F-1/A













Exhibit 4.1  



RIGHTS AGENT AGREEMENT 




        This
Rights Agent Agreement, made and entered into this _____ day of
December
___, 2005, by and
between Tower Semiconductor Ltd., a company organized under the laws of Israel (the
“Company”), and American Stock Transfer & Trust Company, a New York trust
company with offices at 59 Maiden Lane, New York, New York 10038 (“AST”). 




WITNESSETH: 




WHEREAS, the Company has filed with
the U.S. Securities and Exchange Commission (i)
a
Registration Statement on Form F-2 (the
“Registration Statement”), which Registration Statement has been declared
effective and
(ii)
a final prospectus (the “Prospectus”) setting forth
the terms of the proposed offering by the Company (the “Rights Offering”) of
rights (the “Rights”) to purchase its 5% Convertible Subordinated Debentures Due
2011 (the “Debentures”), each in the principal amount of $1.00, which are
convertible into Ordinary Shares, NIS 1.00 nominal value (the “Ordinary
Shares”); 




WHEREAS, the Company has filed with
the Israel Securities Authority, and such Authority has approved, a prospectus which is
substantially the same as the Prospectus (the “Israeli Prospectus”); 




WHEREAS, The Bank of New York
(“BONY”) will serve as Note registrar for the Debentures and as Trustee under
that certain Indenture, dated
December
___, 2005, by and between the Company, BONY
and Hermetic Trust (1975) Ltd. (the “Indenture”); 




WHEREAS, the Rights and the
Debentures will be transferable and an application has been made for both the Rights and
Debentures to be listed for trading on the NASDAQ Capital Market and the Tel Aviv Stock
Exchange (the “TASE”); 



WHEREAS, the Company will issue,
under the terms of the Rights Offering, one Right for each 138.99 Ordinary Shares held as
of record as of the date set forth in the Prospectus as the record date (the “Record
Date”), and each Right will entitle the holder to purchase at the exercise price of
$100.00 (the “Subscription Price”), 100 U.S. Dollar denominated Debentures in
the aggregate principal amount of $100.00, substantially in the form of Exhibit A to the
Indenture, and that the Rights will be evidenced by transferable certificates (the
“Rights Certificates”) in the form attached hereto as Exhibit A; 



WHEREAS, as described in the
Prospectus and the Israeli Prospectus, the Company will also issue Rights to purchase
Debentures to employees who hold as of the Record Date options under certain of the
Company’s employee share option plans that entitle option holders to participate in
offering of rights by the Company, (“the Employee Rights”); 



WHEREAS, the Company desires to
engage AST to issue and deliver the Rights Certificates and to act as transfer agent and
registrar for the Rights, and AST is willing to act in such capacities. 













        NOW,
THEREFORE, the parties hereto agree, in consideration of the mutual covenants and promises
herein contained, as follows: 



     1.
          APPOINTMENT OF RIGHTS AGENT. AST is hereby appointed as transfer agent and
          registrar for the Rights and to generally effect the Rights Offering in
          accordance with the terms of the Rights, this Agreement and the Prospectus, and
          the Rights Agent hereby accepts such appointment. Each reference to the
          “Rights Agent” in this Agreement is to AST acting in its capacities as
          transfer agent and registrar for the Rights. 



     2.
          DELIVERY OF DOCUMENTS BY COMPANY TO THE RIGHTS AGENT 



     (a)
          The Company will cause to be timely delivered to the Rights Agent sufficient
          copies of the following documents for delivery to the holders of record of the
          Ordinary Shares at the close of business on the Record Date (the “Rights
          Holders”): 




	 	
(i)
the Prospectus, which includes instructions for exercise of the Rights (the
“Instructions”)
and/or a form of notice to purchaser that
complies with Rule 173(a) under the Securities Act of
1933 regarding notice in lieu of prospectus delivery (“Rule 173 Notice”);  







	 	
(ii)
blank transferable Rights Certificates, which includes on the reverse thereof
                    forms to be completed in connection with the exercise or transfer of
the Rights;  






	 	
(iii)
          Form W-9 and Form W-8; and  






	 	
(iv)
          Form of Notice of Guaranteed Delivery.  






     (b)
          The Company will also deliver to the Rights Agent certified copies of
          resolutions adopted by the Board of Directors of the Company in connection with
          the Rights Offering. 



3.           DETERMINATION OF RIGHTS
HOLDERS AND RIGHTS  



(a)  On
or about the Record Date, the Rights Agent shall create and maintain from the
          stock ledger and register maintained by AST as transfer agent and registrar of
          the Ordinary Shares, a record of the names, addresses and, where available,
U.S.           taxpayer identification numbers, of the Rights Holders, and the number of
Rights           each Rights Holder is entitled to receive in the Rights Offering (the
          “Rights Record”). The Rights Agent shall promptly send a copy of the
          Rights Record to the Company by telecopy as soon as it is available. The number
          of Rights to be issued to each Rights Holder shall be determined by dividing
          138.99 by the number of Ordinary Shares that such Rights Holder held of record
          as of the Record Date, but in lieu of issuing fractional Rights, the Rights
          Agent shall round each such fraction to the next lower whole number of Rights.
          The Rights Record shall also include the number of the Rights Certificate
issued           to each Rights Holder, the number of Rights evidenced on its face by
each of the           Rights Certificates and the date of each of the Rights
Certificates.  



