<PAGE>

                                                                   Exhibit 10.37

                                                         Date: November 11, 2003

To:     Tower Semiconductor Ltd.
        P.O. Box 619
        Migdal Haemek 23105
        Israel
        Fax: +972-4-654-7788
        Attention: Chief Executive Officer

Re:AMENDMENT NO.3 TO PAYMENT SCHEDULE OF SERIES A-5 ADDITIONAL PURCHASE
OBLIGATIONS, WAIVER OF SERIES A-5 CONDITIONS, CONVERSION OF SERIES A-4 WAFER
CREDITS AND OTHER PROVISIONS

Dear Sirs,

         With regard to the obligation of each party to this letter (a "Party")
to exercise its Series A-5 Additional Purchase Obligations, as provided for in
its Fab 2 Investment Agreements, as amended through the date hereof, including
the MS 5 Agreement attached hereto as Exhibit A (the "Amendment") and the
letters dated February 24, 2003 and April 14, 2003 (the "Prior Letters") (the
Amendment and the Prior Letters, together, the "Former MS 5 Agreement"), all
capitalized terms not defined herein shall be as defined in the Former MS 5
Agreement, each Party to this letter agreement ("Amendment No. 3") hereby agrees
as follows, notwithstanding anything to the contrary set forth in the Former MS
5 Agreement:

         1.       In the event that each of Bank Hapoalim B.M. and Bank
                  Leumi-Le-Israel B.M. (the "Banks") and Tower shall have agreed
                  to amend the terms of the Facility Agreement, dated January
                  18, 2001, as amended (the "Facility Agreement"), such that,
                  inter alia, Tower's obligation to raise any additional
                  financing pursuant to Section 16.27.2 of the Facility
                  Agreement will be deferred until after December 31, 2003 (it
                  being acknowledged that such obligation shall be increased to
                  approximately $152,000,000 over and above the approximately
                  $86,000,000 already raised pursuant to said Section 16.27.2)
                  (the "Waiver") and all of Tower's Milestones, as such term is
                  defined under the current Facility Agreement, will be waived
                  or adjusted in accordance with the amended Business Plan Tower
                  has adopted and submitted to the Banks, each Party hereto
                  shall advance to the Company in one aggregate lump sum the
                  remaining portion of each Party's respective First Installment
                  and the total portion of each Party's respective Second
                  Installment in the dollar amounts set forth with respect to
                  such Party in Exhibit B hereto (the "Payments"), by no later

                                       1

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                  than three business days following the date the Company's
                  shareholders approve this Amendment No. 3 (the "Payment
                  Date"); the date the Company's shareholders approve this
                  Amendment No. 3 to be evidenced by a certificate delivered to
                  each of the Parties and executed by Tower's CEO certifying the
                  receipt of shareholder approval and the procurement of the
                  Waiver.

         2.       With respect to its remaining portion of the First
                  Installment, each Party will be issued fully-paid and
                  non-assessable ordinary shares of Tower equivalent to the
                  aggregate of its remaining portion of the First Installment
                  divided by $2.983 as set forth in the Amendment.

         3.       With respect to the Second Installment, each Party will be
                  issued fully-paid and non-assessable ordinary shares of Tower
                  equivalent to the aggregate of the Second Installment divided
                  by the price per share in a public offering for which a draft
                  prospectus was filed with the SEC within ninety (90) days from
                  the date hereof (the "Public Offering"; such price per share
                  referred to herein as the "Public Offering Price Per Share"),
                  provided however, that if such public offering is not
                  consummated within one hundred and eighty (180) days from the
                  date hereof, then each Party will be issued fully-paid and
                  non-assessable ordinary shares of Tower equivalent to the
                  aggregate of the Second Installment divided by the average
                  trading price for the ordinary shares of Tower during the
                  fifteen (15) consecutive trading days preceding the Payment
                  Date (the "Second Installment Price Per Share"). Promptly
                  following the transfer of the Payments, shares with respect to
                  the First Installment will be issued as set forth above and,
                  with respect to the Second Installment (assuming the transfer
                  of the Payment with respect thereto), shares will be issued
                  equivalent to the aggregate of the Second Installment divided
                  by the Public Offering Price Per Share, or the Second
                  Installment Price Per Share, as applicable, provided however
                  that the number of shares issued in connection with the Second
                  Installment may later be increased if the price per share with
                  respect to the Second Installment is the Second Installment
                  Price Per Share as described in Section 4 below.

