Exhibit 10.3


 


PSB
HOLDINGS, INC.

2005 STOCK-BASED INCENTIVE PLAN


 


FORM OF


STOCK
OPTION AGREEMENT

(EMPLOYEES)


 


A.                                   STOCK OPTIONS (“Options”)
for a total of         shares of Common
Stock, par value $.10 per share, of PSB Holdings, Inc. (the “Company”) are
hereby granted to                         
(the “Participant”).  Reload Options and
Stock Appreciation Rights with respect to a total of             
shares are also granted to the Participant and relate to the Options granted
hereunder.  The grant and terms of the
Options, Reload Options and Stock Appreciation Rights  shall be subject in all respects to the PSB
Holdings, Inc. 2005 Stock-Based Incentive Plan (the “Plan”).  The terms of this Stock Option Agreement are
subject to the terms and conditions of the Plan.


 


B.                                     The Option
exercise price of the Common Stock is $10.60 per share, the Fair Market Value
(as defined in the Plan) of the Common Stock on November 7, 2005, the date
of grant.


 


C.                                     The Options
granted hereunder shall vest in five (5) equal annual installments, with
the first installment becoming exercisable on the first anniversary of the date
of grant, or November 7, 2006, and succeeding installments on each
anniversary thereafter through November 7, 2007.  The Options granted hereunder may be exercised
for up to ten (10) years from the date of grant, subject to sub-paragraph
E below.


 


D.                                    All Options
granted to Participant shall be deemed to be Incentive Stock Options to the
extent permitted under the Internal Revenue Code and regulations.


 


E.                                      If Participant
ceases to maintain employment with the Company or its affiliates, including
Putnam Savings Bank (the “Bank”) for any reason other than Disability (as
defined in the Plan), death, Retirement (as defined in the Plan) or termination
following a Change in Control (as defined in the Plan), Options will be
exercisable only as to those Options which have vested at the time of such
cessation of employment and will be exercisable for a period of up to three (3) months
following such cessation of employment. 
If Participant ceases employment with the Bank or Company due to death,
Disability, Retirement or
following a Change in Control, Options granted hereunder, whether or not
exercisable at such time, will become exercisable by Participant (or his/her
legal representative or beneficiary) for one (1) year following cessation
of employment; provided, however, except in the case of death or Disability,
such Options shall not be eligible for treatment as Incentive Stock Options in
the event such Option is exercised more than three (3) months following
termination.  In order to obtain
Incentive Stock Option treatment for an Option exercised by the heirs or
devisees of the Participant, the death of the Participant must have occurred
while the Participant is employed by the Company or an affiliate, or within
three (3) months of the Participant’s cessation of employment.  In no event will the period of exercise
extend beyond the expiration of the Option term.  Options awarded to an employee who also
serves as a director shall not be deemed to vest due to Retirement so long as
such person continues as a member of the board of directors, provided, that nothing herein
shall increase the period that such options can be considered Incentive Stock
Options.


 


F.                                      Reload Options
are hereby granted with respect to all Options granted hereunder and apply if
the Participant exchanges shares of Common Stock in satisfaction of all or a
portion of the exercise price of an original Option grant.   The Reload Option represents an additional
option to acquire the same number of shares of Common Stock as is exchanged by
the Participant to pay for the original Option. 
Reload Options may also be provided to the extent that a Participant
exchanges shares in satisfaction of any tax withholding obligation.  A Reload Option is subject to all the same
terms and


 





















 


conditions as the original Option except that (i) the exercise
price of the shares of Common Stock subject to the Reload Option will be
determined at the time the original Option is exercised and (ii) such
Reload Option will conform to all provisions of the Plan at the time that the
original Option is exercised, and (iii) a Reload Option issued on the
exercise of an Incentive Stock Option may be an Incentive Stock Option to the
maximum extent permitted under Section 422 of the Internal Revenue Code or
a Non-Statutory Stock Option.


 


G.                                     Stock
Appreciation Rights (“SARs”) are hereby granted with respect to all Options
granted hereunder.  SARs are granted in
tandem with the Options granted hereunder and the exercise of one will cause
the cancellation of the other.  If the
Participant exercises SARs, the Participant will not be required to pay the
exercise price of the related Option and will be entitled to receive Common
Stock of the Company equal in value to the difference between the Fair Market
Value of the Common Stock on the date of exercise and the exercise price of the
related Options (which will be cancelled).


 


Example:  Participant receives 1,000 Options and
related SARs.  The Options have an
exercise price of $12.  When the Company
Stock is trading at $18, the Participant exercises 300 SARs.  Because the Participant has exercised SARs,
the Participant does not have to pay the exercise price.  The Participant receives 100 shares of the Company
stock.


 


	
   

  	
  $18

  	
   

  	
   

  	
  Common Stock

  
	
   

  	
  - $12

  	
   

  	
   

  	
  exercise price

  
	
   

  	
  $6

  	
   

  	
   

  	
  SAR value

  
	
   

  	
  x 300

  	
   

  	
   

  	
  SARs exercised

  
	
   

  	
  $1,800

  	
  /18

  	
   

  	
  Common Stock = 100 shares

  



 


H.                                    Options may not
be exercised if the issuance of shares of Common Stock of the Company upon such
exercise would constitute a violation of any applicable federal or state
securities or other law or regulation. 
The Participant, as a condition to exercise of the Options, shall
represent to the Company that the shares of Common Stock of the Company that
he/she acquires pursuant to such exercise are being acquired by such
Participant for investment and not with a present view to distribution or
resale, unless counsel for the Company is then of the opinion that such a
representation is not required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.


