ADDITIONAL PURCHASE OBLIGATION AGREEMENT

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

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

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

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

1.    DEFINITIONS

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


            "A  ADDITIONAL  PURCHASE  OBLIGATION  CERTIFICATES"  shall  have the
            meaning ascribed to it in Section 2.2.


            "A ADDITIONAL PURCHASE  OBLIGATIONS" shall have the meaning ascribed
            to it in Section 2.1.


            "ADDITIONAL PURCHASE OBLIGATION CERTIFICATES" shall have the meaning
            ascribed to it in Section 2.2.


            "ADDITIONAL PURCHASE OBLIGATIONS" shall have the meaning ascribed to
            it in Section 2.1.


             "B     ADDITIONAL      PURCHASE      OBLIGATION
            CERTIFICATES"  shall have the  meaning  ascribed
            to it in Section 2.2.


            "B  ADDITIONAL  PURCHASE  OBLIGATIONS"  -  shall  have  the  meaning
            ascribed to it in Section 2.1.


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


            "EXCHANGE  ACT"  means  the  Securities  Exchange  Act of  1934,  as
            amended.


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


            "EXPIRATION  DATE" means the fifth  anniversary  of the date of this
            Agreement  subject  to  earlier  termination  of one or  more of the
            Additional Purchase Obligations pursuant to Section 5.1.


            "EXERCISE  NOTICE" - shall have the  meaning  ascribed to in Section
            2.1.3.


            "GRACE  PERIOD" - shall have the  meaning  ascribed to it in Section
            5.1.


            "MANDATORY  EXERCISE EVENT" shall have the meaning ascribed to it in
            Section 5.1.


             "MISSED  EXERCISE"  - shall  have  the  meaning  ascribed  to it in
            Section 5.1.


            "NASDAQ" means the Nasdaq National Market.


            "B  ADDITIONAL  PURCHASE  OBLIGATION  CERTIFICATES"  shall  have the
            meaning ascribed to it in Section 2.2.


            "B  ADDITIONAL  PURCHASE  OBLIGATIONS"  -  shall  have  the  meaning
            ascribed to it in Section 2.1.


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


             "SEC" means the Securities and Exchange Commission.


             "SECURITIES ACT" means the Securities Act of 1933, as amended.


            "SHARE  PURCHASE  AGREEMENT"  - as defined in the  recitals  to this
            Agreement.


            "T" means T, an Israeli corporation, and its successors and assigns.


            "UNDERLYING  ORDINARY  SHARES" means the Ordinary Shares issuable or
            issued upon the exercise of the Additional Purchase Obligations.





2.    ORIGINAL ISSUE OF ADDITIONAL PURCHASE OBLIGATIONS

2.1.  THE ADDITIONAL PURCHASE OBLIGATIONS.
      -----------------------------------

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

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

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

2.2.        FORM  OF  ADDITIONAL   PURCHASE  OBLIGATION   CERTIFICATES.   The  A
            Additional  Purchase  Obligations shall be designated in five series
            (Series  A1  -  A5),  each  evidenced  by  an  Additional   Purchase
            Obligation  certificate  in the form of  EXHIBITS  A1 - A5  attached
            hereto (the "A Additional Purchase Obligation Certificates").  The B
            Additional  Purchase  Obligations shall be designated in five series
            (Series  B1  -  B5),  each  evidenced  by  an  Additional   Purchase
            Obligation  certificate  in the form of  EXHIBITS  B1 - B5  attached
            hereto (the "B  Additional  Purchase  Obligation  Certificates"  and
            together with the A Additional Purchase Obligation Certificates, the
            "Additional  Purchase Obligation  Certificates").  Each A Additional
            Purchase   Obligation  series  shall  contain  Additional   Purchase
            Obligations  to  purchase  up to an  aggregate  of 366,690  Ordinary
            Shares of T. Each B1- to B-5 Additional  Purchase  Obligation series
            shall contain  Additional  Purchase  Obligations to purchase 540,000
            Ordinary   Shares  of  T.  Each   Additional   Purchase   Obligation
            Certificate shall be dated the date hereof and shall bear the legend
            set forth in  Exhibit  C,  together  with  such  other  legends  and
            endorsements  thereon as may be  required  to comply with any law or
            with any rule or  regulation  pursuant  thereto  or with any rule or
            regulation of any securities  exchange on which the Ordinary  Shares
            may be listed, or to conform to customary usage.

