PSM
      HOLDINGS, INC.

    


    2002
      STOCK OPTION/STOCK ISSUANCE PLAN

    (As
      amended August 16, 2005)

    


    
      	
              I.

            	
              GENERAL
                PROVISIONS

            


    

    


    
      	 	
              A.

            	
              PURPOSE
                OF THE PLAN

            


    

    


    This
      2002
      Stock Option/Stock Issuance Plan (the “Plan”) is intended to aid the Corporation
      (or any Parent or Subsidiary) in maintaining and developing a management team,
      attracting qualified officers and employees capable of assisting in the future
      success of the Corporation, and rewarding those individuals who have
      contributed, or may contribute in the future, to the success of the Corporation
      (or any Parent or Subsidiary). It is designed to aid the Corporation (and any
      Parent or Subsidiary) in retaining the services of executives and Employees
      and
      in attracting new personnel when needed for future operations and growth and
      to
      provide such personnel with an incentive to remain Employees of the Corporation,
      to use their best efforts to promote the success of the Corporation’s business,
      and to provide them with an opportunity to obtain or increase a proprietary
      interest in the Corporation. It is further designed to attract and retain the
      best available personnel for service as directors of the Corporation (or any
      Parent or Subsidiary), whether or not such individuals may otherwise be
      Employees. It is also designed to permit the Corporation to reward those
      consultants or other independent advisors who are not Employees but who are
      perceived by management as having contributed to the success of the Corporation
      (or any Parent or Subsidiary) or who are important to the continued business
      and
      operations of the Corporation (or any Parent or Subsidiary).

    


    Capitalized
      terms herein shall have the meanings assigned to such terms in the attached
      Appendix.

    


    
      	 	
              B.

            	
              STRUCTURE
                OF THE PLAN

            


    

    


    
      	 	
              1.

            	
              The
                Plan shall be divided into two (2) separate equity
                programs:

            


    

    


    
      	 	
              a.

            	
              the
                Option Grant Program under which eligible persons may, at the discretion
                of the Plan Administrator, be granted options to purchase shares
                of Common
                Stock, and

            


    

     

    
      	 	
              b.

            	
              the
                Stock Issuance Program under which eligible persons may, at the discretion
                of the Plan Administrator, be issued shares of Common Stock directly,
                either through the immediate purchase of such shares or as a bonus
                for
                services rendered to the Corporation (or any
                Parent

            


    

     

     

    
      
         

      

      
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    or
      Subsidiary) or as an incentive to perform services for the Corporation (or
      any
      Parent or Subsidiary).

    


    
      	 	
              2.

            	
              The
                provisions of Sections I and IV shall apply to both equity programs
                under
                the Plan and shall accordingly govern the interests of all persons
                under
                the Plan.

            


    

    


    
      	 	
              C.

            	
              ADMINISTRATION
                OF THE PLAN

            


    

    


    
      	 	
              1.

            	
              The
                Plan shall be administered by the Board. However, any or all
                administrative functions otherwise exercisable by the Board may be
                delegated to the Committee. Members of the Committee shall serve
                for such
                period of time as the Board may determine and shall be subject to
                removal
                by the Board at any time. The Board may also at any time terminate
                the
                functions of the Committee and reassume all powers and authority
                previously delegated to the
                Committee.

            


    

    


    
      	 	
              2.

            	
              The
                Plan Administrator shall have full power and authority (subject to
                the
                provisions of the Plan) to establish such rules and regulations as
                it may
                deem appropriate for proper administration of the Plan and to make
                such
                determinations under, and issue such interpretations of, the Plan
                and any
                outstanding options thereunder as it may deem necessary or advisable.
                Decisions of the Plan Administrator shall be final and binding on
                all
                parties who have an interest in the Plan or any option
                thereunder.

            


    

    


    
      	 	
              D.

            	
              ELIGIBILITY

            


    

    


    
      	 	
              1.

            	
              The
                Plan Administrator shall have full authority to determine, (i) with
                respect to the option grants under the Option Grant Program, which
                eligible persons are to receive option grants, the time or times
                when such
                option grants are to be made, the number of shares to be covered
                by each
                such grant, the status of the granted option as either an Incentive
                Option
                or a Non-Statutory Option, the time or times at which each option
                is to
                become exercisable, the vesting schedule (if any) applicable to the
                option
                shares and the maximum term for which the option is to remain outstanding,
                and (ii) with respect to stock issuances under the Stock Issuance
                Program,
                which eligible persons are to receive stock issuances, the time or
                times
                when such issuances are to be made, the number of shares to be issued
                to
                each Participant, the vesting schedule (if any) applicable to the
                issued
                shares and the consideration to be paid or given by the Participant
                for
                such shares.

            


    

     

    
      	 	
              2.

            	
              The
                Plan Administrator shall have the absolute discretion either to grant
                options in accordance with the Option Grant Program or to effect
                stock
                issuances in accordance with the Stock Issuance
                Program.

            


    

    


    
      	 	
              E.

            	
              STOCK
                SUBJECT TO THE PLAN

            


    

    


    
      	 	
              1.

            	
              The
                stock issuable under the Plan shall be shares of authorized but unissued
                or reacquired Common Stock. The maximum number of shares of Common
                Stock
                which may be issued over the term of the Plan shall not exceed 3,000,000
                shares.

            


    

    


    
      	 	
              2.

            	
              Shares
                of Common Stock subject to outstanding options shall be available
                for
                subsequent issuance under the Plan to the extent (i) the options
                expire or
                terminate for any reason prior to exercise in full or
                (ii) the options are canceled in accordance with the cancellation-re-grant
                provisions of Section II(E).

            


    

    


    
      	 	
              3.

            	
              Should
                any change be made to the Common Stock by reason of any stock split,
                stock
                dividend, recapitalization, combination of shares, exchange of shares
                or
                other change affecting the outstanding Common Stock as a class without
                the
                Corporation’s receipt of consideration, appropriate adjustments shall be
                made to the maximum number and/or class of securities issuable under
                the
                Plan. The adjustments determined by the Plan Administrator shall
                be final,
                binding and conclusive.

            


    

    


    
      	
              II.

            	
              OPTION
                GRANT PROGRAM

            


    

    


    
      	 	
              A.

            	
              TYPES
                OF OPTIONS

            


    

    


    The
      Option Grant Program shall be comprised of two types of options as
      follows:

    


    
      	 	
              1.

            	
              Incentive
                Options which are options intended to qualify under the Code, subject
                to
                limiting conditions, for favorable tax treatment in respect of the
                recognition of ordinary income, gain, or loss and withholding requirements
                applicable to the exercise of the options and disposition of the
                shares of
                Common Stock acquired upon exercise of Incentive
                Options.

            


    

     

    
      	 	
              2.

            	
              Non-Statutory
                Options which are those options that are not intended to qualify
                under the
                Code for favorable tax treatment in respect of the recognition of
                ordinary
                income, gain, or loss and withholding requirements applicable to
                the
                exercise of options and disposition of shares of Common Stock acquired
                pursuant to the exercise of the Non-Statutory options. The Option
                grant
                program intends that the treatment of such transactions
                in

            


    


    
      
         

      

      
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    respect
      of Non-Statutory Options will be governed by the taxation rules applicable
      to
      the transfer of property in connection with the performance of
      services.

    


    
      	 	
              B.

            	
              OPTION
                TERMS APPLICABLE TO BOTH INCENTIVE AND NON-STATUTORY
                OPTIONS

            


    

    


    
      	 	
              1.

            	
              Option
                Agreements.

            


    

    


    Each
      option shall be evidenced by one or more option agreements between the
      Corporation and the Optionee. Option agreements shall designate the number
      of
      shares and the exercise price of the Option to which it pertains, and shall
      set
      forth the vesting schedule of the Option or state that the Option is vested
      immediately. The option agreements shall be in writing, dated as of the date
      the
      option is granted, and shall be executed on behalf of the Corporation by such
      officers as the Board shall authorize. Option agreements shall be in such form
      and contain such additional provisions as the Plan Administrator shall
      prescribe, but in no event shall they contain provisions inconsistent with
      the
      provisions of this Plan.

    


    
      	 	
              2.

            	
               Exercise
                Price.

            


    

    


    
      	 	
              a.

            	
              The
                exercise price per share shall be fixed by the Plan Administrator
                for
                Incentive and Non-Statutory Options as set forth
                below.

            


    

     

    
      	 	
              b.

