Document:

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. 

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     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 

$7,500F-1/A

Exhibit 4.2  

TOWER SEMICONDUCTOR
LTD., 

AS ISSUER 

THE BANK OF NEW YORK, 

AS TRUSTEE 

AND 

HERMETIC TRUST (1975)
LTD., 

AS CO-TRUSTEE 

Indenture 

Dated as of —,
2005 

$50,000,000 

5% Subordinated
Convertible Debentures due 2011 

TABLE OF CONTENTS 

			
			
			
			
			
	ARTICLE 1 	DEFINITIONS 	  
	 
	Section 1.01.	Definitions	1 
	 
	 
	ARTICLE 2 	ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES 
	 
	 
	Section 2.01.	Designation Amount and Issue of Note	4 
	 
	Section 2.02.	Form of Note	5 
	 
	Section 2.03.	Date and Denomination of Notes; Payments of Interest	5 
	 
	Section 2.04.	Execution of Notes	5 
	 
	Section 2.05.	Exchange and Registration of Transfer of Notes; Restrictions on Transfer	5 
	 
	Section 2.06.	Mutilated, Destroyed, Lost or Stolen Notes	7 
	 
	Section 2.07.	Temporary Notes	8 
	 
	Section 2.08.	Cancellation of Notes	8 
	 
	Section 2.09.	CUSIP Numbers	9 
	 
	 
	ARTICLE 3 	REDEMPTION OF NOTES 
	 
	 
	Section 3.01.	Redemption of Notes	9 
	 
	Section 3.02.	Redemption at Option of Issuer	9 
	 
	Section 3.03.	Notes Owned by Issuer or Its Subsidiaries	9 
	 
	 
	ARTICLE 4 	PARTICULAR COVENANTS OF THE COMPANY  
	 
	 
	Section 4.01.	Payment of Principal and Interest	10 
	 
	Section 4.02.	Maintenance of Office or Agency	10 
	 
	Section 4.03.	Appointments to Fill Vacancies in Office of the Trustee or Co-Trustee	10 
	 
	Section 4.04.	Provisions as to Paying Agent	10 
	 
	Section 4.05.	Existence	11 
	 
	Section 4.06.	Stay, Extension and Usury Laws	11 
	 
	Section 4.07.	Compliance Certificate	11 
	 
	 
	ARTICLE 5  	NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE  
	 
	 
	Section 5.01.	Noteholders' Lists	12 
	 
	Section 5.02.	Preservation and Disclosure of Lists	12 
	 
	Section 5.03.	Reports by Trustee and Co-Trustee	12 
	 
	Section 5.04.	Reports by Issuer	12 

			
			
			
			
			
	 
	ARTICLE 6  	REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT  
	 
	 
	Section 6.01.	Events of Default	13 
	 
	Section 6.02.	Payments of Notes on Default; Suit Therefor	14 
	 
	Section 6.03.	Application of Monies Collected by Trustees	15 
	 
	Section 6.04.	Proceedings by Noteholder	16 
	 
	Section 6.05.	Proceedings by Trustees	16 
	 
	Section 6.06.	Remedies Cumulative and Continuing	16 
	 
	Section 6.07.	Direction of Proceedings and Waiver of Defaults by Noteholders	17 
	 
	Section 6.08.	Notice of Defaults	17 
	 
	Section 6.09.	Undertaking to Pay Costs	17 
	 
	Section 6.10.	Indenture and Notes Solely Corporate Obligations	18 
	 
	 
	ARTICLE 7  	THE TRUSTEES  
	 
	 
	Section 7.01.	Duties and Responsibilities of Trustees	18 
	 
	Section 7.02.	Rights of Trustees; Reliance on Documents, Opinions, Etc	19 
	 
	Section 7.03.	No Responsibility for Recitals, Etc	21 
	 
	Section 7.04.	Monies to Be Held in Trust	21 
	 
	Section 7.05.	Compensation and Expenses of Trustees	21 
	 
	Section 7.06.	Officers' Certificate as Evidence	22 
	 
	Section 7.07.	Conflicting Interests of Trustee and the Co-Trustee	23 
	 
	Section 7.08.	Eligibility of Trustee and Co-Trustee	23 
	 
	Section 7.09.	Resignation or Removal of Trustee	23 
	 
	Section 7.10.	Acceptance by Successor Trustee	24 
	 
	Section 7.11.	Succession by Merger	25 
	 
	Section 7.12.	Preferential Collection of Claims	25 
	 
	Section 7.13.	Coordination between the Trustee and the Co-Trustee	25 
	 
	 
	ARTICLE 8  	SUBORDINATION  
	 
	 
	Section 8.01.	Agreement to Subordinate	26 
	 
	Section 8.02.	Postponement of Payments	26 
	 
	Section 8.03.	Defaults Under The Credit Facility	26 
	 
	Section 8.04.	Reserved	29 
	 
	Section 8.05.	Provisions Solely to Define Relative Rights	29 
	 
	Section 8.06.	Trustee to Effectuate Subordination	29 
	 
	Section 8.07.	No Waiver of Subordination Provisions	29 
	 
	Section 8.08.	Notice to Trustees	30 
	 
	Section 8.09.	Trustees Not Fiduciary for the Lenders under the Credit Facility	30 
	 
	Section 8.10.	Trustees' Compensation Not Prejudiced	30 
	 

- ii -

			
			
			
			
			
	 
	ARTICLE 9  	THE NOTEHOLDERS  
	 
	 
	Section 9.01.	Action by Noteholders	30 
	 
	Section 9.02.	Proof of Execution by Noteholders	30 
	 
	Section 9.03.	Who Are Deemed Absolute Owners	31 
	 
	Section 9.04.	Notes Held by Subsidiaries or Affiliates of the Issuer Disregarded	31 
	 
	Section 9.05.	Revocation of Consents, Future Holders Bound	31 
	 
	 
	ARTICLE 10  	MEETINGS OF NOTEHOLDERS  
	 
	 
	Section 10.01.	Purpose of Meetings	31 
	 
	Section 10.02.	Call of Meetings by Trustees	32 
	 
	Section 10.03.	Call of Meetings by Issuer or Noteholders	32 
	 
	Section 10.04.	Qualifications for Voting	32 
	 
	Section 10.05.	Regulations	32 
	 
	Section 10.06.	Voting	33 
	 
	Section 10.07.	No Delay of Rights by Meeting	33 
	 
	Section 10.08.	Separate Meetings of Groups of Noteholders	33 
	 
	Section 10.09.	Quorum	33 
	 
	Section 10.10.	Majority Controls	34 
	 
	 
	ARTICLE 11  	SUPPLEMENTAL INDENTURES  
	 
	 
	Section 11.01.	Supplemental Indentures Without Consent of Noteholders	34 
	 
	Section 11.02.	Supplemental Indenture with Consent of Noteholders	35 
	 
	Section 11.03.	Effect of Supplemental Indenture	35 
	 
	Section 11.04.	Notation on Notes	35 
	 
	Section 11.05.	Evidence of Compliance of Supplemental Indenture to Be Furnished to Trustees	36 
	 
	 
	ARTICLE 12  	CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE  
	 
	 
	Section 12.01.	Issuer May Consolidate on Certain Terms	36 
	 
	Section 12.02.	Successor to Be Substituted	36 
	 
	Section 12.03.	Opinion of Counsel to Be Given to Trustees	36 
	 
	 
	ARTICLE 13  	SATISFACTION AND DISCHARGE OF INDENTURE  
	 
	 
	Section 13.01.	Discharge of Indenture	37 
	 
	Section 13.02.	Deposited Monies to Be Held in Trust by Trustees	37 
	 
	Section 13.03.	Paying Agent to Repay Monies Held	37 
	 
	Section 13.04.	Return of Unclaimed Monies	37 
	 
	Section 13.05.	Reinstatement	37 
	 

- iii -

			
			
			
			
			
	 
	ARTICLE 14  	CONVERSION OF NOTES  
	 
	 
	Section 14.01.	Right to Convert	38 
	 
	Section 14.02.	Exercise of Conversion Privilege; Issuance of Ordinary Shares on Conversion; No
	 	Adjustment for Interest or Dividends	38 
	 
	Section 14.03.	Conversion Price	38 
	 
	Section 14.04.	Adjustment of Conversion Price	39 
	 
	Section 14.05.	Effect of Reclassification, Consolidation, Merger or Sale	41 
	 
	Section 14.06.	Reserved	42 
	 
	Section 14.07.	Reservation of Shares, Shares to Be Fully Paid; Compliance with Governmental
	 	Requirements, Listing of Ordinary Shares	42 
	 
	Section 14.08.	Responsibility of Trustees	42 
	 
	Section 14.09.	Notice to Holders Prior to Certain Actions	43 
	 
	Section 14.10.	Rights Issued in Respect of Ordinary Shares Issued Upon Conversions	43 
	 
	 
	ARTICLE 15  	MISCELLANEOUS PROVISIONS  
	 
	 
	Section 15.01.	Provisions Binding on Issuer's Successors	43 
	 
	Section 15.02.	Official Acts by Successor Corporation	43 
	 
	Section 15.03.	Addresses for Notices, Etc	44 
	 
	Section 15.04.	Governing Law	44 
	 
	Section 15.05.	Evidence of Compliance with Conditions Precedent, Certificates to Trustees	44 
	 
	Section 15.06.	Legal Holidays	45 
	 
	Section 15.07.	Trust Indenture Act	45 
	 
	Section 15.08.	No Security Interest Created	45 
	 
	Section 15.09.	No limitation on the Issuer's Future Financings	45 
	 
	Section 15.10.	Benefits of Indenture	45 
	 
	Section 15.11.	Table of Contents, Headings, Etc	45 
	 
	Section 15.12.	Authenticating Agent	45 
	 
	Section 15.13.	Execution in Counterparts	46 
	 
	Section 15.14.	Severability	46 

- iv -

INDENTURE 

INDENTURE dated as of [ ],
2005 by and among Tower Semiconductor Ltd., a company with limited liability incorporated
under the laws of Israel (the “Issuer”), The Bank of New York, a New York
banking corporation, as trustee (the “Trustee”) and Hermetic Trust (1975)
Ltd., an Israeli company, as co-trustee (the “Co-Trustee”, and, together
with the Trustee, the “Trustees”). 

WITNESSETH: 

        WHEREAS,
for its lawful corporate purposes, the Issuer has duly authorized the issue of its 5%
Subordinated Convertible Debentures due 2011 (the “Notes”), in an
aggregate principal amount not to exceed $50,000,000 and to provide the terms and
conditions upon which the Notes are to be authenticated, issued and delivered, the Issuer
has duly authorized the execution and delivery of this Indenture; and 

        WHEREAS,
the Notes, the certificate of authentication to be borne by the Notes, a form of
assignment and a form of conversion notice to be borne by the Notes are to be
substantially in the forms hereinafter provided for; and 

        WHEREAS,
all acts and things necessary to make the Notes, when executed by the Issuer and
authenticated and delivered by the Trustee or a duly authorized authenticating agent, as
in this Indenture provided, the valid, binding and legal obligations of the Issuer, and to
constitute this Indenture a valid agreement according to its terms, have been done and
performed, and the execution of this Indenture and the issue hereunder of the Notes have
in all respects been duly authorized, 

        NOW,
THEREFORE, THIS INDENTURE WITNESSETH: 

That in order to declare the terms
and conditions upon which the Notes are, and are to be, authenticated, issued and
delivered, and in consideration of the premises and of the purchase and acceptance of the
Notes by the holders thereof, the Issuer covenants and agrees with the Trustees for the
equal and proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows: 

ARTICLE 1 

DEFINITIONS 

             Section 1.01.
          Definitions. The terms defined in this Section 1.01 (except as
          herein otherwise expressly provided or unless the context otherwise requires)
          for all purposes of this Indenture and of any indenture supplemental hereto
          shall have the respective meanings specified in this Section 1.01. All
          other terms used in this Indenture that are defined in the Trust Indenture Act
          or which are by reference therein defined in the Securities Act (except as
          herein otherwise expressly provided or unless the context otherwise requires)
          shall have the meanings assigned to such terms in the Trust Indenture Act and in
          the Securities Act as in force at the date of the execution of this Indenture.
          The words “herein”, “hereof”,
          “hereunder” and words of similar import refer to this Indenture
          as a whole and not to any particular Article, Section or other Subdivision. The
          terms defined in this Article include the plural as well as the singular. 

        “Affiliate”
of any specified Person means any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified Person. For
the purposes of this definition, “control”, when used with respect to any
specified Person, means the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms “controlling” and
“controlled” have meanings correlative to the foregoing. 

        “Articles
of Association” means the Issuer’s Amended Articles of Association adopted
by the shareholders’ meeting of the Issuer on November 14, 2000 as it may have been
and may be amended from time to time. 

        “Bank
Payment Date” means a payment date of interest and/or principal to the Lenders
under the Credit Facility. 

        “Board
of Directors” means the Board of Directors of the Issuer or a committee of such
Board duly authorized to act for it hereunder. 

        “Business
Day” means any day on which banking institutions in London, New York and the
State of Israel are generally open for business. 

        “Co-Trustee”
means Hermetic Trust (1975) Ltd. and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a party and any
successor co-trustee at any time serving as successor or co-trustee hereunder. 

        “Commission”
means the Securities and Exchange Commission, as from time to time constituted, created
under the Exchange Act, or, if at any time after the execution of this Indenture such
Commission is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time. 

        “Conversion
Price” has the meaning specified in Section 14.03. 

        “Corporate
Trust Office”, or other similar term, means the designated office of the Trustee
at which at any particular time its corporate trust business as it relates to this
Indenture shall be administered, which office is, at the date as of which this Indenture
is dated, located at One Canada Square, London E14 5AL, United Kingdom. 

        “Credit
Facility” means the credit facility agreement dated January 18, 2001 made between
the Issuer, as borrower, and Bank Hapoalim B.M and Bank Leumi Le-Israel Ltd., as lenders,
as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. 

        “Credit
Facility Event of Default” has the meaning specified in Section 8.03. 

        “default”
means any event that is, or after notice or passage of time, or both, would be, an Event
of Default. 

        “Event
of Default” means any event specified in Section 6.01 as an Event of
Default. 

        “Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, as in effect from time to time. 

        “Immediate
Report” means a report which is referred to in Section 30 of the Securities
Regulations (Periodic and Immediate Reports) – 1970, regulations promulgated under
the Securities Law. 

        “Indenture”
means this instrument as originally executed or, if amended or supplemented as herein
provided, as so amended or supplemented. 

        “interest”
means, when used with reference to the Notes, any interest payable under the terms of the
Notes. 

        “Issuer”
means the corporation named as the “Issuer” in the first paragraph of
this Indenture, and, subject to the provisions of Article 12 and Section 14.05,
shall include its successors and assigns. 

        “Lender”
means a lender under the Credit Facility from time to time. 

        “ISA”
means the Israel Securities Authority. 

- 2 -

        “NIS” means
New Israeli Shekels, the lawful currency of the State of Israel. 

        “non-electing
share” has the meaning specified in Section 14.05. 

        “Note”
or “Notes” means any Note or Notes, as the case may be, authenticated and
delivered under this Indenture. 

        “Note
register” has the meaning specified in Section 2.05. 

        “Note registrar”
has the meaning specified in Section 2.05. 

        “Noteholder”
or “holder” as applied to any Note, or other similar terms (but excluding
the term “beneficial holder”), means any Person in whose name at the time
a particular Note is registered on the Note registrar’s books. 

        “Officers’
Certificate”, when used with respect to the Issuer, means a certificate signed by
the Chairman of the Board, the Chief Executive Officer, the President or any Vice
President (whether or not designated by a number or numbers or word or words added before
or after the title “Vice President”), the Treasurer or any Assistant
Treasurer, or the Secretary of the Issuer. 

