THIS
WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF OR IN ACCORDANCE WITH
APPLICABLE LAW.

    WARRANT
TO PURCHASE STOCK

     

    
      
        
          	
                  Company:

                	
                  Optex
      Systems Holdings, Inc.

                
	
                  Initial
      Number of Shares:

                	
                  1,000,000

                
	
                  Class
      of Stock:

                	
                  Common

                
	
                  Exercise
      Price:

                	
                  $0.10

                
	
                  Issue
      Date:

                	
                  March
      4, 2010

                
	
                  Expiration
      Date:

                	
                  March
      3, 2016

                


        

      

    

     

    THIS
WARRANT CERTIFIES THAT, for good and valuable consideration, the receipt of
which is hereby acknowledged, PENINSULA BANK HOLDING CO. or registered assignee
(“Holder”) is entitled to purchase the number of fully paid and nonassessable
shares (the “Shares”) of Common Stock of Optex Systems Holdings, Inc. (the
“Company”), in the number, at the price, and for the term specified above,
subject to the provisions and upon the terms and conditions set forth in this
warrant.

     

    ARTICLE
1.         EXERCISE

     

    1.1           Method of
Exercise.  Holder may exercise this Warrant for up to the
number of Shares set forth above by delivering this Warrant and a duly executed
Notice of Exercise in substantially the form attached as Appendix 1 to the
principal office of the Company.  Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate price for the Shares being purchased (the
“Warrant Price”).

     

    1.2           Conversion
Right.  This Warrant may also be exercised at any time or times
on or after the Issue Date, in whole or in part by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for the
number of Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:

     

     (A)
= the VWAP (as defined below) on the Trading Day immediately preceding the date
of such election;

     

     (B)
= the Exercise Price of this Warrant, as adjusted; and

     

     (X)
= the number of Shares issuable upon exercise of this Warrant in accordance with
the terms of this Warrant by means of a cash exercise rather than a cashless
exercise.

     

     “VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on
a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if prices for
the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser or investment banking firm selected in good faith by
the Company and Holder.

     

    1.3           Delivery of Certificate and
New Warrant.  Promptly after Holder exercises or converts this
Warrant, the Company shall deliver to Holder certificates for the Shares
acquired and, if this Warrant has not been fully exercised or converted and has
not expired, a new Warrant representing the Shares not so
acquired.


    
      
         


      

      
        1

        
          

        

      

      
         


      

    

     

    1.4           Replacement of
Warrants.  On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of
mutilation, or surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.

     

    ARTICLE
2.         ADJUSTMENTS TO THE
SHARES.

     

    2.1           Stock Dividends, Splits,
Etc.  If the Company declares or pays a dividend on its common
stock payable in common stock, or other securities, subdivides the outstanding
common stock into a greater amount of common stock, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to Holder,
the total number and kind of securities to which Holder would have been entitled
had Holder owned the Shares of record as of the date the dividend or subdivision
occurred.

     

    2.2           Reclassification, Exchange
or Substitution.  Upon any reclassification, exchange,
substitution, or other event that results in a change of the number and/or class
of the securities issuable upon exercise or conversion of this Warrant, Holder
shall be entitled to receive, upon exercise or conversion of this Warrant, the
number and kind of securities and property that Holder would have received for
the Shares if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, or other event.  Upon the
closing of any sale, license, or other disposition of all or substantially all
of the assets (including intellectual property) of the Company, or any
reorganization, consolidation, or merger of the Company where the holders of the
Company’s securities before the transaction beneficially own less than 50% of
the outstanding voting securities of the surviving entity after the transaction,
the successor entity shall assume the obligations of this Warrant, and this
Warrant thereafter shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing.  The Exercise
Price shall be adjusted accordingly.  The Company or its successor
shall promptly issue to Holder a new Warrant for such new securities or other
property.  The new Warrant shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Article 2 including, without limitation, adjustments to the Exercise
Price and to the number of securities or property issuable upon exercise of the
new Warrant.  The provisions of this Section 2.2 shall similarly
apply to successive reclassifications, exchanges, substitutions, or other
events.

     

    2.3           Adjustments for
Combinations, Etc.  If the outstanding Shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares,
the Exercise Price shall be proportionately increased.

     

    2.4           No
Impairment.  The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder’s rights under this Article against
impairment.  If the Company takes any action affecting the Shares
other than as described above that adversely affects Holder’s rights under this
Warrant, the Exercise Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a manner
that the aggregate Warrant Price of this Warrant is unchanged.