            	
              The
                exercise price shall become immediately due upon exercise of the
                option
                and shall, subject to the provisions of Section IV(A) and the documents
                evidencing the option, be payable in cash or check made payable to
                the
                Corporation. The Plan Administrator, in its discretion, may also
                permit
                the exercise price to be paid partly in cash and/or as
                follows:

            


    

    


    
      	 	
              (1)

            	
              in
                shares of Common Stock valued at Fair Market Value on the Exercise
                Date,
                or

            


    

     

    
      	 	
              (2)

            	
              to
                the extent the option is exercised for vested shares, through a special
                sale and remittance procedure pursuant to which the Optionee shall
                concurrently provide irrevocable written instructions (A) to a
                Corporation-designated brokerage firm to effect the immediate sale
                of the
                purchased shares and remit to the Corporation, out of the sale proceeds
                available on the settlement date, sufficient funds to cover the aggregate
                exercise price payable for the purchased shares plus
                all

            


    


    
      
         

      

      
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    applicable
      Federal, state and local income and employment taxes required to be withheld
      by
      the Corporation by reason of such exercise, and (B) to the Corporation to
      deliver the certificates for the purchased shares directly to such brokerage
      firm in order to complete the sale.

    


    
      	 	
              c.

            	
              Except
                to the extent such sale and remittance procedure is utilized, payment
                of
                the exercise price for the purchased shares must be made on the Exercise
                Date.

            


    

    


    
      	 	
              3.

            	
              Exercise
                and Term of Options. 

            


    

    


    Each
      option shall be exercisable at such time or times, during such period and for
      such number of shares as shall be determined by the Plan Administrator and
      set
      forth in the documents evidencing the option grant. However, no option shall
      have a term in excess of ten (10) years measured from the option grant date.
      The
      terms of Incentive and Non-Qualified Options shall be fixed by the Plan
      Administrator within the limits specified below.

    


    
      	 	
              4.

            	
              Effect
                of Termination of
                Service.

            


    

    


    
      	 	
              a.

            	
              The
                following provisions shall govern the exercise of any options held
                by the
                Optionee at the time of cessation of Service or
                death:

            


    

    


    
      	 	
              (1)

            	
              Should
                the Optionee cease to remain in Service for Misconduct, then the
                options
                shall terminate on the date of cessation of the
                Service.

            


    

    


    
      	 	
              (2)

            	
              Should
                the Optionee cease to remain in Service for any reason other than
                Misconduct, Disability or death, then the Optionee shall have a period
                of
                three (3) months following the date of such cessation of Service
                during
                which to exercise each outstanding option held by such
                Optionee.

            


    

    


    
      	 	
              (3)

            	
              Should
                Optionee’s Service terminate by reason of Disability, then the Optionee
                shall have a period of twelve (12) months following the date of such
                cessation of Service during which to exercise each outstanding option
                held
                by such Optionee.

            


    

     

    
      	 	
              (4)

            	
              If
                the Optionee dies while holding an outstanding option, then the personal
                representative of his or her estate or the person or persons to whom
                the
                option is transferred pursuant to the Optionee’s will or the laws of
                inheritance shall have a twelve

            


    


    
      
         

      

      
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          4
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    (12)
      month period following the date of the Optionee’s death to exercise such
      option.

    


    
      	 	
              (5)

            	
              Under
                no circumstances, however, shall any such option be exercisable after
                the
                specified expiration of the option
                term.

            


    

    


    
      	 	
              (6)

            	
              During
                the applicable post-Service exercise period, the option may not be
                exercised in the aggregate for more than the number of vested shares
                for
                which the option is exercisable on the date of the Optionee’s cessation of
                Service. Upon the expiration of the applicable exercise period or
                (if
                earlier) upon the expiration of the option term, the option shall
                terminate and cease to be outstanding for any vested shares for which
                the
                option has not been exercised. However, the option shall, immediately
                upon
                the Optionee’s cessation of Service, terminate and cease to be outstanding
                with respect to any and all option shares for which the option is
                not
                otherwise at the time exercisable or in which the Optionee is not
                otherwise at that time vested.

            


    

    


    
      	 	
              b.

            	
              The
                Plan Administrator shall have the discretion, exercisable either
                at the
                time an option is granted or at any time while the option remains
                outstanding, to:

            


    

    


    
      	 	
              (1)

            	
              extend
                the period of time for which the option is to remain exercisable
                following
                Optionee’s cessation of Service or death from the limited period otherwise
                in effect for that option to such greater period of time as the Plan
                Administrator shall deem appropriate, but in no event beyond the
                expiration of the option term;
                and/or

            


    

    


    
      	 	
              (2)

            	
              permit
                the option to be exercised, during the applicable post-Service exercise
                period, not only with respect to the number of vested shares of Common
                Stock for which such option is exercisable at the time of the Optionee’s
                cessation of Service but also with respect to one or more additional
                installments in which the Optionee would have vested under the option
                had
                the Optionee continued in Service.

            


    

     

    
      	 	
              5.

            	
              Shareholder
                Rights.
                The holder of an option shall have no shareholder rights with respect
                to
                the shares subject to the option until such person shall have exercised
                the option, paid the exercise price, and become a holder of record
                of the
                purchased shares.

            


    


    
      
         

      

      
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              6.

            	
              [RESERVED]

            


    

    


    
      	 	
              7.

            	
              Limited
                Transferability of Options.
                During the lifetime of the Optionee, the option shall be exercisable
                only
                by the Optionee and shall not be assignable or transferable other
                than by
                will or by the laws of descent and distribution following the Optionee’s
                death.

            


    

    


    
      	 	
              8.

            	
              Withholding.
                The Corporation’s obligation to deliver shares of Common Stock upon the
                exercise of any options granted under the Plan shall be subject to
                the
                satisfaction of all applicable Federal, state and local income and
                employment tax withholding
                requirements.

            


    

    


    
      	 	
              C.

            	
              INCENTIVE
                OPTIONS

            


    

    


    The
      terms
      specified below shall be applicable to all Incentive Options. Except as modified
      by the provisions of this Section II(C), all the provisions of the Plan shall
      be
      applicable to Incentive Options. Options which are specifically designated
      as
      Non--Statutory Options shall not be subject to the terms of this Section II
      (C).

    


    
      	 	
              1.

            	
              Eligibility.
                Incentive Options may only be granted to
                Employees.

            


    

    


    
      	 	
              2.

            	
              Exercise
                Price.
                The exercise price per share shall not be less than one hundred percent
                (100%) of the Fair Market Value per share of Common Stock on the
                option
                grant date. For options granted to a 10% Shareholder, the exercise
                price
                per share shall not be less than one hundred ten percent (110%) of
                the
                Fair Market Value per share of Common Stock on the option grant
                date.

            


    

     

    
      	 	
              3.

            	
              Dollar
                Limitation.
                The aggregate Fair Market Value of the shares of Common Stock (determined
                as of the respective date or dates of grant) for which one or more
                options
                granted to any Employee under the Plan (or any other option plan
                of the
                Corporation or any Parent or Subsidiary) may for the first time become
                exercisable as Incentive Options during any one (1) calendar year
                shall
                not exceed the sum of One Hundred Thousand Dollars ($100,000). To
                the
                extent the Employee holds two (2) or more such options which become
                exercisable for the first time in the same calendar year, the foregoing
                limitation on the exercisability of such options as Incentive Options
                shall be applied on the basis of the order in which such options
                are
                granted.

            


    

    


    
      	 	
              4.

            	
              Option
                Term for 10% Shareholder.
                If
                any Employee to whom an Incentive Option is granted is a 10% Shareholder,
                then the option term shall not exceed five (5) years measured from
                the
                option grant date.

            


    


    
      
         

      

      
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              D.

            	
              NON-STATUTORY
                OPTIONS

            


    

    


    The
      terms
      specified below shall be applicable to all Non-Statutory Options. Except as
      modified by the provisions of this Section II(D), all the provisions of the
      Plan
      shall be applicable to Non-Statutory Options.

    


    
      	 	
              1.

            	
              Eligibility.
                Non-Statutory Options may be granted to the following
                persons:

            


    

    


    
      	 	
              a.

            	
              Employees,

            


    

    


    
      	 	
              b.

            	
              non-employee
                members of the Board or the non-employee members of the board of
                directors
                of any Parent or Subsidiary, and

            


    

    


    
      	 	
              c.

            	
              consultants
                and other independent advisors who provide services to the Corporation
                (or
                any Parent or Subsidiary), provided that such consultants or advisors
                are
                natural persons; that they provide bona fide services to the Corporation
                (or the Parent or Subsidiary); and that the services are not in connection
                with the offer or sale of securities in a capital-raising transaction,
                and
                do not directly or indirectly promote or maintain a market for the
                Corporation’s securities.

            


    

    


    
      	 	
              2.

            	
              Exercise
                Price.
                The exercise price per share covered by a Non-Statutory Option shall
                not
                be less than eighty-five percent (85%) of the Fair Market Value per
                share
                of Common Stock on the option grant
                date.

            


    

    


    
      	 	
              E.

