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Exhibit 4.89

# CONVERSION AGREEMENT

This
Conversion Agreement (this Agreement) is made and entered into
effective as of September  25 2008 by and between TOWER SEMICONDUCTOR LTD.
(the Company or Tower), a company organized under
the laws of the State of Israel and ISRAEL CORPORATION LTD., a corporation organized under
the laws of the State of Israel ( TIC).

WHEREAS,
Tower is an independent manufacturer of wafers whose Ordinary Shares are traded on the
Nasdaq Stock Market (NASDAQ) under the symbol TSEM and whose Ordinary
Shares and certain other securities are traded on the Tel-Aviv Stock Exchange
(TASE) under the symbol TSEM;

WHEREAS,
Bank Leumi Le-Israel B.M. and Bank Hapoalim B.M. (collectively, the
Banks) and Tower are parties to a Facility Agreement dated
January 18, 2001, as amended and restated on August 24, 2006 and as further amended
by Amendment No. 1 thereto dated September 10, 2007 (the Facility
Agreement);

WHEREAS,
TIC and Tower are parties to an Equipment Loan Facility dated September 10, 2007 (the
Equipment Facility);

WHEREAS,
TIC holds convertible debentures series B of the Company convertible into an amount of
18,181,823 Company ordinary shares (the CD Bs); and

WHEREAS,
at the request of Tower, the Banks and Tower have entered into an Amending Agreement dated
September 25, 2008 (the Amending Agreement);

WHEREAS,
in connection with this Agreement and the Amending Agreement, Tower and TIC have entered
on the date hereof into (i) an Amended and Restated Registration Rights Agreement (the
Amended and Restated Registration Rights Agreement), and (ii) a
Securities Purchase Agreement (the Securities Purchase Agreement) ; and

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

1.    
          Preamble.

1.1.    
          Preamble. The preamble to this Agreement constitutes an integral part
          thereof.

2.    
          Conversion of Equipment Facility, CD Bs and Issue of Capital Note on
          the Amendment Closing Date.

The
Company hereby:

2.1.    
          issues to TIC, and TIC hereby receives from the Company, in conversion of
          US $30,000,000 (thirty million US dollars) owed pursuant to the
          Equipment Facility, a convertible capital note in the principal amount of
          US $30,000,000 (thirty million US dollars) in the form attached as
          Exhibit 1 hereto. For the avoidance of doubt (i) as of
          the date of the effectiveness of the Amending Agreement (the Amendment
          Closing Date), the principal amount under the Equipment Facility
          outstanding and owed by Tower to TIC shall be zero, (ii) there shall be no
          further amounts (principal or interest) payable by the Company under the
          Equipment Facility and the Equipment Facility shall be terminated as at the
          Amendment Closing Date, and (iii) the amount of Company ordinary shares into
          which the capital note TIC receives pursuant to this Section 2.1 is calculated
          on the basis of $1.42 per share, representing two times the average closing
          price of the ordinary shares of the Company on the NASDAQ for the last ten
          trading days prior to August 7, 2008;



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2.2.    
          issues to TIC, and TIC hereby receives from the Company, in exchange for
          delivery to the Company of US $20,000,000 (twenty million US dollars)
          of CD Bs (comprising (i) such part of the principal of the CD Bs
          that together with the accrued interest thereon as of the date of the Amendment
          Closing Date aggregates $20 million and (ii) such accrued interest) an executed
          convertible capital note (and together with the capital note given to TIC
          pursuant to Section 2.1 above, the Capital Notes) in the
          principal amount of US $20,000,000 (twenty million US dollars) in the form
          attached as Exhibit 2 hereto. For the avoidance of
          doubt (i) following the Amendment Closing Date, TIC will remain the holder of
          $2,817,609 of convertible debentures series B of the Company convertible into an
          amount of 2,561,467 Company ordinary shares, such remaining CD Bs will
          bear interest of 5% to be accrued from the Amendment Closing Date payable in
          accordance with the CD Bs terms, and TIC will no longer hold or have the
          rights and obligations of a holder of the CD Bs delivered to the Company
          pursuant to this Section 2.2, (ii) there shall be no further amounts (principal
          or interest) payable by the Company under CD Bs save for unconverted
          remaining principal of $2,817,609 and interest thereon incurred after the
          Amendment Closing Date, and (iii) the amount of Company ordinary shares into
          which the capital note TIC receives pursuant to this Section 2.2 is calculated
          on the basis of $1.42 per share, representing two times the average closing
          price of the ordinary shares of the Company on the NASDAQ for the last ten
          trading days prior to August 7, 2008;