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(b) The  Company  shall
create  from its  regularly  maintained  records  a record  of the  names and
addresses and the number of the  recipients  of the Employee  Rights as well as the number of Employee
Rights to be issued to each such recipients  (the “Employee  Rights  Record”).  The Company shall have
sole  responsibility  for the creation and maintenance of the Employee Rights Record.  On or about the
Record Date,  the Company  shall  deliver to the Rights  Agent a notice  setting  forth the  aggregate
number of Employee  Rights to be issued which notice shall (i)  instruct the Rights Agent to issue
a Rights  Certificate  representing such aggregate number of Employee Rights registered in the name of
the TASE  Nominee  (as  defined in Section  4(b)  below) and (ii)  contain  instructions  to the TASE
Nominee for further  crediting the Employee  Rights to the account of a nominee broker which will hold
the  Employee  Rights on  behalf of the  holders  thereof  (the  “Employee  Rights
Certificate”).  Promptly  after the  issuance  thereof,  the Rights Agent shall  promptly  deliver the
Employee  Rights  Certificate  to  the TASE Nominee along with the instructions for further  crediting of the Employee
Rights contained in the Company’s  notice.  The TASE Nominee shall be deemed a Rights Holder,  as such
term is used in this Agreement, with respect to the Employee Rights.




4.           ISSUANCE OF THE RIGHTS
CERTIFICATES AND MAILING OF DOCUMENTS BY RIGHTS AGENT.  



(a)           As soon as practicable
after delivery of the documents described in subparagraph           2(a) hereof and
receipt of written instructions from the Company, the Rights           Agent will cause
to be issued Rights Certificates in the names of the Rights           Holders and for the
number of Rights to which they are each entitled, as           determined in accordance
with Paragraph 3 above. The Rights Agent shall either           manually sign or affix a
duly authorized facsimile signature on all Rights           Certificates. As soon as
practicable after issuance of the Rights Certificates,           the Rights Agent shall
mail or cause to be mailed, via first class mail, to each           Rights Holder the
following:  



	 	(i) 	a
Rights Certificate, registered in the name of the Rights Holder and dated the
          date of issuance thereof by the Rights Agent, evidencing the Rights to which
          such Rights Holder is entitled; 







	 	(ii) 	a
Prospectus, including the Instructions, or a Rule 173 Notice (as directed by the Company); 







	 	(iii) 	a
Form W-9 or Form W-8 (as applicable); and 






	 	(iv) 	an
envelope addressed to the Rights Agent. 






Prior to mailing, the Rights Agent
shall make reasonable efforts to identify which of the Rights Holders are likely to be
nominee holders and to include the Instructions with the mailing to such Rights Holders. 



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(b) The Company and
the Rights Agent may mutually agree that the Rights Agent shall use methods
other than first class mail, including personal delivery, delivery by International Express Mail, or
delivery by recognized expedited courier service such as Federal Express, UPS, DHL or Courier
Network.  In addition, unless otherwise instructed by the Company in writing, the Rights Agent shall
deliver to the Company by expedited courier or by such other means as the Company shall instruct the
Rights Agent, all Rights Certificates (other than the Employee Rights Certificate) and other
documents to be delivered to Rights Holders reflected on the Rights Record as having a record
address in the State of Israel (the “Israeli Rights Holders”), including any Rights Certificates
(other than the Employee Rights Certificate) to be issued to Hevra Lerishumim of Bank Leumi which
acts as the nominee for the Ordinary Shares held through the facilities of the Clearing House of the
Tel Aviv Stock Exchange (the "TASE Nominee"). The Company undertakes to make and shall be
responsible for the further delivery of the rights certificates and other documents to the Israeli
Rights Holders. 




     (c)
          Promptly after the Rights Certificates and other documents are mailed, the
          Rights Agent shall execute and deliver to the Company a certificate or
          certificates substantially in the form of Exhibit B hereto. 



     (d)
          Subsequent to their original issuance, no Rights Certificates shall be issued by
          the Rights Agent except Rights Certificates issued upon any transfer,
          combination, split up or exchange of Rights or issued in replacement of
          mutilated, destroyed, lost or stolen Rights Certificates pursuant to Paragraph 6
          hereof. 



     5.
          SUBSCRIPTION PROCEDURE. 



     (a)
          Except as provided in subparagraph 5(c) hereof, for a valid exercise of Rights
          to occur, the Rights Agent must receive, by mail, hand delivery, or otherwise,
          prior to 5:00 P.M., New York City time, on _________, 2005 (or on a later
          trading date if the Rights Agent receives a written notice thereof from the
          Company on or prior to the original expiration date) (the “Expiration
          Date”), (i) the Rights Certificate pertaining to the Rights being
          exercised, which has been properly completed and endorsed for exercise as
          provided in the instructions accompanying the Rights Certificate, or a Notice of
          Guaranteed Delivery and (ii) payment in full of the Subscription Price for each
          Right being exercised in U.S. Dollars by wire transfer or by check drawn on a
          bank located in the United States payable to the order of “American Stock
          Transfer & Trust Company, as Rights Agent.” 



     (b)
          Upon the proper exercise of Rights by a holder thereof made in accordance with
          subparagraphs 5(a) or (c) hereof, the Rights Agent shall, promptly after such
          exercise, send to the Company written notice of such exercise, which shall set
          forth (i) the number of Rights exercised by such holder, (ii) the aggregate
          subscription payment and the principal amount of Debentures subscribed for,
          (iii) the denominations and the registered name(s) and address(es) in which the
          holder has requested that such Debentures be issued. The authentication and
          issuance of the Debentures shall be effectuated by the Company and BONY as the
          registrar of the Debentures under the Indenture; the Rights Agent shall have no
          responsibilities in connection with the issuance and/or authentication of the
          Debentures. The Rights Agent shall as soon as practicable after the Expiration
          Date provide to the Company a summary of all the Rights exercises made in
          accordance with subparagraph 5(a) hereof, which summary shall set forth (i) the
          name and address of the Rights Holder that exercised the Rights, (ii) the number
          of Rights exercised by each such Rights Holder, (iii) the total Subscription
          Price paid by such Rights Holder and (iii) the number and principal amount of
          Debentures issued to such Rights Holder. 