        “Opinion
of Counsel” means an opinion in writing signed by legal counsel, who may be an
employee of or counsel to the Issuer, or other counsel reasonably acceptable to the
Trustee. 

        “Ordinary
Shares” means any stock of any class of the Issuer which has no preference in
respect of dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Issuer and which is not subject to
redemption by the Issuer. Subject to the provisions of Section 14.05, however, shares
issuable on conversion of Notes shall include only shares of the class designated as
ordinary shares of the Issuer at the date of this Indenture (namely, the Ordinary Shares,
par value NIS 1.00) or shares of any class or classes resulting from any reclassification
or reclassifications thereof and which have no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Issuer and which are not subject to redemption (other than as provided
in the Articles of Association) by the Issuer; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then so
issuable on conversion shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications. 

        “outstanding”,
when used with reference to Notes and subject to the provisions of Section 9.04,
means, as of any particular time, all Notes authenticated and delivered by the Trustee
under this Indenture, except: 

               	 	(a) 	
                    Notes theretofore canceled by the Trustee or delivered to the Trustee for
                    cancellation; 

                    

               	 	(b) 	
                    Notes, or portions thereof, for the redemption of which monies in the necessary
                    amount shall have been deposited in trust with the Trustee or with any paying
                    agent (other than the Issuer); 

                    

               	 	(c) 	
                    Notes in lieu of which, or in substitution for which, other Notes shall have
                    been authenticated and delivered pursuant to the terms of Section 2.06; and 

                    

               	 	(d) 	
                    Notes converted into Ordinary Shares pursuant to Article 14 and Notes
                    deemed not outstanding pursuant to Article 3. 

                    

        “Person”
means a corporation, an association, a partnership, a limited liability company, an
individual, a joint venture, a joint stock company, a trust, an unincorporated
organization or a government or an agency or a political subdivision thereof. 

- 3 -

        “Responsible
Officer” means, when used with respect to the Trustee or the Co-Trustee, any
officer within the corporate trust department of the Trustee or the Co-Trustee, including
any vice president, assistant vice president, assistant treasurer, trust officer or any
other officer of the Trustee or the Co-Trustee who customarily performs functions similar
to those performed by the persons who at the time shall be such officers, respectively, or
to whom any corporate trust matter is referred because of such person’s knowledge of,
and familiarity with, the particular subject and who shall have direct responsibility for
the administration of this Indenture. 

        “Restricted
Securities” has the meaning specified in Section 2.05(b). 

        “Securities”
means any capital stock of the Issuer. 

        “Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, as in effect from time to time. 

        “Securities
Law” means the Israel Securities Law, 5728 – 1968 and the regulations
pursuant thereto, as in effect from time to time. 

        “Significant
Subsidiary” means, as of any date of determination, a Subsidiary of the Issuer
that would constitute a “significant subsidiary” as such term is defined
under Rule 1-02(w) of Regulation S-X of the Commission as in effect on the date
of this Indenture. 

        “Six
Month Period” has the meaning specified in Section 8.03. 

        “Subsidiary”
means, with respect to any Person, (i) any corporation, association or other business
entity of which more than 50% of the total voting power of shares of capital stock or
other equity interest entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
subsidiaries of that Person (or a combination thereof) and (ii) any partnership
(a) the sole general partner or managing general partner of which is such Person or a
subsidiary of such Person or (b) the only general partners of which are such Person
or one or more subsidiaries of such Person (or any combination thereof). 

        “TASE”
means the Tel Aviv Stock Exchange Ltd., or any successor thereto. 

        “TASE
Trading Day” means a day on which the TASE is open for trading in Ordinary
Shares. 

        “Trust
Indenture Act” means the Trust Indenture Act of 1939, as amended, as it was in
force at the date of this Indenture, except as provided in Sections 11.03 and 15.07;
provided that if the Trust Indenture Act of 1939 is amended after the date hereof,
the term “Trust Indenture Act” shall mean, to the extent required by such
amendment, the Trust Indenture Act of 1939 as so amended. 

        “Trustee”
means The Bank of New York, and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a party and any
successor trustee at the time serving as successor trustee hereunder. 

        “Trustee
Disagreement” has the meaning specified in Section 7.13(b). 

        “US
dollars” or “$” means the lawful currency of the United States
of America. 

ARTICLE 2 

ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES

             Section 2.01.
          Designation Amount and Issue of Note. The Notes shall be designated as
          “5% Subordinated Convertible Debentures due 2011". Notes not to
          exceed the aggregate principal amount of $50,000,000 upon the execution of this
          Indenture, or from time to time thereafter, may be executed by the Issuer in
          accordance with Section 2.04 and delivered to the Trustee for authentication,
          and the Trustee shall thereupon authenticate and deliver said Notes to or upon
          the written order of the Issuer, signed by its Chairman of the Board, Chief
          Executive Officer, Chief Financial Officer, President or any Vice President
          (whether or not designated by a number or numbers or word or words added before
          or after the title “Vice President”), and attested by the manual or
          facsimile signature of the Treasurer or any Assistant Treasurer or the
          Secretary, without any further action by the Issuer hereunder. 

- 4 -

             Section 2.02.
          Form of Note.  The Notes and the Trustee’s certificate of
          authentication to be borne by such Notes shall be substantially in the form set
          forth in Exhibit A. The terms and provisions contained in the form of Note
          attached as Exhibit A hereto shall constitute, and are hereby expressly
          made, a part of this Indenture and, to the extent applicable, the Issuer and the
          Trustee, by their execution and delivery of this Indenture, expressly agree to
          such terms and provisions and to be bound thereby. 

Any of the Notes may have such
letters, numbers or other marks of identification and such notations, legends,
endorsements or changes as the officers executing the same may approve (execution thereof
to be conclusive evidence of such approval) and as are not inconsistent with the
provisions of this Indenture or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be listed, or
conform to usage, or to indicate any special limitations or restrictions to which any
particular Notes are subject. 

             Section 2.03.
          Date and Denomination of Notes; Payments of Interest.  The Notes
          shall be issuable in registered form without coupons in denominations of $1.00
          principal amount and integral multiples thereof. Each Note shall be dated the
          date of its authentication and shall bear interest from the date specified on
          the face of the form of Note attached as Exhibit A hereto. Interest on the
          Notes will be paid only upon the maturity of the Notes or upon the early redemption of the Notes in
accordance with Section 3.02. No interest shall be payable on any Notes which are redeemed at a
premium in accordance with Section 3.03 or upon any portion of any Note which is converted into
Ordinary Shares as provided in Article 14. Interest on the Notes shall be computed on the basis of a 365 day year. 

             Section 2.04.
          Execution of Notes.  The Notes shall be signed in the name and on behalf
          of the Issuer by the manual or facsimile signature of its Chairman of the Board,
          Chief Executive Officer, Chief Financial Officer, President or any Vice
          President (whether or not designated by a number or numbers or word or words
          added before or after the title “Vice President”) and attested by the
          manual or facsimile signature of its Secretary or any of its Assistant
          Secretaries or its Treasurer or any of its Assistant Treasurers (which may be
          printed, engraved or otherwise reproduced thereon, by facsimile or otherwise).
          Only such Notes as shall bear thereon a certificate of authentication
          substantially in the form set forth on the form of Note attached as
          Exhibit A hereto, manually executed by the Trustee (or an authenticating
          agent appointed by the Trustee as provided by Section 15.11), shall be
          entitled to the benefits of this Indenture or be valid or obligatory for any
          purpose. Such certificate by the Trustee (or such an authenticating agent) upon
          any Note executed by the Issuer shall be conclusive evidence that the Note so
          authenticated has been duly authenticated and delivered hereunder and that the
          holder is entitled to the benefits of this Indenture. 

In case any officer of the Issuer who
shall have signed any of the Notes shall cease to be such officer before the Notes so
signed shall have been authenticated and delivered by the Trustee, or disposed of by the
Issuer, such Notes nevertheless may be authenticated and delivered or disposed of as
though the person who signed such Notes had not ceased to be such officer of the Issuer,
and any Note may be signed on behalf of the Issuer by such persons as, at the actual date
of the execution of such Note, shall be the proper officers of the Issuer, although at the
date of the execution of this Indenture any such person was not such an officer. 

        Section 2.05.
               Exchange and Registration of Transfer of Notes; Restrictions on Transfer.
                (a) The Issuer shall cause to be kept at the Corporate Trust Office a
               register (the register maintained in such office and in any
other office or agency of the Issuer designated pursuant to Section 4.02 being herein
sometimes collectively referred to as the “Note register”) in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and of transfers of Notes. The Note register shall be in written
form or in any form capable of being converted into written form within a reasonably
prompt period of time. The Trustee is hereby appointed “Note registrar,”
and does hereby accept such appointment, for the purpose of registering Notes and
transfers of Notes as herein provided. The Issuer may appoint one or more co-registrars in
accordance with Section 4.02. 

- 5 -

Upon surrender for registration of
transfer of any Note to the Note registrar or any co-registrar, and satisfaction of the
requirements for such transfer set forth in this Section 2.05, the Issuer shall
execute, and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes of any authorized denominations and of a
like aggregate principal amount and bearing such restrictive legends as may be required by
this Indenture. 

Notes may be exchanged for other
Notes of any authorized denominations and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at any such office or agency maintained by the
Issuer pursuant to Section 4.02. Whenever any Notes are so surrendered for exchange,
the Issuer shall execute, and the Trustee shall authenticate and deliver, the Notes which
the Noteholder making the exchange is entitled to receive bearing registration numbers not
contemporaneously outstanding. 

All Notes issued upon any
registration of transfer or exchange of Notes shall be the valid obligations of the
Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture,
as the Notes surrendered upon such registration of transfer or exchange. 

All Notes presented or surrendered
for registration of transfer or for exchange, redemption or conversion shall (if so
required by the Issuer or the Note registrar) be duly endorsed, or be accompanied by a
written instrument or instruments of transfer in form satisfactory to the Issuer, and the
Notes shall be duly executed by the Noteholder thereof or his attorney duly authorized in
writing. 

No service charge shall be made to
any holder for any registration of, transfer or exchange of Notes, but the Issuer may
require payment by the holder of a sum sufficient to cover any tax, assessment or other
governmental charge that may be imposed in connection with any registration of transfer or
exchange of Notes. 

Neither the Issuer nor the Trustee
nor any Note registrar shall be required to exchange or register a transfer of
(a) any Notes for a period of fifteen (15) days next preceding any selection of
Notes to be redeemed, (b) any Notes surrendered for conversion pursuant to
Article 14 or (c) any Notes tendered for redemption (and not withdrawn) pursuant
to Section 3.02. 

             (b)
          Every Note that bears or is required under this Section 2.05(b) to bear the
          legend set forth in this Section 2.05(b) (together with any Ordinary Shares
          issued upon conversion of the Notes and required to bear the legend set forth in
          Section 2.05(c), collectively, the “Restricted
          Securities”) shall be subject to the restrictions on transfer set forth
          in  Sections 2.05(b) and 2.05 (c), as applicable (including those set
          forth in the legends below), unless such restrictions on transfer shall be waived
          by written consent of the Issuer, and the holder of each such Restricted
          Security, by such Note holder’s acceptance thereof, agrees to be bound by
          all such restrictions on transfer. As used in Sections 2.05(b) and 2.05(c), the
          term “transfer” encompasses any sale, pledge, loan, transfer or
          other disposition whatsoever of any Restricted Security or any interest therein. 

Until the expiration of the holding
period applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), any certificate evidencing such Note (and all securities issued in
exchange therefor or substitution thereof, other than Ordinary Shares, if any, issued upon
conversion thereof, which shall bear the legend set forth in Section 2.05(c), if
applicable) shall bear a legend in substantially the following form, unless such Note has
been sold pursuant to a registration statement that has been declared effective under the
Securities Act (and which continues to be effective at the time of such transfer), or
unless otherwise agreed by the Issuer in writing, with written notice thereof to the
Trustee: 

- 6 -

THE NOTE EVIDENCED HEREBY AND THE
ORDINARY SHARES ISSUABLE UPON CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF A
REGISTRATION STATEMENT WITH RESPECT TO THE SECURITIES SO OFFERED OR SOLD IN EFFECT UNDER
THE SECURITIES ACT OR AN OPINION OF COUNSEL (SATISFACTORY IN FORM AND SUBSTANCE TO THE
ISSUER) THAT SUCH REGISTRATION IS NOT REQUIRED. 

Any Note (or security issued in
exchange or substitution therefor) as to which such restrictions on transfer shall have
expired in accordance with their terms or as to conditions for removal of the foregoing
legend set forth therein have been satisfied may, upon surrender of such Note for exchange
to the Note registrar in accordance with the provisions of this Section 2.05, be
exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which
shall not bear the restrictive legend required by this Section 2.05(b). 

             (c)       
          (i) Until the expiration of the holding period applicable to sales thereof under
          Rule 144(k) under the Securities Act (or any successor provision), any
          stock certificate representing Ordinary Shares issued upon conversion of any
          Restricted Note shall bear a legend in substantially the following form, unless
          such Ordinary Shares have been registered under a registration statement that
          has been declared effective under the Securities Act (and which continues to be
          effective at the time of such exchange), or unless otherwise agreed by the
          Issuer in writing with written notice thereof to the transfer agent: 

THE ORDINARY SHARES EVIDENCED HEREBY
HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD IN THE ABSENCE OF A REGISTRATION STATEMENT WITH RESPECT TO THE SECURITIES
SO OFFERED OR SOLD IN EFFECT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL
(SATISFACTORY IN FORM AND SUBSTANCE TO THE ISSUER) THAT SUCH REGISTRATION IS NOT REQUIRED. 

Any such Ordinary Shares as to which
such restrictions on transfer shall have expired in accordance with their terms or as to
which the conditions for removal of the foregoing legend set forth therein have been
satisfied may, upon surrender of the certificates representing such shares of Ordinary
Shares for exchange in accordance with the procedures of the transfer agent for the
Ordinary Shares, be exchanged for a new certificate or certificates for a like number of
shares of Ordinary Shares, which shall not bear the restrictive legend required by this
Section 2.05(c). 

             (d)
          Any Note or Ordinary Shares issued upon the conversion of a Note that is
          purchased or owned by the Issuer or any Affiliate thereof may not be resold by
          the Issuer or such Affiliate unless registered under the Securities Act or
          resold pursuant to an exemption from the registration requirements of the
          Securities Act. 

             (e)
          The Trustee shall have no obligation or duty to monitor, determine or inquire as
          to compliance with any restrictions or transfer imposed under this Indenture or
          under applicable law with respect to any transfer of any interest in any Note
          other than to require delivery of such certificates and other documentation or
          evidence as are expressly required by, and to do so if and when expressly
          required by the terms of, this Indenture, and to examine the same to determine
          substantial compliance as to form with the express requirements hereof. 

             Section 2.06.
          Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become
          mutilated or be destroyed, lost or stolen, the Issuer in its discretion may
          execute, and upon its written request the Trustee or an authenticating agent
          appointed by the Trustee shall authenticate and make available for delivery, a
          new Note, bearing a number not contemporaneously outstanding, in exchange and
          substitution for the mutilated Note, or in lieu of and in substitution for the
          Note so destroyed, lost or stolen. In every case, the applicant for a
          substituted Note shall furnish to the Issuer, to the Trustee and, if applicable,
          to such authenticating agent such security or indemnity as may be required by
          them to save each of them harmless for any loss, liability, cost or expense
          caused by or connected with such substitution, and, in every case of
          destruction, loss or theft, the applicant shall also furnish to the Issuer, to
          the Trustee and, if applicable, to such authenticating agent evidence to their
          satisfaction of the destruction, loss or theft of such Note and of the ownership
          thereof. 