2.3.    
          furnishes to TIC a copy of the approval of the TASE for listing the 35,211,271
          (thirty-five, two hundred and eleven thousand, two hundred and seventy-one)
          shares issuable upon conversion of said Capital Notes; and

2.4.    
          confirms that the Company has recorded such issuance of the Capital Notes in the
          name of TIC on the records of the Company.

3.    
          Representations and Warranties of the Company.

The
Company hereby represents and warrants to TIC on the Amendment Closing Date as follows:

3.1.    
          Organization. The Company is duly organized and validly existing under
          the laws of its jurisdiction of incorporation and has full corporate power and
          authority to own, lease and operate its properties and assets and to conduct its
          business as now being conducted and to perform all its obligations under this
          Agreement.

3.2.    
          Share Capital. All issued and outstanding share capital of the Company
          has been duly authorized and is validly issued. The shares to be issued upon
          conversion of any Capital Note issued pursuant to this Agreement (the
          Conversion Shares) are duly authorized and reserved for
          issuance by the Company and, when issued in accordance with the terms of such
          Capital Note will be validly issued, fully paid, nonassessable and not subject
          to any pledge, lien or restriction on transfer, except for restrictions on
          transfer imposed by applicable securities laws. The entering into and
          performance of this Agreement and the issuance of any shares, or Capital Notes
          hereunder do not, and the issuance of any Conversion Shares will not, conflict
          with the Memorandum of Association or the Articles of Association of the Company
          nor with any outstanding convertible security, warrant, option, call, preemptive
          right or commitment of any type relating to the Companys capital stock
          (collectively, Equity Rights). The entering into and
          performance of this Agreement, the issuance of any shares or Capital Notes
          hereunder and the issuance of the Conversion Shares do not require, or give any
          holder of Equity Rights the right to have made, any adjustments to be made in
          the conversion or exercise price, the number of shares issuable upon conversion
          or exercise or any other provision of the aforegoing Equity Rights.

3.3.    
          Authorization; Approvals. All corporate action on the part of the Company
          necessary for the execution, delivery and performance of this Agreement and the
          issuance of any shares, Capital Notes, and Conversion Shares has been taken.
          Except as set forth in Schedule 3.3 hereto, save for any consents, approvals,
          authorisations or exemptions already obtained, and filings already made, no
          consent, approval or authorization of, exemption by, or filing with, any
          governmental or regulatory authority, including any approval of, or filings
          with, the Israeli Securities Authority (the ISA), the TASE or
          any third party is required in connection with the execution, delivery and
          performance by the Company of this Agreement and the consummation by the Company
          of the transactions contemplated hereby, including the issuance by way of
          private placement pursuant to this Agreement of any Capital Notes, or shares.
          This Agreement and all Capital Notes issued hereunder on the date which this
          representation is given have been executed and delivered by the Company, and
          each constitutes the valid and legally binding obligations of the Company,
          legally enforceable against the Company in accordance with its terms, subject to
          applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
          moratorium and other laws relating to creditors rights generally and
          general principles of equity.



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3.4.    
          Cross-Default. No Default or Event of Default exists under the Facility
          Agreement.

