EXHIBIT 10.39

ADDITIONAL PURCHASE OBLIGATION AGREEMENT

        ADDITIONAL PURCHASE OBLIGATION AGREEMENT, dated as of July 4, 2000,
between Tower Semiconductor Ltd., an Israeli corporation (“T”), and SanDisk
Corporation, a Delaware corporation (“S”).

        WHEREAS, T and S are parties to that certain Share Purchase Agreement
dated July 4, 2000, relating to the sale by T to S of 866,551 of T’s Ordinary
Shares (the “ Share Purchase Agreement”) and parties to that certain Foundry
Agreement dated July 4, 2000, relating to the production of certain silicon
wafers by T for delivery to S; and

        WHEREAS, as a condition to the closing of the sale of certain of T’s
shares under the Share Purchase Agreement and the effectiveness of the Foundry
Agreement, T and S have each agreed to enter into this Agreement providing for
the issuance and delivery of conditional additional purchase obligations for the
purchase by S of Ordinary Shares of T, subject to the terms and conditions set
forth herein.

        NOW, THEREFORE, in consideration of the foregoing and for the purpose of
defining the terms and provisions of the Additional Purchase Obligations and the
respective rights and obligations thereunder of T and S, T and S hereby agree as
follows:

1.  Definitions

        1.1.  Certain Definitions. As used in this Agreement, terms not defined
herein shall have the meaning ascribed to them in the Share Purchase Agreement
and the following terms shall have the following respective meanings:

        “A Additional Purchase Obligation Certificates” shall have the meaning
ascribed to it in Section 2.2.

        “A Additional Purchase Obligations” shall have the meaning ascribed to
it in Section 2.1.

        “Additional Purchase Obligation Certificates” shall have the meaning
ascribed to it in Section 2.2.

        “Additional Purchase Obligations” shall have the meaning ascribed to it
in Section 2.1.

        “B Additional Purchase Obligation Certificates” shall have the meaning
ascribed to it in Section 2.2.

        “B Additional Purchase Obligations” – shall have the meaning ascribed to
it in Section 2.1.

        “Equity Securities” means (a) Ordinary Shares and securities convertible
into, or exercisable or exchangeable for, Ordinary Shares or rights or options
to acquire Ordinary Shares or such other securities, and (b) shares of any other
class or series of capital shares and securities convertible into, or
exercisable or exchangeable for, shares of such other class or series and rights
or options to acquire shares of such other class or series or such other
securities, in each case, excluding the Additional Purchase Obligations.

        “Exchange Act” means the Securities Exchange Act of 1934, as amended.

        “Exercise Price” means the purchase price per Ordinary Share to be paid
upon the exercise of each Additional Purchase Obligation in accordance with the
terms hereof, which price shall initially be $30 per share, as each may be
adjusted from time to time pursuant to Section 4 hereof.

        “Expiration Date” means the fifth anniversary of the date of this
Agreement subject to earlier termination of one or more of the Additional
Purchase Obligations pursuant to Section 5.1.

        “Exercise Notice” – shall have the meaning ascribed to in Section 2.1.3.

        “Grace Period” – shall have the meaning ascribed to it in Section 5.1.

        “Mandatory Exercise Event” shall have the meaning ascribed to it in
Section 5.1.

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        “Missed Exercise” - shall have the meaning ascribed to it in Section
5.1.

        “Nasdaq” means the Nasdaq National Market.

        “B Additional Purchase Obligation Certificates” shall have the meaning
ascribed to it in Section 2.2.

        “B Additional Purchase Obligations” – shall have the meaning ascribed to
it in Section 2.1.

        “Ordinary Shares” means the ordinary shares, par value NIS1.00 per share
of T and any other capital shares of T into which such ordinary shares may be
converted or reclassified or that may be issued in respect of, in exchange for,
or in substitution of, such ordinary shares by reason of any share splits,
shares dividends, distributions, mergers, consolidations or other like events.

        “SEC” means the Securities and Exchange Commission.

        “Securities Act” means the Securities Act of 1933, as amended.

        “Share Purchase Agreement” – as defined in the recitals to this
Agreement.

        “T” means T, an Israeli corporation, and its successors and assigns.

