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<SEC-DOCUMENT>0001178913-04-001538.txt : 20041118
<SEC-HEADER>0001178913-04-001538.hdr.sgml : 20041118
<ACCEPTANCE-DATETIME>20041118060651
ACCESSION NUMBER:		0001178913-04-001538
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20041118
FILED AS OF DATE:		20041118
DATE AS OF CHANGE:		20041118

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SILICOM LTD
		CENTRAL INDEX KEY:			0000916793
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER COMMUNICATIONS EQUIPMENT [3576]
		IRS NUMBER:				000000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-23288
		FILM NUMBER:		041153612

	BUSINESS ADDRESS:	
		STREET 1:		08 HANAGAR ST
		CITY:			KFAR-SAVA ISRAEL
		STATE:			L3
		ZIP:			44000
		BUSINESS PHONE:		97297644555

	MAIL ADDRESS:	
		STREET 1:		P.O.BOX 2164
		CITY:			KFAR-SAVA
		STATE:			L3
		ZIP:			44000
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>zk41129.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        \\Backup\office\EDGAR Filing\Silicom Ltd\41129\a41129.eep        -->
     <!-- Control Number: 41129                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Silicom Ltd                                                      -->
     <!-- Project Name:   6-K                                                              -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>6-K</TITLE>
</HEAD>
<BODY>

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<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE STYLE="margin-top: -10px">

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=4>SECURITIES AND EXCHANGE
COMMISSION </FONT></H1>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>WASHINGTON, D.C. 20549 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>FORM 6-K </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>REPORT OF FOREIGN
PRIVATE ISSUER </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>PURSUANT TO RULE
13a-16 OR 15d-16 OF </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>THE SECURITIES
EXCHANGE ACT OF 1934 </FONT></H1>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><B>For the month of
November 2004</B></I> </FONT></P>

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<HR SIZE="1" NOSHADE WIDTH="15%" ALIGN="CENTER">

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<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=5><B>SILICOM LTD.</B> </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Translation of
Registrant&#146;s name into English) </FONT></P>

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<HR SIZE="1" NOSHADE WIDTH="15%" ALIGN="CENTER">

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<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>8 Hanagar Street, Kfar
Sava, Israel 44000</B> </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Address of Principal
Executive Offices) </FONT></P>

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<HR SIZE="1" NOSHADE WIDTH="15%" ALIGN="CENTER">

<!-- MARKER FORMAT-SHEET="Head Minor Center-TNR" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark
whether the registrant files or will file annual <BR>reports under cover Form 20-F or Form
40-F. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor Center-TNR" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form 20-F <FONT size="3" face="Wingdings">x
</font> Form 40-F <FONT size="3" face="Wingdings">o
</font> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor Center-TNR" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark
whether by furnishing the information contained in this <BR>Form, the registrant is also
thereby furnishing the information to the Commission<BR> pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. </FONT></P>




<!-- MARKER FORMAT-SHEET="Head Minor Center-TNR" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Yes <FONT size="3" face="Wingdings">o
</font>No <FONT size="3" face="Wingdings">x</font>  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Silicom
Ltd. (the &#147;Registrant&#148;) will hold an Extraordinary Meeting of the Shareholders
on December 23, 2004 at 10:00 a.m. (Israel time) at the Registrant&#146;s offices at 8
Hanagar Street, Kfar Sava 44000, Israel. In connection with the meeting, on or about
November 17, 2004, the Registrant mailed to shareholders Notices of such Extraordinary
Meeting of Shareholders and Proxy Cards. Attached hereto as Exhibits 1, 2 and 3 are the
Notice of Extraordinary Meeting of Shareholders, Proxy Statement, and Proxy Card,
respectively.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Form 6-K is being incorporated by reference in all effective registration statements
filed by the Registrant under the Securities Act of 1933.  </FONT></P>


<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized. </FONT></P>

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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u> SILICOM LTD.</u><BR>(Registrant)<BR>
<BR>BY: /S/ Ilan Erez<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Ilan Erez<BR>Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: November 17, 2004 </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT 1 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SILICOM LTD. </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTICE OF
EXTRAORDINARY MEETING OF SHAREHOLDERS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 23, 2004 </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notice
is hereby given that an Extraordinary Meeting (the &#147;<B>Meeting</B>&#148;) of the
shareholders of Silicom Ltd. (the &#147;<B>Company</B>&#148;) will be held at the offices
of the Company at 8 Hanagar Street, Kfar Sava 44000, Israel, on Thursday, December 23,
2004, at 10:00 a.m., Israel time, for the following purposes: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;          To
consider and act upon a resolution to approve an insurance policy for the
          coverage of the directors and officers of the Company.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;          To
consider and act upon a resolution approving the Company&#146;s Share Option
          Plan (2004).  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;          To
consider and act upon a resolution to grant stock options to all of the           Company&#146;s
directors.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholders
of record at the close of business on November 15, 2004 will be entitled to receive notice
of, and to vote at the Meeting or any postponements or adjournments thereof. Shareholders
who do not expect to attend the meeting in person are requested to mark, date, sign and
mail the enclosed proxy as promptly as possible in the enclosed stamped envelope. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholders
are urged to complete and return their proxies promptly in order to, among other things,
ensure action by a quorum and to avoid the expense of additional solicitation. If the
accompanying proxy is properly executed and returned, and a choice is specified, the
shares represented thereby will be voted as indicated thereon. If no specification is
made, the proxy will be voted in favor of each of the proposals described in the proxy
statement. In the event that proxies are sent directly to the Company, they must be
received at least 24 hours prior to the commencement of the Meeting in order for the proxy
to be qualified to participate in the Meeting. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company will be filing a Form 6-K with the SEC, on or around the date of distribution of
this notice to its shareholders, which will be accompanied by a Proxy Statement detailing
the matters to be presented for approval at the upcoming meeting of the shareholders. You
may request a copy of such documents, free of charge, by contacting the offices of the
Company at 8 Hanagar Street, Kfar Sava 44000, Israel (telephone number: 972-9-764-4555,
facsimile number: 972-9-765-1977). Once it has been filed, the Form 6-K and the Proxy
Statement may also be obtained through the SEC&#146;s EDGAR system at
<U>http://www.sec.gov/edgar/searchedgar/webusers.htm</U> by searching for such recent
filings of the Company. </FONT></P>

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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By Order of the Board of Directors<BR><BR>SILICOM LTD.<BR>
<BR>
Yeshayahu (&#145;Shaike&#146;) Orbach<BR>PRESIDENT AND CHIEF EXECUTIVE OFFICER</FONT></TD>
</TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kfar Sava, Israel <BR>Date:
November 15, 2004 </FONT></P>



<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>




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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT 2 </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROXY STATEMENT</FONT></H1>


<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="100%"><HR SIZE="1" NOSHADE WIDTH="15%" ALIGN="CENTER"></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SILICOM LTD.<BR>8 Hanagar St.<BR>Kfar Sava <BR> Israel </B></FONT></TD></TR>
</TABLE>

