SHARE PURCHASE AGREEMENT

      This Share Purchase Agreement ("Agreement") is made as of July 4, 2000, by
SanDisk Corporation,  a Delaware corporation ("Buyer"),  and Tower Semiconductor
Ltd., an Israeli corporation (the "Company").

                                    RECITALS

      The Company desires to sell, and Buyer desires to purchase, an interest in
the Company  through  the  acquisition  of 866,551  ordinary  shares,  par value
NIS1.00 each (the "Shares") of the Company and through the issuance and delivery
of  Addtional  Purchase  Obligations  for the  purchase  by Buyer of  additional
Ordinary  Shares of the Company,  on the terms and subject to the conditions set
forth in this Agreement and in the Addtional  Purchase  Obligation  Agreement in
the form of Exhibit B hereto.

      NOW,  THEREFORE,  in  consideration of the mutual covenants and agreements
contained herein and for other good and valuable  consideration  the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:

1.    DEFINITIONS


      For  purposes of this  Agreement,  the  following  terms have the meanings
      specified or referred to in this Section 1:


      "Additional Financings" - as defined in Section 3.5.


      "Additional  Financing  Plan" - a detailed  written plan,  approved by the
      Board and detailing,  among other things, the significant  financial terms
      and timetable under which the Company will obtain the financings listed in
      Section 7.6 hereto, all as set forth in Section 10 to the Business Plan.


       "Ancillary Agreements" - as defined in Section 3.2.4.


      "Applicable  Contract"-  any  Contract  (a) under which the Company or any
      Subsidiary  has or may acquire any rights,  (b) under which the Company or
      any  Subsidiary  has or may become subject to any obligation or liability,
      or (c) by which the Company or any  Subsidiary  or any of the assets owned
      or used by them is or may become bound.


      "Assets" - as defined in Section 3.6.


      "Balance Sheet"- as defined in Section 3.4.2.


      "Business  Plan"  means the  Business  Plan,  dated July 4,  2000,  of the
      Company  with  respect  to  the  proposed  construction,   deployment  and
      operation by the Company of Fab 2.


      "Buyer"- as defined in the first paragraph of this Agreement.


      "Closing"- as defined in Section 2.3.


      "Closing  Date"- the date and time as of which the Closing  actually takes
      place.


      "Company"- as defined in the first paragraph of this Agreement.


      "Consent"-  any  approval,   consent,   ratification,   waiver,  or  other
      authorization (including any Governmental Authorization).


      "Contemplated  Transactions"- all of the transactions contemplated by this
      Agreement, the Transaction Documents and the Ancillary Agreements.


      "Contract"- any agreement, contract,  obligation,  promise, or undertaking
      whether oral or written that is legally binding.


      "Damages"- as defined in Section 10.2.


      "Encumbrance"- any charge, claim, community property interest,  condition,
      equitable  interest,  lien, option,  pledge,  security interest,  right of
      first refusal,  or restriction of any kind,  including any  restriction on
      use,  voting,  transfer,  receipt  of  income,  or  exercise  of any other
      attribute of ownership.


      "Escrow Agreement"- as defined in Section 2.4.


      "Escrow Agent"- as defined in the Escrow Agreement.


      "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
      and any rules or regulations  issued pursuant to that Act or any successor
      law.


      "Excluded  Securities"  means  Ordinary  Shares  or  options  to  purchase
      Ordinary Shares issued to bona fide employees, directors or consultants of
      the Company or any Subsidiary thereof.


      "Fab 2" - The Company's new Fab project to be constructed in Migdal Haemek
      in Israel, all as further set forth in the Business Plan.


      "Facilities"- any real property,  leaseholds, or other interests currently
      owned or operated by the Company and any buildings, plants, structures, or
      equipment currently owned or operated by the Company.


      "GAAP"-  generally  accepted Israel  accounting  principles,  applied on a
      basis  consistent  with the basis on which the Balance Sheet and the other
      financial statements referred to in Section 3.4 were prepared.


      "Governmental  Authorization"-  any approval,  consent,  license,  permit,
      waiver, or other authorization issued,  granted,  given, or otherwise made
      available by or under the authority of any  Governmental  Body or pursuant
      to any Legal Requirement.


      "Governmental Body"- any U.S. or Israeli federal,  state, local, municipal
      or other government,  governmental or quasi-governmental  authority of any
      nature (including any governmental agency, branch, department, official or
      entity and any court or other tribunal), or body exercising or entitled to
      exercise any administrative,  executive,  judicial,  legislative,  police,
      regulatory or taxing authority or power of any nature.


      "Intellectual Property Assets" - as defined in Section 3.20.


      "Interim Balance Sheet"- as defined in Section 3.4.2.


      "Investment  Center" - the Investment  Center of the Ministry of Trade and
      Commerce of the Israeli Government.


      "Knowledge" or "knowledge"- a person will be deemed to have "Knowledge" or
      "knowledge" of a particular  fact or other matter if any individual who is
      serving as a Named Director or Officer has, or at any time had,  knowledge
      of such fact or other matter.


      "Legal Requirement"- any U.S. or Israeli federal,  state, local, municipal
      or administrative or other order, constitution,  law, ordinance, principle
      of common law, regulation, statute, or treaty.


      "Named Officers and Directors"- as defined in Section 3.3.2.


      "OCS" - as defined in Section 3.21.


      "Order"-  any  award,  decision,  injunction,   judgment,  order,  ruling,
      subpoena,  or verdict  entered,  issued,  made,  or rendered by any court,
      administrative agency, or other Governmental Body or by any arbitrator.


      "Ordinary  Course of Business"- an action taken by a Person will be deemed
      to have been taken in the "Ordinary Course of Business" only if:


      (a)    Such action is  consistent  with the past  practices of such Person
             and is  taken  in the  ordinary  course  of the  normal  day-to-day
             operations of such Person; and

      (c)    Such  action  is  similar  in  nature  and   magnitude  to  actions
             customarily  taken in the ordinary course of the normal  day-to-day
             operations  of other  Persons that are in the same line of business
             as such Person.




      "Ordinary Shares" - the ordinary shares of the Company,  par value NIS1.00
      per share.


      "Organizational Documents"- (a) the memorandum of association, articles of
      association,   certificate  of  incorporation   and/or  the  bylaws  of  a
      corporation;   (b)  the   partnership   agreement  and  any  statement  of
      partnership  of  a  general  partnership;   (c)  the  limited  partnership
      agreement  and  the  certificate  of  limited  partnership  of  a  limited
      partnership;  (d) any  charter  or  similar  document  adopted or filed in
      connection with the creation,  formation, or organization of a Person; and
      (e) any amendment to any of the foregoing.


      "Person"-  any   individual,   corporation   (including   any   non-profit
      corporation),  general or limited partnership,  limited liability company,
      joint venture, estate, trust, association,  organization,  labor union, or
      other entity or Governmental Body.


      "Proceeding"-  any action,  arbitration,  audit,  hearing,  investigation,
      litigation,   or   suit   (whether   civil,   criminal,    administrative,
      investigative,  or informal) commenced, brought, conducted, or heard by or
      before, or otherwise involving, any Governmental Body or arbitrator.


      "Representative"-  with  respect to a  particular  Person,  any  director,
      officer, employee, agent, consultant,  advisor, or other representative of
      such Person, including legal counsel, accountants, and financial advisors.


      "Schedule"  means a schedule  comprising  part of the disclosure  schedule
      delivered  by the Company to Buyer  concurrently  with the  execution  and
      delivery of this Agreement.


      "Securities  Act"-  the  U.S.  Securities  Act of  1933  as  amended,  and
      regulations and rules issued pursuant to that Act or any successor law.


      "Shares"- as defined in the Recitals of this Agreement.


      "Steering  Committee"  - a  committee  to be formed  immediately  upon the
      signing of this  Agreement and dissolved upon the Closing and comprised of
      three members  including one  representative of each of the Buyer, TIC and
      the Company,  none of whom needs to be a member of the Board. The Steering
      Committee shall oversee the  development,  assessment and  implementation,
      and, if applicable,  any modification of the Business Plan as specified in
      Sections  5.6.5 of this  Agreement.  The Steering  Committee  shall not be
      deemed to be a  committee  of the Board and its  members  shall not have a
      fiduciary duty to the Company.  The Steering Committee shall consider,  in
      making  decisions  pursuant to Sections 5.6.5 and 7.3  hereunder,  (a) the
      construction  schedule of Fab 2 as set forth in the Business  Plan and any
      changes  thereto,  (b) the  Additional  Financing Plan as set forth in the
      Business  Plan  and any  failure  to  comply  with the  schedule  for such
      financings  or  changes  to  the  Additional   Financing   Plan,  (c)  any
      significant  increase  in the cost of Fab 2 beyond  that set  forth in the
      Business  Plan and (d) the  production  capacity  schedule of Fab 2 as set
      forth in the Business Plan and any changes thereto.


      "Subsidiary"- any corporation or other Person of which securities or other
      interests  having the power to elect a majority of that  corporation's  or
      other Person's board of directors or similar  governing body, or otherwise
      having the power to direct the business  and policies of that  corporation
      or other Person  (other than  securities  or other  interests  having such
      power only upon the happening of a contingency  that has not occurred) are
      held by the Company or one or more of its Subsidiaries.


      "Tax  Return"- any return  (including  any  information  return),  report,
      statement,  schedule, notice, form, or other document or information filed
      with or submitted  to, or required to be filed with or  submitted  to, any
      Governmental  Body  in  connection  with  the  determination,  assessment,
      collection,   or   payment   of  any  Tax  or  in   connection   with  the
      administration,  implementation,  or enforcement of or compliance with any
      Legal Requirement relating to any Tax.


      "TIC"- The Israel Corporation Ltd.


      "Threatened"- a claim,  Proceeding,  dispute, action, or other matter will
      be deemed to have been  "Threatened" if either (a) any demand or statement
      has been made in  writing  or any  notice has been given in writing or any
      other event has occurred or any other circumstance  exists,  that actually
      leads any Named Officer and Director to believe that such a claim, will be
      filed or  otherwise  pursued in the future or (b) any demand or  statement
      has been made  orally or any notice  has been  given  orally to the effect
      that such a claim,  Proceeding,  dispute,  action or other  matter will be
      asserted, commenced, taken or otherwise pursued in the future.


      "Transaction  Documents"  -  collectively,   the  Foundry  Agreement,  the
      Addtional  Purchase  Obligation  Agreement,  the Escrow  Agreement (all as
      defined in Section 2.4), the  Shareholders  Agreement and the Registration
      Rights Agreement (as defined in Section 2.5.1.5.).


       "Wafer Partner" - a wafer  manufacturer that either invests in the equity
      of the Company and enters into an agreement with the Company providing for
      a wafer order right or that  enters into a wafer  manufacturing  agreement
      with the Company on a "take or pay" basis or on a "pre-payment"  basis, in
      each case in accordance  with the  provisions of Sections  7.6(ii) and 7.7
      hereof.


      "Additional  Purchase  Obligations" - Conditional  obligations to purchase
      Ordinary  Shares  of the  Company  issued  under the  Additional  Purchase
      Obligation Agreement.


<TABLE>
<CAPTION>
                            Additional Defined Terms
<S>                   <C>       <C>                 <C>
6K Reports            Section   Material Adverse    Section
                      3.4.1     Effect              3.1.1
Additional Incentive  Section   Offered Securities  Section
Plans                 1.14                          11.8.1
Additional Purchase             Patents             Section
Obligation Agreement  Section                       3.20.1
                      2.4
Additional Purchase             Project Committee   Section
Obligation Shares     Section                       11.4
                      2.4
Additional Wafer                Pro Rata Share      Section
Partner Financing     Section                       11.8.1
Date                  7.6
Annual Report         Section   Purchase Price      Section
                      3.4.1                         2.2
Articles              Section2.5Registration Right  Section
                                Agreement           2.5.1.5
Board                 Section   Rights in Mask      Section
                      2.4       Works               3.10.1
Copyrights            Section   SEC                 Section
                      3.20.1                        3.4.1
Debt Financing Term   Section   Shareholders        Section
Sheet                 5.6.4     Agreement           2.5.1.5
Environmental Study   Section   SEC Documents       Section
                      3.5.1                         3.4.1
Executed                        Steering Committee  Section
Transaction           Section                       5.10
Documents             3.2.1
Grants                Section   Taxes
                      3.2.1
Indemnified Persons   Section   Toshiba Agreement   Section
                      10.2                          3.2.3
Foundry Agreement     Section   Wafer Commitments   Section
                      2.4                           7.7
Marks                 Section3.2Wafer Partner       Section
                                Differential        7.6

</TABLE>






2.    SALE AND TRANSFER OF SHARES; PURCHASE PRICE; CLOSINGS

2.1.        DELIVERY.  Subject to the terms and conditions of this Agreement, at
            the  Closing,  the  Company  shall  issue to the Buyer  the  Shares,
            validly  authorized,   duly  issued,  fully  paid  and  nonassesable
            entitled  to all rights and  privileges  assigned  to such Shares in
            this  Agreement  and in the  Articles  and free of any  Encumbrances
            (other  than  arising  solely by or through  actions  of Buyer),  in
            consideration  for the  release of the  Purchase  Price (as  defined
            below) from the Escrow Agent to the Company.

2.2.        PURCHASE  PRICE.  The per share  purchase  price will be $23.08 (all
            references herein to "$" are to United States dollars)  representing
            an aggregate purchase price (the "Purchase Price") for the Shares of
            $20,000,000.  Within 14 days of the execution of this Agreement, the
            Purchase Price will be deposited in escrow pursuant to the terms and
            conditions  of the  Escrow  Agreement  with an  escrow  agent  to be
            appointed by the parties. At the Closing, subject to the fulfillment
            or waiver of all closing  conditions hereto, the Purchase Price will
            be released  from escrow to the Company all in  accordance  with the
            terms and conditions of this Agreement and the Escrow  Agreement and
            all interest  accrued with respect to the Purchase  Price during the
            escrow period will be released to the Company.

2.3.        CLOSING. The closing provided for in this Agreement (the " Closing")
            will take place at the offices of Meitar,  Liquornik,  Geva & Co. at
            16 Abba Hillel Silver Road,  Ramat Gan, 52506,  Israel at 10:00 a.m.
            (local time) on the date that is seven days  following  satisfaction
            of all the  conditions  specified  in  Sections 7 and 8,  unless the
            parties  otherwise agree,  provided that the Closing may not, in any
            event,  take place  after  January  31,  2001,  unless  the  parties
            otherwise  agree.  In the event that the Closing fails to take place
            by January 31, 2001, or such later date as the parties may agree, or
            otherwise  terminates  pursuant to section  9.1,  then all  interest
            accrued with respect to the  Purchase  Price and the Purchase  Price
            shall be retained by Buyer.

2.4.        OTHER  AGREEMENTS;  COMPANY'S  RESOLUTIONS.  Concurrently  with  the
            execution of this  Agreement,  (a) the parties  hereto are executing
            and  entering  into the Foundry  Agreement  in the form of Exhibit A
            hereto  (the  "Foundry   Agreement")  and  the  Addtional   Purchase
            Obligation Agreement in the form of Exhibit B hereto (the "Addtional
            Purchase  Obligation  Agreement"),  each of which shall provide that
            they shall only be effective  upon the  Closing,  (b) the Company is
            delivering to the Buyer certified resolutions of the Company's board
            of directors (the "Board")  authorizing and approving the execution,
            delivery  and  performance  of the  Transaction  Documents  and  the
            consummation of the  Contemplated  Transactions,  including  without
            limitation,  the  issuance of the Shares to the Buyer and all shares
            issuable upon exercise of the Addtional  Purchase  Obligations under
            the Addtional Purchase Obligation Agreement (the "Addtional Purchase
            Obligation  Shares")  (subject,  in relation to the  issuance of the
            Shares and the  Addtional  Purchase  Obligation  Shares,  to Company
            shareholder  approval  pursuant to a general meeting of the Company)
            and (c) the Company is delivering  to the Buyer a certificate  dated
            the date  hereof  signed by the  co-Chief  Executive  Officer of the
            Company  identified  in  Schedule  7.15 to the  effect  set forth in
            Section 7.15.  The parties shall enter into the Escrow  Agreement in
            the form of Exhibit C hereto (the "Escrow Agreement") within 14 days
            of the date  hereof.  Buyer and TIC will  execute and enter into the
            Shareholders  Agreement  in  the  form  of  Exhibit  D  hereto  (the
            "Shareholders Agreement") within 14 days of the date hereof.