3.5.    
          No Conflicts. Neither the execution and delivery of this Agreement by
          Tower, nor the compliance with the terms and provisions of this Agreement on the
          part of Tower, including the issuance of shares, Capital Notes, or Conversion
          Shares, will: (i) violate any statute or regulation of any governmental
          authority, domestic or foreign, affecting Tower; (ii) require the issuance of
          any authorization, license, consent or approval of any governmental agency, or
          any other person which has not been obtained, save as set forth in Schedule 3.5
          hereto; or (iii) conflict with or result in a breach of any of the terms,
          conditions or provisions of any judgment, order, injunction, decree, loan
          agreement or other material agreement or instrument to which Tower is a party,
          or by which Tower is bound, or constitute a default thereunder, the effect of
          which might have a material adverse effect on Tower.

3.6.    
          No Litigation. There are no actions, suits, proceedings, or injunctive
          orders, pending or threatened against or affecting Tower relating to the subject
          matter of this Agreement.

3.7.    
          No Brokers. Tower has not engaged any broker or finder in connection with
          the transactions contemplated by this Agreement, and no broker or other person
          is entitled to any commission or finders fee in connection with such
          transactions.

3.8.    
          The Company acknowledges that TIC is acquiring the Capital Notes on the
          Amendment Closing Date in full reliance upon the representations and warranties
          made by the Company in this Agreement.



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4.    
          Representations and Warranties of TIC.

TIC
hereby represents and warrants to the Company that it:

4.1.    
          is acquiring the securities issued and to be issued to TIC pursuant to this
          Agreement for investment and not with a view to distribution without
          registration under the U.S. Securities Act of 1933 (the Securities
          Act);

4.2.    
          has requisite knowledge and experience in financial and business matters to be
          capable of evaluating the merits and risks of an investment in the Company and
          is an accredited investor as defined in Rule 501(a) under the Securities Act;

4.3.    
          understands that none of the Capital Notes issued and to be issued under this
          Agreement have been, or will be, registered under the Securities Act, or the
          laws of any jurisdiction;

4.4.    
          agrees that none of the securities issued and to be issued to TIC pursuant to
          this Agreement may be sold, offered for sale, transferred, pledged, hypothecated
          or otherwise disposed of except by registration under the Securities Act or
          otherwise in compliance with the Securities Act, the Israeli Securities Law or
          any applicable securities laws of any jurisdiction (including pursuant to an
          exemption therefrom); and

4.5.    
          acknowledges that the securities, upon issuance, will, unless in the reasonable
          opinion of counsel for the Company such legend is not required in order to
          ensure compliance under the Securities Act, bear the following legend:

THESE
SECURITIES [(INCLUDING THE SECURITIES ISSUABLE PURSUANT HERETO)]1 HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY
U.S. STATE OR OTHER JURISDICTIONS SECURITIES LAWS. THESE SECURITIES (INCLUDING THE
SECURITIES ISSUABLE PURSUANT HERETO) MAY NOT BE SOLD, OFFERED FOR SALE OR PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, (THE ACT) WITH RESPECT TO
ANY SUCH SECURITIES OR AN OPINION OF COUNSEL (REASONABLY SATISFACTORY TO THE COMPANY) THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT OR ON THE
TEL-AVIV STOCK EXCHANGE IN COMPLIANCE WITH REGULATION S UNDER THE ACT.

For
the avoidance of doubt, nothing in this Section 4 shall derogate from the
Companys obligations under the Registration Rights Agreement.

5.    
Undertakings by the Company.

5.1.    
          The Company shall fulfil all of its obligations under this Agreement, the
          Amended and Restated Registration Rights Agreement, the Capital Notes and the
          Securities Purchase Agreement, including the Capital Notes issued pursuant
          hereto and the under any registration rights agreement .

5.2.    
          In the event that the adjustment provisions of any Capital Notes issued pursuant
          hereto result in additional Conversion Shares to be issued upon conversion of
          the Capital Notes, the Company shall promptly furnish TIC with a copy of the
          approval of the TASE for listing such additional Conversion Shares (if the
          Companys shares are then traded on the TASE).