- 7 -

Following receipt by the Trustee or
such authenticating agent, as the case may be, of satisfactory security or indemnity and
evidence, as described in the preceding paragraph, the Trustee or such authenticating
agent may authenticate any such substituted Note and make available for delivery such
Note. Upon the issuance of any substituted Note, the Issuer may require the payment by the
holder of a sum sufficient to cover any tax, assessment or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith. In case any
Note which has matured or is about to mature or is to be converted into Ordinary Shares
shall become mutilated or be destroyed, lost or stolen, the Issuer may, instead of issuing
a substitute Note, pay or authorize the payment of or convert or authorize the conversion
of the same (without surrender thereof except in the case of a mutilated Note), as the
case may be, if the applicant for such payment or conversion shall furnish to the Issuer,
to the Trustee and, if applicable, to such authenticating agent such security or indemnity
as may be required by them to save each of them harmless for any loss, liability, cost or
expense caused by or in connection with such substitution, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Issuer, the Trustee
and, if applicable, any paying agent or conversion agent evidence to their satisfaction of
the destruction, loss or theft of such Note and of the ownership thereof. 

Every substitute Note issued pursuant
to the provisions of this Section 2.06 by virtue of the fact that any Note is
destroyed, lost or stolen shall constitute an additional contractual obligation of the
Issuer, whether or not the destroyed, lost or stolen Note shall be found at any time, and
shall be entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other Notes duly
issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon
the express condition that the foregoing provisions are exclusive with respect to the
replacement or payment or conversion or redemption of mutilated, destroyed, lost or stolen
Notes and shall preclude any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the replacement or
payment or conversion or redemption of negotiable instruments or other securities without
their surrender. 

             Section 2.07.
          Temporary Notes.  Pending the preparation of Notes in certificated
          form, the Issuer may execute and the Trustee or an authenticating agent
          appointed by the Trustee shall, upon the written request of the Issuer,
          authenticate and deliver temporary Notes (printed or lithographed). Temporary
          Notes shall be issuable in any authorized denomination, and substantially in the
          form of the Notes in certificated form, but with such omissions, insertions and
          variations as may be appropriate for temporary Notes, all as may be determined
          by the Issuer. Every such temporary Note shall be executed by the Issuer and
          authenticated by the Trustee or such authenticating agent upon the same
          conditions and in substantially the same manner, and with the same effect, as
          the Notes in certificated form. Without unreasonable delay, the Issuer will
          execute and deliver to the Trustee or such authenticating agent Notes in
          certificated form and thereupon any or all temporary Notes may be surrendered in
          exchange therefor, at each office or agency maintained by the Issuer pursuant to
          Section 4.02 and the Trustee or such authenticating agent shall
          authenticate and make available for delivery in exchange for such temporary
          Notes an equal aggregate principal amount of Notes in certificated form. Such
          exchange shall be made by the Issuer at its own expense and without any charge
          therefor. Until so exchanged, the temporary Notes shall in all respects be
          entitled to the same benefits and subject to the same limitations under this
          Indenture as Notes in certificated form authenticated and delivered hereunder. 

             Section 2.08.
          Cancellation of Notes.  All Notes surrendered for the purpose of
          payment, redemption, conversion, exchange or registration of transfer shall, if
          surrendered to the Issuer or any paying agent or any Note registrar or any
          conversion agent, be surrendered to the Trustee and promptly canceled by it, or,
          if surrendered to the Trustee, shall be promptly canceled by it, and no Notes
          shall be issued in lieu thereof except as expressly permitted by any of the
          provisions of this Indenture. The Trustee shall dispose of such canceled Notes
          in accordance with its customary procedures. If the Issuer shall acquire any of
          the Notes, such acquisition shall not operate as a redemption or satisfaction of
          the indebtedness represented by such Notes unless and until the same are
          delivered to the Trustee for cancellation. 

- 8 -

             Section 2.09.
          CUSIP Numbers.  The Issuer in issuing the Notes may use CUSIP
          numbers (if then generally in use), and, if so, the Trustee shall use CUSIP
          numbers, as appropriate, in notices of redemption as a convenience to Holders;
          provided, that any such notice may state that no representation is made
          as to the correctness of such numbers either as printed on the Notes or as
          contained in any notice of a redemption and that reliance may be placed only on
          the other identification numbers printed on the Notes, and any such redemption
          shall not be affected by any defect in or omission of such numbers. The Issuer
          shall promptly notify the Trustee of any change in the CUSIP numbers. 

ARTICLE 3 

REDEMPTION OF NOTES 

             Section 3.01.
          Redemption of Notes.  Except as otherwise provided in
          Sections 3.02 and 3.03, the Issuer may not redeem any Notes prior to
          maturity. 

             Section 3.02.
          Redemption at Option of Issuer.  The Issuer may, at its option,
announce the early redemption of the Notes or part thereof, provided that the outstanding
aggregate balance of principal on account of the Notes is equal to or less than $500,000.
In the event that the Issuer chooses to redeem the Notes pursuant to this Section 3.02,
the Issuer will redeem 100% of the Notes; no partial redemptions shall be permitted. The
Issuer will provide notice to Noteholders as set forth in this Section 3.02 below and to
the Trustees at least 30 days prior to any such redemption. Upon such early redemption,
the Issuer will pay to the Noteholders the amount of outstanding principal of the Notes
and interest accrued as of the redemption date. The Issuer will also furnish notice of any
resolution by the Board of Directors to the Commission on Form 6-K, and in an Immediate
Report in Israel as well as a notice to be published in two Israeli newspapers with wide circulation in Israel. The date
of the early redemption will be between 30 to 45 days after the date of the Issuer’s
notification. 

        Section
3.03. Mandatory Redemption by the Issuer in a Certain Event. Section 14.04 provides for certain
adjustments to the Conversion Price and further provides that the Issuer may elect
that the Conversion Price shall not and will not be subject to adjustment if certain
conditions occur. In the event that (i) the Issuer
has elected that the Conversion Price shall not and will not be subject to
adjustment in accordance with the provisions of Section 14.04, and (ii) the closing price of the
Issuer’s ordinary shares on NASDAQ (or such other stock exchange or quotation system on which its
ordinary shares are listed in the event that they cease to be traded on NASDAQ) on the trading day
immediately prior to the date on which the Issuer consummates the $75 million financing described in
Section 14.04 is equal to or is lower than $_____, then the Issuer will redeem the Notes.
The Issuer will announce the redemption and the redemption
date by filing a report on Form 6-K and in an Immediate Report in Israel, as well as a notice to be
published in two Israeli newspapers with wide circulation in Israel. The redemption date shall be
between 21 and 30 days after the date of announcement. Conversion of the debentures will not be
permitted during the 16 days prior to the redemption date. Upon redemption of the Notes under this
Section 3.03, accrued interest will not be payable, and the Issuer will pay the Noteholders, as soon
as practicable on or following the redemption date, the amount of the outstanding principal on the
Notes, plus an early redemption premium in an amount equal to 15% of the amount of the outstanding
principal on the Notes.

             Section 3.04.
          Notes Owned by Issuer or Its Subsidiaries.  (a) The Issuer and any
          Subsidiary thereof may purchase Notes at any time, and must provide prompt
          notice thereof to the Trustees. 

         (b)       
          Any Notes purchased by the Issuer shall be cancelled upon such purchase. 

         (c)       
          Any Notes purchased by a Subsidiary of the Issuer shall be disregarded in
          connection with any direction, consent, waiver, vote or other action of the
          Noteholders under this Indenture in accordance with Section 9.04. 

- 9 -

ARTICLE 4 

PARTICULAR COVENANTS
OF THE COMPANY 

             Section 4.01.
          Payment of Principal and Interest. 
The Issuer covenants and agrees that it will duly and punctually pay or cause to be paid the
principal of, premium, if
any,  and interest on each of the Notes at the places, at the respective times and in the manner
provided herein and in the Notes. 

             Section 4.02.
          Maintenance of Office or Agency. The Issuer will maintain an office or
          agency in London, England where the Notes may be surrendered for registration of
          transfer or exchange or for presentation for payment or for conversion or
          redemption and where notices and demands to or upon the Issuer in respect of the
          Notes and this Indenture may be served. The Issuer will give prompt written
          notice to the Trustees of the location, and any change in the location, of such
          office or agency not designated or appointed by the Trustee. If at any time the
          Issuer shall fail to maintain any such required office or agency or shall fail
          to furnish the Trustee with the address thereof, such presentations, surrenders,
          notices and demands may be made or served at the Corporate Trust Office or the
          principal corporate trust office of the Trustee in London which office is
          located as of the date hereof at One Canada Square, London E14 5AL. 

The Issuer may also from time to time
designate co-registrars and one or more offices or agencies where the Notes may be
presented or surrendered for any or all such purposes and may from time to time rescind
such designations. The Issuer will give prompt written notice of any such designation or
rescission and of any change in the location of any such other office or agency. 

The Issuer hereby initially appoints
The Bank of New York as principal paying agent, Note registrar and conversion agent and
each of the Corporate Trust Office and the office of agency of the Trustee shall be
considered as one such office or agency of the Issuer for each of the aforesaid purposes.
The Bank of New York hereby accepts such appointments. In addition, the Issuer hereby
initially appoints Hermetic Trust (1975) Ltd. as Co-Trustee. Hermetic Trust (1975) Ltd.
hereby accepts such appointment. 

All payments of the principal of,
premium, if any, and interest on this Note shall be made only upon
the surrender of this Note at the option of the Holder at the Corporate Trust Office or at the
office or agency maintained by the Issuer for such purpose in London, England.

So long as the Trustee is the Note
registrar, the Trustee agrees to mail, or cause to be mailed, the notices set forth in
Section 7.09 and the third paragraph of Section 7.10. If co-registrars have been
appointed in accordance with this Section, the Trustee shall mail such notices only to the
Issuer and the holders of Notes it can identify from its records. 

             Section 4.03.
          Appointments to Fill Vacancies in Trustees’ Office. The Issuer,
          whenever necessary to avoid or fill a vacancy in the office of Trustee or
          Co-Trustee, will appoint, in the manner provided in Section 7.09, a Trustee
          or Co-Trustee, so that there shall at all times be a Trustee and a Co-Trustee
          hereunder. The appointment of any such entity located and operating in the State
          of Israel shall be in accordance with the applicable provisions of the
          Securities Law. 

             Section 4.04.
          Provisions as to Paying Agent. (a) If the Issuer shall appoint a paying
          agent other than the Trustee, or if the Trustee shall appoint such a paying
          agent, the Issuer will cause such paying agent to execute and deliver to the
          Trustee an instrument in which such agent shall agree with the Trustee, subject
          to the provisions of this Section 4.04: 

          	 	(1) 	
               that it will hold all sums held by it as such agent for the payment of the
               principal of or interest on the Notes in trust for the benefit of the holders of
               the Notes; 

               

          	 	(2) 	
               that it will give the Trustee notice of any failure by the Issuer to make any
               payment of the principal of or interest on the Notes when the same shall be due
               and payable; and 

               

          	 	(3) 	
               that at any time during the continuance of an Event of Default, upon request of
               the Trustee, it will forthwith pay to the Trustee all sums so held in trust. 

               

- 10 -

The Issuer shall, on or before each
due date of the principal of or interest on the Notes, deposit with the paying agent a sum
(in funds which are immediately available on the due date for such payment) sufficient to
pay such principal or interest, and (unless such paying agents is the Trustee) the Issuer
will promptly notify the Trustees of any failure to take such action; provided that
if such deposit is made on the due date, such deposit shall be received by the paying
agent by 10:00 a.m. London time, on such date. 

             (b)
          If the Issuer shall act as its own paying agent, it will, on or before each due
          date of the principal of or interest on the Notes, set aside, segregate and hold
          in trust for the benefit of the holders of the Notes a sum sufficient to pay
          such principal or interest so becoming due and will promptly notify the Trustees
          of any failure to take such action and of any failure by the Issuer to make any
          payment of the principal of or interest on the Notes when the same shall become
          due and payable. 

             (c)
          Anything in this Section 4.04 to the contrary notwithstanding, the Issuer
          may, at any time, for the purpose of obtaining a satisfaction and discharge of
          this Indenture, or for any other reason, pay or cause to be paid to the Trustee
          all sums held in trust by the Issuer or any paying agent hereunder as required
          by this Section 4.04, such sums to be held by the Trustee upon the trusts
          herein contained and upon such payment by the Issuer or any paying agent to the
          Trustee, the Issuer or such paying agent shall be released from all further
          liability with respect to such sums. 

             (d)
          Anything in this Section 4.04 to the contrary notwithstanding, the
          agreement to hold sums in trust as provided in this Section 4.04 is subject
          to Sections 13.03 and 13.04. 

No Trustee shall be responsible for
the actions of any other paying agents (including the Issuer if acting as its own paying
agent) and shall have no control of any funds held by such other paying agents. 

             Section 4.05.
          Existence. Subject to Article 12, the Issuer will do or cause to be
          done all things necessary to preserve and keep in full force and effect its
          existence and rights (charter and statutory); provided that the Issuer
          shall not be required to preserve any such right if the Issuer shall determine
          that the preservation thereof is no longer desirable in the conduct of the
          business of the Issuer and that the loss thereof is not disadvantageous in any
          material respect to the Noteholders. 

        Section
4.06. Stay, Extension and Usury Laws. The Issuer covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Issuer from paying all or any portion of the
principal of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the performance of this
Indenture and the Issuer (to the extent it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though no such
law had been enacted. 

        Section
4.07. Compliance Certificate. The Issuer shall deliver to the Trustees, within one
hundred twenty (120) days after the end of each fiscal year of the Issuer, a
certificate signed by either the principal executive officer, principal financial officer
or principal accounting officer of the Issuer, stating whether or not to the best
knowledge of the signer thereof the Issuer is in default in the performance and observance
of any of the terms, provisions and conditions of this Indenture (without regard to any
period of grace or requirement of notice provided hereunder) and, if the Issuer shall be
in default, specifying all such defaults and the nature and the status thereof of which
the signer may have knowledge. 

- 11 -

The Issuer will deliver to the
Trustees, forthwith upon becoming aware of (i) any default in the performance or
observance of any covenant, agreement or condition contained in this Indenture, or
(ii) any Event of Default, an Officers’ Certificate specifying with
particularity such default or Event of Default and further stating what action the Issuer
has taken, is taking or proposes to take with respect thereto. 

Any notice required to be given under
this Section 4.07 shall be delivered to a Responsible Officer of the Trustee at its
Corporate Trust Office and to the Co-Trustee at its address as specified in Section 15.03. 

ARTICLE 5 

NOTEHOLDERS’ LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 

             Section 5.01.
          Noteholders’ Lists. The Issuer covenants and agrees that it will
          furnish or cause to be furnished to the Trustee, semiannually, not more than
          fifteen (15) days after each May 1 and November 1 in each year beginning
          with May 1, 2006, and at such other times as the Trustee may request in writing,
          within thirty (30) days after receipt by the Issuer of any such request (or
          such lesser time as the Trustee may reasonably request in order to enable it to
          timely provide any notice to be provided by it hereunder), a list in such form
          as the Trustee may reasonably require of the names and addresses of the holders
          of Notes (to the extent available to the Issuer) as of a date not more than
          fifteen (15) days (or such other date as the Trustee may reasonably request
          in order to so provide any such notices) prior to the time such information is
          furnished, except that no such list need be furnished by the Issuer to the
          Trustee so long as the Trustee is acting as the sole Note registrar. 