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     (c) The
TASE Nominee and other Israeli Rights Holders may elect to exercise Rights directly
with the Company by paying the subscription payment in New Israeli Shekels (or in U.S. Dollars if
requested thereby and the Company so approves in writing) as set forth in the Prospectus under the
caption “The Rights Offering–Method of Exercise of Rights for Record Holders.”
Additionally, any Rights Holders that reside outside of Israel may exercise their Rights
directly with the Company and pay the Subscription Price in New Israeli Shekels or in U.S. Dollars
if prior to the Expiration Date the Company approves a written request from such Rights Holder to
exercise directly with the Company (“Authorized Rights Holder”).  The TASE Nominee and other Israeli
Rights Holders (or any Authorized Rights Holder) shall exercise their Rights by
delivery directly to the Company on or prior to midnight Israel time on the Expiration Date of
payment in full of the Subscription Price for each Right being exercised in New Israeli Shekels (or
in U.S. Dollars in the case of an Authorized Rights Holder or the TASE Nominee or Israeli Rights
Holders if approved by the Company) by check or wire transfer payable to the Company, accompanied by
such other notices and instructions which shall be certified or confirmed as the Company may
prescribe all in accordance with the procedures described in the Prospectus.  The Company will
promptly notify the Rights Agent in writing of the identity of the Rights Holders who
exercised their Rights directly through the Company and the number of Rights so exercised.  The
authentication and issuance of the Debentures to the Rights Holders who exercised their
Rights directly through the Company shall be effectuated by the Company and BONY as the Debenture
registrar under the Indenture.



     (d)
          Each Right may be exercised to purchase One Hundred (100) U.S. Dollar
          denominated Debentures at the Subscription Price. Debentures shall be issued
          in one or more multiples of $1.00, and each Debenture is of $1.00
          principal amount. Rights Holders, such as banks, securities dealers and brokers,
          who receive Rights through the Depository Trust Company as nominees for one or
          more beneficial owners shall be entitled to exercise their Rights Certificates
          on behalf of the beneficial owners. 




     (e)
          To the extent that any Rights Certificates remain unexercised or outstanding at
          5:01 P.M., New York City time, on the Expiration Date such outstanding Rights
          Certificates shall be automatically deemed cancelled and of no further force and
          effect. 



     6.
          DEFECTIVE EXERCISE OF RIGHTS; TRANSFER, ETC. OF RIGHTS CERTIFICATES; LOST RIGHTS
          CERTIFICATES. 



     (a)
          Upon receipt by the Company from the Rights Agent of evidence of a defective
          exercise of Rights, the Company shall have the right to reject any such
          defective exercise or to waive the defect in exercise. If the Company delivers
          to the Rights Agent a notice that the Company rejects any defective exercise of
          Rights, the Rights Agent shall as soon as practicable (i) if the defect and the
          necessary correction can be adequately explained by telephone and the holder can
          correct the defect without possession of the Rights Certificate(s), attempt to
          contact the holder of such Rights by telephone to explain the nature of the
          defect or (ii) mail the Rights Certificate, together with a letter explaining
          the nature of the defect in exercise and how to correct the defect. If an
          exercise is not defective except that there is a partial payment of the
          Subscription Price, the Rights Agent shall so notify the Company in writing as
          to the number and principal amount of Debentures for which payment has been made
          and the Company shall thereafter effectuate the authentication and issuance of
          such Debentures in accordance with the Indenture. Any Rights Certificate with
          respect to which defects in exercise are not corrected prior to 5:00 P.M., New
          York City time, on the Expiration Date, or which are received after such time,
          shall be returned to the holder of such Rights Certificate. 



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     (b)
          The Rights Certificate may be transferred, split up, combined or exchanged for
          another Rights Certificate or Rights Certificates. Any Rights Holder desiring to
          transfer, split up, combine or exchange any Rights Certificate or Rights
          Certificates shall make such request in writing delivered to the Rights Agent,
          and shall surrender the Rights Certificate or Rights Certificates to be
          transferred, split up, combined or exchanged at the office of the Rights Agent
          designated for such purpose. Neither the Rights Agent nor the Company shall be
          obligated to take any action whatsoever with respect to the transfer of any such
          surrendered Rights Certificate until the Rights Holder shall have completed and
          signed the certificate contained in the form of assignment on the reverse side
          of the Rights Certificate. 



     (c)
          Upon the receipt by the Rights Agent and the Company of evidence reasonably
          satisfactory to them of the loss, theft, destruction or mutilation of a Rights
          Certificate, and upon receipt of indemnity or security reasonably satisfactory
          to them and reimbursement of all expenses incidental thereto, and upon surrender
          and cancellation of the Rights Certificate if mutilated, the Company will make
          and deliver a new Rights Certificate of like tenor to the Rights Agent for
          delivery to the registered owner in lieu of the Rights Certificate so lost,
          stolen, destroyed or mutilated. The Rights Agent may, at the direction of the
          Company and with the consent of the registered holder of the lost, stolen or
          destroyed Rights Certificate, permit the exercise of the Rights evidenced by
          such certificate without a replacement of such certificate. 



     7.
          SUBDIVISION, SALE OR TRANSFER OF RIGHTS. The Rights Agent shall facilitate
          subdivisions of the Rights by issuing new Rights Certificates in accordance with
          the instructions set forth on the reverse side of the Rights Certificates at any
          time on or prior to the Expiration Date. Until 5:00 p.m., New York City time,
          on the third business day prior to the Expiration Date (the “Cut-Off
          Date”), the Rights Agent shall facilitate subdivision or transfers of
          Rights Certificates by issuing new Rights Certificates in accordance with the
          instructions set forth on the reverse side of the Rights Certificates. After the
          Cut Off Date, the Rights Agent may facilitate subdivision or transfers of the
          Rights Certificate up until 5:00 p.m., New York City time, on the Expiration
          Date if the Rights Holder has delivered to the Rights Agent a properly executed
          Notice of Guaranteed Delivery. 