            	
              CORPORATE
                TRANSACTION

            


    

     

    
      	 	
              1.

            	
              The
                Plan and each option outstanding under the Plan at the time of a
                Corporate
                Transaction shall terminate and cease to be outstanding, but only
                after
                each Optionee (or the successor in interest) has been given, for
                the
                period of ten (10) days ending five (5) days before the effective
                date of
                the Corporate Transaction (or such longer period as the Board may
                specify), the right to exercise any unexpired option in full or in
                part,
                as if such option was fully vested and exercisable notwithstanding
                anything to the contrary contained in any option agreement between
                the
                Corporation and any optionee. However, the outstanding options shall
                not
                terminate and cease to be outstanding on such an accelerated basis
                if and
                to the extent such options are assumed by the successor corporation
                (or
                parent thereof) in the Corporate
                Transaction.

            


    

    


    
      	 	
              2.

            	
              Each
                option which is assumed in connection with a Corporate Transaction
                shall
                be appropriately adjusted, immediately after such
                Corporate

            


    


    
      
         

      

      
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    Transaction,
      to apply to the number and class of securities which would have been issuable
      to
      the Optionee in consummation of such Corporate Transaction, had the option
      been
      exercised immediately prior to such Corporate Transaction. Appropriate
      adjustments shall also be made to (i) the number and class of securities
      available for issuance under the Plan following the consummation of such
      Corporate Transaction and (ii) the exercise price payable per share under each
      outstanding option, provided the aggregate exercise price payable for such
      securities shall remain the same.

    


    
      	 	
              3.

            	
              The
                Plan Administrator shall have the discretion, exercisable either
                at the
                time the option is granted or at any time while the option remains
                outstanding, to provide for the automatic acceleration (in whole
                or in
                part) of one or more outstanding options upon the occurrence of a
                Corporate Transaction, whether or not those options are to be assumed
                or
                replaced in the Corporate
                Transaction.

            


    

    


    
      	 	
              4.

            	
              The
                portion of any Incentive Option accelerated in connection with a
                Corporate
                Transaction shall remain exercisable as an Incentive Option only
                to the
                extent the applicable One Hundred Thousand Dollar ($100,000) limitation
                is
                not exceeded. To the extent such dollar limitation is exceeded, the
                accelerated portion of such option shall be exercisable as a Non-Statutory
                Option under the Federal tax laws.

            


    

    


    
      	 	
              5.

            	
              Subject
                to Section II(F) below, the grant of options under the Plan shall
                in no
                way affect the right of the Corporation to adjust, reclassify, reorganize
                or otherwise change its capital or business structure or to merge,
                consolidate, dissolve, liquidate or sell or transfer all or any part
                of
                its business or assets.

            


    

    


    
      	 	
              F.

            	
              ADJUSTMENTS

            


    

     

    
      	 	
              1.

            	
              If
                the Corporation shall at any time subdivide its outstanding shares
                of
                Common Stock by recapitalization, reclassification or split-up thereof,
                or
                if the Corporation shall declare a stock dividend or distribute shares
                of
                Common Stock to its stockholders, the number of shares of Common
                Stock
                purchasable upon exercise of the options immediately prior to such
                subdivision shall be proportionately increased in each instance,
                and if
                the Corporation shall at any time combine the outstanding shares
                of Common
                Stock by recapitalization, reclassification or combination thereof,
                the
                number of shares of Common Stock purchasable upon exercise of the
                options
                immediately prior to such combination shall be proportionately decreased
                in each instance. Any adjustment which is the result of a stock dividend
                or distribution shall be effective on the record date
                therefor.

            


    


    
      
         

      

      
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            	2.	
              Whenever
                the number of shares of Common Stock purchasable upon the exercise
                of any
                of the options is required to be adjusted as provided in Section
                II(F)(1)
                above, the exercise price per share shall be adjusted (to the nearest
                cent) in each instance by multiplying such exercise price per share
                immediately prior to such adjustment by a fraction (x) the numerator
                of
                which shall be the number of shares of Common Stock purchasable upon
                the
                exercise of the options immediately prior to such adjustment, and
                (y) the
                denominator of which shall be the number of shares of Common Stock
                so
                purchasable immediately thereafter.

            


    

    


    
      	 	
              3.

            	
              In
                case the Corporation shall, at any time prior to the expiration date
                of
                the options, and prior to the exercise thereof, offer to the holders
                of
                its Common Stock any right to subscribe for additional shares of
                any class
                of the Corporation, then the Corporation shall give written notice
                thereof
                to the registered holders of the options not less than thirty (30)
                days
                prior to the date on which the books of the Corporation are closed
                or a
                record date fixed for the determination of stockholders entitled
                to such
                subscription rights. Such notice shall specify the date as to which
                the
                books shall be closed or record date be fixed with respect to such
                offer
                or subscription, and the right of the holders to participate in such
                offer
                or subscription shall terminate if the options shall not be exercised
                on
                before the date of such closing of the books or such record
                date.

            


    

    


    
      	 	
              4.

            	
              If
                the Corporation shall take any action affecting the shares of its
                Common
                Stock, other than that action described in this Plan, which, in the
                opinion of the Plan Administrator, would materially affect the rights
                of
                the holders of the options or the exercise price per share, the number
                of
                shares of Common Stock purchasable on exercise of the options shall
                be
                adjusted in each instance and at such time as the Plan Administrator,
                in
                good faith, may determine to be equitable under the circumstances.
                The
                adjustments determined by the Plan Administrator shall be final,
                binding,
                and conclusive.

            


    

     

    
      	 	
              5.

            	
              Any
                changes or adjustments in the number of shares of Common Stock purchasable
                upon the exercise of the options or in the exercise price of options,
                as
                required or authorized by this Section II(F), shall be made with
                respect
                to all authorized options whether or not they have yet been issued
                or
                outstanding at the time of the occurrence of the circumstance leading
                to
                such change or adjustment.

            


    

    


    
      	 	
              G.

            	
              CANCELLATION
                AND RE-GRANT OF OPTIONS

            


    

    


    The
      Plan
      Administrator shall have the authority to effect, at any time and from time
      to
      time, with the consent of the affected option holders and subject to approval
      of
      the shareholders of the Corporation, the cancellation of any or all outstanding
      options under the Plan and to grant in substitution therefor new options
      covering the same or different number


    
      
         

      

      
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    of
      shares
      of Common Stock but with an exercise price per share based on the Fair Market
      Value per share of Common Stock on the new option grant date. The type and
      amount of consideration for the substituted options shall be subject to the
      approval of the Plan Administrator.

    


    
      	
              III.

            	
              STOCK
                ISSUANCE PROGRAM

            


    

    


    
      	 	
              A.

            	
              STOCK
                ISSUANCE TERMS

            


    

    


    Shares
      of
      Common Stock may be issued under the Stock Issuance Program through direct
      and
      immediate issuances without any intervening option grants. Each such stock
      issuance shall be evidenced by a Stock Issuance Agreement which complies with
      the terms specified below.

    


    
      	 	
              1.

            	
              Cost
                of Shares.
                Grants of shares of Common Stock under the Stock Issuance Program
                shall be
                made at such cost as the Plan Administrator shall determine and may
                be
                issued for no monetary consideration, subject to applicable state
                law.

            


    

    


    
      	 	
              2.

            	
              Vesting
                Provisions.

            


    

    


    
      	 	
              a.

            	
              Shares
                of Common Stock issued under the Stock Issuance Program may, in the
                discretion of the Plan Administrator, be fully and immediately vested
                upon
                issuance or may vest in one or more installments over the Participant’s
                period of Service or upon attainment of specified performance
                objectives.

            


    

     

    
      	 	
              b.

            	
              Any
                new, substituted or additional securities or other property (including
                money paid other than as a regular cash dividend) which the Participant
                may have the right to receive with respect to the Participant’s unvested
                shares of Common Stock by reason of any stock dividend, stock split,
                recapitalization, combination of shares, exchange of shares or other
                change affecting the outstanding Common Stock as a class without
                the
                Corporation’s receipt of consideration shall be issued subject to (i) the
                same vesting requirements applicable to the Participant’s unvested shares
                of Common Stock and (ii) such escrow arrangements as the Plan
                Administrator shall deem
                appropriate.

            


    

    


    
      	 	
              c.

            	
              Unless
                specified otherwise in the Stock Issuance Agreement, the Participant
                shall
                have full shareholder rights with respect to any shares of Common
                Stock
                issued to the Participant under the Stock Issuance Program, whether
                or not
                the Participant’s interest in
                those

            


    


    
      
         

      

      
        -
          10
          -

        
          

        

      

      
         

      

    


    shares
      is
      vested, and accordingly, the Participant shall have the right to vote such
      shares and to receive any regular cash dividends paid on such
      shares.