                                       2
<PAGE>

         4.       Provided that the price per share with respect to the Second
                  Installment is the Second Installment Price Per Share, then
                  following the completion of a Raising (as defined below) by
                  Tower, and provided (1) that the price per share in such
                  Raising is lower than the Second Installment Price Per Share,
                  (the "Raising Price Per Share") and (2) that an Equity Raising
                  shall not include (a) the Public Offering, (b) an offering of
                  securities to all or substantially all of Tower's
                  shareholders, and (c) any offering of securities in connection
                  with a Safety Net Investment (as defined below), each party
                  shall receive additional ordinary shares of Tower equivalent
                  to the aggregate of its Second Installment divided by the
                  Raising Price Per Share less the amount of shares already
                  issued to it in connection with the Second Installment (the
                  "Adjustment"). The term Raising shall mean the receipt of
                  proceeds of at least $28 million from the sale, in one or more
                  public or private offerings, of ordinary shares of the Company
                  or securities convertible into ordinary shares of the Company
                  that close prior to June 30, 2004 (an "Equity Raising").
                  Should the Raising be achieved through multiple Equity
                  Raisings, the Raising Price Per Share shall be the lowest
                  price per share of the various Equity Raisings, provided that
                  such Equity Raising shall generate proceeds of at least $10
                  million. Should the price per share not be determinable in the
                  case of a public or private offering of securities convertible
                  into ordinary shares as aforesaid, the parties hereto shall
                  agree on a financial expert to determine the price per share.

         5.       WAFER CREDITS.

                  5.1 Each Party that is a Wafer Partner agrees, notwithstanding
                  any conflicting provision in any other agreement in the past,
                  that it shall not be reimbursed or refunded for any credits in
                  its respective Pre-Paid Wafer Accounts (the "Credits") and
                  will only utilize, or be credited against actual orders for
                  Credits made after December 31, 2006, other than as set forth
                  in Section 5.2 below and except with respect to purchase
                  orders issued before the date hereof utilizing wafer credits.

                  5.2 For each quarterly period commencing on January 1, 2004
                  and ending December 31, 2006 (the "Credit Period"), Tower
                  shall provide a written report within five business (5) days
                  after the end of each quarter (a "Credit Report") to each
                  Party that is a Wafer

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                  Partner setting forth the amount of Credits that could have
                  been utilized against the actual payment for wafers
                  manufactured at Fab 2 during the relevant quarter (the
                  "Quarterly Credit Amount"). Within five (5) business days from
                  the receipt of a Credit Report, each Party that is a Wafer
                  Partner shall have the option to convert all or a portion of
                  its respective Quarterly Credit Amount (the "Converted
                  Quarterly Credit Amount") into validly issued, fully-paid and
                  non-assessable ordinary shares of Tower equivalent to the
                  aggregate of the Converted Quarterly Credit Amount divided by
                  the average trading price for the ordinary shares of Tower
                  during the fifteen (15) consecutive trading days preceding the
                  last day of the relevant quarter. Any Party that is a Wafer
                  Partner exercising such option shall notify Tower in writing
                  that it is exercising such option and of the Converted
                  Quarterly Credit Amount; such notice shall be irrevocable. All
                  portions of the Quarterly Credit Amount which are not
                  converted as described above (the "Non-Converted Credits"),
                  shall accrue interest at a rate per annum equal to three-month
                  LIBOR plus 2.5% through December 31, 2007 (the "Credit
                  Interest Amount") from the end of the relevant quarter. The
                  Credit Interest Amount shall accrue from day to day and shall
                  be calculated on the basis of the actual number of days
                  elapsed and a 360 (three hundred and sixty) day year. The
                  respective quarterly Credit Interest Amount will be paid to
                  each Party who is a Wafer Partner within five (5) business
                  days after the last day of the subsequent quarter following
                  the issuance of the relevant Credit Report, while the
                  aggregate principal amount of the Non-Converted Credits shall
                  be repaid to such Wafer Partner in one lump sum on December
                  31, 2007.