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<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXTRAORDINARY MEETING
OF SHAREHOLDERS </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 23, 2004 </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
enclosed proxy is being solicited by the board of directors (the &#147;<B>Board</B>&#148;)
of Silicom Ltd. (the <B>&#147;Company</B>&#148;) for use at the Company&#146;s
Extraordinary Meeting of Shareholders (the &#147;<B>Meeting&#148;</B>) to be held on
December 23, 2004, or at any adjournment thereof. Upon the receipt of a properly executed
proxy in the form enclosed, the persons named as proxies therein will vote the ordinary
shares, par value New Israeli Shekels (&#147;NIS&#148;) 0.01 each, of the Company (the
&#147;<B>Ordinary Shares&#148;</B>) covered thereby in accordance with the directions of
the shareholders executing the proxy. In the absence of such instructions, the Ordinary
Shares represented by the executed proxy will be voted in favor of each of the resolutions
described in this proxy statement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Proxy solicited hereby may be revoked at any time prior to its exercise, by means of a
written notice delivered to and received by the Company, by substitution of a new proxy
bearing a later date or by a request for the return of the proxy at the Meeting. The
Company expects to solicit proxies by mail on or about November 16, 2004. Directors,
officers and employees of the Company may also solicit proxies by telephone, facsimile and
personal interview. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company will bear the cost of the preparation and mailing of its proxy materials and the
solicitation of proxies. Copies of solicitation materials will be furnished to brokerage
firms, nominees, fiduciaries and other custodians for forwarding to their principals, and
the reasonable fees and expenses of such forwarding agents will be borne by the Company.
Only holders of record of Ordinary Shares at the close of business on November 15, 2004
are entitled to notice of, and to vote at, the Meeting (the &#147;<B>Record
Date</B>&#148;). At the Record Date, 4,213,550 Ordinary Shares were outstanding and
entitled to vote. Each Ordinary Share is entitled to one vote on each matter to be voted
at the Meeting. The Company&#146;s Articles of Association (the
<B>&#147;Articles</B>&#148;) do not permit cumulative voting for the election of directors
or for any other purpose. Two shareholders present, personally or by proxy, representing
51% of the voting power of the issued share capital of the Company, shall constitute a
quorum for the Meeting. If within half an hour from the time the meeting is convened, a
quorum is not present, the meeting shall stand adjourned until December 30, 2004 at 10:00
a.m. If a quorum is not present at the second meeting within half an hour from the time
appointed for the meeting, subject to applicable law, any two or more shareholders present
personally or by proxy, shall be deemed a quorum, and shall be entitled to deliberate and
to resolve in respect of the matters for which the meeting was convened. Abstentions and
broker non-votes are counted as Ordinary Shares present for the purpose of determining a
quorum. </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval
of resolution number two stated in this proxy statement and to be proposed at the Meeting
requires the affirmative vote of shareholders present in person or by proxy and holding
Ordinary Shares amounting in the aggregate to at least a majority of the votes actually
cast by shareholders with respect to such resolutions (hereinafter an &#147;<B>Ordinary
Majority</B>&#148;). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval
of resolutions numbered one and three stated in this proxy statement<I> </I>require the
affirmative vote of shareholders present in person or by proxy and holding Ordinary Shares
amounting in the aggregate to at least a majority of the votes actually cast with respect
to each of such resolutions, provided that if the total number of Ordinary Shares voted
against any such resolution by shareholders of the Company that do not have a
&#147;personal interest&#148; (as such term is defined below) (a &#147;<B>Personal
Interest</B>&#148;) in the resolution exceeds one per cent (1%) of the aggregate voting
rights in the Company, such majority must include the affirmative vote of at least
one-third of the votes actually cast with respect to such resolution by shareholders of
the Company present in person or by proxy at the Meeting that do not have a Personal
Interest (hereinafter an <B>&#147;Ordinary One-Third Disinterested Shareholder
Majority</B>&#148;). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
this purpose, &#147;personal interest&#148; is defined as: (1) a shareholder&#146;s
personal interest in the approval of an act or a transaction of the Company, including (i)
the personal interest of any of his or her relative (which includes for these purposes any
members of his/her immediate family or the spouse of any such members of his or her
immediate family); and (ii) a personal interest of a body corporate in which a shareholder
or any of his/her aforementioned relatives serves as a director or the chief executive
officer, owns at least 5% of its issued share capital or its voting rights or has the
right to appoint a director or chief executive officer, but (2) excludes a personal
interest arising solely from the fact of holding shares in the Company or in a body
corporate. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PRINCIPAL SHAREHOLDERS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table shows as of November 1, 2004, certain information as to each person known
to the Company to be the beneficial owner of more than 5% of the Ordinary Shares then
outstanding, including all options to purchase Ordinary Shares exercisable within 60 days
of the date hereof: </FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="3" WIDTH="600" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Name</FONT><HR WIDTH=95% SIZE=1 COLOR=#808080 NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number of<BR>
Shares Owned</FONT><HR WIDTH=95% SIZE=1 COLOR=#808080 NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Percent of Shares</FONT><HR WIDTH=95% SIZE=1 COLOR=#808080 NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="65%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Yehuda Zisapel</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="14%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>933,723</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21.67</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Avi Eizenman</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>318,315</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7.36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Zohar Zisapel</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>860,906</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20.43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All directors and officers as a group</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,442,738</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31.75</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
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<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>