     8.
          PROOF OF AUTHORITY TO SIGN. The Rights Agent need not procure supporting legal
          papers, and is authorized to dispense with proof of authority to sign (including
          all proof of appointment or authority to sign of any fiduciary, custodian for a
          minor, or other person acting in a representative capacity), and to dispense
          with the signatures of co-fiduciaries, in connection with exercise of Rights in
          the following cases: 



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     (a)
          where the Rights Certificate is registered in the name of an executor,
          administrator, trustee, custodian for a minor or other fiduciary, and the
          subscription form thereof is executed by such executor, administrator, trustee,
          custodian for a minor or other fiduciary, then the Rights Agent shall advise the
          Company in writing that the Debentures are to be issued in the name of the
          registered holder of the Rights Certificate, as appropriate; and 



     (b)
          where the Rights Certificate is in the name of a corporation and the
          subscription form thereof is executed by an officer of such corporation, then
          the Rights Agent shall advise the Company in writing that the Debentures are to
          be issued in the name of such corporation. 



In all of the cases set forth in this
Paragraph 8 and notwithstanding anything contained in this Agreement to the contrary, the
check tendered in payment of the Subscription Price must be drawn for the amount of the
Subscription Price for the number of Rights being exercised, to the order of the Rights
Agent and otherwise be in proper form (subject to the provisions of Section 6(a) hereof
regarding partial payment of the Subscription Price), and there must be no evidence
indicating that the subscriber is not the duly authorized representative he purports to
be. 



     9.
          CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights Certificates
          surrendered for the purpose of exercise shall, if surrendered to the Company or
          to any of its agents, be delivered to the Rights Agent for cancellation or in
          cancelled form, or if surrendered to the Rights Agent shall be cancelled by it,
          and no Rights Certificates shall be issued in lieu thereof except as expressly
          permitted by any of the provisions of this Agreement. The Rights Agent may
          deliver all cancelled Rights Certificates to the Company, and if delivered to
          the Company, it shall make available to the Rights Agent the cancelled Rights
          Certificates for its inspection. 



     10.
          TAXES. The Company covenants and agrees that it will pay when due and payable
          any and all federal and state taxes and charges (including those in the United
          States and Israel) which may be payable in respect of the issuance or delivery
          of the Rights Certificates. The Company shall not, however, be required to pay
          any tax which may be payable in respect of any transfer or other assignment of
          Rights Certificates or the issuance or delivery of certificates for Debentures
          in a name other than that of the registered holder of the Rights Certificate
          evidencing Rights surrendered for exercise or to issue or deliver any
          certificates for Debentures upon the exercise of any Rights until any such tax
          shall have been paid (any such tax being payable by the holder of such Rights
          Certificate at the time of surrender) or until it has been established to the
          Company’s satisfaction that no such tax is due. 




     11.
          DISBURSEMENT OF FUNDS. Any funds received by the Rights Agent as payments in
          connection with the subscriptions for Debentures pursuant to the Rights Offering
          shall be held in a segregated interest bearing money market account by the
          Rights Agent pending receipt after the Expiration Date of written disbursement instructions from the
          Company, after which the funds and any interest earned
          thereon shall be promptly disbursed in accordance with each such written
          instructions from the Company. The Rights Agent is hereby authorized and
          directed to endorse, negotiate and deposit all subscription payments into an
          interest bearing money market account to be maintained with the Rights Agent.
          The Rights Agent shall provide an accounting to the Company from time to time,
          as the Company may reasonably request, regarding the subscription payments
          deposited into such account. 




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12.           DUTIES OF RIGHTS
AGENT. The Rights Agent undertakes the duties and obligations           imposed by this
Agreement upon the following terms and conditions, by all of           which the Company
and the holders of Rights Certificates, by their acceptance           thereof, shall be
bound:  



(a) the
Rights Agent may consult with legal counsel (who may be legal counsel for           the
Company) and the opinion of such counsel shall be full and complete
          authorization to the Rights Agent.  



     (b)
          Whenever in the performance of its duties under this Agreement the Rights Agent
          shall deem it necessary or desirable that any fact or matter be proved or
          established by the Company prior to taking or suffering any action hereunder,
          such fact or matter (unless other evidence in respect thereof be herein
          specifically prescribed) may be deemed to be conclusively proved and established
          by a certificate signed by the Chief Executive Officer or Chief Financial
          Officer of the Company and delivered to the Rights Agent; and such certificate
          shall be full authorization to the Rights Agent for any action taken or suffered
          in good faith by it under the provisions of this Agreement in reliance upon such
          certificate. 



     (c)
          The Rights Agent shall be liable hereunder only for its own gross negligence or
          willful misconduct. 



     (d)
          The Rights Agent shall not be liable for or by reason of any of the statements
          of fact or recitals contained in this Agreement by the Company, in the Rights
          Certificates or in the Prospectus, or be required to verify the same, but all
          such statements and recitals are and shall be deemed to have been made by the
          Company only. 



     (e)
          Nothing herein contained shall preclude the Rights Agent from acting in another
          capacity for the Company or for any other person or entity. 



     (f)
          The Rights Agent shall not be under any responsibility in respect of the
          validity of this Agreement or the execution and delivery hereof (except the due
          authorization and execution hereof by such Rights Agent) or in respect of the
          validity or execution of any Rights Certificate; nor shall it be responsible for
          any breach by the Company of any covenant or condition contained in this
          Agreement or in any Rights Certificate; nor shall it by any act hereunder be
          deemed to make any representation or warranty as to the authorization of any
          Debentures to be issued pursuant to this Agreement or any Rights Certificate. 



     (g)
          With respect to each Rights Certificate that the Rights Agent is required to
          mail hereunder, the Rights Agent shall maintain a blanket surety bond protecting
          the Company and the Rights Agent from loss or liability arising out of
          non-receipt or non-delivery of such certificates. 



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     (h)
          Promptly after the Expiration Date, the Rights Agent shall execute and deliver
          to the Company a certificate or certificates substantially in the form of
          Exhibit C hereto. 