        “Underlying Ordinary Shares” means the Ordinary Shares issuable or
issued upon the exercise of the Additional Purchase Obligations.

2.  Original Issue of Additional Purchase Obligations

        2.1.  The Additional Purchase Obligations.

        2.1.1.  A Additional Purchase Obligations. On the basis of the
representations, warranties and agreements contained in this Agreement, but
subject to the terms and conditions hereof, concurrently with the execution of
this Agreement, T shall issue and deliver to S warrants mandatorily exercisable
under Section 5.1 hereof for the purchase of up to an aggregate of 1,833,450
Ordinary Shares of T by S subject to adjustment as set forth herein (the “A
Additional Purchase Obligations”).

        2.1.2.  B Additional Purchase Obligations. On the basis of the
representations, warranties and agreements contained in this Agreement, but
subject to the terms and conditions hereof, concurrently with the execution of
this Agreement, T shall issue and deliver to S Additional Purchase Obligations
for the purchase of up to an aggregate of 2,700,000 Ordinary Shares of T by S
subject to adjustment as set forth herein. Pursuant to the election of S to
exercise the B Additional Purchase Obligations as provided in Section 2.1.3
below, the B Additional Purchase Obligations shall become mandatorily
exercisable under Section 5.1 hereof (the “B Additional Purchase Obligations”
and together with the A Additional Purchase Obligations, the “Additional
Purchase Obligations”).

        2.1.3.  B Additional Purchase Obligations Exercise Notice. In the event
that S elects to exercise the B Additional Purchase Obligations, S is required
to deliver to T, no later than October 1, 2001(the “Exercise Date”) , a written
notice (the “Exercise Notice”) of its election to exercise the B Additional
Purchase Obligations under Section 5.1 hereof. The Exercise Notice shall be
accompanied by a payment for such number of B Additional Purchase Obligations as
shall have been exercised in the A Additional Purchase Obligation series through
the Exercise Date. For instance, if by the Exercise Date the A-1, A-2 and A-3
Additional Purchase Obligations shall have been exercised, on the Exercise Date
S shall make a payment for the B-1, B-2 and B-3 Additional Purchase Obligations.
For the avoidance of all doubt, the B Additional Purchase Obligations shall not
become exercisable until the delivery o f the Election Notice and failure to
deliver the Election Notice to T within the above date shall cause the B
Additional Purchase Obligations to terminate and become void.

        2.2.  Form of Additional Purchase Obligation Certificates. The A
Additional Purchase Obligations shall be designated in five series (Series A1 –
A5), each evidenced by an Additional Purchase Obligation certificate in the form
of Exhibits A1 – A5 attached hereto (the “A Additional Purchase Obligation
Certificates”). The B Additional Purchase Obligations shall be designated in
five series (Series B1 – B5), each evidenced by an Additional Purchase
Obligation certificate in the form of Exhibits B1 – B5 attached hereto (the “B
Additional Purchase Obligation

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Certificates” and together with the A Additional Purchase Obligation
Certificates, the “Additional Purchase Obligation Certificates”). Each A
Additional Purchase Obligation series shall contain Additional Purchase
Obligations to purchase up to an aggregate of 366,690 Ordinary Shares of T. Each
B1- to B-5 Additional Purchase Obligation series shall contain Additional
Purchase Obligations to purchase 540,000 Ordinary Shares of T. Each Additional
Purchase Obligation Certificate shall be dated the date hereof and shall bear
the legend set forth in Exhibit C, together with such other legends and
endorsements thereon as may be required to comply with any law or with any rule
or regulation pursuant thereto or with any rule or regulation of any securities
exchange on which the Ordinary Shares may be listed, or to conform to customary
usage.

3.  Exercise Price; Exercise of Additional Purchase Obligations Generally

        3.1.  Payment of Exercise Price. Each Additional Purchase Obligation
Certificate shall entitle the holder thereof, subject to the provisions thereof
and of this Agreement, to receive up to the number of Ordinary Shares stated
therein, subject to adjustment as herein provided, upon payment of the Exercise
Price for each of such shares. The Exercise Price shall be payable by wire
transfer of immediately available funds to T in accordance with written wiring
instructions provided by T, or by such other means as may be mutually agreed by
the parties.