             Section 5.02.
          Preservation and Disclosure of Lists. (a) The Trustee shall preserve,
          in as current a form as is reasonably practicable, all information as to the
          names and addresses of the holders of Notes contained in the most recent list
          furnished to it as provided in Section 5.01 or maintained by the Trustee in
          its capacity as Note registrar or co-registrar in respect of the Notes, if so
          acting. The Trustee may destroy any list furnished to it as provided in
          Section 5.01 upon receipt of a new list so furnished. 

             (b)
          The rights of Noteholders to communicate with other holders of Notes with
          respect to their rights under this Indenture or under the Notes, and the
          corresponding rights and duties of the Trustee, shall be as provided by the
          Trust Indenture Act. 

             (c)
          Every Noteholder, by receiving and holding the same, agrees with the Issuer and
          the Trustee that neither the Issuer nor the Trustee nor any agent of either of
          them shall be held accountable by reason of any disclosure of information as to
          names and addresses of holders of Notes made pursuant to the Trust Indenture
          Act. 

             Section 5.03.
          Reports by Trustee. (a) Within sixty (60) days after May 15 of
          each year commencing with the year 2006, the Trustee shall transmit to holders
          of Notes and the Co-Trustee such reports dated as of May 15 of the year in which
          such reports are made concerning the Trustee and its actions under this
          Indenture as may be required pursuant to the Trust Indenture Act at the times
          and in the manner provided pursuant thereto. The Noteholders may review such
          report at the offices of the Trustee and the offices of the Co-Trustee during
          normal working hours. 

             (b)
          A copy of such report shall, at the time of such transmission to holders of
          Notes, be filed by the Trustee with each stock exchange and automated quotation
          system upon which the Notes are listed and with the Issuer. The Issuer will
          promptly notify the Trustee in writing when the Notes are listed on any stock
          exchange or automated quotation system or delisted therefrom. 

        (c) The Co-Trustee shall prepare an annual report concerning the Co-Trustee and its actions
as required under the Securities Law and any regulation promulgated thereunder from time
to time. The Noteholders may review such report at the offices of the Co-Trustee during
normal working hours. The Co-Trustee shall furnish a copy of such report to the Trustee
and to any Noteholder who so requests in writing. 

- 12 -

             Section 5.04.
          Reports by Issuer. The Issuer shall file with the Trustees, the Commission
          and the ISA and transmit to holders of Notes, such information, documents and
          other reports and such summaries thereof, as may be required pursuant to the
          Trust Indenture Act and/or the Securities Law at the times and in the manner
          provided pursuant to such Act or Law, whether or not the Notes are governed by
          such Act or Law, and the Issuer shall deliver to the Trustees any additional
          information which may be reasonably requested by either of the Trustees from
          time to time; provided that any such information, documents or reports
          required to be filed with the Commission pursuant to Section 13 or 15(d) of
          the Exchange Act and/or the ISA pursuant to the Securities Law shall be filed
          with the Trustees within fifteen (15) days after the same is so required to
          be filed with the Commission and/or the ISA. Delivery of such reports,
          information and documents to the Trustees is for informational purposes only and
          the Trustees’ receipt of such shall not constitute actual or constructive
          notice of any information contained therein or determinable from information
          contained therein, including the Issuer’s compliance with any of its
          covenants hereunder (as to which the Trustees are entitled to rely exclusively
          on an Officers’ Certificate). 

ARTICLE 6 

REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT 

             Section 6.01.
          Events of Default. In case one or more of the following Events of Default
          (whatever the reason for such Event of Default and whether it shall be voluntary
          or involuntary or be effected by operation of law or pursuant to any judgment,
          decree or order of any court or any order, rule or regulation of any
          administrative or governmental body) shall have occurred and be continuing: 

     	 	(a) 	
          default in the payment of any amount of interest upon any of the Notes, as and
          when the same shall become due and payable, and continuance of such default for
          a period of fourteen (14) Business Days following the date on which such
          payment is due under the terms hereof (and subject to Article 8); or 

          

     	 	(b) 	
          default in the payment of the principal of any of the Notes as and when the same
          shall become due and payable either at maturity (subject to Article 8) or in
          connection with any redemption or otherwise, pursuant to Article 3, by
          acceleration or otherwise and continuance of such default for a period of
          fourteen (14) Business Days; or 

          

     	 	(c) 	
          The Issuer takes any corporate action or other steps are taken or proceedings
          are started or are consented to or any order is made for its winding-up,
          liquidation, bankruptcy, dissolution, administration or re-organization (or for
          the suspension of payments generally or any process giving protection against
          creditors) or for the appointment of a liquidator, receiver, administrator,
          administrative receiver or similar officer of it or of all or any part of its
          revenues or assets or such a person is appointed, which action, steps,
          proceedings or order are not cancelled or withdrawn within 60 (sixty) days of
          the occurrence or institution thereof; or 

          

     	 	(d) 	
          an involuntary case or other proceeding shall be commenced against the Issuer
          seeking liquidation, reorganization or other relief with respect to the Issuer
          or its debts under any bankruptcy, insolvency or other similar law now or
          hereafter in effect or seeking the appointment of a trustee, receiver,
          liquidator, custodian or other similar official of the Issuer or any substantial
          part of the property of the Issuer, and such involuntary case or other
          proceeding shall remain undismissed and unstayed for a period of sixty
          (60) consecutive days, 

          

- 13 -

	 	
then,
and in each and every such case, unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or Co-Trustee, or both acting jointly,
by notice in writing to the Issuer shall declare the principal of all the Notes and the
interest accrued thereon to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything in this Indenture
or in the Notes contained to the contrary notwithstanding, but subject to Article 8. This
provision, however, is subject to the conditions that if, at any time after the principal
of the Notes shall have been so declared due and payable, and before any judgment or
decree for the payment of the monies due shall have been obtained or entered as
hereinafter provided, the Issuer shall pay or shall deposit with the Trustees a sum
sufficient to pay all matured installments of interest upon all Notes and the principal of
any and all Notes which shall have become due otherwise than by acceleration (with
interest on overdue installments of interest (to the extent that payment of such interest
is enforceable under applicable law) and on such principal at the rate borne by the Notes,
to the date of such payment or deposit) and amounts due to the Trustees pursuant to
Section 7.05, and if any and all defaults under this Indenture, other than the
nonpayment of principal of and accrued interest on Notes which shall have become due by
acceleration, shall have been cured or waived pursuant to Section 6.07, then and in
every such case the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Issuer and to the Trustees, may waive all defaults
or Events of Default and rescind and annul such declaration and its consequences; but no
such waiver or rescission and annulment shall extend to or shall affect any subsequent
default or Event of Default, or shall impair any right consequent thereon. The Issuer
shall notify in writing a Responsible Officer of the Trustee and of the Co-Trustee,
promptly upon becoming aware thereof, of any Event of Default. 

Provided, that the Trustees
may not declare any amount due and payable prior to its maturity and shall not take any
action against the Issuer unless the Event of Default remains unremedied within
thirty-nine (39) days of the later of (i) the receipt by the Issuer of demand to cure such
default and (ii) the receipt by the Lenders from either the Co-Trustee or the Trustee of a
copy of such demand to cure, such notice to the Lenders to have been made in accordance
with addresses and contact details of the representative of the Lenders provided by the
Issuer to the Co-Trustee or to the Trustee from time to time. 

In case the Trustees shall have
proceeded to enforce any right under this Indenture and such proceedings shall have been
discontinued or abandoned because of such waiver or rescission and annulment or for any
other reason or shall have been determined adversely to the Trustee, the Co-Trustee or
both, then and in every such case the Issuer, the holders of Notes, and the Trustees shall
be restored respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Issuer, the holders of Notes, and the Trustees shall continue
as though no such proceeding had been taken. 

             Section 6.02.
          Payments of Notes on Default; Suit Therefor. The Issuer covenants that
          (a) in case default shall be made in the payment of any installment of
          interest upon any of the Notes as and when the same shall become due and
          payable, and such default shall have continued for a period of fourteen
          (14) Business Days, or (b) in case a default shall be made in the
          payment of the principal of any of the Notes as and when the same shall have
          become due and payable, whether at maturity of the Notes or in connection with
          any redemption of the Notes, by acceleration or otherwise, and such default
          shall have continued for a period of fourteen (14) Business Days, then, upon
          demand of the Trustees, but subject to Article 8 below, the Issuer will pay to
          the Trustee, for the benefit of the holders of the Notes, the whole amount that
          then shall have become due and payable on all such Notes for principal or
          interest, as the case may be, with interest upon the overdue principal and, in
          addition thereto, such further amount as shall be sufficient to cover the costs
          and expenses of collection, including reasonable compensation to the Trustees,
          their agents, attorneys and counsel, and all other amounts due the Trustees
          under Section 7.05. Until such demand by the Trustees, the Issuer may pay
          the principal of and interest on the Notes to the registered holders, whether or
          not the Notes are overdue. 

- 14 -

In case the Issuer shall fail
forthwith to pay such amounts upon such demand, the Trustees, in their own name and as
trustees of an express trust, shall be entitled and empowered (but not required) to
institute any actions or proceedings at law or in equity for the collection of the sums so
due and unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Issuer and collect
in the manner provided by law out of the property of the Issuer wherever situated the
monies adjudged or decreed to be payable. 

In case there shall be pending
proceedings for the bankruptcy or for the reorganization of the Issuer under Title 11 of
the United States Code, liquidation, insolvency or reorganization proceedings under the
Israeli Companies Ordinance – 1983, Section 350 of the Israeli Companies Law –
2000, or under any other applicable law, or in case a receiver, assignee or trustee in
bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer the property of the Issuer, or in the case
of any other judicial proceedings relative to the Issuer upon the Notes, or to the
creditors or property of the Issuer, the Trustees, irrespective of whether the principal
of the Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustees shall have made any demand pursuant to
the provisions of this Section 6.02, shall be entitled and empowered, by intervention
in such proceedings or otherwise, to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the Notes, and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustees and of the Noteholders
allowed in such judicial proceedings relative to the Issuer, its creditors, or its
property, and to collect and receive any monies or other property payable or deliverable
on any such claims, and to distribute the same after the deduction of any amounts due the
Trustees under Section 7.05, and any receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, custodian or similar official is hereby authorized by each of
the Noteholders to make such payments to the Trustees, and, in the event that the Trustees
shall consent to the making of such payments directly to the Noteholders, to pay to the
Trustees any amount due it for reasonable compensation, expenses, advances and
disbursements, including counsel fees and expenses incurred by them up to the date of such
distribution. To the extent that such payment of reasonable compensation, expenses,
advances and disbursements out of the estate in any such proceedings shall be denied for
any reason, payment of the same shall be secured by a lien on, and shall be paid out of,
any and all distributions, dividends, monies, securities and other property which the
holders of the Notes may be entitled to receive in such proceedings, whether in
liquidation or under any plan of reorganization or arrangement or otherwise. 

All rights of action and of asserting
claims under this Indenture, or under any of the Notes, may be enforced by the Trustees
without the possession of any of the Notes, or the production thereof at any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by the
Trustees shall be brought in their own name as trustees of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustees, their agents and
counsel, be for the ratable benefit of the holders of the Notes. 

In any proceedings brought by the
Trustee or the Co-Trustee, or both (and in any proceedings involving the interpretation of
any provision of this Indenture to which the Trustee or the Co-Trustee, or both shall be a
party) the Trustee or the Co-Trustee, or both shall be held to represent all the holders
of the Notes, and it shall not be necessary to make any holders of the Notes parties to
any such proceedings. 

             Section 6.03.
          Application of Monies Collected by Trustees. Any monies collected by the
          Trustee or the Co-Trustee, or both pursuant to this Article 6 shall be
          applied in the order following, at the date or dates fixed by the Trustees for
          the distribution of such monies, upon presentation of the several Notes, and
          stamping thereon the payment, if only partially paid, and upon surrender
          thereof, if fully paid: 

	 	
FIRST:
To the payment of all amounts due (a) the Trustee and then (b) the Co-Trustee under
 Section 7.05; 

- 15 -

	 	
SECOND:
In case the principal of the outstanding Notes shall not have become due and be unpaid,
to the payment of interest on the Notes in default in the order of the maturity of the
installments of such interest, with interest (to the extent that such interest has been
collected by the Trustees) upon the overdue installments of interest at the rate borne by
the Notes, such payments to be made ratably to the Persons entitled thereto;  

	 	
THIRD:
In case the principal of the outstanding Notes shall have become due, by declaration or
otherwise, and be unpaid to the payment of the whole amount then owing and unpaid upon
the Notes for principal and interest with interest on the overdue principal and (to the
extent that such interest has been collected by the Trustees) upon overdue installments
of interest at the rate borne by the Notes, and in case such monies shall be insufficient
to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of
such principal and interest without preference or priority of principal over interest or
of interest over principal or of any installment of interest over any other installment
of interest, or of any Note over any other Note, ratably to the aggregate of such
principal and accrued and unpaid interest; and 

	 	
FOURTH:
To the payment of the remainder, if any, to the Issuer or any other Person lawfully
entitled thereto. 

        Section 6.04. Proceedings
by Noteholder. Subject to the further provisions of this           Section 6.04, no
holder of any Note shall have any right by virtue of or by           reference to any
provision of this Indenture to institute any suit, action or           proceeding in
equity or at law upon or under or with respect to this Indenture,           or for the
appointment of a receiver, trustee, liquidator, custodian or other           similar
official, or for any other remedy hereunder.  

Notwithstanding any other provision
of this Indenture, the right of any holder of any Note to receive payment of the principal
of and accrued interest on such Note, on or after the respective due dates expressed in
such Note, or to institute suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such holder. 

Notwithstanding any other provision
of this Indenture, the right of any holder of any Note to institute suit for the
enforcement of the right to convert the Note as provided herein, shall not be impaired or
affected without the consent of the holder. 

No one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of this
Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or
to seek to obtain priority or preference over any other Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and ratable
benefit of all the Holders. 

        Section 6.05. Proceedings
by Trustees. In case of an Event of Default, the Trustee and           the Co-Trustee
may, jointly or separately in their discretion, proceed to           protect and enforce
the rights vested in it or them by this Indenture by such           appropriate judicial
proceedings as are necessary to protect and enforce any of           such rights, either
by suit in equity or by action at law or by proceeding in           bankruptcy or
otherwise, whether for the specific enforcement of any covenant or           agreement
contained in this Indenture or in aid of the exercise of any power           granted in
this Indenture, or to enforce any other legal or equitable right           vested in the
Trustees by this Indenture or by law.  

        Section 6.06. Remedies
Cumulative and Continuing. Except as provided in           Section 2.06, all
powers and remedies given by this Article 6 to the           Trustees or to the
Noteholders shall, to the extent permitted by law, be deemed           cumulative and not
exclusive of any thereof or of any other powers and remedies           available to the
Trustees or the holders of the Notes, by judicial proceedings           or otherwise, to
enforce the performance or observance of the covenants and           agreements contained
in this Indenture, and no delay or omission of the Trustees           or of any holder of
any of the Notes to exercise any right or power accruing           upon any default or
Event of Default occurring and continuing as aforesaid shall           impair any such
right or power, or shall be construed to be a waiver of any such           default or any
acquiescence therein, and, subject to the provisions of           Section 6.04,
every power and remedy given by this Article 6 or by law           to the Trustees
or to the Noteholders may be exercised from time to time, and as           often as shall
be deemed expedient, by the Trustee, the Co-Trustee or by the           Noteholders.  

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        Section 6.07. Direction
of Proceedings and Waiver of Defaults by Noteholders. 