2.5.  CLOSING OBLIGATIONS. At the Closing:
      -------------------

2.5.1.     The Company will deliver to Buyer:

2.5.1.1.                  Certified  copies  of  resolutions  of  the  Company's
                          shareholders  relating  to,  among  other  things,  an
                          increase in the Company's registered share capital and
                          the issuance of the Shares and the Addtional  Purchase
                          Obligation  Shares,  and  the  Board  authorizing  and
                          approving   the   Ancillary    Agreements    and   the
                          transactions contemplated therein;

2.5.1.2.   Certified copies of the Company's Articles of Association (the
                          "Articles") as amended through the Closing Date;

2.5.1.3.   A certificate duly executed by two executive officers of the
                          Company in the form set forth in Schedule 2.5.1.3,
                          dated as of the date of the  Closing;

2.5.1.4.   The opinion of Yigal Arnon & Co., counsel to the Company, in the
                          form reasonably satisfactory to Buyer and its
                          counsel to be attached hereto as Schedule 2.5.1.4,
                          dated as of the date of the Closing;

2.5.1.5.                  Executed copies of the  Registration  Rights Agreement
                          substantially  in the form of  Exhibit  E hereto  (the
                          "Registration Rights Agreement"),  which shall provide
                          an equal  number of Demand  Rights (as defined in such
                          agreement) to Buyer and TIC.

2.5.1.6.                  Validly executed certificates representing the Shares,
                          issued in the name of the Buyer and a  certificate  of
                          the  secretary  of the  Company  confirming  that  the
                          Shares were  registered  in the share  register of the
                          Company in the name of Buyer;

2.5.1.7.   Copies of documents evidencing all Consents and approvals required
                            under Section 7.3 hereof;

2.5.1.8.   Copies of all the Ancillary Agreements duly executed and delivered
                          and in accordance with Section 7 hereof;

2.5.1.9.   The written consent of the OCS and the Investment Center to the
                          execution of this Agreement and the issuance of the
                          Shares to the Buyer.

2.5.1.10.  The certificate required to be delivered under Section 7.15 hereof.

2.5.2.     Buyer will deliver to the Company:

2.5.2.1.   A copy of a letter from Buyer to the Escrow Agent irrevocably
                          authorizing the release of the Purchase Price to the
                          account of the Company pursuant to the terms of the
                          Escrow Agreement;

2.5.2.2.                  A certificate duly executed by two executive  officers
                          of Buyer in the form set  forth in  Schedule  2.5.2.2,
                          dated as of the date of the Closing.

2.5.2.3.   Executed copies of the Shareholders Agreement and the Registration
                          Rights Agreement.

3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY


      The Company hereby  represents and warrants to Buyer as of the date hereof
      and as of the Closing and as otherwise  provided in the Addtional Purchase
      Obligation Agreement as follows:

3.1.  ORGANIZATION AND GOOD STANDING

3.1.1.     The Company and each Subsidiary is a corporation duly organized,
                   validly existing, and in good standing under the laws of
                   its jurisdiction of incorporation, with full corporate
                   power and authority to conduct its business as it is now
                   being conducted and as currently approved by the Board to
                   be conducted in the future and to own or use its properties
                   and assets. The Company has all requisite corporate power
                   to perform all its obligations under Applicable Contracts
                   including, but not limited to, the Ancillary Agreements,
                   subject, with respect to the issuance of the Shares and the
                   Addtional Purchase Obligation Shares, to receipt of the
                   shareholder resolutions referred to in Section 2.5.1.1. The
                   Company and each Subsidiary is duly qualified to do
                   business as a foreign corporation and is in good standing
                   under the laws of each state or other jurisdiction in which
                   either the ownership or use of the properties owned or used
                   by it, or the nature of the activities conducted by it or
                   proposed to be conducted by it, requires such
                   qualification, unless such non-qualifications would not
                   have a material adverse affect on the business, financial
                   conditions, assets,  operations and prospects of the
                   Company and its Subsidiaries taken as a whole (a "Material
                   Adverse Effect").  Schedule 3.1 contains a complete and
                   accurate list for the Company and each Subsidiary of its
                   name, its jurisdiction of incorporation, other
                   jurisdictions in which it is authorized to do business, and
                   its capitalization,  including (i) in connection with each
                   Subsidiary, the identity of each shareholder and the number
                   of shares held by such shareholder, and (ii) in connection
                   with the Company, the identity of each shareholder who to
                   the knowledge of the Company holds more than 5% of the
                   issued and outstanding share capital of the Company and the
                   number of shares of the Company held by each such
                   shareholders. Also enclosed in Schedule 3.1 is a copy of
                   the list of shareholders maintained by the Company's
                   transfer agent as of a date within 5 days prior to the date
                   hereof.

3.1.2.             The  Company  has  delivered  to  Buyer  copies  of  (i)  the
                   Organizational  Documents of the Company and each Subsidiary,
                   as currently  in effect,  and (ii) minutes of all meetings of
                   the  directors  and  shareholders  of the  Company  and  each
                   Subsidiary  held since  January  1, 1995 and all  resolutions
                   passed by the  directors  or  shareholders  since  January 1,
                   1995.

3.2.  AUTHORITY; NO CONFLICT; CONSENTS AND APPROVALS

3.2.1.     Each of this Agreement, the Addtional Purchase Obligation
                   Agreement, the Addtional Purchase Obligations, the Escrow
                   Agreement and the Foundry Agreement (the "Executed
                   Transaction Documents") has been duly authorized, executed
                   and delivered by the Company (subject, with respect to the
                   increase in the Company's registered share capital and
                   issuance of the Shares and the Addtional Purchase
                   Obligation Shares, to receipt of shareholder approval by
                   Closing) and, assuming the due execution and delivery
                   hereof and thereof by Buyer, constitutes the legal, valid,
                   and binding obligation of the Company, enforceable against
                   the Company in accordance with its terms. Upon the
                   execution and delivery by the Company of the Transaction
                   Documents and the other Ancillary Agreements (where
                   applicable), and assuming the due execution and delivery
                   thereof by the other parties thereto, the Transaction
                   Documents and the other Ancillary Agreements (where
                   applicable) will constitute the legal, valid, and binding
                   obligations of the Company, enforceable against the Company
                   in accordance with their respective terms. The Company has
                   the absolute and unrestricted right, power, authority, and
                   capacity to execute and deliver this Agreement and the
                   Transaction Documents and the other Ancillary Agreements
                   (where applicable) and to perform its obligations under
                   this Agreement, the Transaction Documents and the other
                   Ancillary Agreements (where applicable) (subject, with
                   respect to the issuance of the Shares and the Addtional
                   Purchase Obligation Shares, to receipt of Company
                   shareholder approval by Closing) and has taken all
                   corporate action necessary to consummate the transactions
                   contemplated hereby and thereby and to perform its
                   obligations hereunder and thereunder.

3.2.2.             Except as set forth in Schedule  3.2,  neither the  execution
                   and  delivery  of  this  Agreement,  any of  the  Transaction
                   Documents  or any of the other  Ancillary  Documents  nor the
                   consummation  or  performance  of any of the  foregoing is or
                   will, directly or indirectly (with or without notice or lapse
                   of time):

3.2.2.1.   contravene, conflict with, or result in a violation of (A) any
                          provision of the Organizational Documents of the
                          Company or any Subsidiary, or (B) any resolution
                          adopted by the board of directors or the
                          shareholders of the Company or any Subsidiary; or

3.2.2.2.   contravene, conflict with, or result in a violation of, or give any
                          Governmental Body or other Person the right to
                          challenge or to exercise any remedy or obtain any
                          relief under, any Legal Requirement or any Order to
                          which the Company or any Subsidiary, or any of the
                          assets owned or used by the Company or any
                          Subsidiary, may be subject, the breach of or default
                          under which could have a Material Adverse Effect or
                          could materially adversely affect the consummation
                          of the Contemplated Transactions; or

3.2.2.3.   contravene, conflict with, or result in a violation of any of the
                          terms or requirements of, or give any Governmental
                          Body the right to revoke, withdraw, suspend, cancel,
                          terminate or modify any Governmental  Authorization
                          that is held by the Company or any Subsidiary or
                          that otherwise relates to the business of, or any of
                          the assets owned or used by, the Company or any
                          Subsidiary, the effect of which would have a
                          Material Adverse Effect or materially adversely
                          affect the consummation of the Contemplated
                          Transactions; or

3.2.2.4.   contravene, conflict with, or result in a violation or breach of
                          any provision of, or give any Person the right to
                          declare a default or exercise any remedy under, or
                          to accelerate the maturity or performance of, or to
                          cancel, terminate, or modify, any Applicable
                          Contract, the effect of which could have a Material
                          Adverse Effect or materially adversely affect the
                          consummation of the Contemplated Transactions; or

3.2.2.5.                  result  in  the   imposition   or   creation   of  any
                          Encumbrance  upon or with  respect to any of the Asset
                          owned or used by the  Company or any  Subsidiary,  the
                          effect of which could have a Material  Adverse  Effect
                          or materially adversely affect the consummation of the
                          Contemplated Transactions.

3.2.3.     Except as set forth in Schedule 3.2.3, no notice to, filing with or
                   Consent from any Person or Governmental Body is or will be
                   required to be made or obtained in connection with the
                   execution and delivery of (i) this Agreement, (ii) the
                   Transaction Documents, (iii) the Technology License
                   Agreement, effective April 7, 2000 between the Company and
                   Toshiba Corporation (the "Toshiba Agreement") and (iv) the
                   Additional Incentive Plans (as defined in Section 7.14) or
                   the consummation or performance of any of the transactions
                   contemplated hereby or thereby.

3.2.4.     To the best knowledge of the Company and based on the Company's
                   investigation as of the date hereof, except as set forth in
                   Section 5.2 to the Business Plan and Schedule 3.2.3, no
                   notice to, filing with or Consent from any Person or
                   Governmental Body is or will be required to be made or
                   obtained in connection with (a) the construction,
                   deployment and operation of Fab 2 in accordance with the
                   Business Plan, (b) the implementation of the Additional
                   Financing Plan (as defined), provided that the
                   representation made in this clause (b) is given to the
                   actual Knowledge of the Company on the date hereof in
                   respect of equity financings to be provided by Wafer
                   Partners, and (c) the execution, delivery and performance
                   of the agreements entered into or to be entered into by the
                   Company in connection therewith (such agreements, together
                   with the agreements referred to in clauses (i)-(iv) of
                   Section 3.2.3, the "Ancillary Agreements"), other than, in
                   respect of each of the foregoing clauses, notices, filings
                   or Consents, the failure of which to be made or obtained
                   would not, individually or in the aggregate have a material
                   adverse affect on the construction and operation of Fab 2.

3.3.  CAPITALIZATION; ISSUANCE OF SHARES; OFFICERS AND DIRECTORS.
      ----------------------------------------------------------

3.3.1.     The authorized share capital of the Company, immediately prior to
                   the Closing, including the proposed increase in share
                   capital referred to in Section 2.4, will consist of
                   70,000,000 Ordinary Shares, of which 12,207,007 shares are
                   issued and outstanding and 1,784,804 are reserved for
                   issuance of outstanding options to employees, officers and
                   directors and 1,615,500 are reserved for future grants of
                   options to employees, officers and directors. All of the
                   outstanding Ordinary Shares have been duly authorized and
                   validly issued and are fully paid and nonassessable.
                   Schedule 3.3 sets forth the list of the Company's
                   shareholders of record as maintained by the transfer agent
                   and a list of all the options outstanding, the vesting
                   schedules of such options and the exercise prices thereof.
                   Except as set forth in Schedule 3.3, there are no Contracts
                   relating to the issuance, or to the Knowledge of the
                   Company, sale, transfer, or Encumbrance (other than arising
                   solely by or through actions of Buyer) of any equity
                   securities or securities convertible or exchangeable into
                   equity securities of the Company. When the Shares shall
                   have been issued and delivered to Buyer as part of the
                   Closing, such Shares will: (i) have been duly authorized
                   for issuance by the Company's Board, (ii) upon delivery of
                   the consideration therefor in accordance with the terms of
                   this Agreement and the Escrow Agreement, be duly and
                   validly issued, fully paid and nonassessable and (iii) be
                   free and clear of any Encumbrances, and not the subject of
                   any preemptive or other participation rights.

3.3.2.             The  Company's  and its  Subsidiaries  current  officers  and
                   directors  are  those  persons  whose  names are set forth in
                   Schedule 3.3.2 (the "Named Officers and Directors").

3.3.3.     Neither the Company nor any Subsidiary has any agreement,
                   obligation or commitment with respect to the election of
                   any Person to the Company's Board and/or any Subsidiary's
                   board of directors and to the actual knowledge of the
                   Company, there is no voting agreement or other arrangement
                   among the Company's shareholders or the Subsidiaries'
                   shareholders, and there are no agreements or arrangements
                   between any Person which affects or relates to the voting
                   or giving written consents with respect to the Company's or
                   any Subsidiaries' securities including with respect to the
                   nomination of a director and/or officer of  the Company
                   and/or the Subsidiary.

3.3.4.             There  are no  agreements,  commitments  and  understandings,
                   whether written or oral, with respect to any  compensation to
                   be provided by the Company  and/or the  Subsidiary  to any of
                   the Named Officers and Directors,  and, to the best knowledge
                   of the  Company,  to be provided by any third party to any of
                   the  Named  Officers  and  Directors,  except as set forth in
                   Schedule 3.3.4.

3.3.5.     Except as set forth in Schedule 3.3.5 (a) and in the Registration
                   Rights Agreement to be entered into hereunder, the Company
                   is not under any obligation to register for trading on any
                   securities exchange any of its currently outstanding
                   securities or any of its securities which may hereafter be
                   issued.  Since its incorporation there has been no
                   declaration or payment by the Company of dividends, or any
                   distribution by the Company of any assets of any kind to
                   any of its shareholders in redemption of or as the purchase
                   price for any of the Company's securities except as set
                   forth in Schedule 3.3.5 (b).

3.4.  SEC DOCUMENTS; FINANCIAL STATEMENTS

3.4.1.     The Company has furnished to Buyer copies of the Company's Annual
                   Report on Form 20-F for the year ended December 31, 1999
                   (the "Annual Report") as filed with the U.S. Securities and
                   Exchange Commission ("SEC") on March 20, 2000.  The Company
                   represents and warrants to Buyer that: (i) the Annual
                   Report has been duly filed with the SEC, and when filed was
                   in compliance in all material respects with the
                   requirements of the Exchange Act and the rules and
                   regulations of the SEC applicable to such Annual Report;
                   and (ii) the Annual Report was complete and correct in all
                   material respects as of its date and, as of its date, did
                   not contain any untrue statement of material fact or omit
                   to state a material fact required to be stated therein or
                   necessary in order to make the statements made therein, in
                   light of the circumstances under which they were made, not
                   misleading. The Company has provided the Buyer with a copy
                   of each document submitted to the SEC on Form 6-K since
                   January 1, 1999 (the "6K Reports" and together with the
                   Annual Report, the "SEC Documents"). The Company represents
                   and warrants to Buyer that: (i) the 6K Reports have been
                   duly submitted to the SEC, and when submitted were in
                   compliance in all material respects with the requirements
                   of the Exchange Act and the rules and regulations of the
                   SEC applicable to such 6K Reports; and (ii) the 6K Reports
                   were complete and correct in all material respects as of
                   their respective dates and, as of such dates, did not
                   contain any untrue statement of material fact or omit to
                   state a material fact required to be stated therein or
                   necessary in order to make the statements made therein, in
                   light of the circumstances under which they were made, not
                   misleading.  The Company represents that it has filed all
                   the reports that the Company was required to file with the
                   SEC since January 1, 1998, according to the requirements of
                   the Exchange Act.