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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPOSALS FOR THE
MEETING </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPOSAL I </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INSURANCE COVERAGE FOR
THE COMPANY&#146;S DIRECTORS AND OFFICERS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to induce individuals to serve as directors and/or officers of the Company, it is
critical that the Company maintain adequate directors and officers insurance
(&#147;<B>D&amp;O Insurance</B>&#148;). Therefore, the Company believes it necessary to
procure liability insurance for its directors and officers to provide for coverage of up
to $4 million. Such a D&amp;O Insurance policy was procured by the Company as of February
1, 2004 from the Genesis Insurance Company, and will remain in effect until February 1,
2005. The policy bears an annual premium of $65,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the Companies Law -1999 (the &#147;<B>Companies Law</B>&#148;), the terms of
compensation of members of the Board, including the purchase of D&amp;O Insurance, require
the approval of the audit committee of the Board (the &#147;<B>Audit Committee</B>&#148;),
the Board and the shareholders of the Company. Prior to the Meeting, the Company&#146;s
Audit Committee and its Board will have ratified the Company&#146;s purchase of D&amp;O
Insurance to provide for coverage of up to $4 million. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
shareholders of the Company will be requested to adopt the following resolution at the
Meeting: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>RESOLVED,
that the procurement of Directors and Officers Insurance from the Genesis Insurance
Company, providing for coverage of up to $4,000,000, and any further extensions, renewals
and increases of such policy, from time to time, as the Audit Committee and the Board of
Directors deem necessary, are hereby ratified and approved.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
above insurance policy provides coverage for directors of the Company who are also
&#147;controlling shareholders&#148; (as such term is defined the Israeli Securities Law,
1968) (the &#147;<B>Controlling Shareholders</B>&#148;). Therefore, the ratification of
the purchase of the insurance policy constitutes a transaction with a controlling member
pursuant to the Companies Law, which requires approval by an Ordinary One-Third
Disinterested Shareholder Majority (as defined in this proxy statement). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Each
shareholder voting at the Meeting or prior thereto by means of the accompanying proxy card
is requested to notify us if he or she has a Personal Interest (as defined in this proxy
statement) in connection with this Proposal I as a condition for his or her vote to be
counted with respect to this Proposal I. If any shareholder casting a vote in connection
hereto does not notify us if he or she has a personal interest with respect to this
Proposal I, his or her vote with respect to this Proposal I will be disqualified.</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPOSAL II </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>APPROVAL OF SHARE
OPTION PLAN (2004) </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board of Directors believes that options to purchase shares of the Company can and should
be an important component of employee compensation. The Board believes that options are an
effective long-term incentive that aligns the interest of employees with the
Company&#146;s shareholders. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has adopted three share option plans for its directors and employees since 1993.
In recent years, the Company adopted share option plans in 1993, 1994 (a directors plan)
and 2000 (a US plan), pursuant to which 500,000, 500,000 and 200,000 ordinary shares,
respectively, were reserved for issuance upon the exercise of options granted thereby. In
light of recent NASDAQ rules, public companies listed on the NASDAQ exchange are required
to seek shareholder approval for the adoption of share option plans, including material
changes and amendments thereto. </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July 21, 2004 the Board resolved, subject to shareholder approval, to adopt the Share
Option Plan (2004) (the &#147;<B>2004 Plan</B>&#148;) and to cancel any authorized share
capital of the Company that had been previously reserved under the 1993 and 1994 plans,
which was not then allocated under such plans or which would become unallocated from time
to time as outstanding options expire or are forfeited (the &#147;<B>Cancelled
Reserve</B>&#148;). At such time, the Cancelled Reserve consisted of 282,750 authorized
Ordinary Shares of the Company. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board proposes that the shareholders adopt the 2004 Plan. Under the 2004 Plan, the Company
will be able to provide its employees, directors, officers, consultants and service
providers a personal interest in the Company&#146;s continued success and growth. The 2004
Plan does not amend, modify or rescind any of the Company&#146;s other existing share
option plans, and the Company intends to continue granting options to its US employees,
directors, officers and consultants pursuant to the 2000 plan. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
recent reform of the tax legislation in Israel came into effect on January 1, 2003 and
provides various new tax advantages with respect to options granted to company directors,
officers and employees, subject to certain limitations. In accordance with the new tax
legislation, for the Company&#146;s Israeli employees, officers and directors to benefit
from such tax advantages, such grant of options need to be made pursuant to a share option
plan which is adjusted and conforms with the regulations provided under the new tax
legislation and the Israeli Income Tax Ordinance (New Version), 1961, as amended (the
&#147;<B>Ordinance</B>&#148;). The 2004 Plan has been structured to comply with the
necessary tax requirements and provides tax benefits to Israeli employees, officers and
directors which were not available under the Company&#146;s previous share option plans
and includes certain provisions relating to selling restrictions and the imposition of a
trustee. The Company has elected to award its eligible Israeli optionees, options pursuant
to Section 102 of the Ordinance under the &#147;capital gains track&#148; and is currently
in the process of receiving the relevant approvals from the Israeli tax authorities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
brief summary of the 2004 Plan is set forth below. The summary is qualified in its
entirety by reference to the full text of the 2004 Plan, a copy of which is attached
hereto as <B><U>Exhibit 1</U></B><U></U>. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor Center-TNR" FSL="Workstation" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>GENERAL PLAN INFORMATION</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Purpose</I></B><I></I>. The
purpose of the 2004 Plan is to attract and retain the best available           personnel
for positions of substantial responsibility, to provide additional           incentive to
employees, directors, office holders and consultants of the Company           and of any
subsidiary, and to promote the Company&#146;s business by providing           such
individuals with opportunities to receive options (the           &#147;<B>Options</B>&#148;)
to purchase the Company&#146;s Ordinary Shares.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The
Options. </I></B><I></I>Options granted under the 2004 Plan may be granted under Section
102 or Section 3(i) of the Ordinance. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The
Securities Offered</I></B><I></I>. Subject to adjustment from time to time, a maximum of
282,750 Ordinary Shares shall be available for issuance under the 2004 Plan for as long as
the 2004 Plan remains in effect. Ordinary Shares issued under the 2004 Plan shall be drawn
from authorized and unissued shares of the Company. Until termination of the 2004 Plan the
Company shall at all times reserve a sufficient number of Ordinary Shares to meet the
requirements of the 2004 Plan. Should any option for any reason expire or be canceled
prior to its exercise or relinquishment in full, the Ordinary Shares subject to such
option shall again be made available for issuance under the 2004 Plan. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Administration
of the 2004 Plan.</I> </B>The Board will administer the 2004 Plan either directly or upon
the recommendation of a share option committee (the &#147;<B>Committee</B>&#148;). The
Board shall have full authority in its discretion, from time to time and at any time, to
determine (i) the identity of the grantees, (ii) the number of Ordinary Shares to be
covered by each Option, (iii) the time or times at which Options shall be granted, (iv)
the schedule and conditions on which Options may be exercised and on which Ordinary Shares
shall be paid for including but not limited to vesting terms, acceleration terms,
restrictions and transferability, and (v) any other matter which is necessary or desirable
for, or incidental to, the administration of the 2004 Plan including the interpretation of
the 2004 Plan. The Board may, in its sole discretion, delegate some or all of the powers
listed above to the Committee to the extent permitted by applicable law. </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Participants</I></B><I></I>.The
persons eligible to participate in the 2004 Plan shall include any           employees,
directors, officers, consultants and service providers           (&#147;<B>Service
Providers</B>&#148;) of the Company and its subsidiaries.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Duration
of the 2004 Plan</I></B><I>. </I>No Option may be granted by the Board under the 2004 Plan
after the tenth (10<SUP>th</SUP>) anniversary of the date that the 2004 Plan is adopted by
the shareholders of the Company, provided however, that any Option granted by the Board
prior to such date may extend beyond such date and the authority of the Board to amend,
alter, adjust suspend, discontinue, or terminate any such Option, to waive conditions or
rights attached to such option and the authority of the shareholders to amend the 2004
Plan, shall also extend beyond such date. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Amendments</I></B><I></I>. Subject
to applicable law, the Board shall have the authority, after                notification
to any trustee, if applicable, to amend, alter, suspend or                terminate the
2004 Plan. No amendment, alteration, suspension or termination of                the 2004
Plan shall impair the rights of any grantee, unless mutually agreed
               otherwise between the grantee and the Company, which agreement must be in
               writing and signed by the grantee and the Company. Termination of the 2004
Plan                shall not affect the Board&#146;s ability to exercise the powers
granted to it                hereunder with respect to any Option granted under the 2004
Plan prior to the                date of such termination.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Option
Price</I></B><I></I>. The exercise price shall be determined by the Committee or by the
Board, in either case in its sole and absolute discretion in accordance with applicable
law, subject to any guidelines as may be determined by the Board from time to time, and
may be greater than, less than or equal to the Fair Market Value of each Ordinary Share
(as defined in the 2004 Plan). Notwithstanding the foregoing, the exercise price shall not
be less than the nominal value of each Ordinary Share. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Non-assignability
and Sale of Options. </I></B><I></I>No option may be transferred at any time other than by
will or by the laws of descent and distribution, and during the grantee&#146;s lifetime,
an Option may be exercised only by such grantee. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
shareholders of the Company will be requested to adopt the following resolution at the
Meeting: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>RESOLVED,
that the adoption of the Company&#146;s Share Option Plan (2004), and the reservation of
282,750 Ordinary Shares of the Company for issuance thereunder, are hereby ratified and
approved</B>.&#148; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
adoption of the 2004 Plan by the Company requires the vote of an Ordinary Majority (as
defined in this proxy statement). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The
Board recommends that the shareholders vote &#147;FOR&#148; the adoption of Company&#146;s
Share Option Plan (2004).</B> </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPOSAL III </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>APPROVAL OF OPTION
GRANTS TO CERTAIN DIRECTORS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the Companies Law, the terms of compensation of members of the Board require approval
by each of the Audit Committee, the Board and shareholders of the Company, in such order. </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following
the approval by our Audit Committee and Board, the shareholders of the Company are being
asked to resolve to grant to all of the Company&#146;s current directors, including the
Company&#146;s two outside directors, options to purchase Ordinary Shares of the Company
as set forth below, pursuant to the terms and conditions of the 2004 Plan. Each of the
Company&#146;s directors will be receiving the same amount of options, and vesting is
linked to continuance of service as a director, including the respective terms of the
Company&#146;s outside directors. In the case of the Company&#146;s two outside directors,
such grants are intended to compensate such outside directors for their entire terms as
outside directors of the Company. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
of the directors of the Company, Mr. Yehuda Zisapel, Ms. Einat Domb-Har (an outside
director), Mr. Ilan Kalmanovich (an outside director), Mr. Yeshayahu Orbach and Mr. Avi
Eizenman, will be granted a total of 30,000 options each to purchase Ordinary Shares of
the Company at an exercise price equal to the closing price of the Company&#146;s Ordinary
Shares on the date that such option grant is approved by the Company&#146;s shareholders
(the &#147;<B>Grant Date</B>&#148;). The options will vest in three tranches: 10,000 shall
vest immediately upon the Grant Date, 10,000 shall vest one year after the Grant Date and
10,000 shall vest two years after the Grant Date. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
options shall be granted under the Company&#146;s Share Option Plan (2004), as described
in Proposal II herein, and are further subject to the terms of the Company&#146;s standard
form(s) of option agreements. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
shareholders of the Company will be requested to adopt the following resolution at the
Meeting: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#147;RESOLVED,
to approve the grant of 30,000 options to purchase Ordinary Shares of the Company,
pursuant to the Share Option Plan (2004) of the Company, to each of the current directors
of the Company at an exercise price equal to the closing price of the Company&#146;s
Ordinary Shares on the date of the approval of such grants by the Company&#146;s
shareholders (the &#147;Grant Date&#148;), and where one third (1/3) will vest on the
Grant Date, one third (1/3) will vest on the first anniversary of the Grant Date and one
third (1/3) will vest on the second anniversary of the Grant Date.&#148;</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
above resolution provides for option grants to directors of the Company who may also be
deemed together to be considered &#147;controlling shareholders&#148; (as such term is
defined the Israeli Securities Law, 1968) (the &#147;<B>Controlling
Shareholders</B>&#148;). Therefore, the ratification of and approval by the shareholders
of the above resolution may constitute a transaction with controlling members pursuant to
the Companies Law, which requires approval by an Ordinary One-Third Disinterested
Shareholder Majority (as defined in this proxy statement). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Each
shareholder voting at the Meeting or prior thereto by means of the accompanying proxy card
is requested to notify us if he or she has a Personal Interest (as defined in this proxy
statement) in connection with this Proposal III as a condition for his or her vote to be
counted with respect to this Proposal III. If any shareholder casting a vote in connection
hereto does not notify us if he or she has a personal interest with respect to this
Proposal III, his or her vote with respect to this Proposal III will be disqualified.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management
is not aware of any other matters to be presented at the Meeting. If, however, any other
matters should properly come before the Meeting or any adjournment thereof, the proxy
confers discretionary authority with respect to acting thereon, and the persons named in
the enclosed proxy will vote on such matters in accordance with their best judgment. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Your
vote is important!</B> Shareholders are urged to complete and return their proxies
promptly in order to, among other things, ensure action by a quorum and to avoid the
expense of additional solicitation. If the accompanying proxy is properly executed and
returned in time for voting, and a choice is specified, the shares represented thereby
will be voted as indicated thereon. If no specification is made, the proxy will be voted
in favor of each of the proposals described in this Proxy Statement. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ADDITIONAL INFORMATION </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are subject to the informational requirements of the Securities Exchange Act of 1934, as
amended (the &#147;Exchange Act&#148;), as applicable to foreign private issuers.
Accordingly, we file reports and other information with the SEC. Shareholders may read and
copy any document we file at the SEC&#146;s public reference rooms at 450 Fifth Street,
N.W., Washington, D.C. 20549. Shareholders can call the SEC at 1-800-SEC-0330 for further
information on using the public reference room. In addition, similar information
concerning us can be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850 USA. All
documents which we will file on the SEC&#146;s EDGAR system will be available for
retrieval on the SEC&#146;s website at www.sec.gov. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing
certain disclosure and procedural requirements for proxy solicitations. Also, our
officers, directors and principal shareholders are exempt from the reporting and
&#147;short-swing&#148; profit recovery provisions contained in Section 16 of the Exchange
Act and the rules thereunder, with respect to their purchases and sales of securities. In
addition, we are not required under the Exchange Act to file periodic reports and
financial statements with the SEC as frequently or as promptly as United States companies
whose securities are registered under the Exchange Act. </FONT></P>