        3.2.  Exercise Periods of A and B Additional Purchase Obligations

        3.2.1.  Exercise Period of A Additional Purchase Obligations. Subject to
the terms and conditions set forth herein, the A Additional Purchase Obligations
shall be exercisable at any time on or after the Closing Date under the Share
Purchase Agreement and on or prior to the Expiration Date.

        3.2.2.  Exercise Period of B Additional Purchase Obligations. Subject to
the terms and conditions set forth herein, the B Additional Purchase Obligations
shall be exercisable at any time after the delivery of the Exercise Notice,
pursuant to Section 2.1.3, and on or prior to the Expiration Date.

        3.3.  Expiration of Additional Purchase Obligations. The Additional
Purchase Obligations shall terminate and become void as of the close of business
on the Expiration Date.

        3.4.  Exercise Generally. Subject to Section 5, in order to exercise an
Additional Purchase Obligation, S must surrender the Additional Purchase
Obligation Certificate evidencing such Additional Purchase Obligation to T, with
one of the forms on the reverse of or attached to the Additional Purchase
Obligation Certificate duly executed. Subject to the terms of Section 5, each
Additional Purchase Obligation may be exercised in whole or in part, provided
that no Additional Purchase Obligation may be exercised for the purchase of less
than an aggregate of 100,000 Ordinary Shares. If fewer than all of the
Additional Purchase Obligations represented by an Additional Purchase Obligation
Certificate are surrendered, such Additional Purchase Obligation Certificate
shall be surrendered and a new Additional Purchase Obligation Certificate
substantially in the form of the Additional Purchase Obligation Certificate
surrendered for partial exercise thereof providing for purchase by S of the
number of Ordinary Shares that were not exercised shall be executed by T and
issued to S.

        Upon surrender of an Additional Purchase Obligation Certificate and
payment of the Exercise Price in conformity with the foregoing provisions, T
shall promptly issue to S appropriate evidence of ownership of the Ordinary
Shares or other securities or property to which S is entitled, including share
certificates in the name of S and evidence of such Ordinary Shares having been
registered in the share register of T in the name of S. Such Shares shall bear
the same legend as set forth in Section 4.3.2 of the Share Purchase Agreement.

4.  Adjustments

        4.1.  Adjustment of Exercise Price and Number of Shares of Ordinary
Shares

              The (a) number and kind of shares purchasable upon the exercise of
Additional Purchase Obligations and (b) Exercise Price shall both be subject to
adjustment from time to time as follows:

        4.1.1.  Stock Dividends, Share-Splits, Combinations, etc. In case T
shall hereafter (a) pay a stock dividend or make a distribution (whether in
Ordinary Shares or capital shares of any other class on its Ordinary Shares),
(b) subdivide its outstanding Ordinary Shares, (c) combine its outstanding
Ordinary Shares into a smaller number of shares, or (d) issue by
reclassification of its Ordinary Shares any capital shares of T, the Exercise
Price in effect immediately prior to such action (after giving effect to all
other adjustements under this Section 4) shall be adjusted so that, in relation
to any Additional Purchase

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             Obligation thereafter exercised, S shall be entitled to receive the
number of Ordinary Shares or of other capital shares which S would have owned
immediately following such action had such Additional Purchase Obligation been
exercised immediately prior thereto. An adjustment made pursuant to this
paragraph shall become effective immediately after the record date in the case
of a dividend and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.

        4.1.2.  Reclassification, Combination, Mergers, etc. In case of any
reclassification or change of outstanding Ordinary Shares issuable upon exercise
of the Additional Purchase Obligations (other than (i) as set forth in paragraph
4.1.1 above, and (ii) a change in par value, or from par value to no par value,
or from no par value to par value or (iii) as a result of a subdivision or
combination), or in case of any consolidation or merger of T with or into
another corporation (other than a merger in which T is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding Ordinary Shares or other capital shares issuable upon exercise
of the Additional Purchase Obligations (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or in case of any sale or conveyance to ano
ther corporation of the property of T as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, T or such a successor or purchasing corporation, as
the case may be, shall forthwith make lawful and adequate provision whereby S
shall have the right thereafter to receive on exercise of such Additional
Purchase Obligation the kind and amount of shares and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of Ordinary Shares issuable upon
exercise of such Additional Purchase Obligation immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The above provisions of this paragraph 4.1.2 shall similarly apply to
successive reclassificati on and changes of Ordinary Shares and to successive
consolidations, mergers, sales or conveyances.