3.4.2.     The Company has delivered to Buyer: (a) audited consolidated
                   balance sheets of the Company as at December 31 in each of
                   the years 1998 through 1999 (the December 31, 1999 balance
                   sheet being hereinafter referred to as the "Balance Sheet")
                   and the related audited consolidated statements of income,
                   changes in shareholders' equity, and cash flow for each of
                   the fiscal years then ended, together with the report
                   thereon of Brightman Almagor, independent certified public
                   accountants, and (b) an unaudited consolidated balance
                   sheet of the Company as at March 31, 2000 (the "Interim
                   Balance Sheet") and the related unaudited consolidated
                   statements of income, changes in shareholders' equity, and
                   cash flow for the three months then ended, including in
                   each case the notes thereto. Such financial statements and
                   notes fairly present the financial condition and the
                   results of operations, changes in shareholders' equity, and
                   cash flow of the Company as at the respective dates of and
                   for the periods referred to in such financial statements,
                   all in accordance with GAAP, subject, in the case of
                   interim financial statements, to normal recurring year-end
                   adjustments (the effect of which will not, individually or
                   in the aggregate, be materially adverse); the financial
                   statements referred to in this Section 3.4.2 reflect the
                   consistent application of such accounting principles
                   throughout the periods involved.

3.5.  BUSINESS PLAN; ADDITIONAL FINANCING PLAN


            True  and  correct   copies  of  the   Business   Plan  and  of  the
            Environmental  Study submitted to the District Zoning Authority (the
            "Environmental  Study") are  attached  hereto as Schedule  3.5.  The
            Company has conducted  reasonable  research and surveys in preparing
            the Business Plan and the  Environmental  Study and  consulted  with
            reputable experts in the field as is reasonably appropriate in these
            circumstances.  The Company believes that the opinions,  assumptions
            and timetables  contained in the Business Plan  (including  both the
            alternate  case  assumptions  and the base  assumptions,  as defined
            therein,  and without  giving  effect to any risk  factors  included
            therein)  and  in  the  Environmental  Study  are  reasonable.   The
            financial,  business and other  projections  set out in the Business
            Plan  (including  both the alternate case  assumptions  and the base
            assumptions,  as defined  therein,  and without giving effect to any
            risk factors  included  therein) have been reasonably  prepared with
            due diligence,  care and consideration.  To the Company's knowledge,
            each of the Business  Plan and the  Environmental  Study is complete
            and correct in all material respects and does not contain any untrue
            statement of material fact. To the best of the Company's  knowledge,
            after  conducting  reasonable  research and surveys as is reasonably
            appropriate  in  these   circumstances  and  after  consulting  with
            reputable  experts  in the field,  the  financings  contemplated  in
            Section 7.6 hereto (the "Additional  Financings")  together with the
            Purchase  Price  and the  proceeds  to be paid to the  Company  upon
            exercise of the Addtional Purchase  Obligations,  will be sufficient
            to complete the  construction,  deployment and operation of Fab 2 in
            accordance  with the Business  Plan  according to the base  scenario
            under  which  management  of  the  Company  currently   contemplates
            implementing  the Business Plan. There are no other facts or matters
            of which the Company is aware which could render any such  opinions,
            assumptions,   timetables  or  projections   materially  misleading;
            provided,  however, that no assurance can be or is given that any of
            the forecast  projections  will be attained or that the  assumptions
            contained therein will not change.

3.6.        TITLE TO PROPERTIES;  ENCUMBRANCES.  Except as set forth in Schedule
            3.6,  the  Company  and its  Subsidiaries  have good and  marketable
            title,  free and clear of all Encumbrances  (other than Encumbrances
            for current Taxes not yet due and minor Encumbrances,  if any, which
            in the  aggregate  do not  materially  detract from the value of the
            Assets (as hereinafter  defined) or materially impair the conduct of
            business  of the Company as  currently  conducted  and as  currently
            approved by the Board to be conducted in the future),  to all of the
            assets,   real  property,   interests  in  real  property,   rights,
            franchises, patents, trademarks, copyrights, mask works, trademarks,
            trade names, licenses and properties tangible or intangible, real or
            personal,  wherever  located  which are used in the  conduct  of the
            business  conducted  and as  currently  approved  by the Board to be
            conducted  in the future by the Company (the  "Assets"),  other than
            property that is leased or licensed. Except as set forth in Schedule
            3.6, the Company has valid and  enforceable  leases or licenses,  as
            the case may be, with respect to the Assets  consisting  of property
            that is leased or  licensed,  under which  there  exists no default,
            event of default  or event  which,  with  notice or lapse of time or
            both,  would  constitute a default,  except for such defaults  which
            could not have a  Material  Adverse  Effect.  Except as set forth on
            Schedule 3.6,  with respect to real property  owned or leased by the
            Company or any Subsidiary, there are not any rights of way, building
            use restrictions exceptions, variances, reservations, or limitations
            of any  nature  which  materially  impair  or  could  reasonably  be
            expected  to  materially  impair  the  business  of the  Company  as
            conducted and as currently  approved by the Board to be conducted in
            the future,  other than such which would not have a Material Adverse
            Effect. All buildings, plants, and structures owned or leased by the
            Company or any  Subsidiary  do not encroach upon the property of, or
            otherwise  conflict with the property rights of, any other Person in
            a material manner.

3.7.        CONDITION  AND  SUFFICIENCY  OF  ASSETS.   The  buildings,   plants,
            structures,  and equipment of the Company and its  Subsidiaries  are
            structurally  sound, are in good operating condition and repair, and
            are  adequate  for the uses to which they are being put, and none of
            such  buildings,  plants,  structures,  or  equipment  is in need of
            maintenance or repairs except for ordinary,  routine maintenance and
            repairs that are not material in nature or cost. Except as set forth
            in Schedule 3.7, the building,  plants,  structures and equipment of
            the Company and its  Subsidiaries  are  sufficient for the continued
            conduct  of  the   Company's   businesses   after  the   Closing  in
            substantially the same manner as conducted prior to the Closing.

3.8.  CUSTOMERS AND SUPPLIERS.   Since January 1, 2000, there has not been any
      ------------------------
            adverse change in the business relationship of the Company with
            any material customer or material supplier of the Company.

3.9.  INVENTORY. Inventories of raw materials, work in progress and finished
      ---------
            goods of the Company and its Subsidiaries are in good condition
            and of a quality useable and saleable in the Ordinary Course of
            Business or have had appropriate financial reserves established.

3.10.       NO  UNDISCLOSED  LIABILITIES.  Except as set forth in Schedule 3.10,
            neither  the  Company  nor any  Subsidiary  has any  liabilities  or
            obligations of any nature (whether absolute,  accrued, contingent or
            otherwise)  except  for  liabilities  or  obligations  reflected  or
            reserved  against in the Balance Sheet or the Interim  Balance Sheet
            and current liabilities  incurred in the Ordinary Course of Business
            since the respective dates thereof.

3.11. TAXES

3.11.1.    The Company and each Subsidiary has filed or caused to be filed (on
                   a timely basis since January 1, 1994) all Tax Returns that
                   are or were required to be filed by or with respect to it,
                   pursuant to applicable Legal Requirements. The Company and
                   each Subsidiary has paid, or made provision for the payment
                   of, all Taxes that have or may have become due pursuant to
                   those Tax Returns or otherwise, or pursuant to any
                   assessment received by the Company, except such Taxes, if
                   any, as are listed in Schedule 3.11 and are being contested
                   in good faith and as to which adequate reserves (determined
                   in accordance with GAAP) have been provided in the Balance
                   Sheet and the Interim Balance Sheet.

3.11.2.    Except as set forth in Schedule 3.11.2, the relevant state tax
                   authorities have audited all such Tax Returns or such Tax
                   Returns are closed by the applicable statute of limitations
                   for all taxable years through December 31, 1999.  All
                   deficiencies proposed as a result of such audits have been
                   paid, reserved against, settled, or, as described in
                   Schedule 3.11, are being contested in good faith by
                   appropriate proceedings.  Except as described in
                   Schedule 3.11, neither the Company nor any Subsidiary has
                   given or been requested to give waivers or extensions (or
                   is or would be subject to a waiver or extension given by
                   any other Person) of any statute of limitations relating to
                   the payment of Taxes of the Company or for which the
                   Company may be liable.

3.11.3.            All  Taxes  that the  Company  and any  Subsidiary  is or was
                   required by Legal  Requirements  to withhold or collect  have
                   been duly withheld or collected and, to the extent  required,
                   have  been  paid to the  proper  Governmental  Body or  other
                   Person.

3.11.4.            All Tax Returns  filed by (or that include on a  consolidated
                   basis) the Company and any Subsidiary are true, correct,  and
                   complete in all  material  respects.  There is no tax sharing
                   agreement  that will require any payment by the Company after
                   the date of this Agreement.

3.12.       NO MATERIAL  ADVERSE  CHANGE.  Except as set forth in Schedule 3.12,
            since the date of the Balance Sheet, there has not been any material
            adverse change in the business,  operations,  properties,  assets or
            condition  of the Company  (financial  or other),  including  in the
            prospects of the construction,  deployment and operation of Fab 2 in
            accordance  with the Business Plan, and no event or development  has
            occurred or  circumstance  exists that may result in such a material
            adverse change.

3.13. EMPLOYEE BENEFITS; LABOR

3.13.1.    Except as set forth in Schedule 3.13.1, neither the Company nor any
                   Subsidiary is a member of any employers union or a party to
                   any collective bargaining contract, collective labor
                   agreement or other contract or arrangement with a labor
                   union, trade union or other organization or body involving
                   any of its employees, or is otherwise required (under any
                   legal requirement, including under any profit sharing,
                   bonus, deferred compensation, savings, insurance, pension,
                   retirement, or other employee benefit plan for or with any
                   employees of the Company or any of its Subsidiaries, except
                   for the respective personal employment agreements) to
                   provide benefits or working conditions beyond the minimum
                   benefits and working conditions required by law. Neither
                   the Company nor any Subsidiary has recognized or received a
                   demand for recognition from any collective bargaining
                   representative with respect to any of its employees. Except
                   as set forth in Schedule 3.13.1, neither the Company nor
                   any Subsidiary  are subject to, and no employee of the
                   Company or any Subsidiary benefits from, any extension
                   order (TZAVEI HARCHAVA) or any arrangement or custom with
                   respect to employment or termination thereof. All of the
                   Company's and the Subsidiaries' employees are "at will"
                   employees and neither the Company nor any Subsidiary has
                   any obligation to employ any employee for a specified
                   period.

3.13.2.            Except as set forth in Schedule  3.13.2,  there are no claims
                   or complaints  that are pending or that have been  threatened
                   against the Company or any Subsidiary by any person who is or
                   has  been an  employee  or  director  of the  Company  or any
                   Subsidiary,  that may, individually or in the aggregate, have
                   a Material Adverse Effect.

3.13.3.            Since  January 1, 1995,  (i) there has been no labor  strike,
                   slowdown  or  stoppage  pending  or  threatened   against  or
                   affecting  the Company or any  Subsidiary  and (ii) there has
                   been  no  material   dispute   between  the  Company  or  any
                   Subsidiary  and any  group  of its  employees  which  was not
                   resolved.

3.13.4.    Except as set forth in Schedule 3.13.4, the Company's and its
                   Subsidiaries' obligations to provide severance pay to its
                   employees are fully funded or have been properly provided
                   for in the Financial Statements in accordance with GAAP
                   including, by contribution to appropriate insurance funds.
                   All other liabilities of the Company or any Subsidiary
                   (absolute or contingent) relating to their employees were
                   properly accrued in the Financial Statements in accordance
                   with GAAP.

3.13.5.    All amounts that the Company or any Subsidiary is legally or
                   contractually required either (i) to deduct from its
                   employees' salaries or to transfer to such employees'
                   pension or provident, life insurance, manager insurance,
                   incapacity insurance, continuing education fund or other
                   similar fund or (ii) to withhold from their employees'
                   salaries and pay to any Governmental Entity as required by
                   Israeli Legal Requirements relating to any tax or any other
                   compulsory payment have, in each case, been duly deducted,
                   transferred, withheld and paid.

3.13.6.            The  Company  and each  Subsidiary  is in  compliance  in all
                   material respects with all applicable Legal  Requirements and
                   contracts  relating  to  employment,   employment  practices,
                   wages,  bonuses and other compensation  matters and terms and
                   conditions of employment.

3.13.7.            Schedule  3.13.7  sets  forth  true and  complete  details of
                   payment  by the  Company  or any  of its  Subsidiaries  since
                   January   1,  2000  of  any   bonuses,   salaries   or  other
                   compensation  to any shareholder or Named Director or Officer
                   (except in the Ordinary Course of Business) or entry into any
                   employment,  severance,  or similar  Contract  with any Named
                   Director or Officer.

3.14. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS

3.14.1.    Except as set forth in Schedule 3.14 (i) the Company and its
                   Subsidiaries are, and at all times since January 1, 1997
                   have been, in full compliance with each Legal Requirement
                   that is or was applicable to them or to the conduct or
                   operation of their business or the ownership or use of any
                   of their assets, except for such non-compliance which would
                   not have a Material Adverse Effect and (ii) neither the
                   Company nor any of its Subsidiaries have received, at any
                   time since January 1, 1997, any notice or other
                   communication (whether oral or written) from any
                   Governmental Body or any other Person regarding any actual,
                   alleged, possible, or potential violation of, or failure to
                   comply with, any Legal Requirement except for such notices
                   and communications which could not have a Material Adverse
                   Effect.

3.14.2.    The Company and each Subsidiary has all Governmental Authorizations
                   necessary to permit the Company and its Subsidiaries to
                   lawfully conduct and operate their business as currently
                   conducted and as approved by the Board to be conducted in
                   the future, except for such authorizations, the failure to
                   possess which would not have a Material Adverse Effect.
                   The Company and its Subsidiaries are and have been in full
                   compliance with all of the terms and requirements of each
                   Governmental Authorization that is held by the Company and
                   its Subsidiaries or that otherwise relates to the business
                   of the Company and its Subsidiaries as presently conducted
                   and as approved by the Board to be conducted in the future,
                   or to any of the assets owned or used by the Company and
                   its Subsidiaries, except for such non-compliance which
                   would not have a Material Adverse Effect.  Each
                   Governmental Authorization referred to in the foregoing
                   sentence is valid and in full force and effect.  No event
                   has occurred or circumstance exists that may  constitute or
                   result directly or indirectly in a violation of or a
                   failure to comply with any term or requirement of any such
                   Governmental Authorization or result directly or indirectly
                   in the revocation, withdrawal, suspension, non-renewal,
                   cancellation, or termination of, or any modification to,
                   any such Governmental Authorization and no notice has been
                   received by the Company or any Subsidiary with respect to
                   the foregoing, other than those events, circumstances or
                   notices which would not have a Material Adverse Effect. To
                   the best knowledge of the Company, the Company and its
                   Subsidiaries can obtain all such renewals and Governmental
                   Authorizations on a timely basis as needed for their
                   respective operations and business, other than those the
                   failure of which to be obtained could not have a Material
                   Adverse Effect.

3.15.       LEGAL  PROCEEDINGS;  ORDERS.  Except as set forth in Schedule  3.15,
            there is no pending  Proceeding  (i) that has been  commenced  by or
            against the Company or that  otherwise  relates to or may affect the
            business  of, or any of the assets  owned or used by, the Company or
            any Subsidiary in a material  manner;  or (ii) that  challenges,  or
            that may have the effect of preventing, delaying, making illegal, or
            otherwise interfering with, any of the Contemplated Transactions.

3.15.1.            In addition, (A) no such Proceeding has been Threatened,  and
                   (B) no event has  occurred  or  circumstance  exists that may
                   give rise to or serve as a basis for the  commencement of any
                   such Proceeding.

3.15.2.    Except as set forth in Schedule 3.15, (i) there is no Order to
                   which the Company or any of its Subsidiaries, or any of the
                   assets owned or used by the Company or any of its
                   Subsidiaries, is subject; and (ii) the Company or any of
                   its Subsidiaries are not subject to any Order that relates
                   to its business as presently conducted or as approved by
                   the Board to be conducted, or any of the assets owned or
                   used by, the Company or any of its Subsidiaries.