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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By Order of the Board of Directors<BR><BR>SILICOM LTD.<BR>
<BR>
Yeshayahu (&#145;Shaike&#146;) Orbach<BR>PRESIDENT AND CHIEF EXECUTIVE OFFICER</FONT></TD>
</TR>
</TABLE>
<BR>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kfar Sava, Israel<BR>Date:
November 15, 2004 </FONT></P>

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 1</B></U> </FONT> </P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SILICOM LTD. </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SHARE OPTION PLAN
(2004) </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>NAME.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This plan, as amended from time to
time, shall be known as the Silicom Ltd. Share Option Plan (2004) (the &#147;Plan&#148;). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B></B><B>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>PURPOSE
AND DEFINITIONS.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> The
purposes of this Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to employees,
directors, office holders and consultants of Silicom Ltd. (the &#147;Company&#148;) and
of any Subsidiary (as defined below), and to promote the Company&#146;s business by
providing such individuals with opportunities to receive options (the &#147;Options&#148;)
to purchase the Company&#146;s Ordinary Shares, nominal value NIS 0.01 (the &#147;Shares&#148;)
pursuant to the Plan.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> Options
granted pursuant to this Plan to individuals or entities that are subject to Israeli
taxation may be granted (a) pursuant to Section 102 of the Ordinance (as defined below)
and shall be held for the benefit of the Grantees and (b) pursuant to Section 3(i) of the
Ordinance.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> In
the event that Options shall be granted under this Plan to Service Providers (as defined
below) who are not deemed to be residents of Israel for Israeli tax law purposes,
specific terms and conditions for such grants shall be set forth in an appendix to this
Plan, approved by the Board of Directors of the Company (the &#147;Board&#148;).  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>2.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B><U>Definitions</U>.
</B>As used herein, the following definitions shall apply:  </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;102 Capital Gains Track Grant&#148; means a 102 Trustee Grant elected and
          designated to qualify under the capital gains tax treatment in accordance with
          the provisions of Section 102(b)(2) of the Ordinance. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;102 Ordinary Income Track Grant&#148; means a 102 Trustee Grant elected
          and designated to qualify under the ordinary income tax treatment in accordance
          with the provisions of Section 102(b)(1) of the Ordinance. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;102 Trustee Grant&#148; means Options granted pursuant to Section 102(b)
          of the Ordinance and held in trust by a Trustee for the benefit of the Grantee,
          and includes both 102 Capital Gains Track Grants and 102 Ordinary Income Track
          Grants. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;3(i) Grant&#148; means any Options granted pursuant to Section 3(i) of the
          Ordinance to any person who is not an Eligible 102 Grantee. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(e)&nbsp;&nbsp;&nbsp;&nbsp;
          <U>&#147;Cause&#148;</U> means any of the following: (i)&nbsp;the Grantee&#146;s
          embezzlement of any Company property or asset, or any theft or intentional
          destruction of property, whether or not criminal action is brought against the
          Grantee; (ii) the Grantee&#146;s negligently performing or neglecting his
          responsibilities as Service Provider, or failure or inability to perform any
          reasonable assigned duties, when such failure may harm the Company&#146;s
          business or commercial relationships, after written notice from the Company of,
          and a reasonable opportunity to cure, such failure or inability; (iii)&nbsp;any
          material breach of the Grantee of any employment agreement between the Grantee
          and the Company, which breach is not cured after written notice from the Company
          of, and a reasonable opportunity to cure, such material breach; or (iv)&nbsp;the
          Grantee&#146;s conviction of any criminal act which involves moral turpitude, or
          the Grantee&#146;s concealment of such conviction prior to commencement of his
          or her relationship as Service Provider; (v) the Grantee&#146;s breach of
          Company regulations which breach is not cured after written notice from the
          Company of, and a reasonable opportunity to cure, such breach; or (vi)
          Grantee&#146;s destruction of Company materials, appliances or machines or
          reduction of yield or production. For purposes of the definition of Cause, the
          &#147;Company&#148; shall also refer to a Subsidiary for which a Grantee is
          employed or provides services. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(f)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Cessation&#148; means termination of the Service Provider&#146;s
          relationship with the Company. In the event of Cessation of a Grantee&#146;s
          relationship with the Company, such Grantee&#146;s relationship with the Company
          shall be deemed to have ceased upon the delivery to the Grantee of notice of
          discharge or the delivery to the Company of the letter of resignation, as the
          case may be, irrespective of the effective date of such resignation or
          discharge. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(g)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Companies Law&#148; means the Israeli Companies Law 5759-1999, as amended
          from time to time. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(h)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Consultant&#148; means any person who is engaged by the Company or by a
          Subsidiary to render consulting, advisory or other services to such entity who
          is not an Employee. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Controlling Shareholder&#148; means, pursuant to Section 32(9) of the
          Ordinance, an employee who prior to the grant or as a result of the exercise of
          any Option, holds or would hold, directly or indirectly, in his name or with a
          relative (as defined in the Ordinance) either: (i) 10% of the outstanding shares
          of the Company, (ii) 10% of the voting power of the Company, (iii) the right to
          hold or purchase 10% of the outstanding equity or voting power, (iv) the right
          to obtain 10% of the &#147;profit&#148; of the Company (as defined in the
          Ordinance), or (v) the right to appoint a director of the Company, or as such
          definition is amended or replaced from time to time. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(j)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Eligible 102 Grantee&#148; means an Employee deemed an Israeli resident
          for taxation purposes, who is not a Controlling Shareholder of the Company. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(k)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Employee&#148; means an employee, officer or director of the Company or of
          a Subsidiary. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(l)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Grantee&#148; means a person to whom Options shall be granted pursuant to
          this Plan. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(m)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Non-Trustee Grant&#148; means an Option granted pursuant to Section 102(c)
          of the Ordinance to an Eligible 102 Grantee and not held in trust by a Trustee. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(n)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Ordinance&#148; means the Israeli Income Tax Ordinance (New Version) 1961,
          as amended from time to time and, most recently, by the Law Amending the Income
          Tax Ordinance (Number 132) 2002 and any regulations, rules, orders, guidelines,
          interpretations or procedures promulgated thereunder by the Israeli Income Tax
          Authorities (the &#147;ITA&#148;), including but not limited to the Income Tax
          Rules (Tax Benefits in Stock Issuance to Employees) 5763-2003 (the
          &#147;Rules&#148;). </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(o)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Required Holding Period&#148; means the requisite period prescribed by the
          Ordinance (including the Rules) or such other period as may be required by the
          ITA, during which Options granted by the Company and/or the underlying Shares
          from a 102 Trustee Grant must be held by the Trustee for the benefit of the
          person to whom they were granted subject to the applicable laws. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(p)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Service Provider&#148; means an Employee or Consultant. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(q)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Subsidiary&#148; means (i) any entity that, directly or indirectly, is
          controlled by the Company or (ii) any entity in which the Company has a
          significant equity interest, in either case as determined by the Board. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(r)&nbsp;&nbsp;&nbsp;&nbsp;
          &#147;Trustee&#148; means a person or entity designated by the Company to serve
          as a trustee and who is approved by the ITA in accordance with the provisions of
          the Ordinance. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>ADMINISTRATION.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
Plan will be administered by the Board. The Board may, in its discretion, appoint and
maintain a Share Option Committee (the &#147;Committee&#148;) to administer the Plan to
the extent permissible under applicable law as may be amended from time to time, which
will consist of such number of directors of the Company (not less than two (2) in
number), as may be determined from time to time by the Board. The Board shall from time
to time add, appoint or remove members of the Committee and shall fill vacancies in the
Committee however caused.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
Committee shall select one of its members as its Chairman and shall hold its meetings at
such times and places as it shall determine. Actions at a meeting of the Committee at
which a majority of its members are present or acts approved in writing by all members of
the Committee, shall be the valid acts of the Committee. The Committee may appoint a
secretary, who shall keep records of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> Subject
to the general terms and conditions of this Plan, the Board shall have full authority in
its discretion, from time to time and at any time, to determine (i) the identity of the
Grantees, (ii) the number of Shares to be covered by each Option, (iii) the time or times
at which Options shall be granted, (iv) the schedule and conditions on which Options may
be exercised and on which Shares shall be paid for including but not limited to vesting
terms, acceleration terms, restrictions and transferability, and (v) any other matter
which is necessary or desirable for, or incidental to, the administration of the Plan
including the interpretation of the Plan. The Board may, in its sole discretion, delegate
some or all of the powers listed above to the Committee to the extent permitted by
applicable law. The Board may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem appropriate. Grants of Options shall be made
pursuant to written notification to Grantees setting out the terms of the grant, all as
further set forth below.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> In
the event that the Board appoints a Committee, the Committee shall not be entitled to
grant Options to the Grantees unless permitted to do so under applicable law. However, in
the event that the Committee is authorized to do so by the Board, it may issue Shares
underlying Options which have been granted by the Board and duly exercised pursuant to
the provisions hereof, in accordance with Section 112(a)(5) of the Companies Law.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>No
member of the Board or of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted thereunder. Each member
of the Board or the Committee shall be indemnified and held harmless by the Company
against any cost or expense (including counsel fees) reasonably incurred by him, or any
liability (including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with the Plan unless
arising out of such member&#146;s own fraud or bad faith, to the extent permitted by
applicable law. Such indemnification shall be in accordance with the rights of
indemnification the member may have as a director or otherwise under the Company&#146;s
Articles of Association, any agreement, any vote of stockholders or disinterested
directors, insurance policy or otherwise.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
interpretation and construction by the Board of any provision of the Plan or of any
Option thereunder shall be final and conclusive unless otherwise determined by the Board.
In the event that the Board appoints a Committee, the interpretation and construction by
the Committee of any provision of the Plan or of any Option thereunder shall be final and
conclusive unless otherwise determined by the Board.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>3.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Any
additional costs associated in the administration and implementation of this Plan
including but not limited to the costs involved in retaining a trustee, broker or any
other third party desired by the Company to facilitate the transactions contemplated
under this Plan, shall be borne solely by the Grantee unless determined otherwise by the
Board or by the Committee.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>ELIGIBLE
GRANTEES.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>No
Option may be granted pursuant to this Plan to any director of the Company at the time of
the grant, unless such grant is approved in the manner prescribed for the approval of
compensation of directors under the Companies Law.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> Subject
to the limitation set forth in Section 4.1 above and any restriction imposed by
applicable law, Options may be granted to any Service Provider.<I></I>The grant of an
Option to a Grantee hereunder shall neither entitle such Grantee to participate, nor
disqualify such Grantee from participating, in any other grant of Options pursuant to
this Plan or any other share incentive or share option plan of the Company.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> 102
Trustee Grants may be granted to Eligible 102 Grantees only. Eligible 102 Grantees may
receive only 102 Trustee Grants or Non-Trustee Grants. Grantees who are not Eligible 102
Grantees may only be granted 3(i) Options under this Plan.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>4.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B> Subject
to the terms of the Plan, the Option Agreement (as defined below) and/or any other
documents evidencing the Options granted pursuant to this Plan shall indicate whether the
grant is a 102 Trustee Grant, a Non-Trustee Grant or a 3(i) Grant; and, if the grant is a
102 Trustee Grant, whether it is a 102 Capital Gains Track Grant or a 102 Ordinary Income
Track Grant.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>TERMS
AND CONDITIONS OF 102 TRUSTEE OPTIONS</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Unless
determined otherwise by the Board and to the extent permitted by applicable law, each 102
Trustee Grant will be deemed granted on the date stated in a written notice by the
Company, provided that on or before such date (i) the Company has provided notification
to the Trustee and (ii) the Grantee has signed all documents required pursuant to this
Section 5.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Each
102 Trustee Grant made to a Grantee and each certificate for Shares acquired pursuant to
the exercise thereof shall be issued to and registered in the name of a Trustee and shall
be held in trust for the benefit of the Grantee for the Required Holding Period until the
date in which the Grantee will decide to sell the Shares or release the Shares from the
Trustee subject to the provisions of the Ordinance. After termination of the Required
Holding Period, the Trustee may release such Option and any such Shares acquired pursuant
to the exercise thereof, provided that (i) the Trustee has received an acknowledgment
from the ITA that the Grantee has paid any applicable tax due pursuant to the Ordinance
or (ii) the Trustee and/or the Company and/or its Subsidiary has withheld any applicable
tax due pursuant to the Ordinance. The Trustee shall at no time release any 102 Trustee
Grant or Shares issued upon exercise of such 102 Trustee Grant, prior to the full payment
of the Grantee&#146;s tax liabilities.  </FONT></P>