        4.1.3.  Deferral of Certain Adjustments. No adjustment to the Exercise
Price (including the related adjustment to the number of Ordinary Shares
purchasable upon the exercise of each Additional Purchase Obligation) shall be
required hereunder unless such adjustment, together with other adjustments
carried forward as provided below, would result in an increase or decrease of at
least one percent of the Exercise Price, provided, however, that any adjustments
which by reason of this paragraph 4.1.3 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. No
adjustment need be made for a change in the par value of the Ordinary Shares.

        4.1.4.  Other Adjustments. In the event that at any time, as a result of
an adjustment made pursuant to this Section 4, S shall become entitled to
receive any securities of T other than Ordinary Shares thereafter the number of
such other securities so receivable upon exercise of the Additional Purchase
Obligations and the Exercise Price applicable to such exercise shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Ordinary Shares contained in
this Section 4.

        4.2.  Notice of Adjustment. Whenever the number of Ordinary Shares or
other Equity Securities or property issuable upon the exercise of each
Additional Purchase Obligation or the Exercise Price is adjusted, as herein
provided, T shall promptly mail by first class mail, postage prepaid, to S
notice of such adjustment or adjustments and shall deliver to S a certificate of
T’s chief financial officer setting forth the number of Ordinary Shares or other
Equity Securities or property issuable upon the exercise of each Additional
Purchase Obligation or the Exercise Price after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.

        4.3.  Statement on Additional Purchase Obligations. Irrespective of any
adjustment in the number or kind of shares issuable upon the exercise of the
Additional Purchase Obligations or the Exercise Price, Additional Purchase
Obligations theretofore or thereafter issued may continue to express the same
number and kind of shares as are stated in the Additional Purchase Obligations
initially issuable pursuant to this Agreement.

        4.4.  Fractional Interest. T shall not be required to issue fractional
Ordinary Shares upon the exercise of Additional Purchase Obligations. If more
than one Additional Purchase Obligation shall be presented for exercise in full
at the same time, the number of full Ordinary Shares which shall be issuable
upon such exercise shall be

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computed on the basis of the aggregate number of Ordinary Shares acquirable on
exercise of the Additional Purchase Obligations so presented. If any fraction of
an Ordinary Share would, except for the provisions of this section, be issuable
on the exercise of any Additional Purchase Obligation (or specified portion
thereof), T shall pay an amount in cash calculated by it to equal to the then
current market value per share multiplied by such fraction computed to nearest
whole cent. S, by its acceptance of the Additional Purchase Obligation
Certificates, expressly waive any and all rights to receive any fraction of an
Ordinary Share or a share certificate representing a fraction of an Ordinary
Share.

5.  Mandatory Exercise

        5.1.  Mandatory Exercise Events; Termination of Obligation. Subject to
the terms and conditions contained herein, S shall be obligated to exercise each
Additional Purchase Obligation within thirty days of the following events (each
a “Mandatory Exercise Event”):

        5.1.1.  In respect of the Series A-1 Additional Purchase Obligation (and
the B-1 Additional Purchase Obligation if an Exercise Notice was delivered prior
to the date the Series A-1 Additional Purchase Obligation is mandatorily
exercisable), upon receipt of written notice from T signed by the two Co-CEOs
(or by the CEO, in the event that at the relevant time the Company shall employ
only one CEO) and the Chairman of the Board of T certifying that the Board of
Directors of T has authorized commencement of construction of Fab 2 at the site
set forth in the Business Plan, which approval shall not occur prior to
obtaining all regulatory approvals necessary for the construction start as
described in the Business Plan, provided that such event must occur no later
than one month after the Closing under the Share Purchase Agreement;

