SILICOM LTD. WARRANT

    (a)        This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Initial Exercise Date to and including the Expiration Date. At 5:00 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value.

    (b)        A Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached hereto (the “Exercise Notice”), appropriately completed and duly signed, and (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice and only if a “cashless exercise” may occur at such time pursuant to Section 10 below), and the date such items are delivered to the Company (as determined in accordance with the provisions hereof) is an “Exercise Date.” The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. At the Company’s discretion, the Company, may, by written notice, require the Holder to furnish the Exercise Notice and/or other related documentation, directly to the Transfer Agent (with a copy to the Company).

    (a)        Upon exercise of this Warrant and receipt of the Exercise Price by the Company in accordance with Section 4 and Section 10, the Company shall promptly (but in no event later than five (5) Trading Days after the Exercise Date) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends (if permitted under Section 4.1 of the Purchase Agreement). The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date. The Company shall, upon request of the Holder, use its best efforts to deliver Warrant Shares hereunder electronically through the facilities of The Depository Trust Company or another established clearing corporation performing similar functions acceptable to the Transfer Agent.

    (b)        This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. Upon surrender of this Warrant following one or more partial exercises, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

    (c)        In addition to any other rights available to a Holder, if the Company fails to deliver to the Holder a certificate representing Warrant Shares by the third (3^rd) Trading Day after the date on which delivery of such certificate is required by this Warrant (the “Exercise Date”), and if after such third (3^rd) Trading Day the Holder purchases (in an open market transaction or otherwise) Ordinary Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Trading Days after the Holder’s request and in the Company’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the Ordinary Shares so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Ordinary Shares) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Ordinary Shares the Company failed to deliver and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of Ordinary Shares, times (B) the Closing Price on the Exercise Date.

    (d)        The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing herein shall limit a ▇▇▇▇▇▇’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing Ordinary Shares upon exercise of this Warrant as required pursuant to the terms hereof.

    (a)        Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Ordinary Shares or otherwise makes a distribution on any class of capital stock that is payable in Ordinary Shares, (ii) subdivides outstanding Ordinary Shares into a larger number of shares, or (iii) combines outstanding Ordinary Shares into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Ordinary Shares outstanding immediately before such event (excluding treasury shares, if any) and of which the denominator shall be the number of Ordinary Shares outstanding immediately after such event (excluding treasury shares, if any). Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution (provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Exercise Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Exercise Price shall be adjusted pursuant to this Section as of the time of the actual payment of such dividends or distribution), and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

    (b)        Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to holders of Ordinary Shares (i) any equity security (other than a distribution of Ordinary Shares covered by the preceding paragraph), (ii) rights or warrants to subscribe for or purchase any equity security, or (iii) any other asset other than cash dividends out of earnings (in each case, “Distributed Property”), then in each such case the Holder shall be entitled upon exercise of this Warrant for the purchase of any or all of the Warrant Shares, to receive the amount of Distributed Property which would have been payable to the Holder had such Holder been the holder of such Warrant Shares on the record date for the determination of shareholders entitled to such Distributed Property. The Company will at all times set aside and keep available for distribution to such holder upon exercise of this Warrant a portion of the Distributed Property to satisfy the distribution to which such Holder is entitled pursuant to the preceding sentence.

    (c)        Fundamental Transactions. If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another company in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected (all such transactions being hereinafter referred to as a “Fundamental Transaction”), then the Company shall use its best efforts to ensure that lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Exercise Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any share of stock, securities or assets thereafter deliverable upon the exercise thereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor company (if other than the Company) resulting from such consolidation or merger, or the company purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, at the last address of the Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this Section 9(c) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions, each of which transactions shall also constitute a Fundamental Transaction. Notwithstanding the foregoing, if any Fundamental Transaction constitutes or results in (a) a “going private” transaction as defined in Rule 13e-3 under the Exchange Act, (b) an acquisition of the Company primarily for cash, or (c) an acquisition, merger or sale with or into a Person not traded on an Eligible Market, then the Company (or any such successor or surviving entity) shall require that Holder waive the above requirements of this Section 9(c) in exchange for a payment of cash on the closing date of such Fundamental Transaction, equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the closing date of such Fundamental Transaction, provided that the per share consideration to be received by the holders of Ordinary Shares upon the consummation of such Fundamental Transaction is less than the Exercise Price. Concurrently with such payment, this Warrant shall be cancelled. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day immediately following the public announcement of the applicable Fundamental Transaction and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date and (ii) an expected volatility equal to the lesser of (x) 60 – or (y) 100 – day volatility obtained from the HVT function on Bloomberg.

    (d)        Subsequent Equity Sales.