<p align=center>
<font size=2></font></p>
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<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Each
102 Trustee Grant (whether a 102 Capital Gains Track Grant or a 102 Regular Income Track
Grant, as applicable) shall be subject to the relevant terms of Section 102 of the
Ordinance, which shall be deemed an integral part of the 102 Trustee Grant and which
shall prevail over any term contained in the Plan or any Option Agreement which is not
consistent therewith. Any provision of the Ordinance and any approval issued by the
Income Tax Commissioner not expressly specified in this Plan or in an Option Agreement,
that are necessary to receive or maintain any tax benefit pursuant to the Ordinance,
shall be binding on the Grantee. Any 102 Trustee Grant made hereunder shall comply with
the Ordinance and the terms and conditions of any trust agreement entered into between
the Company and the Trustee. For avoidance of doubt, it is reiterated that compliance
with the Ordinance specifically includes compliance with the Rules. Further, the Grantee
agrees to execute any and all documents which the Company and/or the Trustee may
reasonably determine to be necessary in order to comply with the Ordinance and,
particularly, the Rules including but not limited to the entering into of a written
undertaking to the Company stating among other things (a) the type of 102 Trustee Grant
held or to be held by the Trustee for the benefit of the Grantee, (b) that the provisions
of the Ordinance will apply to the 102 Trustee Grant and (c) that there are restrictions
on the sale of the Shares (or release of Shares by the Trustee).  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>With
respect to each 102 Trustee Grant and subject to the terms of the Ordinance, during the
Required Holding Period, the Grantee shall not require the Trustee to release or sell the
Shares including with respect to other shares received subsequently following any
realization of rights derived from the Shares (including stock dividends), to the Grantee
or to a third party, unless permitted to do so by applicable law. Notwithstanding the
foregoing and subject to applicable law, the Trustee may, pursuant to a written request,
release and transfer such Shares to the Grantee or to a designated third party, provided
that both of the following conditions have been fulfilled prior to such transfer: (i)
payment has been rendered to the tax authorities of all taxes required to be paid upon
the release and transfer of the Shares, and confirmation of such payment has been
received by the Trustee and (ii) the Trustee has received written confirmation from the
Company that all requirements for such release and transfer have been fulfilled according
to the terms of the Company&#146;s corporate documents, the Plan, the Option Agreement
and any applicable law. Notwithstanding anything herein to the contrary, any such sale or
release during the Required Holding Period by the Grantee will result in adverse tax
ramifications under the Ordinance and the Rules and such consequences shall be borne
solely by the Grantee.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Each
Grantee shall be entitled to receive dividends declared, if applicable, in accordance
with the number of Shares allocated or acquired pursuant to the exercise of a 102 Trustee
Grant, subject to any applicable taxation on distribution of dividends and when
applicable subject to the provisions of the Ordinance. In the event that the dividend is
paid in the form of Shares or such other form of equity, such Shares or equity must be
first transferred to the Trustee and shall be subject to the provisions of the Ordinance
including but not limited to the application of the Required Holding Period.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Notwithstanding
anything herein to the contrary, if an Option granted as a 102 Trustee Grant is exercised
by the Grantee during the Required Holding Period, the Shares issued upon such exercise
shall be issued in the name of the Trustee for the benefit of the Grantee. If such an
Option is exercised after the Required Holding Period ends, the Shares issued upon such
exercise shall, at the election of the Grantee, either (i) be issued in the name of the
Trustee or (ii) be transferred to the Grantee directly, provided that the Grantee first
complies with all applicable provisions of the Plan, the Option Agreement and the
Ordinance including with respect to the payment of all applicable taxes owed.  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>5.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Notwithstanding
anything herein to the contrary, in the case of a Non-Trustee Grant, if the Grantee
ceases to be employed by the Company or the Subsidiary, as applicable, while such Option
is still valid, the Grantee shall be obligated to deliver to the Company or the
Subsidiary, as applicable, a security or guarantee for the payment of tax due at the time
of the sale of the Shares, all in accordance with the provisions of the Ordinance.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>6. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GRANTS
MADE UNDER SECTION 3(I) OF THE ORDINANCE </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board may choose to deposit Options from a 3(i) Grant with a trustee. In such event, the
trustee shall hold such Options in trust, until exercised by the Grantee, pursuant to the
Company&#146;s instructions from time to time as set forth in a trust agreement which will
be entered into between the Company and the trustee. If determined by the Board, the
trustee shall be responsible for withholding any taxes to which a Grantee may become
liable upon the exercise of Options. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>7. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RESERVED
SHARES. </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>7.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Subject
to adjustment from time to time as provided below (including but not limited to
adjustments made pursuant to Section 12 below), two hundred eighty two thousand seven
hundred and fifty (282,750) Shares shall be available for issuance under the Plan for as
long as the Plan remains in effect. Shares issued under the Plan shall be drawn from
authorized and unissued shares of the Company. Until termination of the Plan the Company
shall at all times reserve a sufficient number of Shares to meet the requirements of the
Plan. Should any Option for any reason expire or be canceled prior to its exercise or
relinquishment in full, the Shares subject to such Option shall again be made available
for issuance under the Plan.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>7.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>No
fractional shares shall be issued or delivered pursuant to the Plan, and the Committee
shall determine whether cash, other securities or other property shall be paid or
transferred in lieu of any fractional shares, or whether such fractional shares or any
rights thereto shall be canceled, terminated or otherwise eliminated.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>8. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GRANT
OF OPTIONS. </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>8.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
Board and/or the Committee, as applicable, in its discretion may award to Grantees,
Options to purchase Shares in the Company available under the Plan. Subject to applicable
law, the date of grant of each Option shall be the date specified by the Board and/or the
Committee, as applicable, at the time such award is made.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>8.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
instrument/written document governing the granting and specific terms of an Option under
this Plan as determined by the Board and/or the Committee (the &#147;Option Agreement&#148;),
shall state, inter alia, the number of Shares at the type of option granted covered
thereby, the dates when it may be exercised, the exercise price per Share subject to the
Option, the schedule on which such Shares may be paid for and such other terms and
conditions as the Board and/or the Committee, as applicable, in its discretion may
prescribe, provided that they are consistent with this Plan.  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>9. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OPTION
PRICES.</B>  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>9.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
exercise price of an Option shall be determined by the Board or by the Committee, in
either case in its sole and absolute discretion in accordance with applicable law,
subject to any guidelines as may be determined by the Board from time to time, and may be
greater than, less than or equal to the &#147;Fair Market Value&#148; (as defined below)
of each Share. Notwithstanding the foregoing, the exercise price shall not be less than
the nominal value of each Share. Each Option Agreement will contain the exercise price
determined for each Grantee.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;         <B>9.2</B>  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"Fair
Market Value" means, as of any date, the value of the Shares determined as follows:</FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD ALIGN=RIGHT WIDTH=3%></TD>
<TD WIDTH=97%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;          If
the Shares are listed on any established stock exchange or a national market
          system, the Fair Market Value shall be the closing sales price for such stock
          (or the closing bid, if no sales were reported) as quoted on such exchange or
          system for the last market trading day prior to the time of determination, as
          reported in The Wall Street Journal or such other source as the Board or the
          Committee deems reliable;  </FONT></P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD ALIGN=RIGHT WIDTH=3%></TD>
<TD WIDTH=97%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;         If
the Shares are regularly quoted by a recognized securities dealer but selling
          prices are not reported, the Fair Market Value shall be the mean between the
          high bid and low asked prices for the Shares on the last market trading day
          prior to the day of determination; or  </FONT></P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD ALIGN=RIGHT WIDTH=3%></TD>
<TD WIDTH=97%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;          In
the absence of an established market for the Shares, the Fair Market Value
          thereof shall be determined in good faith by the Board or the Committee.  </FONT></P></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>10. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EXERCISE
OF OPTION. </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Options
shall be exercisable pursuant to the terms under which they were awarded and subject to
the terms and conditions of this Plan, the Option Agreement and the Ordinance.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>10.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>An
Option, or any part thereof, shall be exercisable by the Grantee&#146;s signing and
returning to the Company at its principal office (and to the Trustee, if applicable), a
&#147;Notice of Exercise&#148; in such form and substance as may be prescribed by the
Board or by the Committee from time to time, together with full payment for the Shares
underlying such Option.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>10.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
exercise price shall be payable upon the exercise of the Option in a form satisfactory to
the Board or by the Committee and subject to limitations set forth by applicable law,
including without limitation, cash-less exercise (including on a net-issuance basis
without any cost to the Grantee), by cash or by check. Subject to applicable law, the
Board or the Committee shall have the authority to postpone the date of payment on such
terms as it may determine.  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>10.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Until
the Shares are issued (as evidenced by the appropriate entry in the official share
register of the Company or of a duly authorized transfer agent of the Company) no right
to vote or right to receive dividends or any other rights as a shareholder shall exist
with respect to such Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such Shares promptly after the Option is exercised.
No adjustment will be made for a dividend or other right the record date for which is
prior to the date the Shares are issued, except as provided in Section 12 of the Plan.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>10.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>If
the Company&#146;s Shares are publicly traded, payment for the Shares underlying an
Option may be made all or in part by the delivery (on a form prescribed by the Company)
of an irrevocable direction to a securities broker approved by the Company to sell Shares
and to deliver all or part of the sales proceeds to the Company as payment of the
exercise price (or the relevant portion thereof, as applicable) plus any withholding
taxes and related fees.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>11. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TERMINATION
OF RELATIONSHIP AS SERVICE PROVIDER. </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>11.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>Resignation
and Termination Without Cause. </B>Unless otherwise stated in the Option Agreement, if a
Grantee resigns, or is terminated without cause from his or her relationship as a Service
Provider, such Grantee may, at any time prior to the expiration of the term of the Option
Agreement, exercise any of his or her Options that are vested at the date of Cessation
for a period of three (3) months from the Cessation. At the end of such three (3) month
period, the Grantee&#146;s rights shall terminate with respect to any Options vested on
the date Cessation and not exercised, and the underlying Shares shall revert to the Plan.
All of such Grantee&#146;s rights with respect to the Options granted to him or her under
the Plan that are not vested at the date of Cessation, shall terminate and the underlying
Shares shall revert to the Plan immediately upon the Cessation.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>11.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>Termination
For Cause. </B>Unless otherwise stated in the Option Agreement, if a Grantee&#146;s
relationship as a Service Provider is terminated for Cause, such Grantee shall no longer
have the right to exercise his or her Options following the Cessation. All of such Grantee&#146;s
rights with respect to the Options granted to him or her under the Plan as of the date of
Cessation shall terminate and the underlying Shares shall revert to the Plan immediately
upon the Cessation.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>11.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>Death
and Disability.</B> Unless otherwise stated in the Option Agreement, if a Grantee should
die, or if a Grantee ceases to serve as a Service Provider by reason of such Grantee
becoming incapacitated while a Service Provider as a result of an accident or illness or
other cause which is approved by the Board or by Committee, such Grantee (or such Grantee&#146;s
successors, as the case may be) may, for a period of one (1) year from the Cessation,
exercise any of his or her Options that are vested at the date of Cessation. At the end