     13.
          REPORTS. The Rights Agent shall make available to the Company, upon the
          Company’s request, the following information: (i) the number and aggregate
          principal amount of Debentures validly subscribed for, (ii) the number and
          aggregate principal amount of Debentures for which defective subscriptions have
          been received, and (iii) the amounts of collected and uncollected funds in the
          subscription escrow account established under this Agreement. As soon as
          practicable after the Expiration Date, or upon the request from the Company from
          time to time thereafter, the Rights Agent shall certify in writing to the
          Company the cumulative totals through the Expiration Date of all the information
          set forth in clauses (i) through (iii) above. The Rights Agent shall also
          maintain and update a record of holders who have fully or partially exercised
          their Rights and holders who have not exercised their Rights. The Rights Agent
          shall provide the Company or its designees with such information compiled by the
          Rights Agent pursuant to this Paragraph 14 as the Company shall request from
          time to time. 



     14.
          FUTURE INSTRUCTIONS. With respect to notices or instructions to be provided by
          the Company hereunder, the Rights Agent may rely and act on any written
          instruction signed by any one or more of the following authorized officers or
          employees of the Company: Russell C. Ellwanger, Oren Shirazi and Nati Somekh
          Gilboa. 



     15.
          PAYMENT OF EXPENSES. The Company will pay the Rights Agent compensation for its
          services under this Agreement in accordance with Schedule 1 hereto, and will
          reimburse the Rights Agent for all reasonable and necessary expenses incurred by
          it in so acting. 



     16.
          INDEMNIFICATION. 



     (a)
          The Company covenants and agrees to indemnify and hold the Rights Agent harmless
          against any costs, expenses (including reasonable fees for legal counsel),
          losses or damages, which may be paid, incurred or suffered by or to which the
          Rights Agent may become subject, arising from or out of, directly or indirectly,
          any claim or liability resulting from its actions pursuant to this Agreement
          other than costs, expenses, losses and damages incurred or suffered by the
          Rights Agent as a result of, or arising out of, its gross negligence or willful
          misconduct in connection with performance of its duties hereunder. 



     (b)
          If the indemnification provided for in this Paragraph 16 is applicable, but for
          any reason is held to be unavailable, the Company shall contribute such amount
          as is just and equitable to pay, or to reimburse the Rights Agent for, the
          aggregate of any and all losses, liabilities, costs, damages and expenses,
          including reasonable counsel fees, actually incurred by the Rights Agent as a
          result of or in connection with, and any amount paid in settlement of, any
          action, claim or proceeding arising out of or relating in any way to any actions
          or omissions of the Company. 



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     (c)
          If any action is brought against the Rights Agent in respect of which indemnity
          may be sought against the Company pursuant to this Paragraph 16, the Rights
          Agent shall promptly notify the Company in writing of the institution of such
          action and the Company may, at its option, assume the defense of such action,
          including the employment and fees of counsel (which counsel shall be reasonably
          satisfactory to the Rights Agent) and payment of expenses. The Rights Agent
          shall have the right to employ its own counsel in any such case, but the fees
          and expenses of such counsel shall be at the expense of the Rights Agent unless
          the employment of such counsel shall have been authorized in writing by the
          Company in connection with the defense of such action or the Company shall not
          have employed counsel to have charge of the defense of the action or the Rights
          Agent shall have reasonably concluded that there may be defenses available to it
          which are different from or additional to those available to the Company (in
          which case the Company shall not have the right to direct the defense of such
          action on behalf of the Rights Agent), in any of which events the fees and
          expenses of not more than one additional firm of attorneys for the Rights Agent
          shall be borne by the Company. 



     17.
          FURTHER ASSURANCES. The Company agrees to do such further acts and things and to
          execute and deliver such statements, assignments, agreements, instruments and
          other documents as the Rights Agent from time to time reasonably may request in
          connection with the administration, maintenance, enforcement or adjudication of
          this Agreement in order (a) to give the Rights Agent confirmation and assurance
          of the Rights Agent’s rights, powers, privileges remedies and interests
          under this Agreement and applicable law, (b) to better enable the Rights Agent
          to exercise any such right, power, privilege or remedy, or (c) to otherwise
          effectuate the purpose and the terms and provisions of this Agreement, each in
          such form and substance as may be acceptable to the Rights Agent. 



     18.
          CUMULATIVE RIGHTS. The rights and remedies granted to the Rights Agent in this
          Agreement are cumulative and not exclusive, and are in addition to any and all
          other rights and remedies granted and permitted under and pursuant to law. 



     19.
          NO WAIVER. The failure of any of the signatories hereto to enforce any provision
          hereof on any occasion shall not be deemed to be a waiver of any preceding or
          succeeding breach of such provision or any other provision. 



     20.
          ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
          understanding of the signatories hereto and no amendment, modification or waiver
          of any provision herein shall be effective unless in writing, executed by the
          party charged therewith. 



     21.
          GOVERNING LAW. Except as hereinafter provided, this Agreement shall be
          construed, interpreted and enforced in accordance with and shall be governed by
          the laws of the State of Israel without regard to the principles of conflicts of
          laws. Notwithstanding the foregoing, Paragraph 16 of this Agreement shall be
          construed, interpreted and enforced with and shall be governed by the laws of
          the State of New York. 



10







     22.
          BINDING EFFECT. This Agreement shall bind and inure to the benefit of the
          parties, their successors and assigns. 



     23.
          ASSIGNMENT AND DELEGATION OF DUTIES. This Agreement may not be assigned by the
          parties hereto. This Agreement is in the nature of a personal service contract
          and the duties imposed hereby are non-delegable. 



     24.
          PARAGRAPH HEADINGS. The paragraph headings herein have been inserted for
          convenience of reference only, and shall in no way modify or restrict any of the
          terms or provisions hereof. 