3.15.3.            Except as set forth in Schedule 3.15, the Company and all its
                   Subsidiaries  are,  and at  all  times  have  been,  in  full
                   compliance  with all of the  terms and  requirements  of each
                   Order to which it, or any of the assets  owned or used by it,
                   is or has been subject,  other than any non-compliance  which
                   would not have a Material Adverse Effect

3.16.       ABSENCE  OF  CERTAIN  CHANGES  AND  EVENTS.  Except  as set forth in
            Schedule 3.16,  since the date of the Balance Sheet, the Company and
            all its  Subsidiaries  have conducted  their  businesses only in the
            Ordinary Course of Business and there has not been any:

3.16.1.            entry  into,   termination   of,  or  receipt  of  notice  of
                   termination  of (i)  any  license,  distributorship,  dealer,
                   sales  representative,  joint  venture,  credit,  or  similar
                   agreement,  or (ii) any Contract or  transaction  involving a
                   total remaining commitment by or to the Company or any of its
                   Subsidiaries of at least $2,000,000; or

3.16.2.    sale (other than sales of inventory in the Ordinary Course of
                   Business), lease, or other disposition of any asset or
                   property of the Company or any of its Subsidiaries for at
                   least $2,000,000 or mortgage, pledge, or imposition of any
                   lien or other encumbrance on any material asset or property
                   of the Company or any of its Subsidiaries, including the
                   sale, lease, or other disposition of any of the
                   Intellectual Property Assets except in the Ordinary Course
                   of Business; or

3.16.3.    cancellation or waiver of any claims or rights with a value to the
                   Company or any of its Subsidiaries in excess of
                   $2,000,000; or

3.16.4.    material change in the accounting methods used by the Company or
                   any of its Subsidiaries; or

3.16.5.    agreement, whether oral or written, by the Company or any of its
                   Subsidiaries to do any of the foregoing.

3.17. CONTRACTS; NO DEFAULTS

3.17.1.            Except  as set  forth  in  Schedule  3.17.1  and  except  for
                   agreements, instruments, arrangements and contracts which are
                   exhibits  to the  SEC  Documents,  as of  the  date  of  this
                   Agreement, there is no Applicable Contract that:

3.17.1.1.  involves performance of services or delivery of goods or materials
                          by or to the Company or any of its Subsidiaries of
                          an amount or value in excess of $1,000,000; or

3.17.1.2.  was not entered into in the Ordinary Course of Business and that
                          involves expenditures or receipts of the Company or
                          any of its Subsidiaries in excess of $2,000,000; or

3.17.1.3.                 affects the  ownership  of,  leasing of, title to, use
                          of, or any leasehold or other interest in, any real or
                          personal property (except personal property leases and
                          installment and conditional  sales agreements having a
                          value  per item or  aggregate  payments  of less  than
                          $500,000 and with terms of less than one year); or
3.17.1.4.  relates to patents, trademarks, copyrights, or other intellectual
                          property, except for standard agreements with
                          current or former employees, consultants, or
                          contractors regarding the appropriation or the
                          non-disclosure of any of the Intellectual Property
                          Assets; or

3.17.1.5.  constitutes a collective bargaining agreement or other commitment
                          to or with any labor union or other employee
                          representative of a group of employees; or

3.17.1.6.  involves a sharing of profits, losses, costs, or liabilities by the
                          Company or any of its Subsidiaries with any other
                          Person; or

3.17.1.7.  contains covenants that in any way purport to restrict the business
                          activity of the Company or any of its Subsidiaries
                          or limit the freedom of the Company or any of its
                          Subsidiaries to engage in any line of business or to
                          compete with any Person; or

3.17.1.8.  provides for payments to or by any Person based on sales,
                          purchases, or profits, other than direct payments
                          for goods; or

3.17.1.9.  constitutes a currently effective and outstanding power of
                          attorney; or

3.17.1.10. was entered into other than in the Ordinary Course of Business and
                          that contains or provides for an express undertaking
                          by the Company or any of its Subsidiaries to be
                          responsible for consequential damages; or

3.17.1.11. is for capital expenditures of the Company or any of its
                          Subsidiaries in excess of $1,000,000; or

3.17.1.12.                represents a written warranty,  guaranty, and or other
                          similar   undertaking   with  respect  to  contractual
                          performance  extended  by  the  Company  or any of its
                          Subsidiaries  other  than in the  Ordinary  Course  of
                          Business.

3.17.2.    Each Contract identified in Schedule 3.17.1 is in full force and
                   effect in all respects and is valid and enforceable in
                   accordance with its terms. No event has occurred or
                   circumstance exists that (with or without notice or lapse
                   of time) may materially contravene, conflict with, or
                   result in a material violation or breach of, or give the
                   Company or any other Person the right to declare a default
                   or exercise any remedy under, or to accelerate the maturity
                   or performance of, or to cancel, terminate, or modify, any
                   Contract listed on Schedule 3.17.1,

3.17.3.            Except  as  set  forth  in  Schedule  3.17.3,  there  are  no
                   renegotiations of any material amounts paid or payable to the
                   Company or any of its Subsidiaries under current or completed
                   Contracts  listed on  Schedule  3.17.1 with any Person and no
                   such Person has made written demand for such renegotiations.

3.18.       INSURANCE.   The  properties,   assets,   employees,   business  and
            operations  of the  Company  and its  Subsidiaries  are  insured  by
            policies  which are in full force and  effect  against  such  risks,
            casualties  and  contingencies  and of such types and amounts as are
            reasonable and customary for the size and scope of the Company's and
            its  Subsidiaries  business as now  conducted  and as approved to be
            conducted  by the Board in the future.  All premiums due and payable
            for insurance policies held by the Company have been duly paid; and,
            except as listed in Schedule  3.18,  such  policies  or  extensions,
            renewals or replacements  thereof (on comparable terms to the extent
            available) in such amounts will be outstanding and in full force and
            effect without  interruption  until the Closing Date. The Company or
            any of its  Subsidiaries  have  not  received  any  notice  from any
            insurer,  agent or broker with respect to any pending or  threatened
            terminations   or  increases  in  premiums   other  than   increases
            contemplated  by  existing  policies,  and the  consummation  of the
            transactions  contemplated  by this  Agreement  and the  Transaction
            Documents will not result in the termination of any such policy,  or
            cause a material  increase in any premiums  thereunder,  pursuant to
            the express terms of such policy.

3.19. ENVIRONMENTAL MATTERS. Except for (i) matters disclosed in the SEC
      ---------------------
            Documents or (ii) matters disclosed in Schedule  3.19:

3.19.1.    The Company and its Subsidiaries are in material compliance with
                   all applicable Environmental Laws and Environmental
                   Permits. Neither the Company or any of its Subsidiaries has
                   received any written communication from a Governmental Body
                   or Person that alleges that the Company is not in
                   compliance with or has liability under any applicable
                   Environmental Law, nor does the Company or any of its
                   Subsidiaries have a basis to expect any such actual or
                   Threatened communication. On the date of this Agreement,
                   there are no circumstances or conditions that may prevent
                   or interfere with compliance in the future with
                   Environmental Laws and Environmental Permits in effect as
                   of the date of this Agreement.  The Company and its
                   Subsidiaries have all Environmental Permits required under
                   applicable Environmental Laws to operate the business of
                   the Company as presently conducted and as approved by the
                   Board to be conducted in the future, except as would not
                   have a Material Adverse Effect.

3.19.2.            There is no  Environmental  Claim  pending or, to the best of
                   the Company's  knowledge,  Threatened  against the Company or
                   its  Subsidiaries  or against any Person whose  liability for
                   such an  Environmental  Claim the Company or its Subsidiaries
                   have or may have retained or assumed whether contractually or
                   by operation of law.

3.19.3.    To the best of the Company's knowledge, there are no Materials of
                   Environmental Concern present in or at the facilities of
                   the Company or any of its Subsidiaries or at any
                   geologically or hydrological adjoining property, including
                   any Materials of Environmental Concern contained in
                   barrels, above or underground storage tanks, landfills,
                   land deposits, dumps, equipment (whether moveable or fixed)
                   or other containers, either temporary or permanent, and
                   deposited or located in land, water, sumps, or any other
                   part of the facilities of the Company or any of its
                   Subsidiaries or such adjoining property, or incorporated
                   into any structure therein or thereon.

3.19.4.    The Company has delivered to Buyer true and complete copies and
                   results of any reports, studies, analyses, tests, or
                   monitoring possessed or initiated by the Company pertaining
                   to Materials of Environmental Concern in, on, or under the
                   facilities of the Company or any of its Subsidiaries, or
                   concerning compliance by the Company, or any other Person
                   for whose conduct it is or may be held responsible, with
                   Environmental Laws.

3.19.5.    As used herein, the following terms shall have the meaning set
                   forth below:


                   "Environmental  Claim"  means  any  claim,  action,  cause of
                   action, administrative proceeding, investigation or notice by
                   any Person alleging potential liability  (including,  without
                   limitation,  potential  liability  for  investigative  costs,
                   cleanup costs, governmental response costs, natural resources
                   damages,  property damages,  personal injuries, or penalties)
                   arising out of, based on or resulting  from (a) the presence,
                   or  release  into  the  environment,   of  any  Materials  of
                   Environmental  Concern at any location,  whether or not owned
                   by the Company or its  Subsidiaries or (b)  circumstances  or
                   conditions  forming  the basis of any  violation,  or alleged
                   violation, of any Environmental Law.


                   "Environmental   Laws"  means  all  U.S.  and  Israeli  laws,
                   regulations,   ordinances,  codes,  rules,  orders,  decrees,
                   directives and standards  relating to pollution or protection
                   of  human  health  or  the  environment  (including,  without
                   limitation,  ambient air, surface water,  ground water,  land
                   surface, subsurface strata),  including,  without limitation,
                   laws, regulations, ordinances, codes, rules, orders, decrees,
                   directives  and  standards   relating  to  the   manufacture,
                   processing, distribution, use, treatment, storage, transport,
                   planning   and   building  or  handling   of   Materials   of
                   Environmental Concern.


                   "Environmental    Permits"    means    permits,     licenses,
                   authorizations  and  registrations  required  pursuant to the
                   Environmental Laws.


                   "Materials  of  Environmental  Concern"  means any  hazardous
                   chemicals, pollutants,  contaminants, hazardous wastes, toxic
                   substances, hazardous substances, as defined under applicable
                   Environmental   Laws  or  any  other  substance   defined  or
                   regulated pursuant to Environmental Laws, including,  without
                   limitation,  fluoride, asbestos, PCBs, petroleum or petroleum
                   derived substances.


                   "Release"  means any  spilling,  leaking,  pumping,  pouring,
                   emitting, discharging, injecting, escaping, leaching, dumping
                   or  disposing  into  the  environment,   including,   without
                   limitation,   the   abandonment  or  discarding  of  barrels,
                   containers and other closed receptacles  containing Materials
                   of Environmental Concern.

3.20. INTELLECTUAL PROPERTY

3.20.1.    Intellectual Property Assets- The term "Intellectual Property
                   Assets" means all such rights set forth in Sections
                   3.20.1.1 - 3.20.1.4, and all know-how, trade secrets,
                   confidential information, customer lists, software,
                   technical information, data, process technology, plans,
                   drawings, and blue prints (collectively, "Trade Secrets");
                   owned, used or licensed by the Company or its Subsidiaries
                   as licensee or licensor which are, in each case, used in or
                   are necessary for the conduct of the Company's and its
                   Subsidiaries' respective businesses as now conducted and as
                   approved by the Board to be conducted, including, without
                   limitation, the operation of Fab-2 in accordance with the
                   Business Plan.  Schedule 3.20.1 sets forth a list of the
                   Intellectual Property Rights, other than Trade Secrets and
                   unregistered Copyrights:

3.20.1.1.  trading names, registered and unregistered trademarks, service
                          marks, and applications (collectively, "Marks");

3.20.1.2.  all patents, patent applications, and inventions and discoveries
                          that may be patentable (collectively, "Patents"); and

3.20.1.3.  all copyrights in both published works and unpublished works
                          (collectively, "Copyrights").




3.20.2.    Agreements- Schedule 3.20.2 contains a complete and accurate list
                   and summary description, including any royalties paid or
                   received by the Company or its Subsidiaries, of all
                   Contracts relating to the Intellectual Property Assets to
                   which the Company or its Subsidiaries is a party or by
                   which the Company or its Subsidiaries are bound, except for
                   any license implied by the sale of a product and perpetual,
                   paid-up licenses for commonly available software programs
                   with a value of less than $5,000,000 under which the
                   Company or any of its Subsidiaries is the licensee. There
                   are no outstanding or Threatened disputes or disagreements
                   with respect to any such agreement.

3.20.3.    Know-How Necessary for the Business

3.20.3.1.                 To the  Company's  best  Knowledge,  the  Intellectual
                          Property  Assets  are  all  those  necessary  for  the
                          operation  of  the  Company's  and  its  Subsidiaries'
                          business  as  it  is  currently  conducted  and  as is
                          approved  by the  Board  to be  conducted,  including,
                          without  limitation,  in connection with the operation
                          of Fab-2 in acordance with the Business  Plan,  except
                          as would not have a Material Adverse Effect. Except as
                          set forth in Schedule 3.20.3, the Company is the owner
                          of all right,  title,  and  interest in and to each of
                          the  Intellectual  Property  Assets,  to the Company's
                          best Knowledge,  free and clear of all,  Encumbrances,
                          equities,  and other adverse claims, and has the right
                          to use  without  payment  to a third  party all of the
                          Intellectual Property Assets, except as would not have
                          a Material Adverse Effect.

3.20.3.2.                 Except as set forth in Schedule  3.20.3.2,  all former
                          and  current  employees  of the  Company and all other
                          Persons  having  access to any  Intellectual  Property
                          Asset have executed written Contracts with the Company
                          and its Subsidiaries respectively,  that assign to the
                          Company and its Subsidiaries, respectively, all rights
                          to   Intellectual   Property   Asset   including   any
                          inventions, improvements,  discoveries, or information
                          relating  to  the  business  of  the  Company.  To the
                          Company's  Knowledge,  no  employee of the Company and
                          its  Subsidiaries  has entered into any Contract which
                          requires the employee to transfer,  assign or disclose
                          information  concerning  his work for the  Company and
                          its  Subsidiaries to anyone other than the Company and
                          its Subsidiaries.

3.20.4.    Patents; Trademarks; Copyrights; Mask Works

3.20.4.1.                 Schedule  3.20.1 contains a complete and accurate list
                          and summary description of all Patents, Trademarks and
                          registered  Copyrights.  The  Company  owns all right,
                          title,  and  interest  in and to each of the  Patents,
                          Trademarks  and  Copyrights,  free  and  clear  of all
                          liens,  security  interests,  charges,   encumbrances,
                          entities, and other adverse claims.

3.20.4.2.                 Except as set forth in Schedule  3.20.4.2,  all of the
                          (i)  issued   Patents,   (ii)  Marks  that  have  been
                          registered   with  any  trademark   office  and  (iii)
                          registered  Copyrights  are  (with  respect  to issued
                          Patents relating to wafer fabrication  technology,  to
                          the  best  Knowledge  of  the  Company)  currently  in
                          compliance with formal legal  requirements,  are valid
                          and   enforceable,   and  are  not   subject   to  any
                          maintenance fees or taxes.

3.20.4.3.                 No  Patent  has  been  or  is  now   involved  in  any
                          interference,  reissue,  reexamination,  or opposition
                          proceeding.  To the best of the  Company's  knowledge,
                          there is no potentially  interfering  patent or patent
                          application  or trademark or trademark  application of
                          any third  party.  No Mark has been or is now involved
                          in any opposition,  invalidation,  or cancellation and
                          no such action is  Threatened  with the respect to any
                          of the Marks.

3.20.4.4.                 No  Patent,  Mark or  Copyright  is (with  respect  to
                          issued   Patents   relating   to   wafer   fabrication
                          technology,  to the  best  knowledge  of the  Company)
                          infringed or, to the best of the Company's  knowledge,
                          has been  challenged  or threatened in any way. To the
                          best  knowledge of the  Company,  none of the products
                          manufactured  and sold,  nor any  process or  know-how
                          used,  by  the  Company  infringes  or is  alleged  to
                          infringe any patent or other  proprietary right of any
                          other  Person;  to the best  knowledge of the Company,
                          none of the Marks  used by the  Company  or any of its
                          Subsidiaries  infringes  or is alleged to infringe any
                          trade name,  trademark,  or service  mark of any third
                          party; and to the best knowledge of the Company,  none
                          of  the  subject  matter  of  any  of  the  Copyrights
                          infringes or is alleged to infringe  any  copyright of
                          any third party or is a  derivative  work based on the
                          work of a third party.