        5.1.2.  In respect of the Series A-2 Additional Purchase Obligation and
the Series B-2 Additional Purchase Obligation (if an Exercise Notice was
delivered prior to the date the Series A-2 Additional Purchase Obligation is
mandatorily exercisable), upon receipt of written notice from T signed by the
two Co-CEOs or the CEO, as the case may be, and the Chairman of the Board of T
certifying the commencement of construction of the shell of the Fab 2 building
in accordance with the Business Plan provided that such event must occur no
later than three months after the Closing under the Share Purchase Agreement;

        5.1.3.   In respect of the Series A-3 Additional Purchase Obligation and
the Series B-3 Additional Purchase Obligation (if an Exercise Notice was
delivered prior to the date the Series A-3 Additional Purchase Obligation is
mandatorily exercisable), upon receipt of written notice from T signed by the
two Co-CEOs or the CEO, as the case may be, and the Chairman of the Board of T
certifying the completion of the construction of the first phase of the
cleanroom of Fab 2 in accordance with the Business Plan provided that such event
must occur no later than 12 months after the Closing under the Share Purchase
Agreement;

        5.1.4.  In respect of the Series A-4 Additional Purchase Obligation and
the Series B-4 Additional Purchase Obligation (if an Exercise Notice was
delivered prior to the date the Series A-4 Additional Purchase Obligation is
mandatorily exercisable), upon receipt of written notice from T signed by the
two Co-CEOs or the CEO, as the case may be, and the Chairman of the Board of T
certifying the completion of successful pilot production in Fab 2 in accordance
with the Business Plan provided that such event must occur no later than 18
months after the Closing under the Share Purchase Agreement; and

        5.1.5.  In respect of the Series A-5 Additional Purchase Obligation and
the Series B-5 Additional Purchase Obligation (if an Exercise Notice was
delivered prior to the date the Series A-5 Additional Purchase Obligation is
mandatorily exercisable), upon receipt of written notice from T signed by the
two Co-CEOs or the CEO, as the case may be, and the Chairman of the Board of T
certifying that Fab 2 has successfully produced wafers at the rate of 5,000 per
month for two full consecutive months in accordance with the Business Plan
provided that such event must occur no later than 22 months after the Closing
under the Share Purchase Agreement.

        Each of the Mandatory Exercise Events shall be deemed to have occurred
if the Mandatory Exercise Event occurs within seven and one-half months from its
original exercise date set forth above (such seven and one-half month period, a
“Grace Period”). In the event that one of the Mandatory Exercise Events does not
occur by the last date set forth in the relevant clause of clauses 5.1.1 –
5.1.5, including

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             during the corresponding Grace Period (a “Missed Exercise”), then,
if the subsequent Mandatory Exercise Event does not occur by no later than the
end of its corresponding Grace Period, S shall not be obligated to effect the
Missed Exercise and any subsequent series of Additional Purchase Obligations and
the Additional Purchase Obligation relating to the Missed Exercise, to the
extent such Additional Purchase Obligations are unexercised, shall automatically
expire. However, if such subsequent Mandatory Exercise Event does occur within
the applicable Grace Period, then S shall be obligated to exercise the
Additional Purchase Obligation related to that subsequent Mandatory Exercise
Event and shall be required to either effect the Missed Exercise within thirty
days of the occurrence of the relevant subsequent Mandatory Exercise Event or
the Additional Purchase Obligation relating to the Missed E xercise shall
expire.

        In addition, and without limiting any other remedies available to T, in
the event that S fails to exercise an Additional Purchase Obligation in
connection with a Mandatory Exercise Event which it is obligated to effect
pursuant to this Section 5, any Additional Purchase Obligations unexercised at
such time shall automatically expire

        5.2.  Percentage Ownership Delay. Notwithstanding the provisions of
Section 5.1, S may delay the exercise of any Additional Purchase Obligation if
any such exercise would result in S owning more than 19.9% of the outstanding
share capital of T.