    


    
      	 	
              d.

            	
              Should
                the Participant cease to remain in Service while holding one or more
                unvested shares of Common Stock issued under the Stock Issuance Program
                or
                should the performance objectives not be attained with respect to
                one or
                more such unvested shares of Common Stock, then those shares shall
                be
                immediately surrendered to the Corporation for cancellation, and
                the
                Participant shall have no further shareholder rights with respect
                to those
                shares. To the extent the surrendered shares were previously issued
                to the
                Participant for consideration paid in cash or cash equivalent (including
                the Participant’s purchase-money indebtedness), the Corporation shall
                repay to the Participant the cash consideration paid for the surrendered
                shares and shall cancel the unpaid principal balance of any outstanding
                purchase-money note of the Participant attributable to such surrendered
                shares.

            


    

    


    
      	 	
              e.

            	
              The
                Plan Administrator may in its discretion waive the surrender and
                cancellation of one or more unvested shares of Common Stock (or other
                assets attributable thereto) which would otherwise occur upon the
                non-completion of the vesting schedule applicable to such shares.
                Such
                waiver shall result in the immediate vesting of the Participant’s interest
                in the shares of Common Stock as to which the waiver applies. Such
                waiver
                may be effected at any time, whether before or after the Participant’s
                cessation of Service or the attainment or non-attainment of the applicable
                performance objectives.

            


    

     

    
      	 	
              3.

            	
              Non-transferability.
                Shares of Common Stock granted under the Stock Issuance program shall
                not
                be transferable until the shares are
                vested.

            


    

    


    
      	 	
              B.

            	
              CORPORATE
                TRANSACTION

            


    

    


    
      	 	
              1.

            	
              Upon
                the occurrence of a Corporate Transaction all unvested shares not
                assumed
                by the successor corporation (or parent thereof) shall be immediately
                surrendered to the Corporation for cancellation, and the Participant
                shall
                have no further shareholder rights with respect to those shares.
                To the
                extent the surrendered shares were previously issued to the Participant
                for consideration paid in cash or cash equivalent (including the
                Participant’s purchase-money indebtedness), the Corporation shall repay to
                the Participant the cash consideration paid for the surrendered shares
                and
                shall cancel the unpaid

            


    


    
      
         

      

      
        -
          11
          -

        
          

        

      

      
         

      

    


    principal
      balance of any outstanding purchase-money note of the Participant attributable
      to such surrendered shares.

    


    
      	 	
              2.

            	
              The
                Plan Administrator shall have the discretionary authority, exercisable
                either at the time the unvested shares are issued or any time while
                the
                Corporation’s repurchase rights with respect to those shares remaining
                outstanding, to provide that those rights shall automatically terminate
                on
                an accelerated basis, and the shares of Common Stock subject to those
                terminated rights shall immediately vest, in the event of a Corporate
                Transaction or in the event that the Participant’s Service should
                subsequently terminate by reason of an Involuntary Termination within
                a
                period designated by the Plan Administrator following the effective
                date
                of any Corporate Transaction in which those repurchase rights are
                assumed
                by the successor corporation (or parent
                thereof).

            


    

    


    
      	 	
              C.

            	
              SHARE
                ESCROW/LEGENDS

            


    

    


    Unvested
      shares may, in the Plan Administrator’s discretion, be held in escrow by the
      Corporation until the Participant’s interest in such shares vests or may be
      issued directly to the Participant with restrictive legends on the certificates
      evidencing those unvested shares.

    


    
      	
              IV.

            	
              MISCELLANEOUS

            


    

    


    
      	 	
              A.

            	
              FINANCING

            


    

     

    The
      Plan
      Administrator may permit any Optionee or Participant to pay the option exercise
      price or the purchase price for shares issued to such person under the by
      delivering a full-recourse, interest-bearing promissory note payable in one
      or
      more installments and secured by the purchased shares. In no event shall the
      maximum credit available to the Optionee or Participant exceed the sum of (i)
      the aggregate option exercise price or purchase price payable for the purchased
      shares plus (ii) any Federal, state and local income and employment tax
      liability incurred by the Optionee or the Participant in connection with the
      option exercise or share purchase.

    


    
      	 	
              B.

            	
              EFFECTIVE
                DATE AND TERM OF PLAN

            


    

    


    
      	 	
              1.

            	
              The
                Plan shall become effective when adopted by the Board, but no option
                granted under the Plan may be exercised, and no shares shall be issued
                under the Plan, until the Plan is approved by the Corporation’s
                shareholders. If such shareholder approval is not obtained within
                twelve
                (12) months after the date of the Board’s adoption of the Plan, then all
                options previously granted under the Plan shall terminate and cease
                to be
                outstanding, and no further options shall be granted and no shares
                shall
                be issued under the Plan. Subject

            


    

     

     

    
      
         

      

      
        -
          12
          -

        
          

        

      

      
         

      

    


    to
      such
      limitation, the Plan Administrator may grant options and issue shares under
      the
      Plan at any time after the effective date of the Plan and before the date fixed
      herein for termination of the Plan.

    


    
      	 	
              2.

            	
              The
                Plan shall terminate upon the earliest of (i) January 31, 2010, (ii)
                the
                date on which all shares available for issuance under the Plan shall
                have
                been issued, or (iii) the termination of all outstanding options
                in
                connection with a Corporate Transaction. All options and unvested
                stock
                issuances outstanding at that time under the Plan shall continue
                to have
                full force and effect in accordance with the provisions of the documents
                evidencing such options or
                issuances.

            


    

    


    
      	 	
              C.

            	
              AMENDMENT
                OF THE PLAN

            


    

    


    
      	 	
              1.

            	
              The
                Board shall have complete and exclusive power and authority to amend
                or
                modify the Plan in any or all respects, except as set forth herein.
                However, no such amendment or modification shall adversely affect
                the
                rights and obligations with respect to options or unvested stock
                issuances
                at the time outstanding under the Plan unless the Optionee or the
                Participant consents to such amendment or modification. In addition,
                the
                Board shall not amend the Plan, without approval of the shareholders
                of
                the Corporation, in a manner which
                would:

            


    

    


    
      	 	
              a.

            	
              Cause
                Options which are intended to qualify as Incentive Options to fail
                to
                qualify;

            


    

    
      	 	
              b.

            	
              increase
                the number of shares of Common Stock issuable over the term of the
                Plan;

            


    

    
      	 	
              c.

            	
              cause
                the Plan to fail to meet the requirements of Rule 16b-3; or
                

            


    

    
      	 	
              d.

            	
              violate
                applicable law.

            


    

     

    
      	 	
              2.

            	
              Options
                may be granted under the Option Grant Program and shares may be issued
                under the Stock Issuance Program which are in each instance in excess
                of
                the number of shares of Common Stock then available for issuance
                under the
                Plan, provided any excess shares actually issued under those programs
                shall be held in escrow until there is obtained shareholder approval
                of an
                amendment sufficiently increasing the number of shares of Common
                Stock
                available for issuance under the Plan. If such shareholder approval
                is not
                obtained within twelve (12) months after the date the first such
                excess
                issuances are made, then (i) any unexercised options granted on the
                basis
                of such excess shares shall terminate and cease to be outstanding
                and (ii)
                the Corporation shall promptly refund to the Optionees and the
                Participants the exercise or purchase price paid for any excess shares
                issued under the Plan and held in escrow, together with interest
                (at the
                applicable Short Term

            


    


    
      
         

      

      
        -
          13
          -

        
          

        

      

      
         

      

    


    Federal
      Rate) for the period the shares were held in escrow, and such shares shall
      thereupon be automatically canceled and cease to be outstanding.

    


    
      	 	
              D.

            	
              USE
                OF PROCEEDS

            


    

    


    Any
      cash
      proceeds received by the Corporation from the sale of shares of Common Stock
      under the Plan shall be used for general corporate purposes.

    


    
      	 	
              E.

            	
              WITHHOLDING

            


    

    


    The
      Corporation’s obligation to deliver shares of Common Stock upon the exercise of
      any options or upon the vesting of any shares issued under the Plan shall be
      subject to the satisfaction of all applicable Federal, state and local income
      and employment tax withholding requirements.

    


    
      	 	
              F.

            	
              REGULATORY
                APPROVALS

            


    

    


    The
      implementation of the Plan, the granting of any options under the Plan and
      the
      issuance of any shares of Common Stock (i) upon the exercise of any option
      or
      (ii) under the Stock Issuance Program shall be subject to the Corporation’s
      procurement of all approvals and permits required by regulatory authorities
      having jurisdiction over the Plan, the options granted under it and the shares
      of Common Stock issued pursuant to it.

    


    
      	 	
              G.