3.20.5.    Trade Secrets

3.20.5.1.                 With respect to each Trade Secret,  the  documentation
                          relating to such Trade  Secret is  current,  accurate,
                          and  sufficient  in detail and content to identify and
                          explain  it and to  allow  its  full  and  proper  use
                          without  reliance  on the  knowledge  or memory of any
                          individual.

3.20.5.2.                 The  Company  and  its  Subsidiaries  have  taken  all
                          reasonable   precautions   to  protect  the   secrecy,
                          confidentiality, and value of its Trade Secrets to the
                          extent that the  maintenance  of any such Trade Secret
                          as a legally protectible trade secret under applicable
                          law is material to the Company.

3.20.5.3.                 The Company and its  Subsidiaries  have good title and
                          an absolute (but not necessarily  exclusive)  right to
                          use  the  Trade   Secrets  to  the  extent   that  the
                          maintenance  of any such  Trade  Secret  as a  legally
                          protectible  trade  secret  under  applicable  law  is
                          material  to  the  Company.  The  Trade  Secrets,  the
                          maintenance  of any of which as a legally  protectible
                          trade secret under  applicable law are material to the
                          Company,  are not  part  of the  public  knowledge  or
                          literature,  and, to the Company's Knowledge, have not
                          been used,  divulged,  or appropriated  either for the
                          benefit  of  any  Person  or to the  detriment  of the
                          Company  or its  Subsidiaries.  No Trade  Secret,  the
                          maintenance  of which as a legally  protectible  trade
                          secret  under   applicable  law  is  material  to  the
                          Company,  is subject to any adverse  claim or has been
                          challenged or threatened in any way.

3.21.       GRANTS,  INCENTIVES AND SUBSIDIES.  Schedule 3.21 provides a correct
            and complete list of the aggregate amount of pending and outstanding
            grants from each  Governmental  Body of the State of Israel, or from
            any other Governmental  Body, to the Company or any Subsidiary,  net
            of royalties  paid, and any tax incentive or subsidy  granted to the
            Company or any Subsidiary,  including the material terms and benefit
            periods  thereof   (collectively,   "Grants")   including,   without
            limitation,   (i)  Approved   Enterprise  Status  from  the  Israeli
            Investment  Center;  and (ii)  Grants  from the  Office of the Chief
            Scientist of the Israel Ministry of Industry and Trade ("OCS").  The
            Company  has made  available  to  Buyer,  prior to the date  hereof,
            correct  and  complete  copies  of  all  letters  of  approval,  and
            supplements  thereto,  granted  to the  Company  or  any  Subsidiary
            relating to Approved  Enterprise  Status from the Investment  Center
            and Grants under from the OCS. Except for  undertakings set forth in
            such letters of approval and undertakings  under applicable laws and
            regulations,  there are no material  undertakings  of the Company or
            any Subsidiary given in connection with the Grants.  The Company and
            each of Subsidiary are in compliance, in all material respects, with
            the terms and conditions of such Grants and,  except as disclosed in
            Schedule 3.21, have duly fulfilled,  in all material  respects,  all
            the undertakings  relating thereto. The Company's application to the
            Israeli Investment Center with respect to Fab-2 was submitted on May
            17,  2000 and was  previously  provided  to Buyer  (the  "Investment
            Center  Application").  To the extent  that there are changes to the
            assumptions  contained  in  the  Investment  Center  Application  as
            submitted,  they are reflected in the Business  Plan. The Investment
            Center Application complies as to form with all Legal Requirements.

3.22. DISCLOSURE

3.22.1.            No   representation  or  warranty  of  the  Company  in  this
                   Agreement and no statement in the Schedules  omits to state a
                   material  fact  necessary  to make the  statements  herein or
                   therein,  in light of the  circumstances  in which  they were
                   made, not misleading.

3.22.2.            No notice  given  pursuant  to Section  5.5 will  contain any
                   untrue  statement or omit to state a material fact  necessary
                   to make the statements therein or in this Agreement, in light
                   of the circumstances in which they were made, not misleading.




3.23.       RELATIONSHIPS WITH RELATED PERSONS.  Except as described on Schedule
            3.23 or in the SEC  Documents,  and  except for any  employment  and
            consulting  contracts  listed on Schedule 3.23,  there are no loans,
            guarantees,   contracts,   transactions,   understandings  or  other
            arrangements of any nature outstanding  between or among the Company
            or any of its Subsidiaries, on the one hand, and any shareholder, or
            any current or former director, officer or controlling person of the
            Company or any of their  respective  Affiliates,  on the other hand.
            Except as set forth on Schedule 3.23 or in the SEC Documents,  since
            the date of the Annual  Report,  no event has occurred that would be
            required to be reported by Company  pursuant to Item 13 of Form 20-F
            promulgated by the SEC under the Exchange Act .

3.24. BROKERS OR FINDERS. The Company and its agents have incurred no
      ------------------
            obligation or liability, contingent or otherwise, for brokerage or
            finders' fees or agents' commissions or other similar payment in
            connection with the Contemplated Transactions.

4.    REPRESENTATIONS AND WARRANTIES OF BUYER


      Buyer  represents and warrants to the Company as of the date hereof and as
      of the Closing and except as otherwise  provided in the Addtional Purchase
      Obligation Agreement as follows:

4.1.        ORGANIZATION  AND  GOOD  STANDING.   Buyer  is  a  corporation  duly
            organized,  validly existing, and in good standing under the laws of
            the State of Delaware  with full  corporate  power and  authority to
            conduct its business as it is now being  conducted  and as currently
            proposed to be conducted,  to own or use the  properties  and assets
            that it purports to own or use,  and to perform all its  obligations
            under the Transaction Documents.

4.2.  AUTHORITY; NO CONFLICT

4.2.1.     This Agreement constitutes the legal, valid, and binding obligation
                   of Buyer, enforceable against Buyer in accordance with its
                   terms. Upon the execution and delivery by Buyer of the
                   Transaction Documents, and assuming the due execution and
                   delivery thereof by the other parties thereto, the
                   Transaction Documents will constitute the legal, valid, and
                   binding obligations of Buyer, enforceable against Buyer in
                   accordance with their respective terms. Buyer has the
                   absolute and unrestricted right, power, and authority to
                   execute and deliver this Agreement and the Transaction
                   Documents and to perform its obligations under this
                   Agreement and the Transaction Documents.

4.2.2.             Except as set forth in Schedule  4.2,  neither the  execution
                   and delivery of this Agreement by Buyer nor the  consummation
                   or performance  of any of the  Contemplated  Transactions  by
                   Buyer will give any Person the right to  prevent,  delay,  or
                   otherwise interfere with any of the Contemplated Transactions
                   pursuant to:

4.2.2.1.   any provision of Buyer's Organizational Documents;

4.2.2.2.   any resolution adopted by the board of directors or the
                             stockholders of Buyer;

4.2.2.3.   any Legal Requirement or Order to which Buyer may be subject; or

4.2.2.4.   any Contract to which Buyer is a party or by which Buyer may be
                          bound.

            Except as set forth in  Schedule  4.2,  Buyer is not and will not be
            required to obtain any Consent  from any Person in  connection  with
            the execution and delivery of this Agreement or the  consummation or
            performance of any of the Contemplated Transactions.
4.3.  INVESTMENT INTENT; NO REGISTRATION

4.3.1.     Buyer is acquiring the Shares for its own account and not with a
                   view to their distribution within the meaning of Section
                   2(11) of the Securities Act.  Buyer has requisite knowledge
                   and experience in financial and business matters to be
                   capable of evaluating the merits and risks of an investment
                   in the Company and is an accredited investor as defined
                   under Regulation D as promulgated by the United States
                   Securities and Exchange Commission; and

4.3.2.     Buyer understands that none of the Shares have been registered
                   under the Securities Act, the Israeli Securities Law or the
                   laws of any jurisdiction, and agrees that the Shares may
                   not be sold, offered for sale, transferred, pledged,
                   hypothecated or otherwise disposed of except in compliance
                   with the Securities Act, Israeli Securities Law or any
                   applicable securities laws of any jurisdiction and the
                   terms of this Agreement. Buyer also acknowledges that the
                   Shares, upon issuance, will bear the following legend:


                   THESE  SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER
                   THE  SECURITIES  ACT OF 1933, AS AMENDED (THE "ACT"),  OR ANY
                   STATE  OR  OTHER   JURISDICTION'S   SECURITIES   LAWS.  THESE
                   SECURITIES  MAY NOT BE SOLD,  OFFERED  FOR  SALE OR  PLEDGED,
                   HYPOTHECATED  OR  OTHERWISE  TRANSFERRED  IN THE ABSENCE OF A
                   REGISTRATION   STATEMENT   IN  EFFECT  WITH  RESPECT  TO  THE
                   SECURITIES   UNDER  THE  ACT  OR  AN   OPINION   OF   COUNSEL
                   (SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) THAT SUCH
                   REGISTRATION  IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
                   144 OF THE ACT.

4.4.  CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
      -------------------
            commenced against Buyer and that challenges, or may have the
            effect of preventing, delaying, making illegal, or otherwise
            interfering with, any of the Contemplated Transactions. To Buyer's
            knowledge, no such Proceeding has been Threatened.

4.5.        DUE  DILIGENCE.  Subject to  compliance  by the Company with Section
            3.22 and  provision to the Buyer of all  materials  and  information
            requested  in its due  diligence  review of the Company and assuming
            that all information  and material  provided to the Buyer in its due
            diligence  review  was true and  accurate  and did not  include  any
            material  misstatement or omit to include any information  requested
            by Buyer,  (a) the Buyer has had an opportunity to ask questions and
            receive  answers  concerning  the  legal,  financial  and  technical
            condition of the Company and has had full access to such information
            concerning  the Company as the Buyer has requested and (b) the Buyer
            hereby  represents  and  warrants  that  the  legal,  technical  and
            financial  due  diligence of Buyer has been  completed  and that the
            results of the  Buyer's  business,  technical,  legal and  financial
            review of the books,  records,  agreements and other legal documents
            and business  organization  of the Company are  satisfactory  to the
            Buyer.  Notwithstanding the foregoing representations and warranties
            of the Buyer,  nothing in this Section 4.5 shall  derogate  from the
            representations and warranties of the Company in Section 3 above.

4.6.  BROKERS OR FINDERS. Buyer and its officers and agents have incurred no
      -------------------
            obligation or liability, contingent or otherwise, for brokerage or
            finders' fees or agents' commissions or other similar payment in
            connection with the Contemplated Transactions.

5.    COVENANTS OF THE COMPANY PRIOR TO CLOSING

5.1.        ACCESS AND INVESTIGATION. Between the date of this Agreement and the
            Closing Date, the Company will,  and will cause its  Representatives
            to, (i) afford Buyer and its Representatives (collectively, "Buyer's
            Advisors")  full  and  free  access  to  the  Company's   personnel,
            properties,  contracts,  books and records,  and other documents and
            data,  (ii) furnish  Buyer and Buyer's  Advisors  with copies of all
            such contracts,  books and records, and other existing documents and
            data as Buyer may  reasonably  request,  and (iii) furnish Buyer and
            Buyer's   Advisors  with  such  additional   financial,   operating,
            technical  and other data and  information  as Buyer may  reasonably
            request.   All   information   so   provided   to   Buyer   and  its
            representatives  will be  subject  to the  Non-Disclosure  Agreement
            dated  April 4, 2000  between  the  parties  (except  for  Section 6
            thereof which shall expire upon signing of this Agreement).

5.2.  OPERATION OF THE COMPANY'S BUSINESS. Between the date of this Agreement
      ------------------------------------
            and the Closing Date, the Company will:

5.2.1.     conduct its business only in the Ordinary Course of Business; and

5.2.2.     use its best efforts to preserve intact the current business
                   organization of the Company and its Subsidiaries, keep
                   available the services of the current Named Officers,
                   employees, and agents of the Company and its Subsidiaries,
                   and maintain the relations and good will with suppliers,
                   customers, landlords, creditors, employees, agents, and
                   others having business relationships with the Company and
                   its Subsidiaries; and

5.2.3.     otherwise report periodically to Buyer concerning the status of the
                   business, operations, finances and prospects of the Company
                   and its Subsidiaries; and

5.2.4.     not (i) take or agree or commit to take any action other than in
                   the Ordinary Course of Business that would make any
                   representation or warranty of the Company hereunder
                   inaccurate in any respect at, or as of any time prior to,
                   the Closing Date, provided that no such action taken in the
                   Ordinary Course of Business that Buyer has not consented to
                   in writing shall be taken into account in consideration of
                   whether the conditions set forth in Section 7 below have
                   been complied with  or (ii) omit or agree or commit to omit
                   to take any action within its control necessary to prevent
                   any such representation or warranty from being inaccurate
                   in any material respect at any such time.

5.3.        NEGATIVE COVENANT.  Except as otherwise  expressly permitted by this
            Agreement or as is consistent  with the Ordinary Course of Business,
            between the date of this Agreement and the Closing Date, the Company
            will not,  without  the prior  written  consent  of Buyer,  take any
            affirmative  action,  or fail to take any  reasonable  action within
            their or its  control,  as a result of which any of the  changes  or
            events listed in Section 3.16 is likely to occur.

5.4.        CONSENTS;  REQUIRED  APPROVALS;  CONSTRUCTION.  The Company will, as
            promptly as practicable  after the date of this Agreement,  take all
            action  required 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,  including,  without limitation, all Consents, approvals
            and waivers  referred to in Section 5.2 to the Business Plan and all
            Consents,  approvals  and waivers  referred to in Section 7.3 hereof
            and the updated Business Plan referred to in Section 7.17 (which the
            parties  shall  endeavor  to  complete  within 60 days from the date
            hereof).  The  Company  will  periodically  update  Buyer  as to the
            matters  discussed in the  preceding  sentence.  Between the date of
            this  Agreement and the Closing Date, the Company will (i) cooperate
            with Buyer with  respect to all filings that Buyer elects to make or
            is required by Legal  Requirements  to make in  connection  with the
            Contemplated   Transactions,   and  (ii)  cooperate  with  Buyer  in
            obtaining all consents identified in Schedule 4.2. In addition,  the
            Company  will,  as  promptly as  practicable  after the date of this
            Agreement,  take all action required to select contractors and other
            experts and enter into  agreements  with such parties and take other
            necessary  actions in order to facilitate the  implementation of the
            construction of Fab 2 in accordance with the time table set forth in
            the Business Plan.

5.5.        NOTIFICATION.  Between  the date of this  Agreement  and the Closing
            Date,  the  Company  will  promptly  notify  Buyer in writing if the
            Company  becomes  aware  of any fact or  condition  that  causes  or
            constitutes   a   material   breach   of  any   of   the   Company's
            representations  and  warranties  as of the  date of this  Agreement
            (except  that  such  representations  and  warranties   specifically
            qualified by materiality  shall be read for purposes of this Section
            5.5 so as not to require an additional degree of materiality), or if
            the Company  becomes aware of the occurrence  after the date of this
            Agreement of any fact or condition  that could  (except as expressly
            contemplated by this Agreement)  cause or constitute a breach of any
            such  representation or warranty had such representation or warranty
            been made as of the time of  occurrence or discovery of such fact or
            condition (except for such  representations  and warranties that are
            expressly correct as of the date of this Agreement). Should any such
            fact  or  condition  require  any  change  in the  Schedules  if the
            Schedules  were dated the date of the occurrence or discovery of any
            such fact or condition, the Company will promptly deliver to Buyer a
            supplement to the Schedules specifying such change.  During the same
            period,  the Company will promptly notify Buyer of the occurrence of
            any breach of any  covenant of the  Company in this  Section 5 or of
            the  occurrence of any event that may make the  satisfaction  of the
            conditions in Section 7 below impossible or unlikely.

5.6.  FINANCINGS.
      -----------

5.6.1.             Between the date of this  Agreement and the Closing Date, the
                   Company  will use its best  efforts  to  achieve  each of the
                   conditions  set forth in Section  7.4 and 7.6 in  relation to
                   the Additional Financings.