        5.3.  Other Conditions to Mandatory Exercise. In addition to the
conditions to Mandatory Exercise contained in Section 5.1, S’s obligation to
effect a Mandatory Exercise shall be subject to satisfaction of the following
conditions (any of which may be waived by S, in whole or in part, in S’s
discretion) in relation to each Mandatory Exercise:

        5.3.1.  Accuracy of Representations. All of T’s representations and
warranties in Section 6.1(i) of this Agreement must have been accurate in all
material respects (except that such representations and warranties specifically
qualified by materiality shall be read for purposes of this Section so as not to
require an additional degree of materiality) as of the date of this Agreement,
and must be accurate in all material respects as of the date of the relevant
Mandatory Exercise, after giving effect, with respect to the representations
made in Section 3.1 and 3.3 of the Share Purchase Agreement, to the issuance of
Ordinary Shares contemplated by the Business Plan and Additional Financing Plan
and without giving effect to any supplement to the Schedules other than
supplements disclosing events and facts not existing at the time of the Closing
and arising in the Ordinary Course of Business.

        5.3.2.  Additional Financings. T shall have raised all the funds under
the Additional Financings required thereunder to have been raised or obtained
either prior to or simultaneously with the date of the relevant Mandatory
Exercise as described in the Additional Financing Plan (each, a “Target Date”),
including those funds required to have been raised by the relevant Target Date
under (i) the debt or equity financing described in Section 10 of the Business
Plan and (ii) under the grant from the Investment Center, in each case on terms
and conditions which do not significantly deviate from the terms and conditions
agreed upon in accordance with Section 5.6 of the Share Purchase Agreement,
provided, however, that this condition shall be deemed to have been not
satisfied only if the failure to raise such funds causes a material change in
the timetable or cost of the Fab 2 project in relati on to the Business Plan as
determined by S. Notwithstanding the foregoing, the conditions set forth in this
Section 5.2.2 shall be deemed to have been met if the funds which were not
raised as of the relevant Target Date are raised within 90 days of such Target
Date on terms and conditions substantially similar to the terms and conditions
upon which such funds were supposed to have been raised in accordance with
Section 5.6 of the of the Share Purchase Agreement.

        5.3.3.  Transaction Documents; Ancillary Agreements. Each of the
Transaction Documents and the Toshiba Agreement shall be in full force and
effect and shall not have been materially breached by any party thereto.

        5.3.4.  Certificates. In addition to the documents T is obligated to
deliver to S under this Section 5, T shall furnish S with such other documents
as T may reasonably request for the purpose of (i) evidencing the performance by
T of, or the compliance by T with, any covenant or obligation required to be
performed or complied with by T in relation to the relevant Mandatory Exercise
and (ii)  evidencing the satisfaction of any condition referred to in this
Section 5.

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        5.3.5.  No Proceedings. Since the date of this Agreement, there must not
have been commenced by a third party against S or T, or against any Person
affiliated with S or T, any Proceeding (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the Contemplated Transactions.

        5.3.6.  Bankruptcy-Related Events. None of the following events shall
have occurred for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary, or come about or be effected by operation of law, or
pursuant to or in compliance with any judgement, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

        5.3.6.1.  T shall be unable to pay its debts generally as they become
due; file a petition to take advantage of any insolvency statute; make an
assignment for the benefit of its creditors; commence a proceeding for the
appointment of a receiver, trustee, liquidator or conservator of itself or of
the whole or any substantial part of its property; file a petition or answer
seeking reorganization or arrangement or similar relief under applicable
bankruptcy laws; or

        5.3.6.2.  A court of competent jurisdiction shall have entered an order,
judgement or decree appointing a custodian, receiver, trustee, liquidator or
conservator of T or of the whole or any substantial part of its properties, or
approve a petition filed against T seeking reorganization or arrangement or
similar relief under applicable bankruptcy, or if, under the provisions of any
law for the relief or aid of debtors, a court of competent jurisdiction shall
assume custody or control of T or of the whole or any substantial part of its
properties, or if there was commenced against T any proceeding or petition
seeking reorganization or arrangement or similar relief under applicable
bankruptcy laws, or if T shall have taken any action to indicate its consent to
or approval of any such proceeding or petition, and any one of which proceedings
shall not have been vacated or abandoned within 30 days.

        5.3.6.3.  A default shall have occurred in any agreement or instrument
under or pursuant to which any material indebtedness of T shall have been
issued, created, assumed, guaranteed or secured, and such default shall
continure for more than the period of grace, if any, therein specified, or if
such default shall permit the holder of such indebtedness to accelerate the
maturity thereof, provided, however, that the condition contained in this
Section 5.3.6.3 shall not be deemed to have been satisfied in the event that a
default in any agreement or instrument under which any indebtedness of T has
been issued could give rise to a cross default provision in in any agreement or
instrument under or pursuant to which any material indebtedness of T shall have
been issued, created, assumed, guaranteed or secured, or if the cumulative
effect of any or all such defaults could be material to the Company.