	(a) 	Direction
of Proceedings by Noteholders. The holders of a majority in
                    aggregate principal amount of the Notes at the time outstanding
determined in                     accordance with Section 9.04 shall have the right
to direct in accordance                     with Section 9.01, the time, method and place
of conducting any proceeding for                     any remedy available to the Trustees
or exercising any trust or power conferred                     on the Trustees; provided that
(a) such direction shall not be in                     conflict with any rule of law
or with this Indenture, (b) the Trustees may                     take any other
action which is not inconsistent with such direction and                     (c) the
Trustees may decline to take any action that would benefit some
                    Noteholder to the detriment of other Noteholders. 

	(b) 	Waiver
of Defaults by Noteholders. The holders of a majority in aggregate
                    principal amount of the Notes at the time outstanding determined in
accordance                     with Section 9.04, shall have the right (subject to
the next paragraph                     below) to direct, in accordance with Section 9.01,
a waiver, on behalf of the                     holders of all of the Notes, of any past
default or Event of Default hereunder                     and its consequences, provided
that such direction to waive is given at a                     meeting of the
Noteholders, in accordance with Article 10, and that such waiver                     be
approved by the vote of holders of at least 75% of the principal amount of
                    the Notes present or represented in that Noteholders meeting. 

	 	
Notwithstanding
the former paragraph above, the following defaults may not be waived without the consent
of the holders of each or all Notes then outstanding or affected thereby: (i) a
default in the payment of interest on, or the principal of, the Notes, (ii) a
failure by the Issuer to convert any Notes into Ordinary Shares, (iii) a default in
the payment of the redemption premium pursuant to Section 3.03, or (iv) a default in
respect of a covenant or provisions hereof which under the provisions of the Trust
Indenture Act cannot be modified or amended without the consent of the holders of each or
all Notes then outstanding or affected thereby.  

	 	
Upon
any such waiver, the Issuer, the Trustees and the holders of the Notes shall be restored
to their former positions and rights hereunder; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent thereon.
Whenever any default or Event of Default hereunder shall have been waived as permitted by
this Section 6.07, said default or Event of Default shall for all purposes of the
Notes and this Indenture be deemed to have been cured and to be not continuing; but no
such waiver shall extend to any subsequent or other default or Event of Default or impair
any right consequent thereon.  

        Section 6.08. Notice
of Defaults. The Trustees shall, within ninety (90) days           after a
Responsible Officer of the Trustee and of the Co-Trustee have actual           knowledge
of the occurrence of a default, mail to all Noteholders, as the names           and
addresses of such holders appear upon the Note register, notice of all           defaults
known them, unless such defaults shall have been cured or waived before           the
giving of such notice.  

        Section 6.09. Undertaking
to Pay Costs.  All parties to this Indenture agree, and each           holder of any
Note by his acceptance thereof shall be deemed to have agreed,           that any court
may, in its discretion, require, in any suit for the enforcement           of any right
or remedy under this Indenture, or in any suit against the Trustees           for any
action taken or omitted by them as Trustees, the filing by any party           litigant
in such suit of an undertaking to pay the costs of such suit and that           such
court may in its discretion assess reasonable costs, including reasonable
          attorneys’ fees and expenses, against any party litigant in such suit,
          having due regard to the merits and good faith of the claims or defenses made
by           such party litigant; provided that the provisions of this
          Section 6.09 (to the extent permitted by law) shall not apply to any suit
          instituted by the Trustee or the Co-Trustee, or both, to any suit instituted by
          any Noteholder, or group of Noteholders, holding in the aggregate more than ten
          percent (10%) in principal amount of the Notes at the time outstanding
          determined in accordance with Section 9.04, or to any suit instituted by
          any Noteholder for the enforcement of the payment of the principal of or
          interest on any Note on or after the due date expressed in such Note or to any
          suit for the enforcement of the right to convert any Note in accordance with
the           provisions of Article 14.  

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        Section 6.10. Indenture and Notes Solely Corporate Obligations. No recourse for the payment
of the principal of or interest on any Note, or for any claim based thereon or otherwise
in respect thereof, and no recourse under or upon any obligation, covenant or agreement of
the Issuer in this Indenture or in any supplemental indenture or in any Note, or because
of the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer, director or subsidiary, as such,
past, present or future, of the Issuer or of any successor corporation, either directly or
through the Issuer or any successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this Indenture
and the issue of the Notes. 

ARTICLE 7 

THE TRUSTEES 

        Section 7.01. Duties
and Responsibilities of Trustees. The Trustees prior to the           occurrence of
an Event of Default and after the curing of all Events of Default           which may
have occurred, undertake to perform such duties and only such duties           as are
specifically set forth in this Indenture. In case an Event of Default has
          occurred (which has not been cured or waived), the Trustees shall exercise such
          of the rights and powers vested in them by this Indenture, and use the same
          degree of care and skill in their exercise, as a prudent person would exercise
          or use under the circumstances in the conduct of his own affairs.  

No provision of this Indenture shall
be construed to relieve the Trustees from liability for their own negligent action, their
own negligent failure to act or their own willful misconduct, except that: 

	 	(a) 	prior
to the occurrence of an Event of Default and after the curing or waiving
               of all Events of Default which may have occurred: 

	 	(i) 	the
duties and obligations of the Trustee shall be determined solely by the
               express provisions of this Indenture and the Trust Indenture Act (and, in
the                case of the Co-Trustee, by the express provisions of this Indenture
and the                Securities Law), and the Trustees shall not be liable except for
the performance                of such duties and obligations as are specifically set
forth in this Indenture                and no implied covenants or obligations shall be
read into this Indenture, the                Trust Indenture Act and/or the Securities
Law (as applicable) against the                Trustees; and  

	 	(ii) 	in
the absence of bad faith and willful misconduct on the part of the Trustees,
               the Trustees may conclusively rely as to the truth of the statements and
the                correctness of the opinions expressed therein, upon any certificates
or opinions                furnished to the Trustees and conforming to the requirements
of this Indenture;                but, in the case of any such certificates or opinions
which by any provisions                hereof are specifically required to be furnished
to the Trustees, the Trustees                shall be under a duty to examine the same to
determine whether or not they                conform to the requirements of this
Indenture (but need not confirm or                investigate the accuracy of
mathematical calculations or other facts stated                therein);  

	 	(b) 	the
Trustees shall not be liable for any error of judgment made in good faith by
               a Responsible Officer or Officers of the Trustee or Responsible Officers
or                Officers of the Co-Trustee, unless the Trustees were negligent in
ascertaining                the pertinent facts; 

	 	(c) 	the
Trustees shall not be liable with respect to any action taken or omitted to
               be taken by them in good faith in accordance with the written direction of
the                holders of not less than a majority in principal amount of the Notes
at the time                outstanding determined as provided in Section 9.04
relating to the time,                method and place of conducting any proceeding for
any remedy available to the                Trustees, or exercising any trust or power
conferred upon the Trustees under                this Indenture; 

- 18 -

	 	(d) 	whether
or not therein provided, every provision of this Indenture relating to                the
conduct or affecting the liability of, or affording protection to, the
               Trustees shall be subject to the provisions of this Section; 

	 	(e) 	the
Trustees shall not be liable in respect of any payment (as to the
               correctness of amount, entitlement to receive or any other matters
relating to                payment) or notice effected by the Issuer or any paying agent
or any records                maintained by any co-registrar with respect to the Notes; 

	 	(f) 	if
any party fails to deliver a notice relating to an event the fact of which,
               pursuant to this Indenture, requires notice to be sent to the Trustees,
the                Trustees may conclusively rely on their failure to receive such notice
as reason                to act as if no such event occurred; and 

	 	(g) 	the
Trustee or Co-Trustee, as the case may be, shall not be deemed to have
               notice of any default or Event of Default hereunder unless a Responsible
Officer                thereof shall have actual knowledge thereof or unless written
notice of any                event which is in fact such a default or Event of Default is
received by a                Responsible Officer of the Trustee or the Co-Trustee, as the
case may be, and                such notice references the Notes and this Indenture. 

None of the provisions contained in
this Indenture shall require the Trustees to expend or risk their own funds or otherwise
incur personal financial liability in the performance of any of their duties or in the
exercise of any of their rights or powers, if there is reasonable ground for believing
that the repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to them. 

        Section 7.02. Rights
of Trustees; Reliance on Documents, Opinions, Etc. Except as           otherwise
provided in Section 7.01:  

	 	(a) 	the
Trustees may conclusively rely and shall be protected in acting upon any
               resolution, certificate, statement, instrument, opinion, report, notice,
               request, consent, order, bond, debenture, note, coupon or other paper or
               document (whether in its original or facsimile form) believed by them in
good                faith to be genuine and to have been signed or presented by the
proper party or                parties; 

	 	(b) 	any
request, direction, order or demand of the Issuer mentioned herein shall be
               sufficiently evidenced by an Officers’ Certificate (unless other
evidence                in respect thereof be herein specifically prescribed); and any
resolution of the                Board of Directors may be evidenced to the Trustees by a
copy thereof certified                by the Secretary or an Assistant Secretary of the
Issuer; 

	 	(c) 	the
Trustees may each consult with counsel or other professional advisors of its
               own selection and any such advice so received or Opinion of Counsel shall
be                full and complete authorization and protection in respect of any action
taken or                omitted by it hereunder in good faith and in reliance on such
advice or Opinion                of Counsel; 

	 	(d) 	the
Trustees shall be under no obligation to exercise any of the rights or
               powers vested in it by this Indenture at the request, order or direction
of any                of the Noteholders pursuant to the provisions of this Indenture,
unless such                Noteholders shall have offered to the Trustees security or
indemnity                satisfactory to them against the costs, expenses and liabilities
which may be                incurred therein or thereby; 

	 	(e) 	the
Trustees shall not be bound to make any investigation into the facts or
               matters stated in any resolution, certificate, statement, instrument,
opinion,                report, notice, request, direction, consent, order, bond,
debenture or other                paper or document, but the Trustees may make such
further inquiry or                investigation into such facts or matters as they may
see fit, and, if the                Trustees shall determine to make such further inquiry
or investigation, they                shall be entitled to examine the books, records and
premises of the Issuer,                personally or by agent or attorney at the sole
cost of the Issuer and shall                incur no liability or additional liability of
any kind by reason of such inquiry                or investigation; 

- 19 -

	 	(f) 	the
Trustees may execute any of the trusts or powers hereunder or perform any
               duties hereunder either directly or by or through agents or attorneys and
the                Trustees shall not be responsible for any misconduct or negligence on
the part                of any agent or attorney appointed by them with due care
hereunder; 

	 	(g) 	the
Trustees shall not be liable for any action taken, suffered or omitted to be
               taken by them in good faith and reasonably believed by them to be
authorized or                within the discretion or rights or powers conferred upon it
by this                Indenture;delivery of reports, information and documents to
the Trustees                under any Section 5.04 is for informational purposes only and
the Trustees’               receipt of the foregoing shall not constitute actual or
constructive notice of                any information contained therein or determinable
from information contained                therein, including the Issuer’s compliance
with any of their covenants                hereunder (as to which the Trustees are
entitled to rely exclusively on                Officers’ Certificates) except as
otherwise required in this Indenture or                the terms of the Notes; 

	 	(h) 	the
Trustees shall not have any obligation or duty to monitor, determine or
               inquire as to compliance, and shall not be responsible or liable for
compliance                with restrictions on transfer, exchange, redemption, purchase
or repurchase, as                applicable, of minimum denominations imposed under this
Indenture or under                applicable law or regulation with respect to any
transfer, exchange, redemption,                purchase or repurchase, as applicable, of
any interest in any Notes; 

	 	(i) 	in
no event shall the Trustees be responsible or liable for any failure or delay
               in the performance of their obligations hereunder arising out of, or
caused by,                directly or indirectly, forces beyond their control, including,
without                limitation, strikes, work stoppages, accidents, acts of war or
terrorism, civil                or military disturbances, nuclear or natural catastrophes
or acts of God; it                being understood that the Trustees shall use reasonable
efforts which are                consistent with accepted practices in the banking
industry to resume performance                as soon as practicable under the
circumstances; 

	 	(j) 	the
rights, privileges, protections, immunities and benefits given to the
               Trustees including, without limitation, its right to be indemnified, are
               extended to, and shall be enforceable by, the Trustees in each of their
               capacities hereunder, and each agent, custodian and other Person employed
to act                hereunder; 

	 	(k) 	the
Trustees may request that the Issuer deliver an Officers’ Certificate
               setting forth the names of individuals and/or titles of officers
authorized at                such time to take specified actions pursuant to this
Indenture, which                Officers’ Certificate may be signed by any person
authorized to sign an                Officers’ Certificate, including any person
specified as so authorized in                any such certificate previously delivered
and not superseded; 

	 	(l) 	the
Trustees are not required to give any bond or surety with respect to the
               performance or their duties or the exercise of their powers under this
Indenture                or the Notes; 

	 	(m) 	the
Trustees will not be liable to any person if prevented or delayed in
               performing any of their obligations or discretionary functions under this
               Indenture by reason of any present or future law applicable to them, by
any                governmental or regulatory authority; 

- 20 -

	 	(n) 	in
the event the Trustees receive inconsistent or conflicting requests and
               indemnity from two or more groups of Holders, each representing less than
a                majority in aggregate principal amount of the Notes then outstanding,
pursuant                to the provisions of this Indenture, the Trustees, in their sole
discretion, may                determine what action, if any, will be taken and shall not
incur any liability                for their failure to act until such inconsistency or
conflict is, in their                reasonable opinion, resolved; 

	 	(o) 	the
Trustees shall not be liable for any error of judgment made in good faith
               unless it is proved that the Trustees were grossly negligent in
ascertaining the                pertinent facts; 

	 	(p) 	the
Trustees shall not be liable for any consequential loss (being loss of
               business, goodwill, opportunity or profit of any kind) of the Issuer; and 

	 	(q) 	the
permissive right of the Trustees to take the actions permitted by this
               Indenture shall not be construed as an obligation or duty to do so. 

        Section 7.03. No
Responsibility for Recitals, Etc. The recitals contained herein and in           the
Notes (except in the Trustee’s certificate of authentication) shall be
          taken as the statements of the Issuer, and the Trustees assume no
responsibility           for the correctness of the same. The Trustees make no
representations as to the           validity or sufficiency of this Indenture or of the
Notes. The Trustees shall           not be accountable for the use or application by the
Issuer of any Notes or the           proceeds of any Notes authenticated and delivered by
the Trustee in conformity           with the provisions of this Indenture.  

        Section 7.04. Monies
to Be Held in Trust. Subject to the provisions of           Section 13.04, all
monies received by the Trustees shall, until used or           applied as herein
provided, be held in trust for the purposes for which they           were received. The
Trustee shall be under no liability for interest on any money           received by it
hereunder except as may be agreed in writing from time to time by           the Issuer
and the Trustee.  

        Section 7.05. Compensation
and Expenses of Trustees. (a) The Issuer covenants and           agrees to pay to the
Trustee from time to time, and the Trustee shall be           entitled to, such
compensation for all services rendered by it hereunder in any           capacity (which
shall not be limited by any provision of law in regard to the           compensation of a
trustee of an express trust) as mutually agreed to from time           to time in writing
between the Issuer and the Trustee, and the Issuer will pay           or reimburse the
Trustee upon its request for all reasonable expenses,           disbursements and
advances reasonably incurred or made by the Trustee in           accordance with any of
the provisions of this Indenture (including the           reasonable compensation and the
expenses and disbursements of its counsel and of           all Persons not regularly in
its employ) except any such expense, disbursement           or advance as may arise from
its negligence, willful misconduct or bad faith.  