5.6.2.             The Company shall provide to the Investment Center such other
                   information and data, in addition to the information and data
                   contained in the Investment Center Application, as reasonably
                   necessary  in order  to  secure  the  approval  of the  grant
                   referred to in Section 7.4.

5.6.3.     The proceeds from each of the equity financing sources referred to
                   in clauses (ii) and (iii) of Section 7.6 with respect to
                   Wafer Partners shall be obtained only from parties
                   acceptable to Buyer upon Buyer's prior approval.  In
                   addition, in the event that the underlying agreements with
                   respect thereto contain any terms or conditions (including,
                   without limitation, (a) pricing terms and (b) other
                   economic terms taken as a whole) more favorable (the "Terms
                   of the Other Agreements") than those provided hereunder and
                   in the Transaction Agreements, the terms and conditions of
                   this Agreement and the Transaction Agreements, as the case
                   may be, shall be automatically amended, without further
                   action by the parties hereto and thereto, to provide such
                   terms and conditions that are at least equally favorable to
                   the Buyer as the Terms of the Other Agreements.  The
                   Company shall not enter into any agreement with respect to
                   the equity financings referred to in clauses (ii) and (iii)
                   of Section 7.6 if any of such agreements contain provisions
                   that would impede the ability of the Company to effect the
                   terms of the preceding sentence.

5.6.4.     The proceeds from each of the debt financing sources referred to in
                   clause (i) of Section 7.6 and the underlying agreements
                   with respect thereto shall be obtained only on terms and
                   conditions that are materially consistent with the terms
                   and conditions to be set forth in a term sheet or similar
                   agreement or document relating to such financing (a "Debt
                   Financing Term Sheet").  The Company shall consult with
                   Buyer in advance of execution of any Debt Financing Term
                   Sheet and shall enter into such Debt Financing Term Sheet
                   only upon the consent of Buyer which shall not be
                   unreasonably withheld. The terms and conditions of such
                   debt financing shall not be in conflict with the terms of
                   the Contemplated Transactions and shall be consistent with
                   the terms and conditions contained in the Additional
                   Financing Plan and the Business Plan.  The Company shall
                   provide to the Buyer the transaction documents of each debt
                   financing (the "Debt Fnancing Documents") in the form
                   presented to the Board for its approval, at least 10
                   business days prior to the execution thereof, in order to
                   enable Buyer to review such documents and confirm that the
                   terms thereof are consistent with the Debt Financing Term
                   Sheet previously approved by Buyer.  The Buyer shall
                   deliver to the Company its written approval or other
                   response to the Debt Financing Documents within 5 business
                   days from its receipt of the Debt Financing Documents;
                   Buyer's failure to provide its written response to the
                   Company within such period of time shall be deemed Buyer's
                   approval of the Debt Financing Documents.

5.6.5.     Between the date of this Agreement and the Closing Date, the
                   Company shall not change or modify or agree to change or
                   modify any of the terms and conditions listed in the
                   Additional Financing Plan, the Business Plan or the
                   Investment Center Application without the prior written
                   unanimous approval of all members of the Steering
                   Committee  if any such change, modification or agreement
                   would or would reasonably be expected to (a) change the
                   construction schedule of Fab 2 as set forth in the Business
                   Plan, (b) change the Additional Financing Plan as set forth
                   in the Business Plan or result in a failure to comply with
                   the schedule for the financings described therein, (c)
                   significantly increase the cost of Fab 2 beyond that set
                   forth in the Business Plan or (d) change the production
                   capacity schedule of Fab 2 as set forth in the Business
                   Plan. Any change, modification or agreement to change or
                   modify the Business Plan, the Additional Financing Plan or
                   the Investment Center Application which does not require
                   written unanimous approval of all members of the Steering
                   Committee pursuant to the preceding sentence shall require
                   written approval of a majority of the members of the
                   Steering Committee.

5.7.        SHAREHOLDERS  AGREEMENT.  The Company  will use its best  efforts to
            ensure that any entity  purchasing  equity  securities or securities
            exchangeable or convertible into equity  securities  comprising five
            percent  (5%) or  more of the  outstanding  Ordinary  Shares  of the
            Company  pursuant  to the  Additional  Financing  Plan  (other  than
            investors purchasing any such securities in connection with a public
            offering  conducted  by  the  Company  as  part  of  the  Additional
            Financing)   shall   execute  the   Shareholders   Agreement   as  a
            counterparty or a similar  agreement whose  provisions,  among other
            things,  provide  for such  entity  to take such  actions  as may be
            necessary to vote for the election of Buyer's,  TIC's, and any other
            entity's  representative(s)  to the Board,  in  accordance  with the
            terms of the Shareholders Agreement.

5.8.        NO  NEGOTIATION.  Until the later of (i) such time,  if any, as this
            Agreement is terminated  pursuant to Section 9, and (ii) the Closing
            Date, the Company will not, and will cause its  Representatives  not
            to,  directly or  indirectly  solicit,  initiate,  or encourage  any
            inquiries or proposals from,  discuss or negotiate with, provide any
            non-public information to, or consider the merits of any unsolicited
            inquiries or proposals  from, any Person (other than Buyer) relating
            to any  transaction  involving  the  sale  of  all or a  substantial
            portion of the  business or assets,  or any of the capital  stock of
            the Company (other than (i) in the Ordinary Course of Business; (ii)
            in  connection  with  issuances of stock  options or shares upon the
            exercise thereof under the Company's  employee stock incentive plans
            and (iii) in  connection  with  issuances  of equity  securities  in
            accordance  with  Section 7.6 (ii) and (iii)  below  pursuant to the
            Additional  Financing  Plan  and in  accordance  therewith),  or any
            merger, consolidation,  business combination, or similar transaction
            involving the Company or any of its  Subsidiaries  pursuant to which
            the  shareholders of the Company  immediately  prior to such merger,
            consolidation,  business combination,  or similar transaction do not
            continue  to  hold a  majority  of  the  outstanding  equity  of the
            continuing or resulting entity.

5.9.        BOARD OF  DIRECTORS.  As long as Buyer has a  representative  on the
            Board,  each  committee  of the  Board  shall  include  at least one
            representative  of Buyer and, so long as TIC has a representative on
            the Board, one  representative  of TIC. The Company will ensure that
            the time period between each annual  shareholders  meeting shall not
            exceed 15 months.  The Board shall meet at least once in every three
            months and notice of each Board meeting shall be provided in writing
            in English to all Board  members  at least 10 days in  advance.  All
            communications  to the  Directors  will be provided in English.  The
            quorum  for each  meeting  of the Board  shall  include at least one
            representative  of  Buyer,  so  long  as  Buyer  has  at  least  two
            representatives   on  the  Board.   Notwithstanding   the  preceding
            sentence,  in the event that  quorum is not  present at a meeting of
            the Board solely because a  representative  of Buyer was not present
            and such meeting is adjourned,  the failure of a  representative  of
            Buyer to be present at the adjourned  meeting  shall not  constitute
            lack of quorum. The Company acknowledges that the representatives of
            Buyer  on  the  Board  may  at  any  time  participate  or  fail  to
            participate  in any Board  action  concerning  this  Agreement if in
            their view such action is appropriate under applicable law.

5.10.       STEERING  COMMITTEE.  The Steering  Committee  shall be  established
            within  fifteen days after the date hereof.  The Steering  Committee
            will receive from the Company's  management  reports on the progress
            on the Fab 2 project,  the Business Plan and the approvals necessary
            for commencement of construction and for the operation of Fab 2. The
            Steering Committee shall meet at least once in every four weeks.

5.11.       COMPANY SHAREHOLDERS  MEETING. As soon as practicable after the date
            hereof,  the  Company  shall  take all  necessary  action to call an
            extraordinary  general  meeting of the  Company's  shareholders  and
            shall  solicit  proxies  in  order to  obtain  the  approval  of the
            Company's  shareholders  to the  issuance  of  the  Shares  and  the
            Addtional Purchase Obligation Shares to Buyer in accordance with all
            aplicable  laws,  regulations and rules of any stock exchange and to
            an amendment to the Articles  which shall  provide that the Chairman
            of the Board shall be  appointed by the  Shareholders  and to obtain
            any  other  shareholder  approval  which  is  necessary  in order to
            execute,  and  consummate  the  transactions  contemplated  by, this
            Agreement and the Transaction Documents.

6.    COVENANTS OF BUYER PRIOR TO CLOSING DATE

6.1.        APPROVALS OF GOVERNMENTAL  BODIES.  As promptly as practicable after
            the date of this Agreement,  Buyer will make all filings required by
            Legal  Requirements to be made by it to consummate the  Contemplated
            Transactions.  Between  the date of this  Agreement  and the Closing
            Date,  Buyer will  cooperate  with the Company  with  respect to all
            filings that the Company is required by Legal  Requirements  to make
            in connection with the Contemplated Transactions, and will cooperate
            with the Company in obtaining all consents identified in Section 5.2
            to the Business Plan.

7.    CONDITIONS PRECEDENT TO BUYER'S OBLIGATION AT CLOSING


      Buyer's  obligation  to take the actions  required to be taken by Buyer at
      the Closing is subject to the satisfaction, at or prior to the Closing, of
      each of the following  conditions (any of which may be waived by Buyer, in
      whole or in part, in its sole discretion):

7.1.        ACCURACY OF  REPRESENTATIONS.  All of the Company's  representations
            and  warranties  in this  Agreement and the  Transaction  Agreements
            (considered collectively, without giving effect to any supplement to
            the  Schedules),  and each of these  representations  and warranties
            (considered  individually)  must have been  accurate in all material
            respects  as of the date of this  Agreement  and must be accurate in
            all  material  respects  as of the  Closing  Date  as if made on the
            Closing  Date  (except  to  the  extent  such   representations  and
            warranties  are only given as of the date  hereof),  without  giving
            effect  to  any  supplement  to the  Schedules,  provided  that  any
            inaccuracies  in  such   representations   and  warranties  will  be
            disregarded   if  the   circumstances   giving   rise  to  all  such
            inaccuracies  (considered  collectively) do not constitute,  and are
            not reasonably  expected to result in, a Material Adverse Effect (it
            being  understood that any materiality  qualifications  contained in
            such  representations  and warranties  shall be disregarded for this
            purpose).

7.2.  COMPANY'S PERFORMANCE

7.2.1.             All of the  covenants  and  obligations  that the  Company is
                   required  to  perform  or to  comply  with  pursuant  to this
                   Agreement   at  or   prior   to   the   Closing   (considered
                   collectively),  and each of these  covenants and  obligations
                   (considered individually),  must have been duly performed and
                   complied with in all material respects.

7.2.2.             Each  of  the   Transaction   Documents   and  the  Ancillary
                   Agreements  shall have been duly  executed by the Company and
                   shall have been in full force and effect and no party to such
                   document (other than Buyer) shall be in a breach thereof. The
                   Shareholders  Agreement shall have been executed by Buyer and
                   The Israel Corporation.

7.2.3.     Each document required to be delivered by the Company pursuant to
                   Section 2.5.1 must have been delivered.

7.3.        CONSENTS;  APPROVALS; OTHER REQUIREMENTS.  (i) Each of the Consents,
            approvals  or other  requirements  identified  in Section 5.2 of the
            Business  Plan,  shall  have been duly  obtained  or  satisfied  (in
            accordance  with the schedule set forth  therein),  (ii) the Company
            shall have entered into construction  agreements with respect to the
            supervising,  management and  implementation  of the construction of
            Fab 2 in accordance  with the Business  Plan in accordance  with the
            schedule  contained  therein,  and  (iii)  the  Business  Plan,  the
            financial  data  and  project  cost  included  therein,  the list of
            necessary  approvals  and  Consents  included  in Section 5.2 of the
            Business  Plan,  the  timetable  for  construction  of Fab 2 and the
            Financial  Plan,  all as set forth in the Business  Plan attached to
            this  Agreement as amended  from time to time with the  unanimous or
            majority consent,  as the case may be, of the Steering  Committee in
            accordance with Section 5.6.5 hereof,  shall continue to be true and
            correct in all material  respects.  The  condition  included in this
            Section  7.3 shall be deemed to be  satisfied  only if the  Steering
            Committee shall have  unanimously  decided,  first,  that all of the
            conditions  included in clauses (i) - (iii) have been  satisfied and
            second,  to the  extent  that any of (i) - (iii) are not  satisfied,
            that  construction  of Fab 2 by the Company in  accordance  with the
            Business Plan should properly commence. The Steering Committee shall
            consider,  in its  decision of whether the  conditions  set forth in
            this  Section  7.3 have been met,  the  factors  listed in Section 1
            hereto under the definition of "Steering Committee."

7.4.        INVESTMENT CENTER APPROVAL.  The Company shall have obtained a final
            Certificate  of Approval from the  Investment  Center which shall be
            comprised  of  the  following  factors  (i)  granting  an  "Approved
            Enterprise"  status to Fab 2 within the Grant  Course  under the Law
            for the Encouragement of Capital  Investments - 1959; (ii) providing
            for  governmental  grants  of at  least  $250,000,000,  which  shall
            constitute at least 20% of the entire qualified project cost for the
            construction,  deployment and operation of Fab 2 in accordance  with
            the  Business  Plan as it  exists  on the  date  of this  Agreement,
            provided  that in the event that such project cost changes after the
            date of  this  Agreement  in  accordance  with  Section  5.6.5,  the
            aggregate of such grants provided for in the Certificate of Approval
            shall equal at least 20% of the changed total  project  cost;  (iii)
            the maximum  required  percentage  of capital  investments  in Fab 2
            which is required  to be  financed by equity will be 30%;  and (iii)
            providing  that  the  performance  term  under  the  Certificate  of
            Approval shall be at least 5 years from the Closing.

7.5.  OCS APPROVAL. The Company has obtained the approval of the OCS with
      ------------
            respect to the consummation of the Contemplated Transactions.

7.6.        ADDITIONAL  FINANCINGS.  The  Company  shall have (i)  entered  into
            binding  definitive  agreements  in  accordance  with Section  5.6.4
            providing for loans in an aggregate amount of at least  $550,000,000
            from reputable financial institutions solely for the purposes of the
            construction of Fab 2, as described in Section 10.4 of the Financing
            Plan, (ii) entered into binding definitive  agreements providing for
            at  least  $225,000,000  in wafer  partner  pre-payments  or  equity
            financing  from  Wafer  Partners  (other  than  Buyer)  obtained  in
            accordance  with the  terms of  Section  5.6.3 and  provided  to the
            Company by Wafer Partners  pursuant to which all closing  conditions
            have been  satisfied  and at least 15% of the equity of each  equity
            investor has been transferred to or placed in escrow for the benefit
            of the Company subject only to the closing of this Agreement and the
            balance of such financing shall be forwarded  automatically upon the
            occurrence of specified  milestones relating to the construction and
            operation of Fab-2,  which  milestones are generally  similar to the
            milestones described in the Addtional Purchase Obligation Agreement,
            (iii) in the event that the Company only  satisfies the condition in
            the preceding  clause (ii) in relation to at least  $150,000,000  of
            the $225,000,000 referred to above (such difference being the "Wafer
            Partner  Differential"),  entered into binding definitive agreements
            providing  for at  least  the  Wafer  Partner  Differential  through
            non-Wafer  Partner equity  investors;  provided,  however,  that the
            Company  shall be  required  no later  than  October  1,  2001  (the
            "Additional  Wafer  Partner  Financing  Date") to enter into binding
            definitive agreements with respect to the Wafer Partner Differential
            from  additional  Wafer  Partners as a condition  to the exercise of
            Addtional  Purchase  Obligations  not  exercised  prior to such time
            pursuant  to the  Addtional  Purchase  Obligation  Agreement  on the
            Additional   Wafer  Partner   Financing  Date,   pursuant  to  which
            agreement(s) all closing conditions have been satisfied and at least
            15% of the equity of each equity investor has been transferred to or
            placed in escrow for the  benefit of the  Company and the balance of
            such financing shall be forwarded  automatically upon the occurrence
            of specified  milestones  relating to the construction and operation
            of Fab-2,  which milestones are generally  similar to the milestones
            described in the Addtional  Purchase  Obligation  Agreement and (iv)
            provided to Buyer a  commitment  in writing to provide  $100,000,000
            from the Company's own cash  resources,  including,  but not limited
            to,  proceeds from the exercise of employee stock options,  existing
            cash  reserves,  proceeds from sales of private  equity  securities,
            royalties  and sales;  in the event that the Company  shall close on
            the basis of section (iii) above,  at such time as the Wafer Partner
            Differential  shall have been raised by the Additional Wafer Partner
            Financing  Date , the Company's  commitment to provide  $100,000,000
            under  this  clause  (iv)  shall be  reduced  by the  Wafer  Partner
            Differential.