of such one (1) year period, the Grantee&#146;s rights shall terminate with respect to
any Options vested on the date Cessation and not exercised, and the underlying Shares
shall revert to the Plan. All of such Grantee&#146;s rights with respect to the Options
granted to him or her under the Plan that are not vested at the date of Cessation, shall
terminate and the underlying Shares shall revert to the Plan immediately upon the
Cessation  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>11.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><B>Continuation
of Relationship</B>. A Service Provider&#146;s relationship with the Company shall not be
deemed to have ceased (i) with respect to an Employee, in the event of any leave of
absence approved by the Company (or by the subsidiary that employs the Grantee) or (ii)
in the event of employee transfers between the Company and a Subsidiary.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>12. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ADJUSTMENTS.  </B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
the occurrence of any of the following described events, a Grantee&#146;s rights to
purchase Shares under the Plan shall be adjusted as hereinafter provided: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>12.1 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes
in Capitalization. </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject
to any required action by the shareholders of the Company and to the consent of the Board,
the number of Shares covered by each outstanding Option, the number of Shares which have
been reserved for issuance under the Plan but as to which no Options have yet been granted
or which have been returned to the Plan upon cancellation or expiration of an Option, as
well as the price per share of Shares covered by each such outstanding Option, may be
proportionately adjusted for any increase or decrease in the number of issued Shares
resulting from a share split, reverse share split, bonus shares (stock dividend),
combination or reclassification of the Shares, or any other increase or decrease in the
number of issued Shares effected for nominal or for no consideration to the Company. Such
adjustment shall be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the Company of
shares of any class, or securities convertible into shares of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or price of
Shares subject to an Option. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>12.2 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Merger,
Acquisition, or Asset Sale.</B>  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) In
the event of a merger or consolidation of the Company with or into another
          corporation resulting in such other corporation being the surviving entity, or
          resulting in the Company being the surviving entity and any other person or
          entity owning fifty percent (50%) or more of the outstanding voting power of
the           Company&#146;s securities, an acquisition of all or substantially all of
the           shares of the Company, or the sale of substantially all of the assets of
the           Company (each such event, a &#147;Transaction&#148;), each outstanding
Option           shall be assumed or an equivalent option or right shall be substituted
by the           successor corporation or a parent or subsidiary of the successor
corporation.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)  For
the purposes of this sub-section 12.2, the Option shall be considered           assumed
if, following a Transaction, the option or right confers the right to           purchase
or receive, for each share subject to the Option immediately prior to           the
Transaction, the consideration (whether stock, cash, or other securities or
          property) received in the Transaction by holders of Ordinary Shares for each
          share held on the effective date of the Transaction (and if holders were
offered           a choice of consideration, the type of consideration chosen by the
holders of a           majority of the outstanding Shares); provided, however, that if
such           consideration received in the Transaction is not solely common stock of
the           successor corporation or its parent, the Board may, with the consent of the
          successor corporation, provide for the consideration to be received upon the
          exercise of the Option, for each share subject to the Option, to be solely
          ordinary shares of the successor corporation or its parent equal in fair market
          value to the per share consideration received by holders of Ordinary Shares in
          the Transaction.  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>12.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
foregoing adjustments and the manner of application of the foregoing provisions shall be
determined by the Board in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to an option.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>13. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NON-TRANSFERABILITY
OF OPTIONS. </B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
Option may be transferred other than by will or by the laws of descent and distribution,
and during the Grantee&#146;s lifetime an Option may be exercised only by such Grantee. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>14. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TERM
AND AMENDMENT OF THE PLAN.</B>  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>14.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>No
Option may be granted by the Board under the Plan after the tenth (10<SUP>th</SUP>)
anniversary of the Effective Date, provided however, that any Option granted by the Board
prior to such date may extend beyond such date and the authority of the Board to amend,
alter, adjust suspend, discontinue, or terminate any such Option, to waive conditions or
rights attached to such Option and the authority of the shareholders to amend the Plan to
the extent applicable, shall also extend beyond such date.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>14.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Subject
to any requirements of applicable law and unless otherwise expressly provided for in an
Option Agreement, the Board may at any time, but after notification to any trustee, if
applicable, amend, alter, suspend or terminate the Plan. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Grantee, unless
mutually agreed otherwise between the Grantee and the Company, which agreement must be in
writing and signed by the Grantee and the Company. Termination of the Plan shall not
affect the Board&#146;s ability to exercise the powers granted to it hereunder with
respect to any Option granted under the Plan prior to the date of such termination.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>15. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TERM
OF OPTION. </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anything
herein to the contrary notwithstanding, but without derogating from the provisions of
Section 11 and Section 14 hereof, if any Option, or any part thereof, has not been
exercised and the Shares covered thereby not paid for within ten (10) years after the date
of grant (or any shorter period set forth in the Option Agreement), such Option, or such
part thereof, and the right to acquire such Shares shall terminate, and all interests and
rights of the Grantee in and to the same shall expire. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>16.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          <B>CONTINUANCE OF EMPLOYMENT OR SERVICE</B>. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
this Plan nor any offer of Options to a Grantee shall impose any obligation on the Company
or a Subsidiary, to continue to employ or engage the services of any Grantee, and nothing
in the Plan or in any Option granted pursuant thereto shall confer upon any Grantee any
right to continue in the employ or service of the Company or a Subsidiary or restrict the
right of the Company or a Subsidiary thereof to terminate such employment or services at
any time. </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>17. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;COMPLIANCE
WITH SECURITIES LAWS.</B>  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>17.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Notwithstanding
any other provision of the Plan, the Board shall have no obligation to issue or deliver
any Shares under the Plan or make any other distribution of benefits under the Plan
unless, in the opinion of the Company&#146;s counsel, such issuance, delivery or
distribution would comply with all applicable laws (including, without limitation, the
requirements of the United States Securities Act of 1933, as amended (the Securities Act&#148;)),
and the applicable requirements of any other securities laws, exchange or similar entity.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>17.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
Company shall be under no obligation to any Grantee to register for offering or resale or
to qualify for exemption under the Securities Act or similar law of any foreign
jurisdiction, or to register or qualify under state securities laws or foreign securities
laws, any Shares, security or interest in a security paid or issued under, or created by,
the Plan, or to continue in effect any such registrations or qualifications, if made.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>17.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>As
a condition to the exercise of an Option, the Company may require (a)&nbsp;that the
Grantee represent and warrant at the time of any such exercise or receipt that such
Shares are being purchased or received only for the Grantee&#146;s own account and
without any present intention to sell or distribute such Shares and (b)&nbsp;such other
action or agreement by the Grantee as may from time to time be necessary to comply with
applicable securities laws.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>17.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>At
the option of the Company, a stop-transfer order against any such Shares may be placed on
the official share register of the Company, and a legend indicating that such Shares may
not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in violation
of any applicable law or regulation, may be stamped on share certificates to ensure
exemption from registration. The Board may also require that the Grantee execute and
deliver to the Company a purchase agreement or such other agreement as may be in use by
the Company at such time that describes certain terms and conditions applicable to the
Shares.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>18. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GOVERNING
LAW. </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Plan and all instruments issued
thereunder or in connection therewith, shall be governed by, and interpreted in
accordance with, the laws of the State of Israel. without giving effect to the principles
of conflict of laws. The competent courts of Tel-Aviv, Israel shall have sole
jurisdiction in any matters pertaining to the Plan.  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;<B>19. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TAXES.</B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>19.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Any
tax consequences arising from the grant or exercise of any Option, from the payment for
Shares covered thereby, or from any other related event or act (of the Company, and/or a
Subsidiary, and/or the Trustee and/or the Grantee), hereunder, shall be borne solely by
the Grantee, including but not limited to the ultimate liability for income tax, social
insurance or other tax related liabilities or withholding obligations in connection with
or derived from the grant of an Option. The Company and/or its Subsidiary, and/or the
Trustee shall withhold taxes according to the requirements under the applicable laws,
rules, and regulations, including withholding taxes at source. Furthermore, the Grantee
shall agree to indemnify the Company and/or the Subsidiary and hold them harmless against
and from any and all liability for any such tax or interest or penalty thereon, including
without limitation, liabilities relating to the necessity to withhold, or to have
withheld, any such tax from any payment made to the Grantee for which the Grantee is
responsible, including specifically any additional tax liability the Company may incur as
a result of an exercise in connection with a 102 Trustee Grant or any transfer effected
prior to conclusion of the Required Holding Period. To the extent permitted by applicable
law and provided that such implementation will not create variable accounting problems
for the Company, the Company and/or the Subsidiary and/or the Trustee may make such
provisions and take such steps as it/they may deem necessary or appropriate for the
withholding of all taxes required by law to be withheld with respect to Options granted
under the Plan and the exercise thereof, including, but not limited, to (i) deducting the
amount so required to be withheld from any other amount then or thereafter payable to a
Grantee, and/or (ii) requiring a Grantee to pay to the Company or any Subsidiary the
amount so required to be withheld as a condition of the issuance, delivery, distribution
or release of any Shares. In addition, the Grantee will be required to pay any amount
that exceeds the tax to be withheld and transferred to the tax authorities, pursuant to
applicable Israeli tax regulations.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>19.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>The
receipt of these Options and the acquisition of the shares to be issued upon the exercise
of the Options may result in tax consequences for the Grantee. The description of tax
consequences set forth in this Plan does not purport to be complete. THE GRANTEE IS
ADVISED TO CONSULT WITH A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF RECEIVING
OR EXERCISING THE OPTIONS.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>20. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NON-EXCLUSIVITY
OF THE PLAN </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The adoption of the Plan by the
Company shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangements or as creating any limitations on the power of the
shareholders to adopt such other incentive arrangements as it may deem desirable and in
accordance with applicable law. Nothing contained in the Plan shall prevent the Company
from adopting or continuing in effect other or additional incentive compensation
arrangements for Service Providers of the Company or of any Subsidiary.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<B>21. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MULTIPLE
AGREEMENTS </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The terms of each Option granted
under the Plan may differ from any other Option granted at the same time or at any other
time under the Plan and there shall be no obligation for uniformity of treatment of
Service Providers with respect to any grant under the Plan.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;22. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EFFECTIVE
DATE </B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The effective date of the Plan is
the date on which the shareholders of the Company ratify the adoption of the Plan, which
was previously approved by the Board, at a duly convened meeting of the shareholders (the
<B>&#147;Effective Date</B>&#148;).  </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT 3 </FONT></H1>