        (b) The
Issuer will pay to the Co-Trustee the following fees for its services under
          this Indenture:  

	 	(i) 	For
each of the years from the second year of the trust hereunder (that is from
               the expiry of 12 months from the date of this Indenture) in which there
are                still Notes outstanding, a sum of $10,000 (referred to in this
section                7.05(b) as: the “Annual Fee”). The Annual Fee will be
paid to the                Co-Trustee at the beginning of each year of the trust. The
Annual Fee will be                paid to the Co- Trustee for the period until the end of
the period of the trust                pursuant to the terms of this Indenture even if a
receiver and/or an                administrative receiver is appointed for the Issuer
and/or even if the trust                pursuant to this Indenture is managed under the
supervision of a court. If the                term of the Co-Trustee’s office has
come to an end, the Co-Trustee will not                be entitled to the payment of its
fee from the date on which its term of office                has ended. Should the term
of the Co-Trustee’s office come to an end during                the course of a year
of the trust, the Co-Trustee will refund to the Issuer the                portion of the
Annual Fee paid for the months on which the it has not acted as a
               Co-Trustee. The Annual Fee is not payable for the first year of the trust;
and  

- 21 -

	 	(ii) 	The
Co-Trustee is entitled to payment for the time actually spent by the
               Co-Trustee in connection with this Indenture and the trust hereunder prior
the                execution of this Indenture in the total amount of approximately $5,000; and  

	 	(iii) 	The
Co-Trustee will be entitled to the reimbursement of the reasonable expenses
               that it has incurred in the fulfillment of its roles and duties hereunder.
               Regarding expenses for an expert opinion, the Co-Trustee will give prior
notice                to the Issuer of its intention to request an expert opinion; and  

	 	(iv) 	The
Co-Trustee will also be entitled to additional payment to the extent that
               the Co-Trustee is required to take any action as a result of a default on
this                Indenture by the Issuer or an Event of Default. This payment will be
calculated                according to the time actually spent by the Co-Trustee in
connection with these                actions, based on an agreed hourly rate of up to
$200; and  

	 	(v) 	In
the event that, due to changes in the applicable law in Israel, the
               Co-Trustee shall be required to perform additional reviews or prepare
additional                reports, the Co-Trustee shall be entitled to additional fees as
shall be agreed                upon by the Co-Trustee and the Issuer.  

	 	
Israeli
Value added tax, if applicable, will be added to the payments due to the Co-Trustee
hereunder and will be paid by the Issuer. The Issuer covenants and agrees to reimburse
the Co-Trustee for the costs incurred by the Co-Trustee for an insurance policy providing
for coverage in respect of expenses of the Co-Trustee resulting from any litigation
action taken against the Co-Trustee under the competent jurisdiction of a United States
court, in connection with the actions and duties of the Co-Trustee under this Indenture.  

        (c)
           The
Issuer also covenants to indemnify each of the Trustee and the Co-Trustee           and
any predecessor Trustees (or any officer, director or employee of the
          Trustees), in any capacity under this Indenture and its agents and any
          authenticating agent for, and to hold them harmless against, any and all loss,
          liability, damage, claim or expense including taxes (other than taxes based on
          the income of the Trustees) incurred without negligence, willful misconduct or
          bad faith on the part of the Trustee or the Co-Trustee or such officers,
          directors, employees and agent or authenticating agent, as the case may be, and
          arising out of or in connection with the acceptance or administration of this
          trust or in any other capacity hereunder, including the costs and expenses of
          defending themselves against any claim (whether asserted by the Issuer, any
          holder or any other Person) of liability in the premises. For the avoidance of
          doubt, neither of the Trustee nor the Co-Trustee shall be denied any
          indemnification to which it is entitled pursuant to this Section 7.05(c) as the
          result of the other’s negligence, willful misconduct or bad faith. The
          obligation of the Issuer under this Section 7.05 shall survive the satisfaction
          and discharge of this Indenture.  

        
(d) When
the Trustees and its agents and any authenticating agent incur expenses or
          render services after an Event of Default specified in Section 6.01(c) or
          (d) with respect to the Issuer occurs, the expenses and the compensation
          for the services are intended to constitute expenses of administration under
any           bankruptcy, insolvency or similar laws.  

        Section 7.06. Officers’ Certificate
as Evidence. Except as otherwise provided in           Section 7.01, whenever in
the administration of the provisions of this           Indenture the Trustees shall deem
it necessary or desirable that a matter be           proved or established prior to
taking or omitting any action hereunder, such           matter (unless other evidence in
respect thereof be herein specifically           prescribed) may, in the absence of bad
faith or willful misconduct on the part           of the Trustees, be deemed to be
conclusively proved and established by an           Officers’ Certificate delivered
to the Trustees.  

- 22 -

        Section 7.07. Conflicting
Interests of Trustee and the Co-Trustee. (a) If the Trustee           has or shall
acquire a conflicting interest within the meaning of the Trust           Indenture Act,
the Trustee shall either eliminate such interest or resign, to           the extent and
in the manner provided by, and subject to the provisions of, the           Trust
Indenture Act and this Indenture.  

        (b)
 If,
with respect to the Co-Trustee, there at any time exist circumstances which           may
constitute a conflict of interests as provided in Section 35(E)(2) of the
          Securities Law, the Co-Trustee shall either eliminate such circumstances or
          resign, to the extent and in the manner provided by, and subject to the
          provisions of, the Securities Law.  

        Section 7.08. Eligibility
of Trustee and Co-Trustee. (a) There shall at all times be a           Trustee
hereunder which shall be a Person that is eligible pursuant to the Trust
          Indenture Act to act as such and has a combined capital and surplus of at least
          $50,000,000 (or if such Person is a member of a bank holding company system,
its           bank holding company shall have a combined capital and surplus of at least
          $50,000,000). If such Person publishes reports of condition at least annually,
          pursuant to law or to the requirements of any supervising or examining
          authority, then for the purposes of this Section the combined capital and
          surplus of such Person shall be deemed to be its combined capital and surplus
as           set forth in its most recent report of condition so published. If at any
time           the Trustee shall cease to be eligible in accordance with the provisions
of this           Section 7.08, it shall resign immediately in the manner and with
the effect           hereinafter specified in this Article.  

        (b)
           There
shall at all times be a Co-Trustee hereunder which shall be a Person that           is
eligible pursuant to the Securities Law to act as a trustee for debentures
          issued to the Israeli public. If at any time the Co-Trustee shall cease to be
          eligible in accordance with the provisions of the Securities Law, it shall
          resign immediately in the manner and with the effect specified in Section 7.09.  

        
Section 7.09. Resignation
or Removal of the Trustee and of the           Co-Trustee.    (a) (i)
The Trustee may at any time           resign by giving written notice of such resignation
to the Issuer, the           Co-Trustee and to the holders of Notes. Upon receiving such
notice of           resignation, the Issuer shall promptly appoint a successor trustee by
written           instrument, in triplicate, executed by order of the Board of Directors,
one copy           of which instrument shall be delivered to the resigning Trustee, one
copy to the           successor trustee and one copy to the Co-Trustee. If no successor
trustee shall           have been so appointed and have accepted appointment sixty (60) days
after           the mailing of such notice of resignation to the Noteholders, the
resigning           Trustee may, upon ten (10) Business Days’ notice to the
Issuer, the           Co-Trustee and the Noteholders, appoint a successor identified in
such notice or           may petition, at the expense of the Issuer, any court of
competent jurisdiction           for the appointment of a successor trustee, or, if any
Noteholder who has been a           bona fide holder of a Note or Notes for at least six
(6) months may,           subject to the provisions of Section 6.09, on behalf
of himself and all           others similarly situated, petition any such court for the
appointment of a           successor trustee. Such court may thereupon, after such
notice, if any, as it           may deem proper and prescribe, appoint a successor
trustee.  

		    (ii)        The
provisions of the Securities Law will apply to the expiry of the appointment of the
Co-Trustee as a trustee under this Indenture upon the occurrence of certain events
specified therein and to the appointment of a successor trustee in such an event.  

		    (iii)        Subject
to the applicable provisions of the Securities Law, the Co-Trustee and any successor
co-trustee that replaces the Co-Trustee may resign from their office as trustee after
giving notice in writing to the Issuer, the Trustee and the Noteholders three (3) months
in advance, in which the reasons for the resignation will be specified. Such resignation
will come into effect only after it has been approved by a court of competent
jurisdiction in the State of Israel and on the date specified in such court approval. The
Issuer shall promptly notify the Trustees and the Noteholders of such approval.  

        (b)
 In
case at any time any of the following shall occur:  

	 	(i) 	the
Trustee or the Co-Trustee shall fail to comply with Section 7.07 after
               written request therefor by the Issuer or by any Noteholder who has been a
bona                fide holder of a Note or Notes for at least six (6) months; or  

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	 	(ii) 	the
Trustee or the Co-Trustee shall cease to be eligible in accordance with the
               relevant provisions of Section 7.08 and shall fail to resign after
written                request therefor by the Issuer or by any such Noteholder; or  

	 	(iii) 	the
Trustee or the Co-Trustee shall become incapable of acting, or shall be
               adjudged a bankrupt or insolvent, or a receiver of the Trustee or the
Co-Trustee                or of its property shall be appointed, or any public officer
shall take charge                or control of the Trustee or of its property or affairs
for the purpose of                rehabilitation, conservation or liquidation;  

	 	
then,
in any such case, the Issuer may remove the Trustee or the Co-Trustee and appoint a
successor trustee by written instrument, in triplicate, executed by order of the Board of
Directors, one copy of which instrument shall be delivered to the Trustee or the
Co-Trustee so removed, one copy to the successor trustee and one copy to the Co-Trustee,
or, subject to the provisions of Section 6.09, any Noteholder who has been a bona
fide holder of a Note or Notes for at least six (6) months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee or the Co-Trustee and the appointment of a successor trustee; provided that
if no successor trustee shall have been appointed and have accepted appointment sixty (60) days
after either the Issuer or the Noteholders has removed the Trustee or the Co-Trustee , or
the Trustee or the Co-Trustee resigns, the trustee so removed may petition, at the
expense of the Issuer, any court of competent jurisdiction for an appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, remove the Trustee or the Co-Trustee and appoint a successor
trustee. 

        (c)
          The
holders of a majority in aggregate principal amount of the Notes at the time
          outstanding may at any time by action pursuant to Section 9.01 remove the
          Trustee or the Co-Trustee and nominate a successor trustee which shall be
deemed           appointed as successor trustee unless, within ten (10) days after
notice to           the Issuer of such nomination, the Issuer objects thereto, in which
case the           trustee so removed or any Noteholder, or if such trustee so removed or
any           Noteholder fails to act, the Issuer, upon the terms and conditions and
otherwise           as in this Section 7.09(a) provided, may petition any court of
competent           jurisdiction for an appointment of a successor trustee.  

        (d)
         (i)   Any resignation or removal of the Trustee or the Co-Trustee and appointment
          of a successor trustee pursuant to any of the provisions of this
          Section 7.09 shall become effective upon acceptance of appointment by the
          successor trustee as provided in Section 7.10.  

                       (ii)
        A court of competent jurisdiction in the State of Israel may dismiss the
          Co-Trustee if it has not fulfilled its duties hereunder properly or if a court
          of competent jurisdiction in the State of Israel should find any other reason
          for its dismissal. Additionally, the holders of ten percent (10%) in aggregate
          principal amount of the Notes may convene a general meeting of the holders of
          the Notes in accordance with Article 10. At such a meeting, the Co-Trustee may
          be removed by an affirmative vote of the holders of a majority of the aggregate
          principal amount of the Notes.  

The ISA may petition a court of
competent jurisdiction in the State of Israel to bring the Co-Trustee’s term of
office to an end, pursuant to Section 35 of the Securities Law. 

        Section 7.10. Acceptance
by Successor Trustee. Any successor trustee appointed as           provided in Section 7.09
shall execute, acknowledge and deliver to the           Issuer and to its predecessor
trustee an instrument accepting such appointment           hereunder, and thereupon the
resignation or removal of the predecessor trustee           shall become effective and
such successor trustee, without any further act, deed           or conveyance, shall
become vested with all the rights, powers, duties and           obligations of its
predecessor hereunder, with like effect as if originally           named as trustee
herein; but, nevertheless, on the written request of the Issuer           or of the
successor trustee, the trustee ceasing to act shall, upon payment of           any amount
then due it pursuant to the provisions of Section 7.05, execute           and
deliver an instrument transferring to such successor trustee all the rights           and
powers of the trustee so ceasing to act. Upon request of any such successor
          trustee, the Issuer shall execute any and all instruments in writing for more
          fully and certainly vesting in and confirming to such successor trustee all
such           rights and powers. Any trustee ceasing to act shall, nevertheless, retain
a lien           upon all property and funds held or collected by such trustee as such,
except           for funds held in trust for the benefit of holders of particular Notes,
to           secure any amounts then due it pursuant to the provisions of Section 7.05.  

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No successor trustee shall accept
appointment as provided in this Section 7.10 unless, at the time of such acceptance,
such successor trustee shall be qualified under the provisions of Section 7.09 and be
eligible under the provisions of Section 7.08. 

Upon acceptance of appointment by a
successor trustee as provided in this Section 7.10, the Issuer (or the former
trustee, at the written direction of the Issuer) shall mail or cause to be mailed notice
of the succession of such trustee hereunder to the holders of Notes at their addresses as
they shall appear on the Note register. If the Issuer fails to mail such notice within ten
(10) days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Issuer. The Issuer
shall promptly file an Immediate Report regarding such an event, as provided in the
Securities Law, as well as furnish such notice to the Commission on Form 6-K. 

        Section 7.11. Succession
by Merger. Any corporation into which either of the Trustees           may be merged
or converted or with which either of them may be consolidated, or           any
corporation resulting from any merger, conversion or consolidation to which           the
Trustee or Co-Trustee shall be a party, or any corporation succeeding to all           or
substantially all of the corporate trust business of the Trustee or           Co-Trustee
(including any trust created by this Indenture), shall be the           successor to the
Trustee or Co-Trustee hereunder without the execution or filing           of any paper or
any further act on the part of any of the parties hereto,           provided that in the
case of any corporation succeeding to all or substantially           all of the corporate
trust business of the Trustee or Co-Trustee, such           corporation shall be
qualified under the provisions of Section 7.07 and           shall, in the case of
the successor to the Trustee, be eligible under the           provisions of Section 7.08.  

In case at the time such successor to
the Trustee or the Co-Trustee shall succeed to the trusts created by this Indenture, any
of the Notes shall have been authenticated but not delivered, any such successor to the
Trustee or the Co-Trustee may adopt the certificate of authentication of any predecessor
trustee or authenticating agent appointed by such predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee or the Co-Trustee or any authenticating agent
appointed by such successor trustee may authenticate such Notes in the name of the
successor trustee; and in all such cases such certificates shall have the full force that
is provided in the Notes or in this Indenture; provided that the right to adopt the
certificate of authentication of any predecessor Trustee or authenticate Notes in the name
of any predecessor Trustee or the Co-Trustee shall apply only to its successor or
successors by merger, conversion or consolidation. 

        Section 7.12. Preferential
Collection of Claims. If and when the Trustee shall be or           become a creditor
of the Issuer, the Trustee shall be subject to the provisions           of the Trust
Indenture Act regarding the collection of the claims against the           Issuer.  

        Section 7.13.  Coordination between the Trustee and the Co-Trustee. (a) Except as duties,
rights and obligations are specifically attributed to one of either the Trustee or the
Co-Trustee herein, the Trustee and the Co-Trustee are to take or refrain from taking all
actions in the exercise of the terms of this Indenture by mutual agreement. 