            	
              NO
                EMPLOYMENT OR SERVICE RIGHTS

            


    

    


    Nothing
      in the Plan shall confer upon the Optionee or the Participant any right to
      continue in Service for any period of specific duration or interfere with or
      otherwise restrict in any way the rights of the Corporation (or any Parent
      or
      Subsidiary employing or retaining such person) or of the Optionee or the
      Participant, which rights are hereby expressly reserved by each, to terminate
      such person’s Service at any time for any reason, with or without
      cause.

     

    
      	 	
              H.

            	
              INDEMNIFICATION

            


    

    


    In
      addition to such other rights as they may have as directors or as members of
      the
      Committee, the members of the Plan Administrator shall be indemnified by the
      Corporation against the reasonable expenses, including attorneys’ fees, actually
      and necessarily incurred in connection with the defense of any action, suit,
      or
      proceeding, and in connection with any appeal therein, to which they or any
      of
      them may be a party by reason of any action or failure to act under or in
      connection with this Plan or any option or stock award granted hereunder, and
      against all amounts paid by them in settlement thereof (provided such settlement
      is approved by independent legal counsel selected by the Corporation) or paid
      by
      them in satisfaction of a judgment in any such action, suit, or proceeding,
      except in relation to matters as to which it shall be finally adjudged in such
      action, suit, or proceeding that such


    
      
         

      

      
        -
          14
          -

        
          

        

      

      
         

      

    


    member
      of
      the Plan Administrator is liable for gross negligence or willful misconduct
      in
      the performance of his duties; provided that within 60 days after institution
      of
      any such action, suit, or proceeding (or within 30 days after service upon
      such
      member of legal process in such case, if later) a member of the Plan
      Administrator shall in writing offer the Corporation the opportunity, at its
      own
      expense, to handle and defend the same.

    


    
      	 	
              I.

            	
              RULE
                16b-3

            


    

    


    With
      respect to Participates subject to Rule 16b-3, transactions under the Plan
      are
      intended to comply with all applicable provisions of Rule 16b-3. To the extent
      any provision of the Plan or action by the Plan Administrator fails to so
      comply, it shall be deemed null and void, to the extent permitted by law and
      deemed advisable by the Plan Administrator.

    


    
      	 	
              J.

            	
              RELATIONSHIP
                TO OTHER PLANS

            


    

    


    Nothing
      in this Plan shall prevent the Corporation (or any Parent or Subsidiary) from
      adopting or continuing other or additional compensation arrangements, including
      without limitation plans providing for the granting of restricted stock awards,
      options, cash, or Common Stock performance bonuses. Grants under the Plan may
      form a part of or otherwise be related to such other or additional compensation
      arrangements.

     

     

    
      
         

      

      
        -
          15
          -

        
          

        

      

      
         

      

    

     

    APPENDIX

    


    The
      following definitions shall be in effect under the Plan:

    


    Board
      shall
      mean the Corporation’s Board of Directors.

    


    Code
      shall
      mean the Internal Revenue Code of 1986, as amended.

    


    Committee
      shall
      mean a committee of two (2) or more non-employee Board members appointed by
      the
      Board to exercise one or more administrative functions under the
      Plan.

    


    Common
      Stock
      shall
      mean the Corporation’s common stock.

    


    Corporate
      Transaction
      shall
      mean either of the following shareholder approved transactions to which the
      Corporation is a party:

    


    (a) a
      merger
      or consolidation in which securities possessing more than fifty percent
      (50%) of the total combined voting power of the Corporation’s outstanding
      securities are transferred to a person or persons different from the persons
      holding those securities immediately prior to such transaction, or

    


    (b) the
      sale,
      transfer or other disposition of all or substantially all of the Corporation’s
      assets in complete liquidation or dissolution of the Corporation.

    


    Corporation
      shall
      mean PSM Holdings, Inc., a Nevada corporation.

    


    Disability
      shall
      mean the inability of the Optionee or the Participant to engage in any
      substantial gainful activity by reason of any medically determinable physical
      or
      mental impairment and shall be determined by the Plan Administrator on the
      basis
      of such medical evidence as the Plan Administrator deems warranted under the
      circumstances.

    


    Employee
      shall
      mean an individual who is in the employ of the Corporation (or any Parent or
      Subsidiary), subject to the control and direction of the employer entity as
      to
      both the work to be performed and the manner and method of
      performance.

    


    Exercise
      Date
      shall
      mean the date on which the Corporation shall have received written notice of
      the
      option exercise.

    


    Fair
      Market Value
      per
      share of Common Stock on any relevant date shall be determined in accordance
      with the following provisions:

     

    (a)
      If
      the Common Stock is at the time traded on the NASDAQ National Market, then
      the
      Fair Market Value shall be the closing selling price per share of Common Stock
      on the date


    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    


    in
      question, as such price is reported by the National Association of Securities
      Dealers on the NASDAQ National Market or any successor system. If there is
      no
      closing selling price for the Common Stock on the date in question, then the
      Fair Market Value shall be the closing selling price on the last preceding
      date
      for which such quotation exists.

    


    (b) If
      the
      Common Stock is at the time listed on any Stock Exchange, then the Fair Market
      Value shall be the closing selling price per share of Common Stock on the date
      in question on the Stock Exchange determined by the Plan Administrator to be
      the
      primary market for the Common Stock, as such price is officially quoted in
      the
      composite tape of transactions on such exchange. If there is no closing selling
      price for the Common Stock on the date in question, then the Fair Market Value
      shall be the closing selling price on the last preceding date for which such
      quotation exists.

    


    (c) If
      the
      Common Stock is at the time neither listed on any Stock Exchange nor traded
      on
      the NASDAQ National Market, then the Fair Market Value shall be determined
      by
      the Plan Administrator after taking into account such factors as the Plan
      Administrator shall deem appropriate.

    


    Incentive
      Option
      shall
      mean an option which satisfies the requirements of Code Section
      422.

    


    Involuntary
      Termination
      shall
      mean the termination of the Service of any individual which occurs by reason
      of
      :

    


    (a) such
      individual’s involuntary dismissal or discharge by the Corporation for reasons
      other than Misconduct, or

    


    (b) such
      individual’s voluntary resignation following (A) a change in his or her position
      with the Corporation which materially reduces his or her level of
      responsibility, (B) a reduction in his or her level of compensation (including
      base salary, fringe benefits and target bonuses under any corporate -performance
      based bonus or incentive programs) by more than fifteen percent (15%), or (c)
      a
      relocation of such individual’s place of employment by more than fifty (50)
      miles, provided and only if such change, reduction or relocation is effected
      without the individual’s consent.

    


    The
      Plan
      Administrator shall be entitled to revise the definition of Involuntary
      Termination and Misconduct with respect to individual Optionees or Participants
      under the Plan.

     

    Misconduct
      shall
      mean the commission of any act of fraud, embezzlement or dishonesty by the
      Optionee or Participant, any unauthorized use or disclosure by such person
      of
      confidential information or trade secrets of the Corporation (or any Parent
      or
      Subsidiary), or any other intentional misconduct by such person adversely
      affecting the business or affairs of the Corporation (or any Parent or
      Subsidiary) in a material manner. The foregoing definition shall not be deemed
      to be


    
      
         

      

      
        A-2

        
          

        

      

      
         

      

    


    inclusive
      of all the acts or omissions which the Corporation (or any Parent or Subsidiary)
      may consider as grounds for the dismissal or discharge of any Optionee,
      Participant or other person in the Service of the Corporation (or any Parent
      or
      Subsidiary).

    


    1934
      Act
      shall
      mean the Securities Exchange Act of 1934, as amended.

    


    Non-Statutory
      Option
      shall
      mean an option not intended to satisfy the requirements of Code Section
      422.

    


    Option
      Grant Program
      shall
      mean the option grant program in effect under the Plan.

    


    Optionee
      shall
      mean any person to whom an option is granted under the Plan.

    


    Parent
      shall
      mean any corporation (other than the Corporation) in an unbroken chain of
      corporations ending with the Corporation, provided each corporation in the
      unbroken chain (other than the Corporation) owns, at the time of the
      determination, stock possessing fifty percent (50%) or more of the total
      combined voting power of all classes of stock in one of the other corporations
      in such chain.

    


    Participant
      shall
      mean any person who is issued shares of Common Stock under the Stock Issuance
      Program.

    


    Plan
      shall
      mean the Corporation’s 2002 Stock Option/Stock Issuance Plan, as amended August
      16, 2005, as set forth in this document.

    


    Plan
      Administrator
      shall
      mean either the Board or the Committee acting in its capacity as administrator
      of the Plan.

    


    Rule
      16b-3
      shall
      mean Rule 16b-3 promulgated under the 1934 Act by the U.S. Securities and
      Exchange Commission, as amended, or any successor rule in effect from time
      to
      time.