    (i)        If, at any time from the date hereof until twelve (12) months from the Closing Date, the Company issues additional Ordinary Shares or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for Ordinary Shares or otherwise entitling any Person to acquire Ordinary Shares (collectively, “Ordinary Share Equivalents”) at an effective price to the Company per share of Ordinary Shares (the “Effective Price”) less than the Exercise Price (as adjusted hereunder to such date but excluding the operation of this paragraph (d) as a result of such issuance), then the total maximum number of Ordinary Shares issuable upon conversion, exercise or exchange of all then outstanding Ordinary Share Equivalents shall be deemed to be outstanding as of the date of issuance of such Ordinary Share Equivalents and the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such new issuance of Ordinary Shares or Ordinary Share Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of Ordinary Shares outstanding or deemed to be outstanding immediately prior to such issuance, plus (2) the number of Ordinary Shares which the aggregate Effective Price of the Ordinary Shares issued (or deemed to be issued) would purchase at the Exercise Price (as adjusted hereunder to such date but excluding the operation of this paragraph (d) as a result of such issuance), and the denominator of which is the aggregate number of Ordinary Shares outstanding or deemed to be outstanding immediately after such issuance. Notwithstanding the foregoing, in no event shall the Exercise Price be reduced below $23.13 per share (as appropriately adjusted for any event described in paragraph (a) of this Section) through the operation of this paragraph (d). For purposes of this paragraph, (A) the maximum number of Ordinary Shares potentially issuable at any time upon conversion, exercise or exchange of the relevant Ordinary Share Equivalents (the “Deemed Number”) shall be deemed to be outstanding upon issuance of such Ordinary Share Equivalents (without regard to any provision contained therein for a subsequent adjustment to such number of shares), (B) the Effective Price applicable to a new issuance of Ordinary Shares shall equal the minimum dollar value of consideration payable to the Company to purchase such Ordinary Shares and the Effective Price applicable to a new issuance of Ordinary Share Equivalents shall equal the minimum dollar value of consideration payable to the Company to purchase such Ordinary Share Equivalents and to convert, exercise or exchange such Ordinary Share Equivalents into Ordinary Shares (without regard to any provision contained therein for a subsequent adjustment to such number of shares), divided by the Deemed Number, and (C) no further adjustment shall be made to the Exercise Price upon the actual issuance of Ordinary Shares upon conversion, exercise or exchange of such Ordinary Share Equivalents. If such Ordinary Share Equivalents by their terms provide, with the passage of time or otherwise, for any decrease in the consideration payable to the Company, or increase in the number of Ordinary Shares issuable upon the exercise, conversion or exchange thereof, other than pursuant to customary “weighted average” anti-dilution provisions, the Exercise Price computed upon the original issue thereof, and any subsequent adjustments based thereon, shall, upon any such decrease or increase becoming effective, be recomputed to reflect such decrease or increase insofar as it affects such Ordinary Share Equivalents. On the expiration of any Ordinary Share Equivalent, or the termination of any such right to convert or exchange any such Ordinary Share Equivalent into or for Ordinary Shares, the Exercise Price then in effect hereunder shall forthwith be readjusted (increased or decreased, as the case may be) to the Exercise Price which would have been in effect at the time of such expiration or termination had such Ordinary Share Equivalent, to the extent outstanding immediately prior to such expiration or termination, never been granted, issued or sold, and the Ordinary Shares issuable thereunder shall no longer be deemed to be outstanding.

    (ii)        Notwithstanding the foregoing, no adjustment will be made under this paragraph (d) in respect of any Excluded Stock. For purposes hereof, “Excluded Stock” shall mean Ordinary Shares or Ordinary Share Equivalents issued or deemed issued (v) upon the exercise of stock options outstanding on the date hereof, (w) upon the issuance of Ordinary Shares or stock options to employees, officers, directors, service providers or consultants of the Company or a Subsidiary pursuant to any stock or option plan of the Company or other arrangement, including subsequent to the date hereof (including the issuance of Ordinary Shares upon exercise of stock options), (x) to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction, (y) pursuant to the acquisition of another company or legal entity by the Company by merger, purchase of substantially all of the assets or other reorganization or pursuant to a joint venture agreement, (z) in connection with marketing or similar agreements or strategic partnerships (including, without limitation, by way of a private placement to strategic investors and/or entities (whatever the legal form) in which, or of which, one or more members of the Company’s management or board of directors beneficially owns or controls an equity stake of 10% or greater), (aa) in a registered public offering, (bb) upon the exercise or exchange of or conversion of (1) any Securities issued under the Purchase Agreement or hereunder or (2) securities to a registered broker-dealer in connection with the transactions contemplated by the Purchase Agreement, and (cc) Ordinary Shares or other securities issued in connection with any stock split, stock dividend or recapitalization of the Company (without derogating from Section 9(a) hereof).

    (iii)        Notwithstanding anything to the contrary, no adjustment in the Exercise Price need be made if such adjustment would result in (i) a change in the Exercise Price of less than $0.01 or (ii) the Exercise Price being reduced to less than the par value of the Ordinary Shares.

    (e)        Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased (as the case may be), proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the decreased or increased (as the case may be) number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

    (f)        Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of Ordinary Shares outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Ordinary Shares.

    (g)        Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Transfer Agent.

    (h)        Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Ordinary Shares, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company, (ii) authorizes or approves, enters into any agreement contemplating, or solicits stockholder approval for, any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least ten (10) calendar days prior to the applicable record or effective date on which a Person would need to hold Ordinary Shares in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

    (a)        Subject to the restrictions on transfer set forth on the first page hereof and applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of the Holder as set forth in the Purchase Agreement, provided that this Warrant may be assigned by the Company to a successor in the event of a Fundamental Transaction. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns.

    (b)        The Company will not, by amendment of its governing documents or through any 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 of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, (ii) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii) will not close its stockholder books or records in any manner which interferes with the timely exercise of this Warrant.

    (c)        GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT AND THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. EACH OF THE COMPANY AND THE HOLDER HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

    (d)        The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

    (e)        In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.