.................................1

2.       Definitions...........................................................1

3.       Eligibility...........................................................2

4.       Plan Administration...................................................2

5.       Shares Subject to the Plan............................................2

6.       Types of Grants.......................................................2

7.       Options...............................................................2

8.       Stock Appreciation Rights.............................................3

9.       Adjustments Upon Changes in Capitalization............................3

10.      Termination and Amendment.............................................3

11.      Non-Assignability.....................................................3

12.      Exercise by Estate....................................................3

13.      General Provisions....................................................3

14.      Change of Control of the Bank.........................................4

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               STATE OF FRANKLIN SAVINGS BANK STOCK INCENTIVE PLAN

                  1. Establishment and Purpose of the Plan. The purpose of this
                     -------------------------------------
Plan is to provide a flexible means of compensation and motivation for
outstanding performance by employees of the Bank and its Subsidiaries, directors
of the Bank, and other certain persons to further the growth and profitability
of the Bank.

                  2. Definitions.
                     -----------

                  Board or Board of Directors.  The Board of Directors of the
                  ---------------------------
Bank.

                  Common Stock.  The common stock of the Bank, $1.00 par value.
                  ------------

                  Bank. State of Franklin Savings Bank, a bank chartered under
                  ----
the laws of the State of Tennessee, and any successor or transferee of
substantially all of its business or assets.

                  Employee. A full-time key employee of the Bank or a
                  --------
Subsidiary, including an officer who is such an employee.

                  Fair Market Value.  The fair market value of the share of
                  -----------------
Common Stock as of such date as determined by the Board ofDirectors.

                  Incentive Stock Option.  Any Option intended to meet the
                  ----------------------
requirements of an incentive stock option as defined in Section 422.

                  Non-Oualified Stock Option.  Any Option not intended to be an
                  --------------------------
Incentive Stock Option.

                  Option. An option to purchase Common Stock granted under the
                  ------
Plan, including both an Incentive Stock Option and a Non- Qualified Stock
Option.

                  Person. An individual, a partnership, a corporation, or any
                  ------
other private, governmental or other entity.

                  Plan. The State of Franklin Savings Bank Stock Incentive Plan
                  ----
herein set forth, as the same, may from time to time be amended.

                  Rule 16b-3. Rule 16b-3 under the Securities Exchange Act of
                  ----------
1934, as amended, and any successor rule or regulation.

                  Section 422. Section 422 of the Internal Revenue Code of 1986,
                  -----------
as amended, or any successor statute.

                  Stock Appreciation Right. A right to receive a payment equal
                  ------------------------
to the excess of the (i) Fair Market Value of the shares of Common Stock covered
by such right as of the date of exercise or termination over (ii) such amount as
is determined by the Board of Directors at the time the Stock Appreciation Right
is granted.

                  Subsidiary. Any business association (including a corporation
                  ----------
or a partnership) in an unbroken chain of such associations beginning with the
Bank if each of the associations (other than the last association in such chain)
owns equity interests possessing 50% or more of the combined voting power of all
classes of equity interests in one of the other associations in such chain.

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                  3. Eligibility. A grant under this Plan may be made to any
                     -----------
Employee, any director of the Bank, or any other person as to whom the Board of
Directors determines that making such grant is in the best interests of the
Bank; provided, however, that (i) no grant may be made to a director of the Bank
who serves on the Board of Directors other than as provided under Rule 16b-3,
and (ii) no grant of an Incentive Stock Option may be made to a person other
than an Employee.

                  4. Plan Administration. This Plan shall be administered by the
                     -------------------
Board of Directors. The Board of Directors shall have full power to interpret
and administer this Plan and full authority to act in selecting the grantees and
in determining type and amount of grants, the terms and conditions of grants,
and the terms of agreements which will be entered into with grantees governing
such grants. The Board of Directors shall have the power to make rules and
guidelines for carrying out the Plan and to make changes in such rules and
guidelines from time to time as it deems proper. Any interpretation by the Board
of Directors of the terms and provisions of the Plan and the administration
thereof and all action taken by the Board of Directors shall be final and
binding.