7.7.        WAFER  PARTNERS.   The  Company  shall  have  entered  into  binding
            agreements, either on a "take or pay" basis or a "pre-payment" basis
            or, if the  other  party to any such  agreement  is making an equity
            investment  pursuant  to Section  7.6(ii),  providing  a wafer order
            right,  for a  term  of  at  least  3  years  ("Wafer  Commitments")
            providing  for the sale of a minimum  capacity  in Fab 2 of at least
            12,000 wafers per month if the Closing shall occur under Section 7.6
            (ii) above or at least 8,000  wafers per month if the Closing  shall
            occur under Section 7.6 (iii) above, in which case the Company shall
            have entered into Wafer  Commitments  providing  that the  aggregate
            Wafer  Commitments  shall equal at least 12,000  wafers per month by
            the  Additional  Wafer Partner  Financing  Date and such  agreements
            shall be in full force and effect.

7.8.  TOSHIBA AGREEMENT.  The Toshiba Agreement shall be in full force and
      ------------------
            effect and shall not have been breached by any party thereto.

7.9.        CERTIFICATES.  In addition to the documents the Company is obligated
            to  deliver  to Buyer  under  Section  2.5 and this  Section  7, the
            Company shall  furnish Buyer with such other  documents as Buyer may
            reasonably request for the purpose of (i) evidencing the accuracy of
            any  of  the  Company's   representations   and  warranties,   (iii)
            evidencing  the  performance by the Company of, or the compliance by
            the  Company  with,  any  covenant  or  obligation  required  to  be
            performed  or complied  with by the  Company,  (iv)  evidencing  the
            satisfaction of any condition  referred to in this Section 7, or (v)
            otherwise facilitating the consummation or performance of any of the
            Contemplated Transactions.

7.10.       NO  PROCEEDINGS.  Since the date of this  Agreement,  there must not
            have been  commenced or Threatened by a third party against Buyer or
            the  Company,  or against  any Person  affiliated  with Buyer or the
            Company,  any  Proceeding (a) involving any challenge to, or seeking
            material  damages or other  relief in  connection  with,  any of the
            Contemplated Transactions, or (b) that may have the effect of making
            illegal,  materially preventing,  delaying, or otherwise interfering
            with any of the Contemplated Transactions.

7.11.       NO PROHIBITION.  Neither the consummation nor the performance of any
            of the Contemplated  Transactions will, directly or indirectly (with
            or  without  notice or lapse of  time),  materially  contravene,  or
            conflict  with,  or result in a material  violation of, or cause the
            Company, Buyer or any Person affiliated with the Company or Buyer to
            suffer any material  adverse  consequence  under, (a) any applicable
            Legal  Requirement or Order,  or (b) any Legal  Requirement or Order
            that has been published,  introduced, or otherwise formally proposed
            by or before any Governmental Body.

7.12. DIRECTORS. The Board of Directors of the Company shall have been
      ----------
            reformed in accordance with the provisions of Section 2 of the
            Shareholders Agreement.

7.13. NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
      ---------------------------
            change in the business, financial condition, results of
            operations, assets, operations or prospects of the Company.

7.14.       INCENTIVE PLAN. The Company shall have adopted stock based incentive
            plans  (the  "Additional   Incentive  Plans")  reserving   1,500,000
            Ordinary Shares or such other number as may be approved by the Board
            for the  purpose of the work force and human  resources  employed in
            Fab 2, such plans being satisfactory to Buyer, and the Company shall
            have submitted to Buyer a plan  satisfactory  to Buyer setting forth
            the  Company's  efforts to recruit the required work force and human
            resources for Fab 2.

7.15.       CLOSING  DISCLOSURE.  There  shall be no fact known to the  co-Chief
            Executive  Officer of the Company  identified in Schedule 7.15. that
            has specific  application to the Company or any of its  Subsidiaries
            (other  than  general  economic  or  industry  conditions)  and that
            materially  adversely  affects  the  assets,   business,   financial
            condition,  results of operations or prospects of the Company or any
            of its Subsidiaries that has not been set forth in this Agreement or
            the  Schedules or the Business  Plan  (without  giving effect to any
            risk factors included therein).

7.16. SHAREHOLDER APPROVAL. Shareholders of the Company shall have approved
      --------------------
            the increase in registered share capital, the issuance of the
            Shares hereunder, the issuance of the Shares and Addtional
            Purchase Obligations under the Addtional Purchase Obligation
            Agreement and the reconstitution of the Board.

7.17.       UPDATED BUSINESS PLAN. Without derogating from sections 5.6 and 7.3,
            Buyer and the Company  shall have agreed to updates to the  Business
            Plan (which  thereafter  shall be deemed to be the Business Plan for
            all purposes of this Agreement) which shall,  among other things (a)
            provide that water  rights  approvals  satisfactory  to the Steering
            Committee  in the manner  set forth in  Section  7.3 shall have been
            obtained  prior to Closing,  (b) indicate  that Seller  provided the
            relevant  Governmental  Authority with an environmental  study which
            had been  prepared in 1995 and updated  recently to reflect  changes
            from  the  date  of the  original  survey,  which  survey  shall  be
            acceptable  to the relevant  Governmental  Authority and (c) include
            wafer costs data as part of the financial  plan  assumptions as part
            of the base case.

8.    CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION AT CLOSING


      The Company's  obligation to take the actions  required to be taken by the
      Company at the Closing is subject to the satisfaction,  at or prior to the
      Closing,  of each of the following  conditions (any of which may be waived
      by the Company, in whole or in part, in its sole discretion):

8.1.        ACCURACY  OF  REPRESENTATIONS.  All of Buyer's  representations  and
            warranties in this Agreement (considered collectively),  and each of
            these representations and warranties (considered individually), must
            have been  accurate in all material  respects as of the date of this
            Agreement  and must be accurate in all  material  respects as of the
            Closing Date as if made on the Closing Date.

8.2.  BUYER'S PERFORMANCE

8.2.1.             All of the covenants and  obligations  that Buyer is required
                   to perform or to comply with pursuant to this Agreement at or
                   prior to the Closing (considered  collectively),  and each of
                   these  covenants and obligations  (considered  individually),
                   must have been  performed  and complied  with in all material
                   respects.

8.2.2.             Each of the Executed  Transaction  Documents  shall have been
                   duly  executed by the Buyer and shall have been in full force
                   and  effect  and no party to such  document  (other  than the
                   Company)  shall  be in a  breach  thereof.  Buyer  must  have
                   executed and delivered the each of the documents  required to
                   be delivered by Buyer pursuant to Section 2.5.2.

8.3.  ADDITIONAL DOCUMENTS

8.3.1.     In addition to the documents required to be delivered in accordance
                   with Section 2.5.2 by Buyer, Buyer shall have furnished
                   such other documents as the Company may reasonably request
                   for the purpose of (i)  evidencing the accuracy of any
                   representation or warranty of Buyer, (ii) evidencing the
                   performance by Buyer of, or the compliance by Buyer with,
                   any covenant or obligation required to be performed or
                   complied with by Buyer, (iii) evidencing the satisfaction
                   of any condition referred to in this Section 8, or
                   (iv) otherwise facilitating the consummation of any of the
                   Contemplated Transactions.

8.4.        NO INJUNCTION.  There must not be in effect any Legal Requirement or
            any  injunction  or other Order that (i)  prohibits the issuance and
            sale of the Shares the Company to Buyer,  and (ii) has been  adopted
            or issued, or has otherwise become effective, since the date of this
            Agreement.

8.5.  SHAREHOLDER APPROVAL. Shareholders of the Company shall have approved
      --------------------
            the increase in registered share capital, the issuance of the
            Shares hereunder, the issuance of the Shares and Addtional
            Purchase Obligations under the Addtional Purchase Obligation
            Agreement and the reconstitution of the Board.

9.    TERMINATION

9.1.  TERMINATION EVENTS This Agreement may, by written notice given prior to
      ------------------
            or at the Closing, be terminated:

9.1.1.     by either Buyer or the Company if a material breach of any
                   provision of this Agreement has been committed by the other
                   party and such breach has not been waived;

9.1.2.             (i) by Buyer if any of the  conditions  in  Section 7 has not
                   been  satisfied in all material  respects by January 31, 2001
                   (unless extended by Buyer in its  discretion),  and Buyer has
                   not waived such  condition on or before the Closing  Date; or
                   (ii) by the Company,  if any of the  conditions  in Section 8
                   has not been  satisfied in all  material  respects by January
                   31, 2001; or

9.1.3.     by mutual consent of Buyer and the Company.

9.2.        EFFECT OF  TERMINATION.  Each  party's  right of  termination  under
            Section  9.1 is in  addition  to any other  rights it may have under
            this  Agreement  or  otherwise,  and  the  exercise  of a  right  of
            termination  will not be an election of remedies.  If this Agreement
            is terminated  pursuant to Section 9.1, all further  obligations  of
            the parties under this  Agreement  will  terminate,  except that the
            obligations  in  Sections  12.1 and  12.3  will  survive;  provided,
            however,  that if this Agreement is terminated by a party because of
            the breach of the  Agreement  by the other  party or because  one or
            more of the conditions to the terminating  party's obligations under
            this  Agreement is not  satisfied  as a result of the other  party's
            failure to comply with its  obligations  under this  Agreement,  the
            terminating  party's right to pursue all legal remedies will survive
            such termination unimpaired.

10.   INDEMNIFICATION; REMEDIES

10.1.       SURVIVAL;  RIGHT TO INDEMNIFICATION  NOT AFFECTED BY KNOWLEDGE.  All
            representations,  warranties,  covenants,  and  obligations  in this
            Agreement  and the  Addtional  Purchase  Obligation  Agreement,  the
            schedules,   the  supplements  to  the  schedules,  the  certificate
            delivered pursuant to Section 2.5.1.9,  and any other certificate or
            document  delivered  pursuant  to this  Agreement  or the  Addtional
            Purchase  Obligation  Agreement  will survive the Closing  until the
            expiration of six full months in which Fab 2 is fully  operated at a
            capacity of at least 8,000 wafers per month in  compliance  with the
            Foundry  Agreement,  provided,  that in the  event  that  any of the
            Addtional Purchase Obligations is not exercised, such survival shall
            only be until  the date  that is nine  months  from the last date on
            which Buyer could have been  required to  mandatorily  exercise  the
            Addtional Purchase  Obligation under the terms and conditions of the
            Addtional Purchase Obligation  Agreement (after giving effect to all
            applicable grace periods and extensions under the Addtional Purchase
            Obligation  Agreement).  The right to  indemnification,  payment  of
            Damages or other remedies based on such representations, warranties,
            covenants, and obligations will not be affected by any investigation
            conducted with respect to, or any knowledge  acquired (or capable of
            being  acquired) at any time,  whether before or after the execution
            and delivery of this Agreement or the Closing Date,  with respect to
            the  accuracy  or  inaccuracy  of  or  compliance   with,  any  such
            representation, warranty, covenant, or obligation.

10.2.       INDEMNIFICATION  AND PAYMENT OF DAMAGES BY THE COMPANY.  The Company
            will  indemnify  and hold  harmless  Buyer and its  Representatives,
            controlling  persons,  and  affiliates  (collectively,   the  "Buyer
            Indemnified  Persons")  for,  and will pay to the Buyer  Indemnified
            Persons the amount of, any loss, liability,  claim, damage,  expense
            (including  costs  of  investigation   and  defense  and  reasonable
            attorneys' fees) or diminution of value,  whether or not involving a
            third- party claim (collectively,  "Damages"),  arising, directly or
            indirectly, from or in connection with:

10.2.1.    any breach of any representation or warranty made by the Company in
                   this Agreement or in any other Transaction Document
                   (without giving effect to any materiality qualification),
                   the Schedules, the supplements to the Schedules, or any
                   other certificate or document delivered by the Company
                   pursuant to this Agreement, provided, however, that the
                   determination of any breach of any representation or
                   warranty made by the Company with respect to information
                   contained in  the Business Plan shall only be assessed when
                   considering the Business Plan in its entirety and to any
                   changes or modifications thereto which were made with
                   Buyer's approval, and that the Company shall not be liable
                   under this clause 10.2.1 for an amount of Damages exceeding
                   the aggregate proceeds actually provided by the Buyer to
                   the Company pursuant to this Agreement and the Addtional
                   Purchase Obligation Agreement, as the case may be, at the
                   time the Company becomes required to make payment pursuant
                   hereto; or

10.2.2.    any breach by the Company of any covenant or obligation of the
                   Company in this Agreement; or

10.2.3.            any claim by any Person for  brokerage  or  finder's  fees or
                   commissions  or similar  payments based upon any agreement or
                   understanding  alleged  to have been made by any such  Person
                   with the  Company  (or any  Person  acting on its  behalf) in
                   connection with any of the Contemplated Transactions.

10.3.       The remedies  provided in Section 10.2 will be the exclusive  source
            of remedies that may be available to Buyer or the other  Indemnified
            Persons in relation to any financial or pecuniary  damages which may
            be  available,  however  Buyer  shall be free to  pursue  all  other
            equitable remedies available under applicable law, including without
            limitation, any injunctive relief.

10.4.       Notwithstanding  anything to the contrary contained in Section 10.2,
            the Buyer  shall not be entitled  to seek  indemnification  from the
            Company under this Agreement with respect to any damages arising out
            of or resulting  from Section 10.2,  until the  aggregate  amount of
            such  damages  exceeds  two  hundred  and fifty  thousand US dollars
            ($250,000),  and where such  damages  exceed two  hundred  and fifty
            thousand  US dollars  ($250,000),  the Buyer  shall be  entitled  to
            indemnification in full (including the amount of the two hundred and
            fifty thousand US dollars ($250,000) referred to above).

10.5.       INDEMNIFICATION   AND  PAYMENT  OF  DAMAGES  BY  BUYER.  Buyer  will
            indemnify  and  hold  harmless  the  Company,  its  Representatives,
            controlling   persons  and  affiliates  (the  "Company   Indemnified
            Persons") and will pay to the Company Indemnified Persons the amount
            of  any  Damages  arising,  directly  or  indirectly,   from  or  in
            connection  with (i) any breach of any  representation  or  warranty
            made by Buyer in this Agreement or in any  certificate  delivered by
            Buyer  pursuant to this  Agreement,  (ii) any breach by Buyer of any
            covenant  or  obligation  of Buyer in this  Agreement,  or (iii) any
            claim by any Person for brokerage or finder's fees or commissions or
            similar payments based upon any agreement or  understanding  alleged
            to have been made by such Person with Buyer (or any Person acting on
            its behalf) in connection with any of the Contemplated Transactions.

10.6. Procedure for Indemnification - Third Party Claims

10.6.1.    Promptly after receipt by an indemnified party under Section 10.2
                   or 10.3 of notice of the commencement of any Proceeding
                   against it, such indemnified party will, if a claim is to
                   be made against an indemnifying party under such Section,
                   give notice to the indemnifying party of the commencement
                   of such claim, but the failure to notify the indemnifying
                   party will not relieve the indemnifying party of any
                   liability that it may have to any indemnified party, except
                   to the extent that the indemnifying party demonstrates that
                   the defense of such action is prejudiced by the
                   indemnifying party's failure to give such notice.