    


    Service
      shall
      mean the provision of services to the Corporation (or any Parent or Subsidiary)
      by a person in the capacity of an Employee, a non-employee member of the board
      of directors or a consultant or independent advisor, except to the extent
      otherwise specifically provided in the documents evidencing the option
      grant.

    


    Stock
      Exchange
      shall
      mean either the American Stock Exchange or the New York Stock
      Exchange.

    


    Stock
      Issuance Agreement
      shall
      mean the agreement entered into by the Corporation and the Participant at the
      time of issuance of shares of Common Stock under the Stock Issuance
      Program.

    


    Stock
      Issuance Program
      shall
      mean the stock issuance program in effect under the Plan.

     

     

    
      
         

      

      
        A-3

        
          

        

      

      
         

      

    

     

    Subsidiary
      shall
      mean any corporation (other than the Corporation) in an unbroken chain of
      corporations beginning with the Corporation, provided each corporation (other
      than the last corporation) in the unbroken chain owns, at the time of the
      determination, stock possessing fifty percent (50%) or more of the total
      combined voting power of all classes of stock in one of the other corporations
      in such chain.

    


    10%
      Shareholder shall
      mean the owner of stock (as determined under Code Section 424(d)) possessing
      more than ten percent (10%) of the total combined voting power of all classes
      of
      stock of the Corporation (or any Parent or Subsidiary).

     

     

    
      
         

      

      
        A-4

        
          

        

      

      
         

      

    

     

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
      EXCHANGE COMMISSION BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM
      REGISTRATION
      AS
      PROVIDED IN RULE 701 PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION
      (THE
“SEC”) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”).

    


    THESE
      SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
      COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
      AUTHORITY HAS PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE ACCURACY
      OR ADEQUACY OF THE INFORMATION PROVIDED TO THE INVESTORS. ANY REPRESENTATION
      TO
      THE CONTRARY IS A CRIMINAL OFFENSE. INVESTORS MUST RELY ON THEIR OWN EXAMINATION
      OF THE COMPANY, AND THE RISKS, MERITS AND TERMS OF THIS OFFERING IN MAKING
      AN
      INVESTMENT DECISION.

     

    PSM
      Holdings, Inc.

    


    GRANT
      OF STOCK OPTION

    


    


    This
      Grant of Stock Option is hereby offered to Optionee with respect to the
      following option grant (the “Option”) to purchase shares of the Common Stock of
      PSM Holdings, Inc. (the “Corporation”):

    


    Optionee: 
      ________________________________________________________________________________________________

    


    Grant
      Date:
      _______________________________________________________________________________________________

    


    Vesting
      Commencement:
      _____________________________________________________________________________________

    


    Exercise
      Price: $_____ per share

    


    Number
      of
      Option Shares: _________________ shares

    


    Expiration
      Date:
      ____________________________________________________________________________________________

    


    Type
      of
      Option:   _______   Non-Statutory

                                   
      _______  Incentive
      Stock Option

    


    Date
      Exercisable:
      ___________________________________________________________________________________________

    


    Vesting
      Schedule:
      __________________________________________________________________________________________

    


    Optionee
      understands and agrees that the Option is granted subject to and in accordance
      with the terms of the PSM Holdings, Inc. 2002 Stock Option/Stock Issuance Plan,
      as amended


    
      
         

      

      
        
        

        
          

        

      

      
         

      

    


    (the
      “Plan”). Optionee further agrees to be bound by the terms of the Plan and the
      terms of the Option as set forth in the Stock Option Agreement, a copy of which
      is attached hereto as Exhibit A.

    


    Optionee
      understands that any Option Shares purchased under the Option will be subject
      to
      the terms set forth in the Stock Purchase Agreement attached hereto as Exhibit
      B. Optionee hereby acknowledges receipt of a copy of the Plan in the form
      attached hereto as Exhibit C.

    


    All
      capitalized terms in this Grant form shall have the meaning assigned to them
      in
      this form or in the attached Plan.

    


    Assuming
      that you are in agreement with the terms of this Grant of Stock Option, please
      sign your name in the space indicated below.

    


    PSM
      Holdings, Inc.

    


    


    


    By:
      _____________________________________

    


    Title:
      ____________________________________

    


    AGREED:

    


    


    ______________________________

    Optionee’s
      Signature

    


    Address:
      ___________________________

    __________________________________

     

    Exhibit
      A Stock
      Option Agreement

    Exhibit
      B Stock
      Purchase Agreement

    Exhibit
      C 2002
      Stock Option/Stock Issuance Plan, as amended


    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

    


    PSM
      HOLDINGS, INC.

    STOCK
      OPTION AGREEMENT

    


    RECITALS

    


    A.    The
      Board
      has adopted the Plan for the purpose of retaining the services of selected
      Employees, non-employee members of the Board or the Board of Directors of any
      Parent or Subsidiary and consultants and other independent advisors in the
      service of the Corporation (or any Parent or Subsidiary).

    


    B.    Optionee
      is to render valuable services to the Corporation (or a Parent or Subsidiary),
      and this Agreement is executed pursuant to, and is intended to carry out the
      purposes of, the Plan in connection with the Corporation’s grant of an option to
      Optionee.

    


    C.    All
      capitalized terms in this Agreement shall have the meaning assigned to them
      in
      the attached Appendix.

    


    NOW,
      THEREFORE, it is hereby agreed as follows:

    


    1.    Grant
      of Option.
      The
      Corporation hereby grants to Optionee, as of the Grant Date, an option to
      purchase up to the number of Option Shares specified in the Grant Form. The
      Option Shares shall be purchasable from time to time during the option term
      specified in Paragraph 2 at the Exercise Price.

    


    2.    Option
      Term.
      This
      option shall have a term commencing on the Grant Date and shall accordingly
      expire at the close of business on the Expiration Date, unless sooner terminated
      in accordance with Paragraph 5 or 6.

    


    3.    Limited
      Transferability.
      During
      Optionee’s lifetime, this option shall be exercisable only by Optionee and shall
      not be assignable or transferable other than by will or by the laws of descent
      and distribution following Optionee’s death.

    


    4.    Dates
      of Exercise.
      This
      option shall become exercisable for the Option Shares in one or more
      installments as specified in the Grant Form. As the option becomes exercisable
      for such installments, those installments shall accumulate and the option shall
      remain exercisable for the accumulated installments until the Expiration Date
      or
      sooner termination of the option term under Paragraph 5 or 6.

     

    5.    Cessation
      of Service.
      Except
      as provided in the Grant Form or the Plan, the option term specified in
      Paragraph 2 shall terminate (and this option shall cease to be outstanding)
      prior to the Expiration Date should the Optionee cease to remain in Service
      as
      provided in the Plan, provided, however, that notwithstanding the foregoing
      and
      notwithstanding the provisions of paragraph II(B)(4)(a) of the Plan, the option
      may be exercised up until the Expiration Date of the option. Except as provided
      in the Grant Form or the Plan, during the


    
      
         

      

      
        
        

        
          

        

      

      
         

      

    


    limited
      period of post-Service exercisability, this option may not be exercised in
      the
      aggregate for more than the number of Option Shares in which Optionee is, at
      the
      time of Optionee’s cessation of Service, vested pursuant to the Vesting Schedule
      specified in the Grant Form. Upon the expiration of such limited exercise period
      or (if earlier) upon the Expiration Date, this option shall terminate and cease
      to be outstanding for any vested Option Shares for which the option has not
      been
      exercised. To the extent Optionee is not vested in the Option Shares at the
      time
      of Optionee’s cessation of Service, this option shall immediately terminate and
      cease to be outstanding with respect to those shares. In the event of a
      Corporate Transaction, the provisions of Paragraph 6 shall govern the period
      for
      which this option is to remain exercisable following Optionee’s cessation of
      Service and shall supersede any provisions to the contrary in this
      paragraph.

    


    6.    Corporate
      Transaction

    


    (a)    The
      vesting provisions set forth in the Grant Form shall apply in the event of
      a
      Corporate Transaction (as defined in the appendix to this
      Agreement).

    


    (b)    Any
      unvested option shall immediately vest in its entirety effective upon the time
      immediately prior to the consummation of a Corporate Transaction.

    


    (c)    If
      this
      option is assumed in connection with a Corporate Transaction, then this option
      shall be appropriately adjusted, immediately after such Corporate Transaction,
      to apply to the number and class of securities which would have been issuable
      to
      Optionee in consummation of such Corporate Transaction had the option been
      exercised immediately prior to such Corporate Transaction, and appropriate
      adjustments shall also be made to (i) the number and class of securities
      available for issuance under the Plan following the consummation of such
      Corporate Transaction and (ii) the Exercise Price, provided, the aggregate
      Exercise Price shall remain the same.