        (b)
 To
the extent that the Trustee and the Co-Trustee are unable to agree to take or
          refrain from taking an action in accordance with Section 7.13(a) in good faith
          (a “Trustee Disagreement”), the Trustee or the Co-Trustee, or
          both of them, shall be entitled, in its sole discretion, to convene a meeting
of           Noteholders in accordance with Article 10. At such meeting, the Noteholders,
by           a vote in accordance with Section 10.10, shall be entitled to adopt a
resolution           resolving the Trustee Disagreement, provided, that any
actions to be           taken by the Trustee or the Co-Trustee, or both of them, pursuant
to this           Section 7.13(b), shall be in accordance with Section 6.07(a).  

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        (c)
 Upon
receipt of any notice, information or other communication provided pursuant           to
this Indenture that is required to be made to both the Trustee and the
          Co-Trustee, the Trustee and Co-Trustee, if not previously contacted by the
other           pursuant to this Section 7.13(c), shall as promptly as practicable
consult with           the other, as applicable,  

	 	(i)	         to
confirm receipt of the notice, information or other communication;  

	 	(ii) 	transmit
such notice, information or other communication to the other if not yet
               received by the other; and  

	 	(iii) 	to
the extent necessary, the Trustee and Co-Trustee will consult in accordance
               with Section 7.13(a).  

        (d)  Notwithstanding
any other provision of this Indenture, neither of the Trustee or           the Co-Trustee
shall be liable for actions taken by the other if such actions           were (i) the
result of negligence or willful misconduct on the part of the           other; (ii) any
action taken by either of the Trustee or the Co-Trustee without           the knowledge
of the other or (iii) any action taken or refrained from being           taken by the
Trustee or the Co-Trustee to which the other has stated an           objection in
writing.  

ARTICLE 8 

SUBORDINATION 

        Section 8.01. Agreement to Subordinate.  

	 	(a) 	The
Issuer agrees, and each Holder by accepting a Note agrees, that all payments
               pursuant to the Notes made by or on behalf of the Issuer are subordinated
to the                extent and in the manner provided in this Article 8 to all existing
and future                obligations of the Issuer under the Credit Facility and that
such subordination                is for the benefit of and enforceable by the Lenders. 

	 	(b) 	Each
Noteholder agrees and acknowledges that the Trustee and or the Co-Trustee
               shall refrain from initiating any proceeding or acting in any other way
against                the Issuer due to the provisions of this Article 8. Each
Noteholder waives any                right or claim against the Trustee and/or the
Co-Trustee based, inter-alia, on the grounds that the Trustee or the Co-Trustee
should have                initiated any proceeding or act in any other way in spite of
the provisions of                this Article 8 while claiming that Article 8 does not
comply with any applicable                law. 

	 	(c) 	In
the event of any insolvency or bankruptcy case or proceeding, or any
               receivership, liquidation, reorganization or other similar case or
proceeding in                connection therewith, relating to the Issuer or its assets,
or any liquidation,                dissolution or other winding-up of the Issuer, whether
voluntary or involuntary,                or any assignment for the benefit of creditors
or other marshalling of assets or                liabilities of the Issue, all existing
and future obligations of the Issuer                under the Credit Facility must be
paid in full in cash before any payment is                made on account of the
principal of or interest on the Notes. 

        Section 8.02. Postponement of Payments. Notwithstanding any provision herein to the
contrary, the date for payment of any interest or principal on the Notes may be postponed
in accordance with the provisions of Section 8.03 below, with interest continuing to
accrue at its regular rate.  

        Section 8.03. Postponement of Payments to the Noteholders if Defaults Occur Under the Credit
Facility. (a) In the event of the existence of a default, as such term is defined in
the Credit Facility (a “Credit Facility Event of Default”), on a Bank
Payment Date, then, subject to the provisions below, no payment of principal or interest
on the Notes shall be made and the holders and any person or entity acting on their behalf
(including the Trustees) shall not be entitled to take any action against the Issuer in
connection with such non-payment, unless such non-payment shall continue for a period of
more than six (6) months commencing on the applicable Bank Payment Date falling
immediately prior to the date of the scheduled payment in respect of the Notes due
immediately after the Bank Payment Date (a “Six Month Period”). The
Issuer shall notify the holders and the Trustees of any Credit Facility Event of Default. 

- 26 -

        (b)         During
the Six Month Period, the following shall apply:  

	 	(i) 	If
during such period, the Issuer shall make any payment to the Lenders on
               account of interest or principal under the Credit Facility, then, on the
date of                such payment to the Lenders, or promptly thereafter, the Issuer
shall make a                payment on account of interest or principal then due and
payable in respect of                the Notes, such payment to be made at the same
percentage of the interest or                principal then due and payable on the Notes
proportionate to the portion of the                payment actually made to the Lenders
to the amount (interest and principal as                the case may be) due and payable
under the Credit Facility as of the payment                date;  

	 	(ii) 	In
the event that during such Six Month Period the Lenders and the Issuer shall
               reach an agreement regarding a rescheduling of payments by the Issuer to
the                Lenders under the Credit Facility, such rescheduling shall apply pro
rata also                to payments of principal and/or interest, as the case may be, in
respect of the                Notesand the holders of the Notes shall be bound by
such rescheduling                agreement, provided that any such rescheduling agreement
shall apply only to                payments (of principal and/or interest) scheduled to
be made under the Notes and                under the Credit Facility during the period of
12 (twelve) months from the                relevant Bank Payment Date, and shall postpone
the scheduled payment under the                Notes to a date falling not more than 12
(twelve) months after the scheduled                date for such payment pursuant to the
terms of the Notes. (All payments, whether                of interest or principal, in
respect of the Notes rescheduled under any such                rescheduling agreement,
shall be hereinafter referred to as the                “Rescheduled Note Payments”;
the date of payment of Rescheduled Note                Payments shall be hereinafter
referred to as the “Rescheduled Note Payment                Date”; and all
payments, whether of interest or principal under the Credit                Facility,
rescheduled under such a Rescheduling Agreement, shall be hereinafter
               referred to as the “Rescheduled Facility Payments”.) Pursuant to
any                such rescheduling agreement, the Issuer shall pay to the holders of
the Notes,                such amounts on account of principal and/or interest, which,
together with the                aggregate of all payments (of principal and/or interest)
actually made prior to                such Rescheduled Note Payment Date in respect of
the Rescheduled Note Payments                under the rescheduling agreement comprises
the same percentage of the scheduled                repayments of principal or interest,
of the aggregate Rescheduled Note Payments                rescheduled under such
Rescheduling Agreement as the aggregate Rescheduled                Facility Payments
under such rescheduling agreement actually made prior to such                Rescheduled
Note Payment Date comprise of the aggregate Rescheduled Facility                Payments
rescheduled under such Rescheduling Agreement. Alternatively, such
               rescheduling agreement may provide that payments of principal and interest
on                account of the Notes shall, with effect from the termination of such
Six Month                Period, be made to the holders of the Notes in accordance with
the original                schedule under the terms of the Notes, provided that
amounts not paid                during such Six Month Period, or prior thereto shall be
postponed to be paid pro                rata to those payments not made to the Lenders
during such Six Month Period or                prior thereto and the holders of the Notes
shall be bound by such an agreement.                If during the rescheduling period
another Credit Facility Event of Default shall                occur, the aforementioned
provisions shall again apply. For the removal of                doubt, in the event of
the existence of a Credit Facility Event of Default                during or after any
rescheduling period under this Article 8.03(b)(ii),                (including non-payment
on the due date of any amount of principal or interest,                whether pursuant
to any rescheduling agreement or otherwise), the provisions of                this
Article 8.03(b)(ii) shall again apply, mutatis mutandis (all without
               derogating from Article 8.03(c) below).  

- 27 -

        (c)
 Notwithstanding
this Section 8.03, if, on a date scheduled for the payment of           principal or
interest on the Notes, any of the events described in Section 8.03           (c) shall
occur, then no amount of whatsoever nature shall be payable by the           Issuer in
respect of the Notes (whether in respect of principal, interest or any           other
amount) until all amounts owed by the Issuer under the Credit Facility           shall
have been paid in full. The events are as follows:  

	 	
(A)
           The existence of any of the following events: (i) the Issuer’s inability
          or admission of its inability to pay its debts as they fall due or the
          commencement by the Issuer of negotiations with any one or more of its
creditors           with a view to the general readjustment or rescheduling of its
indebtedness or           making a general assignment for the benefit of or a composition
with its           creditors (save for an event referred to in this sub-paragraph (A)
comprising           only the commencement of negotiations by the Issuer with individual
suppliers of           the Issuer to make an adjustment or rescheduling of its
indebtedness to such           suppliers), (ii) if the Issuer takes any corporate action
or other steps are           taken or proceedings are started or are consented to or any
order is made for           the Issuer’s winding-up, liquidation, bankruptcy,
dissolution,           administration or re-organisation (or for the suspension of
payments generally           or any process giving protection against creditors) or for
the appointment of a           liquidator, receiver, administrator, administrative
receiver or any similar           officer, against or in respect of the Issuer, its
revenues or any of its assets)           or any such person is appointed, provided that
such actions, steps, proceedings,           or orders are not cancelled or withdrawn
within 60 days of the occurrence or           institution thereof, (iii) any execution,
attachment or sequestration or other           process arises out of any third party
claim against the Issuer where the amount           being the subject of the relevant
proceeding is in excess of $2.5 million, save           where: (1) the Issuer is in
good faith on reasonable grounds, contesting           the execution, attachment,
sequestration or other process by appropriate           proceedings diligently pursued;
(2) the Lenders are satisfied that the           Issuer’s ability to comply
with its respective obligations under the Credit           Facility will not be adversely
affected whilst such distress, execution,           attachment, diligence or other
process is being so contested; and (3) such           process as aforesaid is
cancelled or withdrawn not later than 45 (forty-five)           days after the
institution thereof;  

	 	
(B)
           If the Lenders under the Credit Facility shall declare that all loans and/or
          other credits received under the Credit Facility are immediately due and
payable           (including where any such declaration is made following a Credit
Facility Event           of Default constituted by proceedings as referred to in
sub-section (C) below;  

	 	
(C)
           In the event that the holders of the Notes (or any person or entity acting on
          their behalf, including the Trustees), shall institute any legal proceedings
          against the Issuer other than in connection with excluded proceedings, and in
          accordance with the terms of the Notes. Excluded proceedings mean (i)
          proceedings where the sole claim relates to the Issuer’s failure to make
          payments of principal or interest on the Notes more than 14 Business Days from
          the date on which the Issuer is required to make them hereunder, as these dates
          may be postponed in accordance with the above provisions in this Section 8,
          provided that the Lenders are given 39 days prior notice as required under
          Section 6.01 before the institution of such proceedings; or (ii) proceedings
          instituted with relate only to a misleading statement in the prospectus
pursuant           to which the Notes were offered.  

- 28 -

        (d)
 After
the conclusion of a Six Month Period, the Issuer may not make payments of
          principal and interest on the Notes unless the Issuer has either (i) paid the
          Lenders all amounts then owing to them under the Credit Facility in full; or
          (ii) the holders of the Notes shall have obtained a final judgment requiring
the           Issuer to make payment to them.  

             (e)
          In the event that, contrary to the provisions of this Section 8.03, the holders
          of the Notes (or, as applicable, any person or entity acting on their behalf,
          including, subject at all times to Section 8.08, the Trustees) shall receive any
          payment, distribution or benefit, the recipient thereof shall be deemed to hold
          same on trust for the Lenders and shall forthwith pay or transfer to the Lenders
          any payment, distribution or benefit so received. 

Sections 8.02 and 8.03
above shall apply to the premium under Section 3.03, if any, mutatis
mutandis.

        Section 8.04. [reserved]  

        Section 8.05. Provisions Solely to Define Relative Rights. The provisions of this
Article 8 are and are intended solely for the purpose of defining the relative rights
of the Holders of the Notes on the one hand and the Lenders on the other hand. Nothing
contained in this Article 8 or elsewhere in this Indenture or in the Notes is
intended to or shall 

	 	(i) 	impair,
as among the Issuer, its creditors other than Lenders and the Holders of
               the Notes, the obligation of the Issuer, which is absolute and
unconditional, to                pay to the Holders of the Notes the principal of, premium, if any, and
interest on the Notes as                and when the same shall become due and payable in
accordance with their terms;  

	 	(ii) 	affect
the relative rights against the Issuer of the Holders of the Notes and
               creditors of the Issuer other than the Lenders; or  

	 	(iii) 	prevent
the Trustees or the Holder of any Notes from exercising all remedies
               otherwise permitted by applicable law upon default under this Indenture
subject                to this Article 8.  

        Section 8.06. Trustee to Effectuate Subordination. Each Holder of a Note by its acceptance
thereof authorizes and directs the Trustees on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this Article 8
and appoints the Trustees, and each of them, its attorney-in-fact for any and all such
purposes. 

        Section 8.07. No Waiver of Subordination Provisions. No right of any present or future
Lender to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Issuer or by any
act or failure to act, in good faith, by any such Lender, or by any non-compliance by the
Issuer with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such Lender may have or be otherwise charged with. Without in any
way limiting the generality of the foregoing paragraph, the Lenders may, at any time and
from time to time, without the consent of or notice to the Trustees or the Holders of the
Notes, without incurring responsibility to the Holders of the Notes and without impairing
or releasing the subordination provided in this Article 8 or the obligations
hereunder of the Holders of the Notes to the Lenders, do any one or more of the following:
(i) change the manner, place or terms of payment or extend the time of payment of, or
renew or alter, existing and future obligations of the Issuer under the Credit Facility,
or otherwise amend or supplement in any manner existing and future obligations of the
Issuer under the Credit Facility or any instrument evidencing the same or any agreement
under which other indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing senior
indebtedness; (iii) release any Person liable in any manner for the collection of
senior indebtedness; and (iv) exercise or refrain from exercising any rights against
the Issuer and any other Person. For the removal of doubt, any variation of the terms of
the Credit Facility Agreement, shall not require the consent of the Noteholders or anyone
acting on their behalf (including the Trustees), nor shall it constitute a default
hereunder. 

- 29 -

        Section 8.08. Notice to Trustee. The Issuer shall give prompt written notice to the
Trustees of any fact known to the Issuer which would prohibit the making of any payment to
or by the Trustee or the Co-Trustee, or both, in respect of the Notes. Notwithstanding the
provisions of this Article 8 or any other provision of this Indenture, the Trustees
shall not be charged with knowledge of the existence of any facts that would prohibit the
making of any payment to or by the Trustees in respect of the Notes, unless and until the
Trustees shall have received written notice thereof from the Issuer or a Lender or from
any trustee thereof; and, prior to the receipt of any such written notice, the Trustees,
subject to the provisions of Section 6.01, shall be entitled in all respects to
assume that no such facts exist; provided, that if the Trustee shall not have
received at its Corporate Trust Office or the Co-Trustee at the address specified in
Section 15.03, the notice provided for in this Section at least three (3) Business Days
prior to the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment in cash of the principal of or
interest on any Note), then, anything herein contained to the contrary notwithstanding,
the Trustees shall have full power and authority to receive such money and to apply the
same to the purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within three (3) Business Days prior to
such date. 

        Section 8.09. Trustees Not Fiduciary for the Lenders under the Credit Facility. The
Trustees shall not be deemed to owe any fiduciary duty to the Lenders and shall not be
liable to any Lender if they shall in good faith mistakenly pay over or distribute to
holders or the Issuer or any other Person, cash, property or securities to which any
Lender shall be entitled by virtue of this Article 8 or otherwise. With respect to the
Lenders and the Issuer, the Trustees undertake to perform or to observe only such of its
or their covenants or obligations as are specifically set forth in this Indenture and no
implied covenants or obligations with respect to the Lenders or the Issuer shall be read
into this Indenture against the Trustees. 