     25.
          NOTICES. Any notice or other communication required or permitted under the
          provisions of this Agreement shall be in writing, and shall be given by postage
          prepaid, registered or certified mail, return receipt requested, by hand
          delivery with receipt acknowledged, by telecopy with receipt confirmed or by the
          express mail service offered by the United States Post Office or the Israel
          Postal Authority, directed to the Company and to the Rights Agent at the
          addresses set forth below, or to any new address of which any party hereto shall
          have informed the others by the giving of notice in the manner provided herein.
          Such notice or communication shall be effective upon delivery or, if shipped by
          mail, three days after it is mailed within the continental United States. 




	 	The Company: 	Tower Semiconductor Ltd. 

Ramat Gavriel Industrial Park 

Migdal-Haemek, Israel 

Attention: Chief Financial Officer 

Telecopy No.:  011 972 (4) 654-6510 



with copies to:






	 	
Eilenberg & Krause LLP 

11 East 44th St 

New York, NY 10017 

Attention:  Sheldon Krause, Esq. 

Telecopy No.:  212-986-2399 







	 	
and
to 






	 	
Yigal Arnon & Co. 

One Azrieli Center 

Tel Aviv, Israel 67021 

Attention: David H. Schapiro, Esq. 

Telecopy No.: 011 972-3-608-7714 






11








	 	The Rights Agent: 	American Stock Transfer & Trust Company 

59 Maiden Lane 

New York, NY 10038 

Attention: Reorganization Department 

Telecopy No.: 718-234-5001 







	 	
with
a copy to:






	 	
Herbert Lemmer, Esq. 

American Stock Transfer & Trust Company  

59 Maiden Lane 

New York, NY 10038 

Telecopy No.: 718-331-1852






     26.
          UNENFORCEABILITY; SEVERABILITY. If any provision of this Agreement is found to
          be void or unenforceable by a court of competent Jurisdiction, then the
          remaining provisions of this Agreement, shall, nevertheless, be binding upon the
          parties with the same force and effect as though the unenforceable part had been
          severed and deleted. 



     27.
          THIRD PARTY RIGHTS. The representations, warranties and other terms and
          provisions of this Agreement are for the exclusive benefit of the parties
          hereto’ and no other person shall have any right or claim against any party
          by reason of any of those terms and provisions or be entitled to enforce any of
          those terms and provisions against any party. 



     28.
          COUNTERPARTS. This Agreement may be executed in counterparts, all of which shall
          be deemed to be duplicate originals. 



[Signatures appear on
next page.] 



12







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








	TOWER SEMICONDUCTOR LTD.



By: 
——————————————

    Name:  Russell C. Ellwanger

    Title:  Chief Executive Officer		













	AMERICAN STOCK TRANSFER

  & TRUST COMPANY



By: 
——————————————

    Name:  Herbert L. Lemmer

    Title:VicePresident		







13







EXHIBIT A 






		
	Rights Certificate Number:____________ 
	Number of Rights:____________ 







CUSIP: M89915167                                          



TOWER SEMICONDUCTOR
LTD. 

Organized under the laws
of the State of Israel 



RIGHTS CERTIFICATE 

Evidencing Rights to Purchase 5% Subordinated Convertible Subordinated Debentures 

Due 2011 




THE TERMS AND CONDITIONS FOR THE
DISTRIBUTION OF RIGHTS ARE SET FORTH IN THE RIGHTS AGREEMENT BETWEEN TOWER SEMICONDUCTOR
LTD. (THE “COMPANY”) AND AMERICAN STOCK TRANSFER & TRUST COMPANY AND THE
COMPANY’S PROSPECTUS DATED _____________, 2005 (THE
“PROSPECTUS”), WHICH ARE INCORPORATED HEREIN BY REFERENCE.
COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE RIGHTS AGENT OR THE
COMPANY. CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION SHALL HAVE THE MEANINGS ASCRIBED
TO SUCH TERMS IN THE PROSPECTUS. 




THIS RIGHTS CERTIFICATE MUST BE
RECEIVED BY THE RIGHTS AGENT WITH PAYMENT IN FULL BEFORE 5:00 P.M. NEW YORK TIME ON
_____________, 2005 (OR ON A LATER DATE UPON NOTICE THEREOF FROM THE COMPANY), OR BY TOWER
SEMICONDUCTOR LTD. WITH PAYMENT IN FULL BEFORE 5:00 P.M. ISRAEL TIME ON _____________,
2005. (OR ON A LATER DATE UPON NOTICE THEREOF FROM THE COMPANY) 




Subscription Price:
$100.00 per Right 


THE RIGHTS WILL EXPIRE IF NOT  EXERCISED ON OR BEFORE  __________  2005,  AT 5:00 P.M.,  NEW YORK TIME
(OR ON A LATER DATE UPON NOTICE THEREOF FROM THE COMPANY)




RECORD HOLDER
[___________] 




THIS IS TO CERTIFY THAT the
record holder named above, or its assigns, is entitled to subscribe on or before the
Expiration Date set forth above, for Debentures convertible into Ordinary Shares of the
Company, on the terms and conditions specified in the Prospectus, by exercising the Rights
represented by this Certificate. Each full Right, accompanied by payment of $100.00, will
entitle the holder to purchase Debentures in the aggregate principal amount of One Hundred
Dollars. Each Debenture is of $1.00 principal amount and bears interest at the rate of
five percent (5%) per annum. The Debentures are convertible into Ordinary Shares of the
Company at a conversion rate of one Ordinary Share per $1.00 aggregate principal amount of
Debentures. The Debentures which the holder is entitled to purchase will be issued only in
integral multiples of $1.00, rounded down to the nearest whole number. The Rights
represented by this Rights Certificate may be exercised by completing Form 1A and any
other appropriate forms on the reverse side of this Certificate. Before exercising Rights,
Rights Holders are urged to read carefully and in their entirety the Prospectus and the
Instructions on the reverse side of this Certificate. 












The Rights represented by this
Certificate may be transferred or sold by completing Form 2 in accordance with the
Instructions on the reverse side of this Certificate. 



This Rights Certificate is not valid
unless countersigned by the Rights Agent. 



Witness, the facsimile seal of the
Company and the facsimile signatures of its duly authorized officers. 