5.3.    
          To the extent that ordinary shares (or other shares of capital stock substituted
          therefor) of the Company are listed on one or more securities exchanges,
          including the NASDAQ and the TASE, the Company shall maintain, at its expense,
          the listing of the shares of the Company issued pursuant to this Agreement
          (including upon conversion of Capital Notes issued pursuant to this Agreement)
          on such exchanges or, in the event such shares of the Company are listed on only
          one securities exchange, such exchange. Nothing in this Section 5.4 shall
          constitute an obligation of the Company to list or maintain the listing of its
          ordinary shares (or other shares of capital stock substituted therefor) on any
          securities exchanges, including the NASDAQ and the TASE.

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1 Following the effective date of
any registration statement covering the Conversion Shares or any of them, if
applicable, bracketed language to be removed from future Capital Notes relating to such
Conversion Shares and, at the request of the holder, a substitute Capital Note or Notes
omitting the bracketed language will promptly be delivered to the holder.



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5.4.    
          The Company undertakes not to issue Shares or Securities (as defined in the
          Securities Law, 1968) of the Company, save on market terms and conditions.

6.    
          Conditions Precedent.

This
Agreement and the issuance and allotment of the shares of the Company, or the issuance of
Capital Notes, pursuant to and in accordance with this Agreement, to TIC or its nominee
(which shall be a Subsidiary of TIC) shall be subject to closing of the Amending Agreement
and the satisfaction or waiver of all the conditions precedent thereto. For the purposes
of this Agreement, Subsidiary of any person means any company which directly
or indirectly is controlled by such person; control shall in this
Section 6 bear the meaning assigned to such term in Section 1 of the Securities Law,
1968.

7.    
          Miscellaneous.

7.1.    
          Governing Law; Jurisdiction. This Agreement shall be governed by and
          shall be construed in accordance with Israeli law and the courts of
          Tel-Aviv-Jaffa shall have exclusive jurisdiction to hear any matters, provided
          that TIC and any other Subsidiary of TIC party to this Agreement shall be
          entitled to sue Tower in any jurisdiction in which it has an office or holds
          assets.

7.2.    
          Successors and Assigns; Assignment. Except as otherwise expressly limited
          herein, the provisions hereof shall inure to the benefit of, and be binding
          upon, the successors and permitted assigns of the parties hereto. This Agreement
          may not be assigned by any party without the prior written consent of the other
          party hereto, provided that TIC may assign this Agreement, in whole or in part,
          to any Subsidiary of TIC or add a Subsidiary of TIC as an additional party
          hereto, Nothing in this Agreement shall be deemed to restrict the (a)
          transferability of the shares, and Capital Notes to be issued pursuant to this
          Agreement or the Conversion Shares, in each case, in whole or in part at any
          time and from time to time, except for restrictions on transfer imposed by
          applicable securities laws or (b) the assignability of the registration rights
          in accordance with the Registration Rights Agreement .

7.3.    
          Expenses. The Company shall bear the expenses and costs of all the
          parties to the transactions contemplated hereby (except for the fees and
          expenses of counsel to TIC which shall be borne by TIC).

7.4.    
          Entire Agreement; Amendment and Waiver. This Agreement constitutes the
          full and entire understanding and agreement between the parties with regard to
          the subject matter hereof. Any term of this Agreement may be amended and the
          observance of any term hereof may be waived (either prospectively or
          retroactively and either generally or in a particular instance) only with the
          written consent of the parties to this Agreement.