    


    (d)    This
      Agreement shall not in any way affect the right of the Corporation to adjust,
      reclassify, reorganize or otherwise change its capital or business structure
      or
      to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
      of its business or assets.

    


    7.    Adjustment
      in Option Shares.
      Should
      any change be made to the Common Stock by reason of any stock split, stock
      dividend, recapitalization, combination of shares, exchange of shares or other
      change affecting the outstanding Common Stock as a class without the
      Corporation’s receipt of consideration, appropriate adjustments shall be made to
      (i) the total number and/or class of securities subject to this option and
      (ii)
      the Exercise Price in order to reflect such change and thereby preclude a
      dilution or enlargement of benefits hereunder.

    


    8.    Shareholder
      Rights.
      The
      holder of this option shall not have any shareholder rights with respect to
      the
      Option Shares until such person shall have exercised the option, paid the
      Exercise Price and become a holder of record of the purchased
      shares.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    9.    Manner
      of Exercising Option.

    


    (a)    In
      order
      to exercise this option with respect to all or any part of the Option Shares
      for
      which this option is at the time exercisable, Optionee (or any other person
      or
      persons exercising the option) must take the following actions:

    


    (i)    Execute
      and deliver to the Corporation a Purchase Agreement for the Option Shares for
      which the option is exercised.

    


    (ii)    Pay
      the
      aggregate Exercise Price for the purchased shares in one or more of the
      following forms:

    


    (A)    cash
      or
      check made payable to the Corporation; or

    


    (B)    a
      promissory note payable to the Corporation, but only to the extent authorized
      by
      the Plan Administrator in accordance with Paragraph 13.

    


    (C)    in
      shares
      of Common Stock held by Optionee (or any other person or persons exercising
      the
      option) for the requisite period necessary to avoid a charge to the
      Corporation’s earnings for financial reporting purposes and valued at Fair
      Market Value on the Exercise Date; or

    


    (D)    to
      the
      extent the option is exercised for vested Option Shares, through a special
      sale
      and remittance procedure pursuant to which Optionee (or any other person or
      persons exercising the option) shall concurrently provide irrevocable
      instructions (a) to a Corporation-designated brokerage firm to effect the
      immediate sale of the purchased shares and remit to the Corporation, out of
      the
      sale proceeds available on the settlement date, sufficient funds to cover the
      aggregate Exercise Price payable for the purchased shares plus all applicable
      Federal, state and local income and employment taxes required to be withheld
      by
      the Corporation by reason of such exercise and (b) to the Corporation to deliver
      the certificates for the purchased shares directly to such brokerage firm in
      order to complete the sale.

    


    Except
      to
      the extent the sale and remittance procedure is utilized in connection with
      the
      option exercise, payment of the Exercise Price must accompany the Purchase
      Agreement delivered to the Corporation in connection with the option
      exercise.

    


    (iii)    Furnish
      to the Corporation appropriate documentation that the person or persons
      exercising the option (if other than Optionee) have the right to exercise this
      option.

    


    (iv)    Execute
      and deliver to the Corporation such written representations as may be requested
      by the Corporation in order for it to comply with the applicable requirements
      of
      Federal and state securities laws.

     

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    (v)    Make
      appropriate arrangements with the Corporation (or Parent or Subsidiary employing
      or retaining Optionee) for the satisfaction of all federal, state and local
      income and employment tax withholding requirements applicable to the option
      exercise.

    


    (b)    As
      soon
      as practical after the Exercise Date, the Corporation shall issue to or on
      behalf of Optionee (or any other person or persons exercising this option)
      a
      certificate for the purchased Option Shares, with the appropriate legends
      affixed thereto.

    


    (c)    In
      no
      event may this option be exercised for any fractional shares.

    


    10.    Compliance
      with Laws and Regulations.

    


    (a)    The
      exercise of this option and the issuance of the Option Shares upon such exercise
      shall be subject to compliance by the Corporation and Optionee with all
      applicable requirements of law relating thereto and with all applicable
      regulations of any stock exchange (or the NASDAQ National Market, if applicable)
      on which the Common Stock may be listed for trading at the time of such exercise
      and issuance.

    


    (b)    The
      inability of the Corporation to obtain approval from any regulatory body having
      authority deemed by the Corporation to be necessary to the lawful issuance
      and
      sale of any Common Stock pursuant to this option shall relieve the Corporation
      of any liability with respect to the non-issuance or sale of the Common Stock
      as
      to which such approval shall not have been obtained. The Corporation, however,
      shall use its best efforts to obtain all such approvals.

    


    11.    Successors
      and Assigns.
      Except
      to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this
      Agreement shall inure to the benefit of, and be binding upon, the Corporation
      and its successors and assigns and Optionee, Optionee’s assigns and the legal
      representatives, heirs and legatees of Optionee’s estate.

    


    12.    Notices.
      Any
      notice required to be given or delivered to the Corporation under the terms
      of
      this Agreement shall be in writing and addressed to the Corporation at its
      principal corporate offices. Any notice required to be given or delivered to
      Optionee shall be in writing and addressed to Optionee at the address indicated
      below Optionee’s signature line on the Grant Form. All notices shall be deemed
      effective upon personal delivery or upon deposit in the U.S. mail, postage
      prepaid and properly addressed to the party to be notified.

    


    13.    Financing.
      The
      Plan Administrator may, in its absolute discretion and without any obligation
      to
      do so, permit Optionee to pay the Exercise Price for the purchased Option Shares
      by delivering a full-recourse, interest-bearing promissory note secured by
      those
      Option Shares. The payment schedule in effect for any such promissory note
      shall
      be established by the Plan Administrator in its sole discretion.

     

    14.    Construction.
      This
      Agreement and the option evidenced hereby are made and granted pursuant to
      the
      Plan and are in all respects limited by and subject to the terms of the Plan.
      All decisions of the Plan Administrator with respect to any question or issue
      arising under the


    
      
         

      

      
        
        

        
          

        

      

      
         

      

    


    Plan
      or
      this Agreement shall be conclusive and binding on all persons having an interest
      in this option.

    


    15.    Shareholder
      Approval.
      If the
      Option Shares covered by this Agreement exceed, as of the Grant Date, the number
      of shares of Common Stock which may be issued under the Plan as last approved
      by
      the shareholders, then this option shall be void with respect to such excess
      shares, unless shareholder approval of an amendment sufficiently increasing
      the
      number of shares of Common Stock issuable under the Plan is obtained in
      accordance with the provisions of the Plan.

    


    16.    Additional
      Terms Applicable to an Incentive Option.
      To the
      extent any option designated in the Grant Form as an Incentive Option would
      not
      qualify in whole or in part for favorable tax treatment as an Incentive Option
      at the time of exercise, such option may nevertheless be exercised by the
      Optionee as a Non-Statutory Option.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    APPENDIX

    


    The
      following definitions shall be in effect under the Agreement:

    


    
      	1.	
              Agreement
                shall mean this Stock Option
                Agreement.

            


    

    


    
      	2.	
              Board
                shall mean the Corporation’s Board of
                Directors.

            


    

    


    
      	3.	
              Code
                shall mean the Internal Revenue Code of 1986, as
                amended.

            


    

    


    
      	4.	
              Committee
                shall mean a committee of two (2) or more non-employee Board members
                appointed by the Board to exercise one or more administrative functions
                under the Plan.

            


    

    


    
      	5.	
              Common
                Stock
                shall mean the Corporation’s common
                stock.

            


    

    


    
      	
              6.

            	
              Corporate
                Transaction
                shall mean either of the following shareholder approved transactions
                to
                which the Corporation is a party:

            


    

    


    (a) a
      merger
      or consolidation in which securities possessing more than fifty percent
      (50%) of the total combined voting power of the Corporation’s outstanding
      securities are transferred to a person or persons different from the persons
      holding those securities immediately prior to such transaction, or

    


    (b) the
      sale,
      transfer or other disposition of all or substantially all of the Corporation’s
      assets in complete liquidation or dissolution of the Corporation.

    


    
      	
              7.

            	
              Corporation
                shall mean PSM Holdings, Inc. (formerly Durban Holdings, Inc.), a
                Nevada
                corporation, and any successor corporation to all or substantially
                all of
                the assets or voting stock of Durban Holdings, Inc. which shall by
                appropriate action adopt the Plan.

            


    

    


    
      	
              8.

            	
              Disability
                shall mean the inability of the Optionee or the Participant to engage
                in
                any substantial gainful activity by reason of any medically determinable
                physical or mental impairment and shall be determined by the Plan
                Administrator on the basis of such medical evidence as the Plan
                Administrator deems warranted under the
                circumstances.

            


    

    


    
      	
              9.

            	
              Employee
                shall mean an individual who is in the employ of the Corporation
                (or any
                Parent or Subsidiary), subject to the control and direction of the
                employer entity as to both the work to be performed and the manner
                and
                method of performance.