                  5. Shares Subject to the Plan. Subject to adjustment as
                     --------------------------
provided in Section 9, the total amount of shares of Common Stock available for
grant under this Plan (including the equivalent number of Stock Appreciation
Rights) shall be up to [250,000] shares of Common Stock of the Bank. Shares of
Common Stock issued hereunder may consist, in whole or in part, of authorized
and unissued shares, treasury shares and shares acquired in the open market or
by private purchase by the Bank. Any Common Stock which is purchased shall be
purchased by the Bank at prices no higher than the Fair Market Value of such
Common Stock at the time of purchase. If for any reason any shares of Common
Stock issued under any grant hereunder are forfeited or canceled, or a grant
otherwise terminates or is terminated for any reason without the issuance of any
shares, then all such shares, to the extent of any such forfeiture, cancellation
or termination, shall again be available for grant under this Plan.

                  6. Types of Grants.
                     ---------------

                     (a) The Board of Directors may make such grants under this
Plan as in its discretion it deems advisable to effect the purpose of the Plan,
including without limitation grants of Incentive Stock Options, Non-Qualified
Stock Options and Stock Appreciation Rights. Such grants may be issued
separately or in combination, or in tandem, and additional grants may be issued
in combination, or in tandem, with grants previously issued under this Plan or
otherwise. As used in this Plan, references to grants in tandem shall mean
grants consisting of more than one type of grant where the exercise of one
element of the grant effects the cancellation of one or more other elements of
the grant.

                     (b) The exercise price of an Option or other grant shall
equal at least 100% of the Fair Market Value of the shares of Common Stock on
the date of such grant, or such other date as the Board of Directors may
specify, and be paid in cash or such other consideration as the Board of
Directors may determine consistent with applicable law.

                     (c) In the case of Stock Appreciation Rights, the Board of
Directors may provide for deferral of payment to grantees under such rules and
guidelines as it may establish, including without limitation crediting of
interest or dividend equivalents, and other grants denominated in shares of
Common Stock or equivalents to shares of Common Stock.

                  7. Options.
                     -------

                     (a) Each Option shall have such terms and conditions as the
Board of Directors shall determine. A grantee shall have no rights of a
shareholder with respect to any shares of Common Stock subject to an Option
unless and until a certificate for such shares shall have been issued.

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                     (b) All the provisions of Section 422 and the regulations
thereunder as in effect from time to time are hereby incorporated by reference
herein with respect to Incentive Stock Options to the extent that their
inclusion in this Plan is necessary from time to time to preserve their status
as incentive stock options for purposes of Section 422. Each provision of the
Plan and each agreement relating to an Incentive Stock Option shall be construed
so that it shall be an incentive stock option for purposes of Section 422, and
any provisions thereof which cannot be so construed shall be disregarded.

                  8. Stock Appreciation Rights. Each grant of a Stock
                     -------------------------
Appreciation Right shall be credited to the grantee's account on the books of
the Bank. Payment by the Bank may be made in whole or in part in cash, shares of
Common Stock or such other form as the Board of Directors may determine.

                  9. Adjustments Upon Changes in Capitalization. In the event of
                     ------------------------------------------
a reorganization, recapitalization, stock split, stock dividend, issuance of
securities convertible into Common Stock, combination of shares, merger,
consolidation or any other change in the corporate structure of the Bank
affecting Common Stock, or a sale by the Bank of all or substantially all of its
assets, or any distribution to shareholders other than a normal cash dividend,
or any assumption or conversion of outstanding grants as a result of an
acquisition, and except as otherwise provided in an agreement between the
Recipient and the Bank, the Board of Directors shall make appropriate adjustment
in the number and kind of shares authorized by the Plan and any adjustments in
outstanding grants as it deems appropriate.

                  10. Termination and Amendment.
                      --------------------------

                     (a) This Plan shall become effective upon its approval by
the shareholders of the Bank. It shall remain in full force and effect unless
terminated by the Board of Directors, which shall have the power to amend,
suspend, terminate or reinstate this Plan at any time, provided that no
amendment which increases the number of Shares of Common Stock subject to the
Plan, or materially adversely affects the availability of Rule 16b-3 with
respect to this Plan, shall be made without shareholder approval.