7.5.    
          Notices, etc. All notices and other communications required or permitted
          hereunder to be given to a party to this Agreement shall be in writing and shall
          be faxed or mailed by registered or certified mail, postage prepaid, or
          otherwise delivered by hand or by messenger, addressed to such partys
          address as set forth below:



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| |                           |                                
| | ------------------------- | -------------------------------
|
|
|
|
| | If to Israel Corporation: | Israel Corporation Ltd.        
| |                           | 23 Arania St.                  
| |                           | Millennium Tower               
| |                           | Tel-Aviv                       
| |                           | Facsimile:     03-684-4574     
| |                           | Attention:     Avisar Paz, CFO 
| |                          
| | with a copy to:           | Gornitzky &Co.                 
| |                           | 45 Rothschild Blvd.            
| |                           | Tel-Aviv, 65784                
| |                           | Facsimile:     03-560-6555     
| |                           | Attention:     Zvi Ephrat, Adv.
| |                          
| | If to the Company:        | Tower Semiconductor Ltd.       
| |                           | Ramat Gavriel Industrial Area  
| |                           | P.O. Box 619                   
| |                           | Migdal Haemek                  
| |                           | Israel 23105                   
| |                           | Fax. 972-4-6047242             
| |                           | Attn: Oren Shirazi, Acting CFO 
| | with a copy to           
| | (which shall not         
| | constitute notice):       | Yigal Arnon & Co.              
| |                           | 1 Azrieli Center               
| |                           | 46th Floor                     
| |                           | Tel-Aviv, Israel, 67021        
| |                           | Fax: 972-3-6087714             
| |                           | Attn: David Schapiro, Adv.     

or
such other address with respect to a party as such party shall notify each other party in
writing as above provided. Any notice sent in accordance with this Section 7.5 shall
be effective (i) if mailed, five (5) business days after mailing, (ii) if sent by
messenger, upon delivery, and (iii) if sent via facsimile, one (1) business day following
transmission and electronic confirmation of receipt.

7.6.    
          Delays or Omissions. No delay or omission to exercise any right, power,
          or remedy accruing to any party upon any breach or default under this Agreement,
          shall be deemed a waiver of any other breach or default theretofore or
          thereafter occurring. Any waiver, permit, consent, or approval of any kind or
          character on the part of any party of any breach or default under this
          Agreement, or any waiver on the part of any party of any provisions or
          conditions of this Agreement, must be in writing and shall be effective only to
          the extent specifically set forth in such writing. Unless provided otherwise
          herein, all remedies, either under this Agreement or by law or otherwise
          afforded to any of the parties, shall be cumulative and not alternative.

7.7.    
          Severability. If any provision of this Agreement is held by a court of
          competent jurisdiction to be unenforceable under applicable law, then such
          provision shall be excluded from this Agreement and the remainder of this
          Agreement shall be interpreted as if such provision were so excluded and shall
          be enforceable in accordance with its terms; provided, however, that in such
          event this Agreement shall be interpreted so as to give effect, to the greatest
          extent consistent with and permitted by applicable law, to the meaning and
          intention of the excluded provision as determined by such court of competent
          jurisdiction.

7.8.    
          Counterparts. This Agreement may be executed in any number of
          counterparts (including facsimile counterparts), each of which shall be deemed
          an original, and all of which together shall constitute one and the same
          instrument.

7.9.    
          Headings. The headings of the sections and paragraphs of this Agreement
          are inserted for convenience only and shall not be deemed to constitute part of
          this Agreement or to affect the construction hereof.

7.10.    
          Further Assurances. Each of the parties hereto shall perform such further
          acts and execute such further documents as may reasonably be necessary to carry
          out and give full effect to the provisions of this Agreement and the intentions
          of the parties as reflected thereby.



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[Signature Page to
Israel Corporation Ltd. Conversion Agreement]

IN
WITNESS WHEREOF, each of the parties has signed this Agreement as of the date first
hereinabove set forth.

|                         |                       
|------------------------ | ----------------------
|
|
|
|
|TOWER SEMICONDUCTOR LTD. | ISRAEL CORPORATION LTD

|       |                          |        |                         
|------ | ------------------------ | ------ | ------------------------
|
|
|
|
|By:    | ________________________ | By:    | ________________________
|      
|Name:  | ________________________ | Name:  | ________________________
|      
|Title: | ________________________ | Title: | ________________________



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Schedules to Conversion Agreement

Schedule 3.3

Schedule 3.5



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