                  5.3 Effective as of December 31, 2005, each Wafer Partner that
                  is a Party hereto has an option to convert all of the then
                  remaining Series A-4 Credits (the "Remaining Series A-4
                  Credits") into validly issued, fully-paid and non-assessable
                  ordinary shares of Tower equivalent to the amount of the
                  Remaining Series A-4 Credits divided by the average trading
                  price for the ordinary shares of the Company during the
                  fifteen (15) consecutive trading days preceding December 31,
                  2005 (the "Conversion Price"), provided that such Party
                  provides Tower advance written notice to convert all or a
                  portion of the Remaining Series A-4 Credits no earlier than
                  December 31, 2005 and by no later than January 31, 2006 (the
                  "Conversion Notice"). The Conversion Notice shall be
                  irrevocable. Tower hereby agrees to issue to each Wafer
                  Partner that provides it with a Conversion Notice the ordinary
                  shares to be issued in connection with its exercise of the
                  Remaining Series A-4 Credits promptly after its receipt of
                  such Conversion Notice. To the extent that the Remaining
                  Series A-4 Credits which are converted into ordinary shares
                  pursuant to this Section 5.3 above is equivalent to or greater
                  than an aggregate of 5% of Tower's issued and outstanding
                  share capital on January 31, 2006 (not including shares issued
                  pursuant to a Conversion Notice), Tower hereby undertakes to

                                       4

<PAGE>

                  prepare and file a registration statement, within a reasonable
                  time following the issuance of the ordinary shares to the
                  Wafer Partners in connection with the aforementioned
                  conversion of the Remaining Series A-4 Credits, for the
                  distribution of rights to all of Tower's shareholders other
                  than the Wafer Partners but including Israel Corporation
                  Technologies (IC Tech) Ltd. ("IC Tech"), to purchase
                  additional shares in Tower at a price per share equivalent to
                  the Conversion Price. Tower shall use its reasonable best
                  efforts to cause the registration statement to be declared
                  effective by the Securities and Exchange Commission and the
                  Israel Securities Authority as soon as reasonably practicable
                  after filing thereof with the Securities and Exchange
                  Commission and the Israel Securities Authority.

                  5.4 For the removal of doubt, the amount of Credits that may
                  be utilized or credited as set forth in Section 5.1 above and
                  the amount of Credits that could have been utilized during the
                  Credit Period as described in Section 5.2 above shall be
                  subject to the conditions that Credits issued in connection
                  with the execution of the Series A-3 Additional Purchase
                  Obligations and the Series A-4 Credits may be credited or
                  utilized against purchases at a rate of 7.5% until June 30,
                  2005, and, thereafter, 15% with respect to all Credits.

         6.       EXTENSION OF LOCK-UP PERIOD. Subject to the following
                  sentence, all of the parties to the CSA hereby agree to amend
                  the definition of Initial Restricted Period set forth in the
                  CSA to read as follows: "From the date of this Agreement and
                  until the end of five years from the Closing." Notwithstanding
                  the previous sentence, 30% of the amount of all shares in
                  Tower that each party to the CSA holds at the end of three
                  years from the Closing (the "Third Anniversary Date")
                  (including the 1.2 million shares that may be transferred
                  during this period pursuant to Section 3 of the CSA, all
                  securities purchased by the parties hereto in connection with
                  Tower's rights offering of September 2002, shares issued in
                  connection with the Payments (if issued following the Third
                  Anniversary Date), and all ordinary shares issued to the Wafer
                  Partners upon the conversion of their Credits in accordance
                  with Section 4 above), shall be exempt from the transfer
                  restrictions in effect during the Initial Restricted Period as
                  redefined herein (all capitalized terms in this section as
                  defined in the CSA, unless redefined herein). The Subsequent
                  Restricted Period shall commence five years from the Closing
                  and shall end seven years from the Closing.