 


I.                                         All Options
granted to the Participant as Incentive Stock Options may not be transferred in
any manner otherwise than by will or the laws of intestate succession, and may
be exercised during the lifetime of the Participant only by such Participant.


 


J.                                        A copy of the
Plan has been provided to Participant. 
Participant is not required to exercise the Options as to any particular
number or shares at one time, but the Options must be exercised, if at all and
to the extent exercised, by no later than ten years from the date of
grant.  The Options may be exercised
during such term only in accordance with the terms of the Plan.  In the event of any inconsistency between this
Agreement and the Plan, the terms of the Plan will control.


 


K.                                    All exercises
of the Options must be made by executing and returning the Notice of Exercise
of Stock Options attached hereto as Exhibit A, and upon receipt of any
shares of Common Stock upon the exercise of any Options, the recipient shall
complete and return to the Company the Acknowledgment of Receipt of Stock
Option Shares attached hereto as Exhibit B.


 


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L.                                      This Agreement
shall not be deemed to constitute a contract of employment between the parties
hereto, nor shall any provision hereof restrict the right of the Company or the
Bank to discharge the Participant or restrict the right of the Participant to
terminate his employment.


 


M.                                 The Participant
acknowledges receipt of a copy of the PSB Holdings, Inc. 2005 Stock-Based
Incentive Plan and represents that he is familiar with the terms and provisions
thereof.  The Participant hereby accepts
the Options subject to all the terms and provisions of such Plan.  The Participant hereby agrees to accept as
binding, conclusive, and final all decisions and interpretations of the
Committee established to administer such Plan upon any questions arising under
such plan.


 


	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ATTEST:

  	
   

  	
  PSB HOLDINGS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  WITNESS:

  	
   

  	
  PARTICIPANT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  



 


This Stock Option
Agreement must be executed in duplicate originals, with one original retained
by the Company and one original retained by the Participant


 


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EXHIBIT A


 


NOTICE
OF EXERCISE OF STOCK OPTIONS

(BY EMPLOYEE)


 


I
hereby exercise the stock option (the “Option”) granted to me by PSB Holdings, Inc.
(the “Company”) or its affiliate, subject to all the terms and provisions set
forth in the Stock Option Agreement (the “Agreement”) and the PSB Holdings, Inc.
2005 Stock-Based Incentive Plan (the “Plan”) referred to therein, and notify
you of my desire to purchase                  
shares of common stock of the Company (“Common Stock”) for a purchase price of
$          per share.


 


Enclosed
please find (check one):


 


o                                    Cash, my check
in the sum of $       , or electronic funds
transfer (EFT) in the sum of $            
in full payment of the purchase price.


 


o                                    Stock of the
Company with a fair market value of $       in
full payment of the purchase price.*


 


o                                    My check in the
sum of $        and stock of the
Company with a fair market value of $        ,
in full payment of the purchase price.*


 


o                                    Please sell       
Shares from my Option Shares through a broker
in full/partial payment of the purchase price.


 


I
understand that after this exercise,             
shares of Common Stock remain subject to the Option, subject to all terms and
provisions set forth in the Agreement and the Plan.


 


I
hereby represent that it is my intention to acquire these shares for the
following purpose:


 


o                                    investment

o                                    resale
or distribution


 


Please
note: if your intention is to resell (or distribute within the meaning of Section 2(11)
of the Securities Act of 1933) the shares you acquire through this Option
exercise, the Company or transfer agent may require an opinion of counsel that
such resale or distribution would not violate the Securities Act of 1933 prior
to your exercise of such Option.


 


	
  Dated: 

  	
   

  	
  ,

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Participant’s signature

  



 










*                 If I elect to
exercise by exchanging shares I already own, I will constructively
return shares that I already own to purchase the new option shares.  If my shares are in certificate form, I must
attach a separate statement indicating the certificate number of the shares I
am treating as having exchanged.  If the
shares are held in “street name” by a registered broker, I must provide the
Company with a notarized statement attesting to the number of shares owned that
will be treated as having been exchanged. 
I will keep the shares that I already own and treat them as if they are
shares acquired by the option exercise. 
In addition, I will receive additional shares equal to the difference
between the shares I constructively exchange and the total new option shares
that I acquire.


 





















 


EXHIBIT B


 


ACKNOWLEDGMENT
OF RECEIPT OF STOCK OPTION SHARES


 


I
hereby acknowledge the delivery to me by PSB Holdings, Inc. (the “Company”)
or its affiliate on                                       ,
of stock certificates for                 
shares of common stock of the Company purchased by me pursuant to the terms and
conditions of the Stock Option Agreement and the PSB Holdings, Inc. 2005
Stock-Based Incentive Plan, as applicable, which shares were transferred to me
on the Company’s stock record books on                      .


 


	
  Dated:

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Participant’s Signature