                     (b) Without limiting the generality of the foregoing, the
Board of Directors may (i) amend any limitations in this Plan if and when they
are no longer required under Rule 16b-3 or Section 422 and (ii) amend the
provisions of this Plan to assure its continued compliance with Rule 16b-3 and
Section 422.

                  11. Non-Assignability. Grants are not transferable other than
                      -----------------
by will or the laws of descent and distribution. A grant is exercisable during
the grantee's lifetime only by the grantee or his or her guardian or legal
representative.

                  12. Exercise by Estate. Any provision of this Plan to the
                      ------------------
contrary notwithstanding, unless otherwise determined by the Board of Directors,
the estate of any grantee shall have 12 months from the date of such grantee's
death to exercise any grant hereunder, or such longer period as the Board of
Directors may determine.

                  13. General Provisions.
                      ------------------

                     (a) Nothing contained in this Plan, or in any grant made
pursuant to the Plan, shall confer upon any grantee any right with respect to
terms, conditions or continuance of employment by the Bank or any Subsidiary.

                     (b) For purposes of this Plan, transfer of employment
between the Bank and any of its Subsidiaries shall not be deemed termination of
employment.

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                     (c) Appropriate provision may be made by the Board of
Directors for all taxes required to be withheld in connection with any grant,
the exercise thereof, and the transfer of shares of Common Stock, in respect of
any federal, state, local or foreign withholding-taxes. In the case of payment
in the form of Common Stock, the Bank shall have the right to retain the number
of shares of Common Stock whose Fair Market Value equals the amount to be
withheld.

                     (d) If any day on or before which such action by the Plan
must be taken falls on a Saturday, Sunday or legal holiday, such action may be
taken on the next succeeding day which is not a Saturday, Sunday or legal
holiday.

                     (e) This Plan and all determinations made and actions taken
pursuant thereto shall be governed by the laws of the state of Tennessee without
regard to principles of conflicts of laws.

                     (f) The Board of Directors may amend any outstanding grants
to the extent it deems appropriate, provided that the grantee's consent shall be
required in the case of amendments adverse to the grantee.

                  14. Change of Control of the Bank.
                      -----------------------------

                     (a) Any provision of this Plan to the contrary
notwithstanding, in the event of a change in control of the Bank, unless (i)
otherwise directed by the Board of Directors by resolution adopted prior to such
Change in Control or within ten days thereafter or (ii) otherwise provided in
the agreement entered into between the Bank and a grant recipient, all of the
grants under this Plan shall become completely vested and immediately
exercisable.

                     (b) For purposes of this Section 14, "Change in Control" of
the Bank shall mean the occurrence of one or more of the following:

                         (i) Acquisition in one or more transactions of 25
         percent or more of the Common Stock by any Person, or by two or more
         Persons acting as a group, other than directly from the Bank;

                         (ii) Acquisition in one or more transactions of at
         least 15 percent but less than 25 percent of the Common Stock by any
         Person, or by two or more Persons acting as a group (excluding officers
         and directors of the Bank), and the adoption by the Board of Directors
         of a resolution declaring that a change in control of the Bank has
         occurred;

                         (iii) A merger, consolidation, reorganization,
         recapitalization or similar transaction involving the securities of the
         Bank upon the consummation of which more than 50 percent in voting
         power of the voting securities of the surviving corporation(s) is held
         by Persons other than former shareholders of the Bank; or

                         (iv) 25 percent or more of the directors elected by
         shareholders of the Bank to the Board of Directors are persons who were
         not listed as nominees in the Bank's then most recent proxy statement
         (the "New Directors"), unless a majority of the members of the Board of
         Directors, excluding the New Directors, vote that no change of control
         shall have occurred by virtue of the election of the New Directors.

                     (c) If grants shall become exercisable pursuant to this
Section 14, the Bank shall use its best efforts to assist the grantees in
exercise of their grants in such a manner as to avoid liability to the Bank for
profits under Section 16(b) of the Securities Exchange Act of 1934, as amended,
as a result of such exercise, including (not by way of limitation) explanation
of and assistance in meeting the requirements of Paragraph (e) of Rule 16b-3.

                                       4<PAGE> 1

                                                                    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
--------------------            -----------------            --------------

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