                                       5

<PAGE>

         7.       REGISTRATION RIGHTS. No later than 120 (one hundred and
                  twenty) days from the date Safety Net Investments are made by
                  any of the Parties, Tower shall prepare and file a
                  registration statement on Form F-3
                  covering a resale offering by such Parties of securities
                  purchased in the framework of a Safety Net Investment and
                  shall use its reasonable efforts to cause the registration
                  statement to be declared effective by the SEC. It is agreed
                  that Section 2.7 of the Registration Rights Agreement, dated
                  January 18, 2001 shall apply to the above mutatis mutandis.

                  Each Party hereby agrees not to exercise any of the rights
                  granted to it under Sections 2 and 3 of the Registration
                  Rights Agreement, prior to the earlier of (i) December 31,
                  2005 and (ii) such date that Tower has fulfilled all of its
                  obligations to raise any additional financing pursuant to
                  Section 16.27.2 of the Facility Agreement.

                  Each Party agrees that notwithstanding Section 13 of the
                  Registration Rights Agreement, they shall not sell, sell any
                  option, or otherwise transfer or dispose of any of Tower's
                  ordinary shares or other securities for a period of 180 days
                  from the date the prospectus in connection with the Public
                  Offering is declared effective, without the prior written
                  consent of Tower and any underwriters of the Public Offering,
                  other than pursuant to a granting of an option to a service
                  provider of such Party to purchase Tower's ordinary shares
                  which are held by a Party, provided that the terms of such
                  grant are that the service provider shall not exercise or
                  sell, or otherwise transfer or dispose of such option during
                  the aforementioned 180 day period Each Party additionally
                  agrees to enter into an agreement with the underwriters to
                  such effect and acknowledge that the underwriters in
                  connection with such registration statement are intended third
                  party beneficiaries of this provision. It is further agreed
                  that in order to enforce the foregoing covenant, Tower may
                  impose stop-transfer instructions with respect to the
                  securities held by each Party until the end of such 180 day
                  period.

         8.       The advancement of the Payments shall be subject to the
                  satisfaction of the condition set forth in paragraph 1 above
                  and the approval of Tower's shareholders of this Amendment No.
                  3 and the Investment Center not having informed the Company
                  that it is not continuing its funding of the Fab 2 project.

         9.       All provisions of the Former MS 5 Agreement not amended or
                  modified hereby shall remain unchanged.

                                       6

<PAGE>

         10.      In addition to the above, each of The Israel Corporation, IC
                  Tech and the Wafer Partners which are parties hereto
                  acknowledge and consent to the following proposed terms of an
                  amendment to the Facility Agreement summarily outlined in
                  Section 1 above, in this Section 10 below and to the
                  undertaking of Tower set forth in Exhibit C hereto (Exhibit C
                  being incorporated into this Section 10 by reference).

                  I.  Should Tower fail to meet its financing obligations
                  under Section 16.27.2 of the Facility Agreement, the Banks
                  will have the option (the "Option") to require that The Israel
                  Corporation (or IC Tech) invest in Tower an amount equal to
                  50/93 of the difference actually raised towards such a
                  financing obligation and what was to be raised (up to an
                  aggregate amount of $50 million) (the "Safety Net
                  Investment"). Following the receipt by Tower of the Safety Net
                  Investment, the Banks will increase the total amount which may
                  be drawn under the credit facility by up to $43 million (based
                  on a ratio of $43 made available for every $50 of Safety Net
                  Investments made), which will be repayable no later than the
                  earlier of (i) December 31, 2007 and (ii) three years from the
                  date the loan is drawn.


                  The parties hereby agree that the giving by TIC of the
                  undertakings to the Banks described in this Section 10(I)
                  shall not vest any rights in Tower, its shareholders or any
                  third party vis-a - vis TIC nor create any obligations in
                  favour of Tower, any of its shareholders or any third party.