3.    EXERCISE  PRICE;  EXERCISE  OF  ADDITIONAL  PURCHASE
      OBLIGATIONS GENERALLY

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

3.2.  EXERCISE  PERIODS  OF A AND  B  ADDITIONAL  PURCHASE
      ------------------------------------------------------
            OBLIGATIONS
            -----------

3.2.1.     EXERCISE   PERIOD  OF  A  ADDITIONAL   PURCHASE
           -------------------------------------------------
                   OBLIGATIONS.  Subject  to the  terms  and
                   -----------
                   conditions   set  forth  herein,   the  A
                   Additional Purchase  Obligations shall be
                   exercisable  at any time on or after  the
                   Closing  Date  under the  Share  Purchase
                   Agreement   and  on  or   prior   to  the
                   Expiration Date.

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

3.3.  EXPIRATION OF  ADDITIONAL  PURCHASE  OBLIGATIONS.  The
      ------------------------------------------------
            Additional Purchase  Obligations shall terminate
            and become  void as of the close of  business on
            the Expiration Date.

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


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

4.    ADJUSTMENTS

4.1.  ADJUSTMENT OF EXERCISE  PRICE AND NUMBER OF SHARES OF
      ------------------------------------------------------
            ORDINARY SHARES
            ---------------


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

4.1.1.     STOCK  DIVIDENDS,  SHARE-SPLITS,  COMBINATIONS,
           -------------------------------------------------
                   etc. In case T shall  hereafter (a) pay a
                   stock  dividend  or  make a  distribution
                   (whether  in  Ordinary  Shares or capital
                   shares   of  any   other   class  on  its
                   Ordinary   Shares),   (b)  subdivide  its
                   outstanding  Ordinary Shares, (c) combine
                   its  outstanding  Ordinary  Shares into a
                   smaller  number of  shares,  or (d) issue
                   by   reclassification   of  its  Ordinary
                   Shares  any  capital  shares  of  T,  the
                   Exercise  Price  in  effect   immediately
                   prior  to  such  action   (after   giving
                   effect  to all other  adjustements  under
                   this  Section  4)  shall be  adjusted  so
                   that,  in  relation  to  any   Additional
                   Purchase      Obligation       thereafter
                   exercised,   S  shall  be   entitled   to
                   receive the number of Ordinary  Shares or
                   of  other  capital  shares  which S would
                   have  owned  immediately  following  such
                   action  had  such   Additional   Purchase
                   Obligation  been  exercised   immediately
                   prior   thereto.   An   adjustment   made
                   pursuant to this  paragraph  shall become
                   effective  immediately  after the  record
                   date in the case of a dividend  and shall
                   become  effective  immediately  after the
                   effective   date   in  the   case   of  a
                   subdivision,        combination        or
                   reclassification.

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

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

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

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

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

4.4.        FRACTIONAL  INTEREST.  T shall not be required  to issue  fractional
            Ordinary   Shares   upon  the   exercise  of   Additional   Purchase
            Obligations.  If more than one Additional  Purchase Obligation shall
            be presented  for  exercise in full at the same time,  the number of
            full  Ordinary  Shares  which shall be issuable  upon such  exercise
            shall be computed on the basis of the  aggregate  number of Ordinary
            Shares acquirable on exercise of the Additional Purchase Obligations
            so presented. If any fraction of an Ordinary Share would, except for
            the  provisions of this section,  be issuable on the exercise of any
            Additional  Purchase  Obligation (or specified portion  thereof),  T
            shall pay an amount  in cash  calculated  by it to equal to the then
            current market value per share multiplied by such fraction  computed
            to  nearest  whole  cent.  S, by its  acceptance  of the  Additional
            Purchase Obligation Certificates, expressly waive any and all rights
            to receive any fraction of an Ordinary Share or a share  certificate
            representing a fraction of an Ordinary Share.