TOWER SEMICONDUCTOR LTD. 



Dated:
____________________ 



By:
______________________________ 

        Chairman of the Board



By: ______________________________ 

        Secretary



[seal] 



By: ______________________________ 

        Director and Chief Executive Officer



Countersigned: 



AMERICAN STOCK TRANSFER & TRUST COMPANY,

as Rights Agent



By   ___________________________

        Authorized Officer

Dated: ______________________












[REVERSE OF CERTIFICATE] 



TOWER SEMICONDUCTOR
LTD. 



RETURN TO RIGHTS AGENT: 



by mail, overnight or hand delivery
to: 




American Stock Transfer & Trust Company

59 Maiden Lane

New York, New York 10038

Attention:  Reorganization Department



American Stock Transfer & Trust Company

6201 15TH Avenue

Brooklyn, New York 11219

Attention:  Reorganization Department






OR RETURN TO THE  COMPANY ONLY IF YOU ARE
A RECORD HOLDER RESIDING IN ISRAEL AND DESIRE TO PAY THE SUBSCRIPTION PRICE IN NEW ISRAELI
SHEKELS: 



by mail or by hand delivery to:



Tower Semiconductor Ltd.

Ramat Gavriel Industrial Zone

Migdal Haemek, Israel

Attention: Nati Somekh-Gilboa, Corporate Secretary





EXERCISE AND
SUBSCRIPTION 

THE EXPIRATION DATE OF THIS RIGHTS CERTIFICATE IS _________ __, 2005 

at 5:00 P.M. NEW YORK TIME OR MIDNIGHT ISRAEL TIME (OR ON A LATER 

DATE UPON NOTICE THEREOF FROM THE
COMPANY) 



FORM 1A –
SUBSCRIPTION 



I hereby exercise Rights and
subscribe for the purchase of Debentures, upon the terms specified in the Prospectus
relating thereto, as follows: 







	No. of Rights Exercised
	Price
	Payment






         



	[________]
	x
	$100.00
	=
	[______]









(THIS FULL AMOUNT, PAYABLE TO THE
ORDER OF AMERICAN STOCK TRANSFER & TRUST COMPANY, MUST ACCOMPANY THE SUBSCRIPTION. IF
YOU ARE A RECORD HOLDERS RESIDING IN ISRAEL, THIS FULL AMOUNT MUST BE PAID IN NEW ISRAELI
SHEKELS ACCORDING TO THE REPRESENTATIVE EXCHANGE RATE PUBLISHED BY THE BANK OF ISRAEL ON
THE DAY BEFORE PAYMENT AND PAYABLE TO THE ORDER OF TOWER SEMICONDUCTOR LTD.) 




___ Please issue the Debentures
subscribed for in a single Note 



___ Please issue the Debentures
subscribed for in the following denominations: 















		
	____________________________ 

Subscriber's Signature
	____________________________

Telephone No. (including area code)






(If
Form 1B is being completed, a signature guarantee will be required) 



Signature Guaranteed By: 



	
 	 





	
IMPORTANT:
The signature(s) should be guaranteed by an eligible guarantor institution (bank, stock
broker, savings & loan association and credit union) with membership in an approved
signature guarantee medallion program pursuant to Securities and Exchange Commission Rule
17Ad-15.  	 






FORM 1B –
DELIVERY TO DIFFERENT ADDRESS AND/OR REGISTERED 

OWNER (S) 



INSTRUCTIONS FOR
DELIVERY TO DIFFERENT ADDRESS AND/OR REGISTERED OWNER (S) 



If you wish any of the Debentures for which
you are subscribing to be delivered to an address or registered in a name different from
that shown on the face of this Rights Certificate, please enter the name, address and
denominations below. If you are completing this Form 1B, a signature guarantee will be
required in Form 1A. 



_____________________________

_____________________________

_____________________________












FORM 1C – METHOD
OF PAYMENT 



METHOD OF PAYMENT (CHECK
ONE)  




	__  Uncertified check drawn on a bank located in the United States payable to the order of
American Stock Transfer & Trust Company, as Rights Agent. Note:  Funds paid by an uncertified check may take at
least five business days to clear. Accordingly, Rights holders who pay the Subscription
Price with an uncertified check must make payment sufficiently in advance of the
Expiration Date to ensure that the check is received and clears by the Expiration Date.
The Company will not consider any payment by check to have been made until the check
clears. 






__ Certified check or bank
check drawn on a bank located in the United States payable to the order of American Stock Transfer & Trust
Company, as Rights Agent. 



__ Wire transfer of immediately
available funds directed to the account maintained by the American Stock Transfer &
Trust Company, as Rights Agent, for purposes of accepting subscriptions in this Rights
Offering at JPMorgan Chase, 55 Water Street, New York, New York 10005, 323-836933, ABA No.
021000021, reference Tower Semiconductor, Ltd., Attention: Reorganization Department. 


__ Wire transfer of immediately available funds in New Israeli Shekels directed to the account
maintained by the Company at Bank Leumi Le Israel, Haifa Main Branch, 21 Jaffa Street, Haifa,
Israel, Branch #876, Account # 130300162, SWIFT Code: LUMILITTLV, or certified check, uncertified
check or bank check drawn on a bank located in Israel payable to the order of Tower Semiconductor
Ltd. (Check this line only if you are an Israeli subscribing directly with the Company and paying in
New Israeli Shekels) 





If the amount enclosed or
transmitted is not sufficient to pay the subscription price for all of the Rights
exercised, or if the number of Rights to be exercised is not specified, the holder will be
deemed to have subscribed for the maximum number of Rights that could be subscribed for
the amount enclosed or transmitted. 