                  II. Following certain triggering events such as the
                  commencement of bankruptcy or receivership proceedings against
                  Tower which are ordered by a court of competent jurisdiction
                  or the prior determination of an arbitrator, mutually
                  appointed by the Banks and Tower, that a bankruptcy or
                  receivership order would be issued by a court against Tower
                  were a petition to be filed with a court of competent
                  jurisdiction or, an order providing for creditor protection is
                  issued, the parties shall cooperate with a firm offer made by
                  a potential investor (the "Outside Offeror") to purchase
                  shares of Tower at a price in the offer (the "Outside Offer").
                  If the Outside Offer is accompanied by an opinion of a
                  reputable investment banking firm that the Outside Offer is
                  fair to Tower, then Tower shall thereafter procure a rights
                  offering to invest up to 60% of the amount of the Outside
                  Offer on the same terms.

                                       7
<PAGE>

                           If a condition of the Outside Offer is to purchase at
                           least a majority of Tower's shares (the "Minimum
                           Threshold Amount"), the rights offering will be
                           limited to allow for this, unless Israel Corporation
                           Technologies (ICTech) Ltd. and the Wafer Partners
                           (other than QuickLogic) (the "Investing Parties")
                           agree to exercise all of their rights in a rights
                           offering and to purchase shares in a subsequent
                           private placement so as to ensure that the full
                           amount of the Outside Offer is invested in Tower. If
                           such commitment is not obtained, the rights offering
                           shall be limited to no more than 49% of the Outside
                           Offer (the "Investor Portion"); provided, however,
                           that each of the Investing Parties that exercised its
                           rights in the rights offering shall be entitled to
                           purchase any amounts of the Investor Portion
                           unsubscribed for by the other Investing Parties in an
                           amount which is pro rata to such over-subscribing
                           Investing Party's then holdings in Tower.

                           Each Party acknowledges that the Banks are willing to
                           enter into an amendment to the Facility Agreement
                           (known as the "Seventh Amendment") and to advance
                           further sums to Tower (notwithstanding that the Banks
                           are not obliged to do so as of the date hereof under
                           the Facility Agreement) upon the execution of the
                           Seventh Amendment (i.e., prior to the closing and
                           effectiveness of said Seventh Amendment) in full
                           reliance upon the Parties consenting to the terms
                           summarily outlined in Sections 1, 10(I) and 10(II)
                           above as well as, the restrictions on the utilization
                           of Credits described in Sections 5.1 and 5.2 above
                           and each Party agreeing to advance its Payment by no
                           later than three business days following the date the
                           Company's shareholders approve this Amendment No. 3.
                           Each Party hereby consents to, and irrevocably
                           undertakes and agrees to vote or cause shares
                           beneficially owned by it to be voted, at any general
                           meeting of Tower in favour of the approval of this
                           Amendment No. 3, the Seventh Amendment, which shall
                           include, inter alia, the aforementioned terms
                           summarily outlined above and described in Exhibit C
                           hereto, and such other documents or transactions that
                           need to be approved in connection therewith. Each
                           Party hereby consents to the provision of an
                           undertaking by The Israel Corporation or IC Tech to
                           provide the Safety Net Investment following the
                           request of the Banks, in the sole discretion of the
                           Banks, upon the terms summarily outlined above and
                           described in Exhibit C hereto. Each Party hereby
                           consents to the giving of undertakings with respect
                           to an Outside Offer upon the terms summarily outlined
                           above. Without derogating from the foregoing, each
                           Party undertakes to perform all actions reasonably
                           required to ensure the implementation of the Option
                           (if exercised), the Safety Net Investments and an
                           Outside Offer.

                                    [end of page intentionally left blank]

                                       8

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Amendment No. 3 as
of the date first above written.

/s/ Carmel Vernia                       /s/ Yossi Rosen
------------------------------          ----------------------------------------
TOWER SEMICONDUCTOR LTD.
                                        ISRAEL CORPORATION TECHNOLOGIES
                                        (ICTech) LTD.
By: Carmel Vernia
    --------------------------

                                        By: Yossi Rosen
/s/ Eli Harari                              ------------------------------------
------------------------------          /s/ Ron Shelton
SANDISK CORPORATION                     ----------------------------------------
                                        ALLIANCE SEMICONDUCTOR CORPORATION

By: Eli Harari
    --------------------------
                                        By: Ron Shelton
/s/ Miin C. Wu                              ------------------------------------
--------------------------------
MACRONIX INTERNATIONAL CO., LTD.