5.    MANDATORY EXERCISE

5.1.        MANDATORY EXERCISE EVENTS; TERMINATION OF Obligation. Subject to the
            terms and  conditions  contained  herein,  S shall be  obligated  to
            exercise each Additional  Purchase  Obligation within thirty days of
            the following events (each a "Mandatory Exercise Event"):

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

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

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

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

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


            Each of the  Mandatory  Exercise  Events  shall  be  deemed  to have
            occurred if the  Mandatory  Exercise  Event occurs  within seven and
            one-half  months  from its  original  exercise  date set forth above
            (such seven and one-half  month period,  a "Grace  Period").  In the
            event that one of the  Mandatory  Exercise  Events does not occur by
            the last date set forth in the  relevant  clause of clauses  5.1.1 -
            5.1.5,  including during the  corresponding  Grace Period (a "Missed
            Exercise"),  then, if the subsequent  Mandatory  Exercise Event does
            not  occur  by no  later  than  the end of its  corresponding  Grace
            Period,  S shall not be obligated to effect the Missed  Exercise and
            any subsequent  series of Additional  Purchase  Obligations  and the
            Additional Purchase  Obligation relating to the Missed Exercise,  to
            the extent such Additional  Purchase  Obligations  are  unexercised,
            shall automatically  expire.  However, if such subsequent  Mandatory
            Exercise Event does occur within the applicable Grace Period, then S
            shall be obligated to exercise the  Additional  Purchase  Obligation
            related to that  subsequent  Mandatory  Exercise  Event and shall be
            required to either effect the Missed  Exercise within thirty days of
            the occurrence of the relevant  subsequent  Mandatory Exercise Event
            or  the  Additional  Purchase  Obligation  relating  to  the  Missed
            Exercise shall expire.


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

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

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

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

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

5.3.3.     TRANSACTION   DOCUMENTS;   ANCILLARY  AGREEMENTS.
           -------------------------------------------------
                   Each  of the  Transaction  Documents  and
                   the  Toshiba  Agreement  shall be in full
                   force and  effect and shall not have been
                   materially breached by any party thereto.

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

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

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

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

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

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

6.    REPRESENTATIONS AND WARRANTIES

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

6.2.        REPRESENTATIONS  AND  WARRANTIES OF S. S hereby makes in favor of T,
            as of the  date  hereof  and as of the date of each  exercise  of an
            Additional Purchase  Obligation,  the representations and warranties
            made by S under Sections 4.1 - 4.5 of the Share Purchase  Agreement,
            provided  that  references to "this  Agreement"  shall refer both to
            this  Agreement  and the Share  Purchase  Agreement,  references  to
            Shares shall refer to the Additional  Purchase  Obligations  and the
            Ordinary Shares  issuable upon the exercise  thereof and references,
            directly or indirectly, to the Escrow Agreement shall be ignored.

7.    COVENANTS

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

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

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

8.     MISCELLANEOUS

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

8.2.        MUTILATED, DESTROYED, LOST AND STOLEN ADDITIONAL PURCHASE OBLIGATION
            CERTIFICATES.  If (a) any mutilated  Additional  Purchase Obligation
            Certificate is  surrendered  to T or (b) T receives  evidence to its
            satisfaction  of the  destruction,  loss or theft of any  Additional
            Purchase Obligation Certificate,  then, T shall execute and deliver,
            in exchange for any such mutilated  Additional  Purchase  Obligation
            Certificate  or in  lieu  of any  such  destroyed,  lost  or  stolen
            Additional  Purchase  Obligation   Certificate,   a  new  Additional
            Purchase  Obligation  Certificate  of  like  tenor  and  for a  like
            aggregate number of Additional Purchase Obligations.


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


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


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

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

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

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

            with a copy to:    Yigal Arnon & Co.
                          3 Daniel Frisch Street
                          Tel Aviv, Israel
            Attention:         David H. Schapiro, Adv.
            Facsimile No.:     972-3-608-7714

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

            with a copy to:    SanDisk Corporation
                          140 Caspian Court
                          Sunnyvale, California 94089
            Attention:         Vice  President  and  General
            Counsel

                   Facsimile No.:   (408)   548-0385or  such
                   other   address   as  shall   have   been
                   furnished  to the party  giving or making
                   such notice, demand or delivery.

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

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

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

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

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

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



<PAGE>


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


                                Tower Semiconductor Ltd.

                                By:    /S/ YOAV NISSAN COHEN

                                     Name: Yoav Nissan Cohen
                                     Title: Co-Chief Executive Officer


                                SanDisk Corporation

                                By:  /S/ ELI HARARI
                                     Name: Eli Harari
                                     Title:  Chief Executive Officer