FORM 2 –
ASSIGNMENT 



For value received, the Rights
represented by this Rights Certificate are hereby assigned to (signature guarantee
required): 








	——————————————

Name (print in full)		——————————————

Address (print in full)












	——————————————

Tax I.D. or Social Security No.		——————————————

Signature of Record Holder




Signature Guaranteed By: 


	
 	 




	
IMPORTANT:
The signature(s) should be guaranteed by an eligible guarantor institution (bank, stock
broker, savings & loan association and credit union) with membership in an approved
signature guarantee medallion program pursuant to Securities and Exchange Commission Rule
17Ad-15.  	 














INSTRUCTIONS 



TO SUBSCRIBE, USE OF
FORMS 1A, 1B AND 1C 



To subscribe, fill in Forms 1A, 1B
(if applicable) and 1C on your Rights Certificate and sign on the line marked
“Subscriber’s Signature.” 




Each Right entitles its holder to
purchase for a Subscription Price of $100 Debentures in the aggregate principal amount of
One Hundred Dollars. Full payment of the Subscription Price must accompany the Rights
Certificate and may come via wire transfer or check drawn by a bank located in the United
States payable to the order of American Stock Transfer & Trust Company, as Rights
Agent, or if you are an Israeli subscribing directly with the Company and paying in New Israeli Shekels,
via wire transfer or check drawn by a bank located in the Israel payable to the order of Tower
Semiconductor Ltd. If a holder sends a partial payment of the Subscription Price, such holder will
only be issued the number and principal amount of Debentures for every $100 of
Subscription Price which has been paid. 




NOTE: You may choose to
exercise fewer Rights than the maximum number of Rights to which you are entitled, as
represented by the Rights Certificate. To do this, follow the instructions for Forms 1A
and 1B using only the number of Rights for which you wish to subscribe. 



TO TRANSFER OR SELL YOUR
RIGHTS THROUGH YOUR BROKER, USE FORM 2. 



If you wish to transfer or sell your
Rights through your broker just sign Form 2 leaving the rest of the form blank. (Your
broker will add the buyer’s name later.) Deliver your Rights Certificate and the
accompanying envelope to the broker. Your signature on Form 2 must be guaranteed by an
eligible guarantor institution (a bank, stockbroker, savings and loan association and
credit union) with membership in an approved signature guarantee medallion program,
pursuant to S.E.C. Rule 17Ad-15. 



TO TRANSFER OR SELL YOUR
RIGHTS CERTIFICATE, USE FORM 2 



If you wish to transfer or sell your
Rights to someone other than through your broker, sign Form 2, fill in the
transferee’s name and address, and deliver the Rights Certificate and the
accompanying envelope to the person to whom you transferred the Rights Certificate. The
Rights Certificate may then be used by the new holder for the exercise of Rights without
having a new Rights Certificate issued. Your signature must be guaranteed by an eligible
guarantor institution (a bank, stockbroker, savings and loan association and credit union)
with membership in an approved signature guarantee medallion program, pursuant to S.E.C.
Rule 17Ad-15. 











EXHIBIT B 



CERTIFICATE OF
AMERICAN STOCK TRANSFER & TRUST COMPANY 



Pursuant to Paragraph 4(c) of that
certain Rights Agent Agreement (the “Agreement”), dated as of _____, 2005, by
and between Tower Semiconductor Ltd. (the “Company”) and American Stock Transfer
& Trust Company (“AST”), AST does hereby certify that (capitalized terms
used herein without definition shall have the meanings ascribed thereto in the Agreement): 



     1.
          It has is duly appointed and authorized to act as the transfer agent and
          registrar for the Ordinary Shares of the Company. 



     2.
          It has been duly appointed to act as transfer agent and registrar for the rights
          (the “Rights”) to purchase Debentures of the Company. 




     3.
          In its capacity as Rights Agent and in accordance with the Agreement, it has of
          this date issued, countersigned and mailed Rights Certificates evidencing an
          aggregate of ___ Rights, which are exercisable for the purchase of Debentures in
          the aggregate principal amount of $________________, together with accompanying
          Prospectus or Rule 173 Notice and other materials, in accordance with the Rights Agent Agreement
          with the Company dated _________, 2005 and the Prospectus. 




     4.
          Said certificates were countersigned on its behalf in its capacity as Rights
          Agent by authorized officers who were at the time of affixing their signatures
          duly authorized to countersign such certificates. 



Dated: _________, 2005. 



AMERICAN STOCK TRANSFER
& TRUST COMPANY 



By: _______________________________________________

Authorized Officer 












EXHIBIT C 



CERTIFICATE OF
AMERICAN STOCK TRANSFER & TRUST COMPANY 



Pursuant to Paragraph 12(h) of that certain
Rights Agent Agreement (the “Agreement”), dated as of _____, 2005, by and
between Tower Semiconductor Ltd. (the “Company”) and American Stock Transfer
& Trust Company (“AST”), AST does hereby certify that (capitalized terms
used herein without definition shall have the meanings ascribed thereto in the Agreement): 



     1.
          It is duly appointed and authorized to act as the transfer agent and registrar
          for the Rights and Ordinary Shares of the Company. 



     2.
          It has been duly appointed to act as transfer agent and registrar for the rights
          (the “Rights”) to purchase Debentures of the Company pursuant to the
          Agreement. 



     3.
          As of the Expiration Date, ______ Rights were duly exercised through it in
          accordance with the Agreement and in connection therewith it received an
          aggregate Subscription Price of $_______________. 



     4.
          Pursuant to Section 5(b) of the Agreement, it has as of this date instructed the
          Company that Debentures in the aggregate principal amount of $________________
          should be issued and authenticated as an original issue in connection with the
          exercise of Rights, and, to the best of AST’s knowledge, Debentures in the
          aggregate principal amount of $________________ have been subscribed for by the
          exercise of Rights by  Rights Holders who exercised their Rights in
          accordance with Paragraph 5(c) of the Agreement. 



Dated: _________, 2005. 



AMERICAN STOCK TRANSFER
& TRUST COMPANY 



By: _______________________________________________

Authorized Officer 












SCHEDULE 1 – FEES OF
THE RIGHTS AGENT 



$7,500