By: Miin C. Wu
    -------------------------

For the purposes of Section 10 above:

THE ISRAEL CORPORATION LTD.

By: /s/ Yossi Rosen
    --------------------------

                                       9

<PAGE>

                                    EXHIBIT A

                                  MS5 AGREEMENT

                                       10

<PAGE>

                                    EXHIBIT B

<TABLE>
<CAPTION>
                                                    REMAINDER OF                                 TOTAL
      WAFER PARTNER OR EQUITY PARTNER            FIRST INSTALLMENT    SECOND INSTALLMENT        Payment
---------------------------------------------    -----------------    ------------------    ----------------
<S>                                              <C>                  <C>                   <C>
SanDisk Corp.                                    $       2,318,670    $        4,400,280    $      6,718,950
Alliance Semiconductor Corp.                     $       2,318,670    $        4,400,280    $      6,718,950
Macronix International Co., Ltd.                 $       2,318,670    $        4,400,280    $      6,718,950
Israel Corporation Technologies (ICTech) Ltd.    $       1,545,254    $        2,933,336    $      4,478,590
</TABLE>

                                       11

<PAGE>

                                    EXHIBIT C

The Israel Corporation Ltd. (the "SAFETY NET OBLIGOR")
Bank Hapolaim B.M.
Bank Leumi Le-Israel B.M.

Dear Sir or Madam,

                  Re: UNDERTAKING TO COMPLETE RIGHTS OFFERING

         We irrevocably undertake that should we fail to meet any of our
financing obligations under clause 16.27.2 of the Facility Agreement by and
among Bank Hapoalim B.M. and Bank Leumi Le-Israel B.M. (together: "the Banks")
and us, dated January 18, 2001, as amended (the "Facility Agreement") and should
the Banks send a Contribution Notice (as defined in the Facility Agreement), as
amended by the Seventh Amendment thereto and subject to the terms of the
Facility Agreement, provided that the Safety Net Undertaking has not been
terminated, we will complete a rights offering (subject to compliance with
applicable laws) (a "Rights Offering") within three months of the date of the
Contribution Notice on the following terms:

         -        The amount of a Rights Offering shall not be less than the
                  amount required under the Contribution Notice, which amount
                  shall not exceed the difference between what we were obliged
                  to raise under clause 16.27.2 through the date of said
                  Contribution Notice and the amount actually raised (the
                  "Amount to be Raised").

         -        We will offer convertible securities to all of our
                  shareholders in units comprised of convertible debentures
                  ("CD" or "CDs", as applicable) convertible into, and warrants
                  (the "Warrants" and, together with the CDs the "Units")
                  exercisable for, our ordinary shares such that the Warrants
                  included in each unit will be exercisable for a number of
                  shares equal to 45% of the number of shares which may be
                  issued on the basis of an assumed conversion of the CDs
                  included in such units.

         -        The CDs will contain such terms and conditions so as to
                  constitute Equity Convertible Debentures (as defined in the
                  Facility Agreement), save that clause 1.118(a) of the Facility
                  Agreement shall not apply and no deposit shall be required to
                  be made pursuant to clause 1.118(e) of the Facility Agreement,
                  and, for the removal of doubt, the amount of which shall not
                  be limited, and subject to such other terms as set forth in
                  the Facility Agreement. We shall pay all stamp tax (if due),
                  VAT on interest and linkage differentials relating to the
                  CD's.

         -        Each CD will bear interest at the rate of 6% per year; 1%
                  interest will be payable once a year and the balance of such
                  interest (5%) will accrue until the maturity of the CDs on a
                  compound basis, which maturity shall be a date no earlier than
                  December 31, 2009, any such payment of principal and interest
                  to be subject to the terms and conditions of the Facility
                  Agreement.