<TABLE WIDTH="100%" BORDER="1" CELLPADDING="3" CELLSPACING="0" RULES="Groups">
<TR VALIGN="TOP">
     <TD WIDTH="32%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="38%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="7%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="7%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD WIDTH="7%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD COLSPAN="5" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>PLEASE SIGN DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE PLEASE MARK YOUR VOTE IN BLUE OR <BR>BLACK INK AS SHOWN HERE</B> </FONT> <FONT FACE="Wingdings" SIZE="3">x </FONT>
</TD>
     </TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>FOR</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>AGAINST</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>ABSTAIN</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate a vote with respect to 1A or 1B<BR>
according to whether or not you have a Personal       <BR>
Interest in Proposal 1.  Your vote will not be counted<BR>
if you fail to vote or if you vote in both 1A and 1B.
</FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><FONT size="3" face="Wingdings">o</font> </FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>1A.  &nbsp;&nbsp;VOTE  HERE if you <B><U>do not</U></B>  have a  Personal<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest  (as  defined  below) in Proposal 1:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>APPROVAL OF D&amp;O INSURANCE.</B>
</FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></font></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></font></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></font></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>1B.  &nbsp;&nbsp;VOTE HERE if you have a Personal Interest (as<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;defined below) in Proposal 1:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>APPROVAL OF D&amp;O INSURANCE.</B>
</FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><FONT size="3" face="Wingdings">o</font> </FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>2.  &nbsp;&nbsp;&nbsp; <B>  APPROVAL OF SHARE OPTION PLAN (2004).</B>
</FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><FONT size="3" face="Wingdings">o</font> </FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate a vote with respect to 3A or 3B<BR>
according to whether or not you have a Personal       <BR>
Interest in Proposal 3.  Your vote will not be counted<BR>
if you fail to vote or if you vote in both 3A and 3B.
</FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><FONT size="3" face="Wingdings">o</font> </FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>3A. &nbsp;&nbsp;  VOTE HERE if you <B><U>do not</U></B> have a Personal<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest (as defined below) in Proposal 3:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>GRANT OF STOCK OPTIONS TO ALL <BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DIRECTORS OF THE COMPANY.</B>

</FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></font></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></font></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></font></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>3B.&nbsp;&nbsp;  VOTE HERE if you have a Personal Interest<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(as defined below) in Proposal 3:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>GRANT OF STOCK OPTIONS TO ALL<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DIRECTORS OF THE COMPANY.</B>
</FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><FONT size="3" face="Wingdings">o</font> </FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD>
     <TD VALIGN="Bottom" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <FONT size="3" face="Wingdings">o</font></FONT></TD></TR>
</TABLE>





<TABLE WIDTH="100%" BORDER="1" CELLPADDING="3" CELLSPACING="0" RULES="Groups">
<TR VALIGN="BOTTOM">
     <TD COLSPAN="2" VALIGN="Top"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">To change the address on your account,  please check the box at right and
indicate  your new address in the address  space above.  Please note that
changes to the  registered  name(s) on the account  may not be  submitted
via this method.   &nbsp;&nbsp;&nbsp;<FONT size="3" face="Wingdings">o
</font>
</FONT></Td>
     <Td colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Under  the  Israeli  Companies  Law  -  1999,  a  Personal  Interest  is  defined  as:  (1) a
shareholder's  personal  interest in the approval of an act or a transaction  of the Company,
including  (i) the  personal  interest  of his or her  relative  (which  includes  for  these
purposes  any members of his/her  immediate  family or the spouses of any such members of his
or her  immediate  family);  and (ii) a  personal  interest  of a body  corporate  in which a
shareholder  or any of his/her  aforementioned  relatives  serves as a director  or the chief
executive  officer,  owns at least 5% of its issued share capital or its voting rights or has
the right to appoint a  director  or chief  executive  officer,  but (2)  excludes a personal
interest  arising  solely  from  the  fact of  holding  shares  in the  Company  or in a body
corporate.
</FONT></Td>
     </TR>
<TR VALIGN="TOP">
     <TD WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>Signature of Shareholder _________________</FONT></TD>
     <TD WIDTH="15%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>Date: _________ </FONT></TD>
     <TD WIDTH="35%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>Signature of Shareholder _________________</FONT></TD>
     <TD WIDTH="20%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>Date: _________</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD colspan=4><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><B>Note:</B>  Please sign exactly as your name or names appear on this Proxy. When shares are held jointly,  each holder should sign. When signing as executor,  administrator,
attorney,  trustee or guardian, please give full title as such. If the signer is a corporation,  please sign full corporate name by duly authorized officer, giving full
title as such.  If signer is a partnership, please sign in partnership name by authorized person.
</FONT></TD>
</TR>
</TABLE>
<BR>


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<TR VALIGN="BOTTOM">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SILICOM LTD.</B></FONT></Td></TR>
<TR VALIGN="TOP">
     <TD WIDTH="100%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><B>Extraordinary Meeting of Shareholders to be held on December 23, 2004</B></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned shareholder of Silicom Ltd. (the <B>&#147;Company&#148;</B>) hereby appoints
Ilan Erez, the true and lawful attorney, agent and proxy of the undersigned, to vote, as
designated below, and in his discretion upon such other matters as may come before the
meeting, all of the Ordinary Shares of the Company which the undersigned is entitled in
any capacity to vote at the Extraordinary Meeting of Shareholders of the Company, to be
held at the corporate offices of the Company at 8 Hanagar Street, KfarSava 44000, Israel
on December 23, 2004, at 10:00 a.m. (local time), and all adjournments and postponements
thereof.
</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><B>This proxy when properly executed will be voted in accordance with the manner directed herein by the undersigned shareholder.  In order for your vote to be counted with
respect to Proposals 1 and 3, you must indicate whether you have a personal interest in such proposal by voting in either in item 1A or 1B and either in item 3A or 3B.</B>
</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><B>PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!</B></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)</FONT></TD></TR>
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