10.6.2.    If any Proceeding referred to in Section 10.6.1 is brought against
                   an indemnified party and it gives notice to the
                   indemnifying party of the commencement of such Proceeding,
                   the indemnifying party will, unless the claim involves
                   Taxes, be entitled to participate in such Proceeding and,
                   to the extent that it wishes (unless (i) the indemnifying
                   party is also a party to such Proceeding and the
                   indemnified party determines in good faith that joint
                   representation would be inappropriate, or (ii) the
                   indemnifying party fails to provide reasonable assurance to
                   the indemnified party of its financial capacity to defend
                   such Proceeding and provide indemnification with respect to
                   such Proceeding), to assume the defense of such Proceeding
                   with counsel reasonably satisfactory to the indemnified
                   party and, after notice from the indemnifying party to the
                   indemnified party of its election to assume the defense of
                   such Proceeding, the indemnifying party will not, as long
                   as it diligently conducts such defense, be liable to the
                   indemnified party under this Section 10 for any fees of
                   other counsel or any other expenses with respect to the
                   defense of such Proceeding, in each case subsequently
                   incurred by the indemnified party in connection with the
                   defense of such Proceeding, other than reasonable costs of
                   investigation. If the indemnifying party assumes the
                   defense of a Proceeding, (i) it will be conclusively
                   established for purposes of this Agreement that the claims
                   made in that Proceeding are within the scope of and subject
                   to indemnification; (ii) no compromise or settlement of
                   such claims  may be effected by the indemnifying party
                   without the indemnified party's consent unless (A) there is
                   no finding or admission of any violation of Legal
                   Requirements or any violation of the rights of any Person
                   and no effect on any other claims that may be made against
                   the indemnified party, and (B) the sole relief provided is
                   monetary damages that are paid in full by the indemnifying
                   party; and (iii) the indemnified party will have no
                   liability with respect to any compromise or settlement of
                   such claims effected without its consent. If notice is
                   given to an indemnifying party of the commencement of any
                   Proceeding and the indemnifying party does not, within ten
                   days after the indemnified party's notice is given, give
                   notice to the indemnified party of its election to assume
                   the defense of such Proceeding, the indemnifying party will
                   be bound by any determination made in such Proceeding or
                   any compromise or settlement effected by the indemnified
                   party.

10.6.3.    Notwithstanding the foregoing, if an indemnified party determines
                   in good faith that there is a reasonable probability that a
                   Proceeding may adversely affect it or its affiliates other
                   than as a result of monetary damages for which it would be
                   entitled to indemnification under this Agreement, the
                   indemnified party may, by notice to the indemnifying party,
                   assume the exclusive right to defend, compromise, or settle
                   such Proceeding, but the indemnifying party will not be
                   bound by any determination of a Proceeding so defended or
                   any compromise or settlement effected without its consent.

10.6.4.            The Company hereby consents to the non-exclusive jurisdiction
                   of any court in which a  Proceeding  is brought  against  any
                   Buyer  Indemnified  Person for  purposes  of any claim that a
                   Buyer  Indemnified  Person may have under this Agreement with
                   respect to such  Proceeding or the matters  alleged  therein,
                   and agree  that  process  may be served on the  Company  with
                   respect to such a claim anywhere in the world.

10.7.       PROCEDURE  FOR   INDEMNIFICATION   -  OTHER  CLAIMS.   A  claim  for
            indemnification for any matter not involving a third-party claim may
            be  asserted  by notice to the party  from whom  indemnification  is
            sought.  Any claim for  indemnification  which may be brought  under
            this Section 10 may be brought until 30 days after expiration of the
            relevant survival period.

11.   COVENANTS OF THE COMPANY SUBSEQUENT TO THE CLOSING DATE
      -------------------------------------------------------

11.1. ADDITIONAL FINANCING. The Company shall comply with all terms,
      ---------------------
            conditions, covenants and obligations of the Company under the
            agreements entered into in connection with the Additional
            Financings.

11.2.       ANCILLARY  AGREEMENTS.  The  Company  shall  comply  with all terms,
            conditions,  covenants  and  obligation  of the  Company  under  the
            Ancillary  Agreements.  The  Company  shall not  change or modify or
            agree to change or modify  any of the terms and  conditions  of this
            Agreement,  the  Transaction  Documents  and the  Toshiba  Agreement
            without the prior written approval of Buyer (other than the Business
            Plan pursuant to Section 11.3).

11.3.       BUSINESS PLAN. The Company shall use the proceeds of this Agreement,
            the Addtional  Purchase  Obligations  and the Additional  Financings
            solely  in  order  to  finance  the  construction,   deployment  and
            operation  of Fab 2 in  accordance  with the  Business  Plan and the
            timetable  included therein.  The Company shall not change or modify
            or agree to change or modify the Business Plan and shall not deviate
            materially  from the  Business  Plan  (whether or not it is changed)
            without  the prior  written  approval of Buyer  (which  shall not be
            unreasonably withheld) if any such change, modification or agreement
            would  or  reasonably  be  expected  to (a)  materially  change  the
            construction  schedule of Fab 2 as set forth in the  Business  Plan,
            (b)  significantly  increase the cost of Fab 2 beyond that set forth
            in  the  Business  Plan  or (c)  materially  change  the  production
            capacity  schedule of Fab 2 as set forth in the  Business  Plan.  In
            addition,  the Company shall not change or modify or agree to change
            or modify the Business  Plan and shall not deviate  materially  from
            the Business Plan (whether or not it is changed) if any such change,
            modification  or  agreement  would  or  reasonably  be  expected  to
            materially change the Additional  Financing Plan as set forth in the
            Business  Plan or result in a material  failure  to comply  with the
            schedule for the  financings  described  therein unless such change,
            modification or agreement has been approved by the Company's  Board,
            provided,  however that such approval shall not be deemed granted if
            two or more  members  of the Board  shall have  voted  against  such
            change, modification or agreement.

11.4.       PROJECT  COMMITTEE.  As of the  Closing and  thereafter  the Company
            shall create a committee of its Board (the "Project  Committee")  to
            oversee and bear  managerial  responsibility  for the Fab 2 Project.
            The Project Committee shall consist of four directors, including the
            Chief Executive  Officer of the Company then serving on the Board, a
            representative  of  Buyer  on the  Board,  so long as the  Buyer  is
            entitled to appoint a memer of the Board, a  representative  of TIC,
            so long as TIC is entitled to appoint a member to the Board, and one
            statutory external  director,  so long as the Company is required to
            appoint such an external director either to such committee or to the
            Board pursuant to Applicable Law.

11.5.       PROJECT PROGRESS REPORTS;  LIAISON OFFICER.  The Company shall, on a
            monthly basis  starting  immediately  subsequent to the date hereof,
            and in any other date  requested  by Buyer,  provide to Buyer with a
            written report  describing,  in reasonable  detail, the progress and
            status  of the Fab 2 and the  Additional  Financings.  The Buyer may
            appoint a liasion  officer  with  respect to the Fab 2 project  that
            will be an employee or consultant of the Buyer and will be permitted
            to obtain from the Company and its officers,  directors  consultants
            and contractors, ongoing information with respect to the progress of
            the project,  will have free access to all relevant  information and
            documents and will be permitted to participated in intenal  meetings
            and  discussions  of the Company with respect to the progress of the
            project.  The Company will  coordinate  with the liasion officer any
            requests in accordance  with the foregoing and shall fully cooperate
            with such officer.

11.6.       INFORMATION RIGHTS. As long as Buyer,  together with its Affiliates,
            holds at least 3% of the  outstanding  share capital of the Company,
            the Company  shall  deliver to Buyer  copies of each report filed or
            furnished by the Company to the SEC,  within no later than five days
            after such report is filed or furnished to the SEC.

11.7. PRE-EMPTIVE RIGHTS.
      -------------------

11.7.1.    Until the later of such time as (a) the Series B-1 Addtional
                   Purchase Obligation shall have expired in accordance with
                   its terms and (b) Buyer shall have exercised the Series B-1
                   Addtional Purchase Obligation and thereafter shall no
                   longer own ten percent of the issued and outstanding share
                   capital of the Company, if the Company proposes to issue
                   any of its equity securities or securities convertible into
                   such equity securities (the "Offered Securities"), other
                   than Excluded Securities, then the Buyer shall have the
                   right, but not the obligation, to purchase a portion of
                   such Offered Securities, on the same terms and conditions
                   and for the same consideration as the Offered Securities
                   which are sold, equal to the percentage of the Company's
                   issued and outstanding share capital as is owned by the
                   Buyer on the date on which Buyer responds to the notice to
                   be provided under Section 11.7.2 (the "Pro Rata Share").

11.7.2.    If the Company proposed to issue Offered Securities, it shall give
                   the Buyer written notice of its intention (the "Pre-emptive
                   Notice") and shall, in such notice, fully describe the
                   Offered Securities and any other relevant securities and
                   the terms and conditions and total consideration upon and
                   for which the Company proposes to issue them.  Upon receipt
                   of such notice, the Buyer shall have 15 business days to
                   decide and notify the Company of its decision to purchase
                   Offered Securities in an amount not exceeding Buyer's then
                   current Pro Rata Share.  If the Company fails to issue and
                   sell the Offered Securities or any portion of them within
                   90 days from the date of the Pre-emptive Notice upon terms
                   and conditions and for consideration that are no more
                   favorable to the purhasers of the Offered Securities than
                   specified in the Pre-emptive Notice, the Company shall not
                   thereafter issue or sell such Offered Securities without
                   again complying with the provisions of this Section 11.7.2.

12.   GENERAL PROVISIONS

12.1.       EXPENSES.  Except as otherwise expressly provided in this Agreement,
            each  party to this  Agreement  will  bear its  respective  expenses
            incurred  in  connection  with  the  preparation,   execution,   and
            performance  of this  Agreement and the  Contemplated  Transactions,
            including all fees and expenses of agents, representatives, counsel,
            and  accountants,  provided  that upon the Closing the Company shall
            reimburse Buyer for its reasonable legal expenses in connection with
            the  negotiation  and execution of this Agreement in an amount of up
            to $30,000 plus VAT.  The Company  shall pay all stamp tax duties in
            connection  with the  issuance  of the Shares  and any  shares  upon
            exercise of the  Addtional  Purchase  Obligations  and  otherwise in
            connection with this Agreement.

12.2.       PUBLIC  ANNOUNCEMENTS.  Any public announcement or similar publicity
            with respect to this Agreement or the Contemplated Transactions will
            be issued, if at all, by mutual agreement by the parties,  except as
            required by  applicable  law or the  regulations  of the  securities
            exchange  upon which the  securities  of either  party are traded or
            quoted.   The  Company  and  Buyer  will  consult  with  each  other
            concerning  the means by which the Company's  employees,  customers,
            and suppliers  and others  having  dealings with the Company will be
            informed of the Contemplated  Transactions,  and Buyer will have the
            right to be present for any such communication.

12.3.       CONFIDENTIALITY.  From the date  hereof,  Buyer and the Company will
            maintain  in  confidence,  and will cause the  directors,  officers,
            employees, agents, and advisors of Buyer and the Company to maintain
            in confidence,  any written information stamped  "confidential" when
            originally  furnished  by  another  party in  connection  with  this
            Agreement or the Contemplated  Transactions  (including  information
            furnished prior to the date hereof),  unless (a) such information is
            already  known to such  party or to  others  not  bound by a duty of
            confidentiality  or  such  information  becomes  publicly  available
            through no fault of such party,  (b) the use of such  information is
            necessary  or  appropriate  in making  any filing or  obtaining  any
            consent  or  approval   required   for  the   consummation   of  the
            Contemplated  Transactions,  or (c)  the  furnishing  or use of such
            information is required by Legal Requirements.

            If the Contemplated  Transactions  are not  consummated,  each party
            will return or destroy as much of such  written  information  as the
            other party may reasonably request.
12.4.       NOTICES.  All notices,  consents,  waivers, and other communications
            under this  Agreement  must be in writing and will be deemed to have
            been  duly  given  when  (a)   delivered   by  hand  (with   written
            confirmation  of  receipt),  (b) sent by  telecopier  (with  written
            confirmation  of  receipt),  provided  that  a  copy  is  mailed  by
            registered mail, return receipt  requested,  or (c) when received by
            the addressee,  if sent by a recognized  overnight  delivery service
            (receipt requested),  in each case to the appropriate  addresses and
            telecopier  numbers set forth below (or to such other  addresses and
            telecopier  numbers as a party may  designate by notice to the other
            parties):

            Company:
            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

            Buyer:
            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
12.5.       JURISDICTION;  SERVICE OF PROCESS.  Any action or proceeding seeking
            to enforce any  provision  of, or based on any right arising out of,
            this  Agreement may be brought  against any of the parties solely in
            the  courts  of the  State of  California,  and each of the  parties
            consents to the  jurisdiction of such courts (and of the appropriate
            appellate  courts) in any such action or  proceeding  and waives any
            objection to venue laid therein. Process in any action or proceeding
            referred  to in the  preceding  sentence  may be served on any party
            anywhere in the world.

12.6.       FURTHER ASSURANCES. The parties agree (a) to furnish upon request to
            each other such further  information,  (b) to execute and deliver to
            each other such other  documents,  and (c) to do such other acts and
            things,  all as the  other  party  may  reasonably  request  for the
            purpose  of  carrying  out  the  intent  of this  Agreement  and the
            documents referred to in this Agreement.

12.7.       WAIVER. The rights and remedies of the parties to this Agreement are
            cumulative and not alternative. Neither the failure nor any delay by
            any party in exercising any right,  power,  or privilege  under this
            Agreement  or the  documents  referred  to in  this  Agreement  will
            operate  as a waiver of such  right,  power,  or  privilege,  and no
            single or partial  exercise of any such right,  power,  or privilege
            will preclude any other or further exercise of such right, power, or
            privilege or the exercise of any other right,  power,  or privilege.
            To the maximum extent  permitted by applicable  law, (a) no claim or
            right arising out of this Agreement or the documents  referred to in
            this Agreement can be discharged by one party,  in whole or in part,
            by a waiver or  renunciation of the claim or right unless in writing
            signed by the  other  party;  (b) no  waiver  that may be given by a
            party will be applicable  except in the specific  instance for which
            it is given;  and (c) no  notice  to or demand on one party  will be
            deemed  to be a waiver  of any  obligation  of such  party or of the
            right of the party  giving  such  notice  or demand to take  further
            action without notice or demand as provided in this Agreement or the
            documents referred to in this Agreement.

12.8.       ENTIRE  AGREEMENT AND  MODIFICATION.  This Agreement  supersedes all
            prior  agreements  between the parties  with  respect to its subject
            matter (including the term sheet between Buyer and the Company 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.

12.9. DISCLOSURE SCHEDULES

12.9.1.            The disclosures in the Schedules, and those in any supplement
                   thereto,   must  relate  only  to  the   representations  and
                   warranties  in the  Section  of the  Agreement  to which they
                   expressly  relate  and  not to any  other  representation  or
                   warranty in this Agreement.

12.9.2.            In the event of any  inconsistency  between the statements in
                   the body of this Agreement and those in the Schedules  (other
                   than  an  exception  expressly  set  forth  as  such  in  the
                   Schedules   with   respect  to  a   specifically   identified
                   representation  or warranty),  the  statements in the body of
                   this Agreement will control.

12.10.     ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
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            may assign any of its rights under this Agreement without the
            prior consent of the other parties, except that Buyer may assign
            any of its rights under this Agreement to any wholly owned
            Subsidiary of Buyer 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.
12.11.      SEVERABILITY.  If any provision of this Agreement is held invalid or
            unenforceable  by any  court of  competent  jurisdiction,  the other
            provisions of this  Agreement  will remain in full force and effect.
            Any provision of this Agreement held invalid or  unenforceable  only
            in part or degree will remain in full force and effect to the extent
            not held invalid or unenforceable.

12.12.     SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
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            Agreement are provided for convenience only and will not affect
            its construction or interpretation. All references to "Section" or
            "Sections" refer to the corresponding Section or Sections of this
            Agreement. All words used in this Agreement will be construed to
            be of such gender or number as the circumstances require. Unless
            otherwise expressly provided, the word "including" does not limit
            the preceding words or terms.

12.13.     TIME OF ESSENCE. With regard to all dates and time periods set
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            forth or referred to in this Agreement, time is of the essence.

12.14.     GOVERNING LAW. This Agreement will be governed by the laws of the
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            State of California without regard to conflicts of law principles.

12.15.     COUNTERPARTS. This Agreement may be executed in one or more
           -------------
            counterparts, each of which will be deemed to be an original copy
            of this Agreement and all of which, when taken together, will be
            deemed to constitute one and the same agreement.


IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.

SanDisk Corporation:                 Tower Semiconductor Ltd.:

By: /S/ ELI HARARI                   By: /S/ YOAV NISSAN COHEN
   -----------------------               ----------------------
   Chief Executive Officer             Co-Chief Executive Officer