                                       12
<PAGE>

         -        The CDs will be convertible into our ordinary shares
                  (principal and compounded interest) at a rate equal to the
                  Amount to be Raised plus the accumulated unpaid interest at
                  such time of conversion divided by the lower of: (a) 50%
                  discount of the trading price for the ordinary shares of Tower
                  on Nasdaq (or such other stock exchange or quotation system on
                  which Tower's ordinary shares are listed in the event that
                  they cease to be traded on Nasdaq) (Nasdaq or such alternative
                  stock exchange or quotation system, the "Stock Exchange") at
                  the close of trading on the trading day immediately prior to
                  the date of the prospectus relating to the Rights Offering or
                  (b) 50% discount of the average trading price for the ordinary
                  shares of Tower on the Stock Exchange during the fifteen (15)
                  consecutive trading days preceding the date of the prospectus
                  relating to the Rights Offering.

         -        Each Warrant will be exercisable into one of our ordinary
                  shares at such exercise price which is equivalent to 80% of
                  the lower of: (a) the trading price for the ordinary shares of
                  Tower on the Stock Exchange at the close of trading on the
                  trading day immediately prior to the date of the prospectus
                  relating to the Rights Offering or (b) the average trading
                  price for the ordinary shares of Tower on the Stock Exchange
                  during the fifteen (15) consecutive trading days preceding the
                  date of the prospectus relating to the of the Rights Offering.

         -        The Warrants shall expire five years from their date of
                  issuance.

         -        In consideration of the Safety Net Obligor's commitment to
                  execute the Safety Net Investment, we shall pay such Safety
                  Net Obligor a fee to be agreed to between us and the Safety
                  Net Obligor, provided that (a) the terms of such fee are
                  approved by our audit committee and board of directors and (b)
                  said fee shall be satisfied only by the issue of Warrants
                  exercisable into shares of the Company.

We understand and agree that the Safety Net Obligor will procure that it or
Safety Net Investors will invest in Tower in accordance with Section 3.2 of the
Safety Net Undertaking (as defined in the Facility Agreement) addressed to the
Banks and agree to take all actions to facilitate compliance by the Safety Net
Obligor with the Safety Net Undertaking, including but not limited to, if
necessary, increasing the authorized capital and completing a private placement
on substantially the same terms and conditions that would have applied to the
Rights Offering, if necessary. We hereby agree that the giving by the Safety Net
Obligor of its Undertaking to the Banks shall not vest any rights in us, our
shareholders or any third party nor any obligations in favour of us, our
shareholders or any third party.

We confirm that should we fail to file a registration statement with the United
States Securities and Exchange Commission ((hereinafter: the "SEC") within 12
(twelve) Business Days of the date a Contribution Notice is given by the Banks
as described in Section 3.1 above, or fail promptly to respond, to the
satisfaction of the staff of the SEC, to SEC staff comments with respect to said
registration statement, or fail promptly to take all actions required by all
applicable jurisdictions in which shareholders of Tower are resident to qualify
said rights offering in such jurisdiction,

                                       13

<PAGE>

including, without limitation, Israel and applicable states within the United
States, or otherwise fail to diligently proceed with the rights offering, and
any such failure is attributed by us or our counsel to one or more legal
impediments, then we or any of, the Company or the Banks may request that Aaron
Lampert, Adv. (or failing him Cliff Felig, Adv.) (hereinafter: the "Expert"),
within 2 (two) weeks of the date requested to do so by any of us, the Company
and the Banks, confirm whether or not the Rights Offering may legally proceed,
notwithstanding the legal impediment or impediments cited by us. We agree that
if the Expert confirms that the Rights Offering may legally proceed, we
undertake, pursuant to this undertaking, promptly to cure such failures, in
consultation with the Expert, and complete the Rights Offering in accordance
with this undertaking. We further undertake to bear the reasonable fees of, and
reasonable costs incurred by, the Expert in providing his confirmation as
aforesaid.