            


    

    


    
      	
              10.

            	
              Exercise
                Date
                shall mean the date on which the option shall have been exercised
                in
                accordance with Paragraph 9 of the
                Agreement.

            


    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    
      	
              11.

            	
              Exercise
                Price
                shall mean the exercise price payable per Option Share as specified
                in the
                Grant Form.

            


    

    


    
      	
              12.

            	
              Expiration
                Date
                shall mean the date on which the option expires as specified in the
                Grant
                Form.

            


    

    


    
      	
              13.

            	
              Fair
                Market Value
                per share of Common Stock on any relevant date shall be determined
                in
                accordance with the following
                provisions:

            


    

    


    (a)    If
      the Common
      Stock is at the time traded on the NASDAQ National Market, then the Fair Market
      Value shall be the closing selling price per share of Common Stock on the date
      in question, as such price is reported by the National Association of Securities
      Dealers on the NASDAQ National Market or any successor system. If there is
      no
      closing selling price for the Common Stock on the date in question, then the
      Fair Market Value shall be the closing selling price on the last preceding
      date
      for which such quotation exists.

    


    (b)    If
      the
      Common Stock is at the time listed on any Stock Exchange, then the Fair Market
      Value shall be the closing selling price per share of Common Stock on the date
      in question on the Stock Exchange determined by the Plan Administrator to be
      the
      primary market for the Common Stock, as such price is officially quoted in
      the
      composite tape of transactions on such exchange. If there is no closing selling
      price for the Common Stock on the date in question, then the Fair Market Value
      shall be the closing selling price on the last preceding date for which such
      quotation exists.

    


    (c)    If
      the
      Common Stock is at the time neither listed on any Stock Exchange nor traded
      on
      the NASDAQ National Market, then the Fair Market Value shall be determined
      by
      the Plan Administrator after taking into account such factors as the Plan
      Administrator shall deem appropriate.

    


    
      	14.	
              Grant
                Date
                shall mean the date of grant of the option as specified in the Grant
                Form.

            


    

    


    
      	
              15.

            	
              Grant
                Form
                shall mean the Grant of Stock Option accompanying the Agreement,
                pursuant
                to which Optionee has been informed of the basic terms of the option
                evidenced hereby.

            


    

    


    
      	
              16.

            	
              Incentive
                Option
                shall mean an option which satisfies the requirements of Code
                Section 422.

            


    

    


    
      	
              17.

            	
              Involuntary
                Termination
                shall mean the termination of the Service of any individual which
                occurs
                by reason of :

            


    

    


    (a)    such
      individual’s involuntary dismissal or discharge by the Corporation for reasons
      other than Misconduct, or

     

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    



    (b)    such
      individual’s voluntary resignation following (A) a change in his or her position
      with the Corporation which materially reduces his or her level of
      responsibility, (B) a reduction in his or her level of compensation (including
      base salary, fringe benefits and target bonuses under any corporate -performance
      based bonus or incentive programs) by more than fifteen percent (15%), or (c)
      a
      relocation of such individual’s place of employment by more than fifty (50)
      miles, provided and only if such change, reduction or relocation is effected
      without the individual’s consent.

    


    The
      Plan
      Administrator shall be entitled to revise the definition of Involuntary
      Termination and Misconduct with respect to individual Optionees or Participants
      under the Plan.

    


    
      	
              18.

            	
              Misconduct
                shall mean the commission of any act of fraud, embezzlement or dishonesty
                by the Optionee or Participant, any unauthorized use or disclosure
                by such
                person of confidential information or trade secrets of the Corporation
                (or
                any Parent or Subsidiary), or any other intentional misconduct by
                such
                person adversely affecting the business or affairs of the Corporation
                (or
                any Parent or Subsidiary) in a material manner. The foregoing definition
                shall not be deemed to be inclusive of all the acts or omissions
                which the
                Corporation (or any Parent or Subsidiary) may consider as grounds
                for the
                dismissal or discharge of any Optionee, Participant or other person
                in the
                Service of the Corporation (or any Parent or
                Subsidiary).

            


    

    


    
      	19.	
              1934
                Act
                shall mean the Securities Exchange Act of 1934, as
                amended.

            


    

    


    
      	
              20.

            	
              Non-Statutory
                Option
                shall mean an option not intended to satisfy the requirements of
                Code
                Section 422.

            


    

    


    
      	
              21.

            	
              Option
                Shares
                shall mean the number of shares of Common Stock subject to the
                option.

            


    

    


    
      	
              22.

            	
              Optionee
                shall mean the person to whom the option is granted as specified
                in the
                Grant Form.

            


    

    


    
      	
              23.

            	
              Parent
                shall mean any corporation (other than the Corporation) in an unbroken
                chain of corporations ending with the Corporation, provided each
                corporation in the unbroken chain (other than the Corporation) owns,
                at
                the time of the determination, stock possessing fifty percent (50%)
                or
                more of the total combined voting power of all classes of stock in
                one of
                the other corporations in such
                chain.

            


    

    


    
      	24.	
              Plan
                shall mean the Corporation’s 2002 Stock Option/Stock Issuance
                Plan.

            


    

    


    
      	
              25.

            	
              Plan
                Administrator
                shall mean either the Board or the Committee of the Board acting
                in its
                capacity as administrator of the
                Plan.

            


    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    
      	
              26.

            	
              Purchase
                Agreement
                shall mean the stock purchase agreement in substantially the form
                of
                Exhibit B to the Grant Form.

            


    

    


    
      	
              27.

            	
              Service
                shall mean the provision of services to the Corporation (or any Parent
                or
                Subsidiary) by a person in the capacity of an Employee, a non-employee
                member of the board of directors or a consultant or independent advisor,
                except to the extent otherwise specifically provided in the documents
                evidencing the option grant.

            


    

    


    
      	
              28.

            	
              Stock
                Exchange
                shall mean the American Stock Exchange or the New York Stock
                Exchange.

            


    

    


    
      	
              29.

            	
              Subsidiary
                shall mean any corporation (other than the Corporation) in an unbroken
                chain of corporations beginning with the Corporation, provided each
                corporation (other than the last corporation) in the unbroken chain
                owns,
                at the time of the determination, stock possessing fifty percent
                (50%) or
                more of the total combined voting power of all classes of stock in
                one of
                the other corporations in such
                chain.

            


    

    


    
      	
              30.

            	
              Vesting
                Schedule
                shall mean the vesting schedule specified in the Grant Form pursuant
                to
                which the Optionee is to vest in the Option Shares in a series of
                installments over his or her period of
                Service.

            


    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
      EXCHANGE COMMISSION BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM
      REGISTRATION
      AS
      PROVIDED IN RULE 701 PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION
      (THE
“SEC”) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”).

    


    THESE
      SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
      COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
      AUTHORITY HAS PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE ACCURACY
      OR ADEQUACY OF THE INFORMATION PROVIDED TO THE INVESTORS. ANY REPRESENTATION
      TO
      THE CONTRARY IS A CRIMINAL OFFENSE. INVESTORS MUST RELY ON THEIR OWN EXAMINATION
      OF THE COMPANY, AND THE RISKS, MERITS AND TERMS OF THIS OFFERING IN MAKING
      AN
      INVESTMENT DECISION.

    


    PSM
      Holdings, Inc.

    


    STOCK
      ISSUANCE FORM

    


    This
      Stock Issuance Form is furnished to the designated participant in the stock
      issuance program of the 2002 Stock Option/Stock Issuance Plan of PSM Holdings,
      a
      Nevada corporation (the “Company”):

    


    Participant:
      _______________________________________________________________________________________________

    


    Issuance
      Date:
      _____________________________________________________________________________________________

    


    Number
      of
      Shares:
      __________________________________________________________________________________________

    


    Consideration
      for Shares:
      _____________________________________________________________________________________

    


    Vesting
      of Shares:
      __________________________________________________________________________________________

    


    The
      Participant understands and agrees that the stock is issued subject to and
      in
      accordance with the terms of the PSM Holdings, Inc. 2002 Stock Option/Stock
      Issuance Plan, as amended (the “Plan”). The participant further agrees to be
      bound by the terms of the Plan, a copy of which is attached hereto as
      Exhibit A.

    


    Assuming
      that you are in agreement with the terms of this Stock Issuance Form, please
      sign your name in the space indicated below.


    
      
         

      

      
        
        

        
          

        

      

      
         

      

    


     

    PSM
      Holdings, Inc.

     

     

     

      
        

      

    

    Jeffery
      Smith, President

    


     

    


    AGREED:

     

     

    
      
        

      

    

    Participant

    


    


    Exhibit
      A 2002
      Stock Option/Stock Issuance Plan, as amended