6.  Representations and Warranties

        6.1.  Representations and Warranties of T. (i) T hereby makes in favor
of S, as of the date hereof and as of the date of each exercise of each
Additional Purchase Obligation, each of the representations and warranties made
by the Company in Sections 3.1, 3.2, 3.3, 3.14.1(i), the first two sentences of
3.14.2 and clause (ii) of the first paragraph of 3.15 of the Share Purchase
Agreement, provided that references to “this Agreement” shall refer both to this
Agreement and the Share Purchase Agreement; references, directly or indirectly,
to the Escrow Agreement shall be ignored; references to “Shares” and the
“Closing” shall be deemed to be references to the Ordinary Shares to be issued
pursuant to the exercise of the Additional Purchase Obligation; and references
to the “Closing Date” shall refer to the date that Ordinary Shares are actually
issued and delivered to S purs uant to the relevant exercise of an Additional
Purchase Obligation. Notwithstanding the foregoing, the representation contained
in the first two sentences of Section 3.14.2 shall be read to relate to Fab 2.
In the event that it is uncertain if a situation, event or fact that would
otherwise be included in the scope of such representation relates to Fab 2, the
matter shall be conclusively decided by the Project Committee.

        6.2.  Representations and Warranties of S. S hereby makes in favor of T,
as of the date hereof and as of the date of each exercise of an Additional
Purchase Obligation, the representations and warranties made by S under Sections
4.1 – 4.5 of the Share Purchase Agreement, provided that references to “this
Agreement” shall refer both to this Agreement and the Share Purchase Agreement,
references to Shares shall refer to the Additional Purchase

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Obligations and the Ordinary Shares issuable upon the exercise thereof and
references, directly or indirectly, to the Escrow Agreement shall be ignored.

7.  Covenants

        7.1.  Reservation of Shares. T will reserve for issuance such number of
Ordinary Shares as shall be sufficient for issuance and delivery thereof upon
exercise of all outstanding Additional Purchase Obligations and will take any
and all corporate action necessary to validly and legally issue fully paid and
nonassessable Ordinary Shares.

        7.2.  Consents; Required Approvals. T and S will each, as promptly as
practicable after the date of this Agreement, take all action required of each
of them, respectively, to obtain as promptly as practicable all necessary
Consents and agreements of, and to give all notices and make all other filings
with, any third parties, including Governmental Bodies, necessary to authorize,
approve or permit the consummation of the transactions contemplated hereby, the
Contemplated Transactions and the transactions contemplated by the Ancillary
Agreements. Between the date of this Agreement and the date of the last issuance
of Ordinary Shares pursuant to an exercise of a Additional Purchase Obligation,
T will cooperate with S with respect to all filings that S elects to make or is
required by Legal Requirements to make in connection with the performance of
this Agreement and the Additional Purchase Obligations and S will l ikewise
cooperate with T.

        7.3.  Operation of T’s Business. Between the date of this Agreement and
the date of the last issuance of Ordinary Shares pursuant to a Mandatory
Exercise, T will not (i) take or agree or commit to take any action that would
make any representation or warranty of T hereunder inaccurate in any respect at,
or as of any time prior to, the date of the last issuance of Ordinary Shares
pursuant to a Mandatory Exercise or (ii) omit or agree or commit to omit to take
any action necessary to prevent any such representation or warranty from being
inaccurate in any respect at any such time.

8.  Miscellaneous

        8.1.  Payment of Taxes. T will pay all taxes and other governmental
charges (other than on the net income of S) that may be imposed or deliverable
upon exercise of Additional Purchase Obligations and issuance of Ordinary Shares
with respect thereto. T will not be required, however, to pay any tax or other
charges which may be payable in respect of any transfer involved in the issue of
any certificate for Ordinary Shares or other securities underlying the
Additional Purchase Obligations or payment of cash or other property to any
person other than the holder of an Additional Purchase Obligation Certificate
surrendered upon the exercise thereof.