We further agree that we will indemnify the Safety Net Obligor and/or its
subsidiary, Israel Corporation Technologies (ICTech) Ltd., jointly but not
severally, (the "Indemnified Party"), subject to the Safety Net Undertaking
coming into effect, from and against any claims, actions, suits, proceedings,
damages and liabilities awarded thereunder and expenses in relation to such
claims, actions, suits, or proceedings (including reasonable legal fees) based
on a final judgment by a competent court which is not subject to appeal (the
"Judgment") incurred by the Indemnified Party arising out of its giving the
Safety Net Undertaking or the making of a Safety Net Investment (collectively,
"Losses"). We shall not, however, be liable under the foregoing indemnity to the
extent that any such Losses result from the gross negligence, willful
misconduct, or bad faith of any of the Safety Net Obligor and/or Israel
Corporation Technologies (ICTech) Ltd. The foregoing indemnity shall be limited
to maximum payments aggregating no more than $100,000,000 (one hundred million
US dollars) (the "Maximum Amount"), whose terms of payment are subject to the
below conditions, and will be the exclusive monetary remedy of the Indemnified
Party.

In addition to the condition that the maximum aggregate payments shall not
exceed the Maximum Amount, payments under this indemnity shall be subject to the
following conditions:

                  1)       (a) On account of any requirement to make a payment
                           to the Indemnified Party, we will pay to the
                           Indemnified Party, within 60 (sixty) days from the
                           date of the Judgment (the "Period"), in cash, equal
                           to the Losses, up to the maximum aggregate amount of
                           $25,000,000 (twenty five million US dollars) (the
                           "Base Payment").

                           (b) If on account of any requirement to make a
                           payment, the Base Payment does not satisfy our
                           indemnification obligation hereunder with respect
                           thereto (the "Completing Amount"), the Completing
                           Amount will accrue interest from the date of the
                           Judgment at a rate per annum equal to three-month
                           LIBOR plus 2.5% (such interest accruing from day to
                           day and calculated on the basis of the actual number
                           of days elapsed and a 360 (three hundred and sixty)
                           day year. Such interest and principal to be paid by
                           us in equal installments, on the dates that we
                           actually

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<PAGE>

                           pay the Banks in accordance with the repayment
                           schedule for Loans (other than Safety Net Loans) (as
                           such terms are defined in the Facility Agreement)
                           beginning no earlier than the next repayment date
                           following the date of the Judgment and ending on the
                           Final Maturity Date (as such term is defined in the
                           Facility Agreement) (as amended from time to time).

                  2)       Notwithstanding anything herein, should we have
                           adequate insurance that will cover an amount of any
                           of our indemnification payment obligations, then we
                           have the option to make any such payment in full or
                           any lesser amount that we choose without regard to
                           the conditions set forth in clause 1)(a) above, but
                           at all times, without derogating from the condition
                           that the maximum aggregate payments shall not exceed
                           the Maximum Amount.

         If any of the Safety Net Obligor or Israel Corporation Technologies
         (ICTech) Ltd. becomes aware of any claim, action, suit, or proceeding
         which may give rise to a liability hereunder, such person will promptly
         give notice thereof to us in writing. Without our prior written
         consent, which shall not be unreasonably withheld, the Indemnified
         Party may not agree to any settlement or compromise of any claim,
         action, suit, or proceeding involving a payment for which it intends to
         seek indemnification hereunder. We will make our best commercial
         efforts to obtain insurance with respect to our aforegoing
         indemnification undertaking.

         We hereby confirm that all corporate action to be taken by us
         (including by our Board of Directors, Audit Committee and by our
         shareholders) in order to approve the contents of this undertaking has
         been duly and properly obtained or will be obtained prior to the
         Seventh Amendment Closing Date. Notwithstanding the previous sentence,
         this undertaking, including our indemnification obligations as set
         forth above, is subject to our obtaining shareholder approval in
         accordance with law.

         This undertaking is being made to you pursuant to clause 16.34 of the
         Facility Agreement.

                                       15

<PAGE>

Sincerely,

______________________________________
Carmel Vernia, Chairman and Acting CEO
Tower Semiconductor Ltd.

Acknowledged and agreed:

______________________________________
The Israel Corporation Ltd.

By: __________________________________

Title: _______________________________

Acknowledged and agreed:

______________________________________
Bank Hapoalim B.M.

By: __________________________________

Title: _______________________________

Acknowledged and agreed:

______________________________________
Bank Leumi Le-Israel B.M.

By: __________________________________

Title: _______________________________

           [Signature Page - Undertaking to Complete Rights Offering]


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