     

    2.5           Certificate as to
Adjustments.  Upon each adjustment of the Exercise Price, the
Company, at its expense, shall promptly compute such adjustment, and furnish
Holder with a certificate of its Chief Financial Officer setting forth such
adjustment and the facts upon which such adjustment is based.  The
Company shall, upon written request, furnish Holder a certificate setting forth
the Exercise Price in effect upon the date thereof and the series of adjustments
leading to such Exercise Price.

     

    ARTICLE
3.         REPRESENTATIONS AND
COVENANTS OF THE COMPANY.

     

    3.1           Representations and
Warranties.  The Company hereby represents and warrants to the
Holder that all Shares that may be issued upon the exercise of the purchase
right represented by this Warrant, shall, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable, and free of any liens and
encumbrances except for restrictions on transfer provided for herein or under
applicable federal and state securities laws.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    


    3.2          [Intentionally
Omitted.]

     

    3.3          Notice of Certain
Events.  If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to register its securities; (d) to effect any
reclassification or recapitalization of common stock; or (e) to merge or
consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up, then, in connection with each such event, the Company shall give Holder
(1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (a) , (b) and (c) above; and (2) in the case of the matters
referred to in (d) and (e) above at least 20 days prior written notice of
the date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such
event).

     

    ARTICLE
4.        MISCELLANEOUS.

     

    4.1          Term.  This
Warrant is exercisable, in whole or in part, at any time and from time to time
on or before the Expiration Date set forth above.

     

    4.2          Legends.

     

    
      	
               
      

            	
              (a)

            	
              This
      Warrant shall be imprinted with a legend in substantially the following
      form:

            


    

     

    THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR IN ACCORDANCE WITH APPLICABLE
LAW.

     

    
      (b)
  Certificates
for the Shares acquired upon exercise of this Warrant shall be imprinted with a
legend in substantially the following form:

    

     

    “THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THE SHARES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL SUCH SHARES ARE
FIRST REGISTERED UNDER THE SECURITIES ACT OF 1933, ALL APPLICABLE STATE
SECURITIES LAWS AND ALL RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNLESS
AND UNTIL THE HOLDER HEREOF PROVIDES (i) INFORMATION REASONABLY NECESSARY TO
CONFIRM THAT SUCH REGISTRATION IS NOT REQUIRED OR (ii) AN OPINION OF COUNSEL TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.”

     

    4.3          Compliance with Securities
Laws on Transfer.  This Warrant and the Shares issuable upon
exercise this Warrant (and the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) may not be transferred or assigned in whole or
in part without compliance with applicable federal and state securities laws by
the transferor and the transferee.

     

    
      
         


      

      
        3

        
          

        

      

      
         


      

    

     

    4.4           Transfer
Procedure.  Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable),
provided that no such notice shall be required for a transfer to an affiliate of
Holder.

     

    4.5           Notices.  All
notices and other communications from the Company to the Holder, or vice versa,
shall be deemed delivered and effective when given personally or mailed by
first-class registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company or the Holder, as the case may be, in
writing by the Company or such Holder from time to time.

     

    4.6           Waiver.  This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.

     

    4.7           Attorneys’
Fees.  In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys’ fees.

     

    4.8           Governing
Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

     

    
      
        
          
            	
                    OPTEX
      SYSTEMS HOLDINGS, INC.

                  
	 
      	 
      
	
                    By:

                  	
                       

                  
	 
      	 
      
	
                    Name:

                  	
                       

                  
	 
      	 
      
	
                    Title:

                  	
                       

                  


          

        

      

    

     

    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    APPENDIX
1

     

    NOTICE OF
EXERCISE

     

    1.           The
undersigned hereby elects to purchase ______________ shares of the Common Stock
of OPTEX SYSTEMS HOLDINGS, INC. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in
full.

     

    1.           The
undersigned hereby elects to convert the attached Warrant into Shares in the
manner specified in the Warrant.  This conversion is exercised with
respect to ______________ of the Shares covered by the Warrant.

     

    [Strike
paragraph that does not apply.]

     

    2.           Please
issue a certificate or certificates representing said shares in the name of the
undersigned or in such other name as is specified below:

     

    PENINSULA
BANK HOLDING CO. or Registered Assignee

    c/o The
Private Bank of the Peninsula

    400
Emerson Street

    Palo
Alto, CA 94301


     

    3.      
    The undersigned represents it is acquiring the shares
solely for its own account and not as a nominee for any other party and not with
a view toward the resale or distribution thereof except in compliance with
applicable securities laws.

     

    
      
        	
                PENINSULA
      BANK HOLDING CO.,  or Registered Assignee

              
	 
      
	
                   

              
	
                (Signature)

              
	 
      
	
                   

              
	
                (Date)

              


      

    

     

    
      
         


      

      
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