        8.2.  Mutilated, Destroyed, Lost and Stolen Additional Purchase
Obligation Certificates. If (a) any mutilated Additional Purchase Obligation
Certificate is surrendered to T or (b) T receives evidence to its satisfaction
of the destruction, loss or theft of any Additional Purchase Obligation
Certificate, then, T shall execute and deliver, in exchange for any such
mutilated Additional Purchase Obligation Certificate or in lieu of any such
destroyed, lost or stolen Additional Purchase Obligation Certificate, a new
Additional Purchase Obligation Certificate of like tenor and for a like
aggregate number of Additional Purchase Obligations.

              Upon the issuance of any new Additional Purchase Obligation
Certificate under this Section 8.2, T may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and other expenses in connection therewith and an appropriate
indemnity with respect to losses related thereto.

              Every new Additional Purchase Obligation Certificate executed and
delivered pursuant to this Section 8.2 in lieu of any destroyed, lost or stolen
Additional Purchase Obligation Certificate shall constitute an original
contractual obligation of T, whether or not the destroyed, lost or stolen
Additional Purchase Obligation Certificate shall be at any time enforceable by
anyone, and shall be entitled to the benefits of this Agreement equally and
proportionately with any and all other Additional Purchase Obligation
Certificates duly executed and delivered hereunder.

              The provisions of this Section 8.2 are exclusive and shall prelude
(to the extent lawful) all other rights or remedies with respect to the
replacement of mutilated, destroyed, lost or stolen Additional Purchase
Obligation Certificates.

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        8.3.  Miscellaneous Rights. The rights of S upon the occurrence of the
events set forth in this Agreement are cumulative. If more than one such event
shall occur and the periods following the occurrence of such events and prior to
the closing of the transactions that are the subject of such events overlap, S
may exercise such rights arising therefrom as S may elect without any condition
imposed upon such exercise not contained in this Agreement.

        8.4.  Notices. Any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed if sent by first-class
mail, postage prepaid, addressed to the parties as follows:

 T:

 Attention: Co-Chief Executive Officer
P.O. Box 619
Migdal Haemek 23105 Israel
Facsimile No.: 972-6-654-7788

 with a copy to: Yigal Arnon & Co.
3 Daniel Frisch Street
Tel Aviv, Israel

 Attention: David H. Schapiro, Adv.
Facsimile No.: 972-3-608-7714

 S:

 Attention: President and CEO
SanDisk Corporation
140 Caspian Court
Sunnyvale, California 94089
Facsimile No.: (408) 542-0600

 with a copy to: SanDisk Corporation
140 Caspian Court
Sunnyvale, California 94089

 Attention: Vice President and General Counsel
Facsimile No.: (408) 548-0385

              or such other address as shall have been furnished to the party
giving or making such notice, demand or delivery.

        8.5.  Assignments, Successors, and no Third-Party Rights. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, except that S may assign any of its rights under this
Agreement to any wholly owned Subsidiary of S or to any Subsidiary which is
wholly owned other than a nominal interest, so long as such ownership shall be
maintained. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.

        8.6.  Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.

        8.7.  Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the term sheet between S and T dated March 15, 2000 and all drafts
hereof and thereof) and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.

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        8.8.  Termination. This Agreement (other than T’s obligations with
respect to Additional Purchase Obligations previously exercised) and the
indemnification provisions relating hereto appearing in Sections 10 of the Share
Purchase Agreement, shall terminate and be of no further force and effect on the
Expiration Date.

        8.9.  Applicable Law. This Agreement and each Additional Purchase
Obligation issued hereunder and all rights arising hereunder shall be governed
by the law of the State of California, without giving effect to the conflict of
laws provisions thereof.

        8.10.  Headings. The descriptive headings of the several Sections of
this Agreement are inserted for convenience and shall not control or affect the
meaning or construction of any of the provisions hereof.

        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.

TOWER SEMICONDUCTOR LTD.     By: /s/  Yoav Nissan
Cohen                                           Name:  Yoav Nissan Cohen
Title:  Co-Chief Executive Officer

SANDISK CORPORATION     By: /s/  Eli Harari                              
                             Name:  Eli Harari
Title:  Chief Executive Officer