        Section 8.10. Trustees’ Compensation Not Prejudiced. Nothing in this Article 8 shall
apply to amounts due to the Trustees pursuant to other Sections of this Indenture. 

ARTICLE 9 

THE NOTEHOLDERS 

             Section 9.01.
          Action by Noteholders. Whenever in this Indenture it is provided that the
          holders of a specified percentage in aggregate principal amount of the Notes may
          take any action (including the making of any demand or request, the giving of
          any notice, consent or waiver or the taking of any other action), the fact that
          at the time of taking any such action, the holders of such specified percentage
          have joined therein may be evidenced (a) by any instrument or any number of
          instruments of similar tenor executed by Noteholders in person or by agent or
          proxy appointed in writing, or (b) by the record of the holders of Notes
          voting in favor thereof at any meeting of Noteholders duly called and held in
          accordance with the provisions of Article 10, or (c) by a combination of
          such instrument or instruments and any such record of such a meeting of
          Noteholders. Whenever the Issuer or the Trustees (acting jointly or separately)
          solicits the taking of any action by the holders of the Notes, the Issuer or the
          Trustees may fix in advance of such solicitation, a date as the record date for
          determining holders entitled to take such action. The record date shall be not
          more than fifteen (15) days prior to the date of commencement of
          solicitation of such action. 

        Section 9.02. Proof
of Execution by Noteholders. Subject to the provisions of Sections           7.01,
7.02 and 10.05, proof of the execution of any instrument by a Noteholder           or its
agent or proxy shall be sufficient if made in accordance with such           reasonable
rules and regulations as may be prescribed by the Trustees or in such           manner as
shall be satisfactory to the Trustees, each acting in its sole           discretion. The
holding of Notes shall be proved by the registry of such Notes           or by a
certificate of the Note registrar. With respect to any Notes held           through the
Clearing House of the TASE and the Hevra Le-Rishumim of Bank Leumi           Le-Israel
Ltd, (Nominee Company), the holding of such Notes may be proven by a           TASE
Member through which such Notes are held.  

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The record of any Noteholders’
meeting shall be proved in the manner provided in Section 10.06. 

        Section 9.03. Who
Are Deemed Absolute Owners. The Issuer, the Trustees, any paying           agent, any
conversion agent and any Note registrar may deem the Person in whose           name such
Note shall be registered upon the Note register to be, and may treat           it as, the
absolute owner of such Note (whether or not such Note shall be           overdue and
notwithstanding any notation of ownership or other writing thereon           made by any
Person other than the Issuer or any Note registrar) for the purpose           of
receiving payment of or on account of the principal of and interest on such
          Note, for conversion of such Note and for all other purposes; and neither the
          Issuer nor the Trustees nor any paying agent nor any conversion agent nor any
          Note registrar shall be affected by any notice to the contrary. All such
          payments so made to any holder for the time being, or upon his order, shall be
          valid, and, to the extent of the sum or sums so paid, effectual to satisfy and
          discharge the liability for monies payable upon any such Note.  

        Section 9.04. Notes
Held by Subsidiaries or Affiliates of the Issuer may be Disregarded. (a) In
determining whether the holders of the requisite aggregate principal           amount of
Notes have concurred in any direction, consent, waiver, vote or other           action
under this Indenture, Notes which are owned by a Subsidiary of the Issuer           shall
be disregarded and deemed not to be outstanding for the purpose of any           such
determination;  

     (b)
          In addition to paragraph (a) above, with respect to Section 6.07 above – in
          determining whether the holders of the requisite aggregate principal amount of
          Notes have concurred in any direction, consent, waiver, vote or other action
          specified in Section 6.07, Notes which are owned by an Affiliate of the Issuer
          shall be disregarded and deemed not to be outstanding for the purpose of any
          such determination; 

provided that for the purposes
of determining whether the Trustees shall be protected in relying on any such direction,
consent, waiver, vote or other action, only Notes which a Responsible Officer of the
Trustee or of the Co-Trustee knows are owned by a Subsidiary or an Affiliate of the Issuer
(as applicable) shall be so disregarded. In the case of a dispute as to such right, any
decision by the Trustees taken upon the advice of counsel shall be full protection to the
Trustees. Upon request of the Trustees, the Issuer shall furnish to the Trustees promptly
an Officers’ Certificate listing and identifying all Notes, if any, known by the
Issuer to be owned or held by or for the account of any of the above described Persons,
and, subject to Section 7.01, the Trustees shall be entitled to accept such
Officers’ Certificate as conclusive evidence of the facts therein set forth and of
the fact that all Notes not listed therein are outstanding for the purpose of any such
determination. 

        Section 9.05. Revocation
of Consents, Future Holders Bound. At any time prior to (but           not after) the
evidencing to the Trustees, as provided in Section 9.01, of           the taking of
any action by the holders of the percentage in aggregate principal           amount of
the Notes specified in this Indenture in connection with such action,           any
holder of a Note which is shown by the evidence to be included in the Notes           the
holders of which have consented to such action may, by filing written notice
          with the Trustee at its Corporate Trust Office and the Co-Trustee at its office
          as specified in Section 15.03 and upon proof of holding as provided in
          Section 9.02, revoke such action so far as concerns such Note. Except as
          aforesaid, any such action taken by the holder of any Note shall be conclusive
          and binding upon such holder and upon all future holders and owners of such
Note           and of any Notes issued in exchange or substitution therefor, irrespective
of           whether any notation in regard thereto is made upon such Note or any Note
issued           in exchange or substitution therefor.  

ARTICLE 10 

MEETINGS OF NOTEHOLDERS 

        Section 10.01. Purpose
of Meetings. A meeting of Noteholders may be called at any time           and from
time to time pursuant to the provisions of this Article 10 for any           of the
following purposes:  

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	 	(1) 	to
give any notice to the Issuer or to the Trustee and/or the Co-Trustee or to
               give any directions to the Trustee and/or the Co-Trustee permitted under
this                Indenture, or to consent to the waiving of any default or Event of
Default                hereunder and its consequences, or to take any other action
authorized to be                taken by Noteholders pursuant to any of the provisions of
Article 6;  

	 	(2) 	to
remove the Trustees (or either of them) and nominate a successor trustee
               pursuant to the provisions of Article 7;  

	 	(3) 	to
consent to the execution of an indenture or indentures supplemental hereto
               pursuant to the provisions of Section 11.02; or  

	 	(4) 	to
take any other action authorized to be taken by or on behalf of the holders
               of any specified aggregate principal amount of the Notes under any other
               provision of this Indenture or under applicable law.  

        Section 10.02. Call
of Meetings by Trustees. The Trustees, either jointly or separately           may at
any time call a meeting of Noteholders to take any action specified in           Section 10.01,
to be held at such time and at such place as the Trustee,           Co-Trustee or both of
them shall determine. Notice of every meeting of the           Noteholders, setting forth
the time and the place of such meeting and in general           terms the action proposed
to be taken at such meeting and the establishment of           any record date pursuant
to Section 9.01, shall be mailed to holders of           Notes at their addresses as
they shall appear on the Note register. Such notice           shall also be mailed to the
Issuer and the Issuer shall publish an Immediate           Report (under the Securities
Law) and furnish a report to the Commission on Form           6-K thereof. Such notices
shall be mailed not less than twenty (20) nor           more than ninety (90) days
prior to the date fixed for the meeting.  

Any meeting of Noteholders shall be
valid without notice if the holders of all Notes then outstanding are present in person or
by proxy or if notice is waived before or after the meeting by the holders of all Notes
outstanding, and if the Issuer, the Trustee and the Co-Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice. 

        Section 10.03. Call
of Meetings by Issuer or Noteholders. In case at any time the           Issuer,
pursuant to a resolution of its Board of Directors, or the holders of at           least
ten percent (10%) in aggregate principal amount of the Notes then           outstanding,
shall have requested the Trustees to call a meeting of Noteholders,           by written
request setting forth in reasonable detail the action proposed to be           taken at
the meeting, and the Trustees shall not have mailed the notice of such           meeting
within twenty (20) days after receipt of such request, then the           Issuer or
such Noteholders may determine the time and the place for such meeting           and may
call such meeting to take any action authorized in Section 10.01,           by
mailing notice thereof as provided in Section 10.02. The Issuer shall
          publish such notice in an Immediate Report and
          furnish a report to the Commission on Form 6-K which shall include such notice
          or the substance thereof.  

        Section 10.04. Qualifications
for Voting. To be entitled to vote at any meeting of           Noteholders a person
shall (a) be a holder of one or more Notes on the           record date pertaining
to such meeting or (b) be a person appointed by an           instrument in writing
as proxy by a holder of one or more Notes on the record           date pertaining to such
meeting. The only persons who shall be entitled to be           present or to speak at
any meeting of Noteholders shall be the persons entitled           to vote at such
meeting and their counsel and any representatives of the           Trustees and their
counsel and any representatives of the Issuer and its           counsel, unless the
Trustees, in their sole discretion, consent to the           participation of other
Persons.  

        Section 10.05. Regulations.
Notwithstanding any other provisions of this Indenture, the           Trustees may
make such reasonable regulations as they may deem advisable for any           meeting of
Noteholders, in regard to proof of the holding of Notes and of the           appointment
of proxies, and in regard to the appointment and duties of           inspectors of votes,
the submission and examination of proxies, certificates and           other evidence of
the right to vote, and such other matters concerning the           conduct of the meeting
as it shall think fit.  

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The Trustees shall, by an instrument
in writing, appoint a temporary chairman of the meeting, unless the meeting shall have
been called by the Issuer or by Noteholders as provided in Section 9.03, in which
case the Issuer or the Noteholders calling the meeting, as the case may be, shall in like
manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the
meeting shall be elected by vote of the holders of a majority in principal amount of the
Notes represented at the meeting and entitled to vote at the meeting. 

Subject to the provisions of
Section 9.04, at any meeting each Noteholder or proxyholder shall be entitled to one
vote for each $1.00 principal amount of Notes held or represented by him; provided
that no vote shall be cast or counted at any meeting in respect of any Note challenged as
not outstanding and ruled by the chairman of the meeting to be not outstanding. The
chairman of the meeting shall have no right to vote other than by virtue of Notes held by
him or instruments in writing as aforesaid duly designating him as the proxy to vote on
behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the
provisions of Section 10.02 or 10.03 may be adjourned from time to time by the
holders of a majority of the aggregate principal amount of Notes represented at the
meeting. 

A Responsible Officer of the
Co-Trustee shall participate, without voting privileges, in all meetings of the
shareholders of the Issuer. 

        Section 10.06. Voting.
The vote upon any resolution submitted to any meeting of           Noteholders shall
be by written ballot on which shall be subscribed the           signatures of the holders
of Notes or of their representatives by proxy and the           aggregate principal
amount of the Notes held or represented by them. The           permanent chairman of the
meeting shall appoint two inspectors of votes who           shall count all votes cast at
the meeting for or against any resolution and who           shall make and file with the
secretary of the meeting their verified written           reports in duplicate of all
votes cast at the meeting. A record in duplicate of           the proceedings of each
meeting of Noteholders shall be prepared by the           secretary of the meeting and
there shall be attached to said record the original           reports of the inspectors
of votes on any vote by ballot taken thereat and           affidavits by one or more
persons having knowledge of the facts setting forth a           copy of the notice of the
meeting and showing that said notice was mailed as           provided in Section 10.02.
The record shall show the principal amount of           the Notes voting in favor of or
against any resolution. The record shall be           signed and verified by the
affidavits of the permanent chairman and secretary of           the meeting and one of
the duplicates shall be delivered to the Issuer and the           other to the Trustees
to be preserved by the Trustees, the latter to have           attached thereto the
ballots voted at the meeting.  

Any record so signed and verified
shall be conclusive evidence of the matters therein stated. 

        Section 10.07. No
Delay of Rights by Meeting. Nothing contained in this Article 10 shall           be
deemed or construed to authorize or permit, by reason of any call of a           meeting
of Noteholders or any rights expressly or impliedly conferred hereunder           to make
such call, any hindrance or delay in the exercise of any right or rights
          conferred upon or reserved to the Trustees or to the Noteholders under any of
          the provisions of this Indenture or of the Notes.  

        Section 10.08.  Separate Meetings of Groups of Noteholders. When a meeting of Noteholders is
convened, the Co-Trustee may determine according to the circumstances at that time that
the different interests of certain groups of Noteholders dictate the convening of separate
meetings of certain group of Noteholders, pursuant to the provisions of the Israeli law,
including Israeli case law and the instructions of the ISA (as applicable). In such an
event, such separate meetings shall be convened, and the procedural provisions in this
Article 10, shall apply in those meetings, mutatis mutandis. 

        Section 10.09. Quorum.(a)
Two Noteholders present in person or by proxy who           together hold or represent at
least 50% in aggregate principal amount of the           Notes then outstanding will
constitute a quorum for any meeting of the           Noteholders.  

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        (b)
 If
within thirty (30) minutes of the time specified for the meeting to start           there
is no quorum present, the meeting will be postponed to the same day in the
          following week (and in the event that such day is not a Business Day, to the
          Business Day immediately following such day) and to the same venue without it
          being necessary to give notice to that effect to the Noteholders or to another
          day, venue and time as the Issuer selects and of which notice will be given to
          the Noteholders and the Trustees at least three Business Days in advance. If no
          quorum is present at the aforesaid postponed meeting, at that meeting two
          Noteholders who are present in person or by proxy regardless of the principal
          amount they hold, will constitute a quorum.  

        Section 10.10.  Majority
Controls. Resolutions in meetings of the Noteholders shall be           adopted by a
simple majority (50.01%), subject to any other specific provision           herein
requiring any other majority with respect to certain resolutions.  

ARTICLE 11 

SUPPLEMENTAL INDENTURES 

        Section 11.01. Supplemental
Indentures Without Consent of Noteholders. The Issuer, when           authorized by
the resolutions of the Board of Directors, and the Trustees may,           from time to
time, and at any time enter into an indenture or indentures           supplemental hereto
for one or more of the following purposes:  

	 	(a) 	to
evidence the succession of another Person to the Issuer, or successive
               successions, and the assumption by the successor Person of the covenants,
               agreements and obligations of the Issuer pursuant to Article 12; 

	 	(b) 	to
add to the covenants of the Issuer such further covenants, restrictions or
               conditions as the Board of Directors and the Trustees shall consider to be
for                the benefit of the holders of Notes, and to make the occurrence, or
the                occurrence and continuance, of a default in any such additional
covenants,                restrictions or conditions a default or an Event of Default
permitting the                enforcement of all or any of the several remedies provided
in this Indenture as                herein set forth; provided that in respect of
any such additional                covenant, restriction or condition, such supplemental
indenture may provide for                a particular period of grace after default
(which period may be shorter or                longer than that allowed in the case of
other defaults) or may provide for an                immediate enforcement upon such
default or may limit the remedies available to                the Trustees upon such
default; 

	 	(c) 	to
provide for the issuance under this Indenture of Notes in coupon form
               (including Notes registrable as to principal only) and to provide for
               exchangeability of such Notes with the Notes issued hereunder in fully
               registered form and to make all appropriate changes for such purpose; 

	 	(d) 	to
cure any ambiguity or to correct or supplement any provision contained herein
               or in any supplemental indenture that may be defective or inconsistent
with any                other provision contained herein or in any supplemental
indenture, or to make                such other provisions in regard to matters or
questions arising under this                Indenture that shall not materially adversely
affect the interests of the                holders of the Notes; 

	 	(e) 	to
evidence and provide for the acceptance of appointment hereunder by a
               successor trustee with respect to the Notes; 

	 	(f) 	to
modify, eliminate or add to the provisions of this Indenture to such extent
               as shall be necessary to effect the qualifications of this Indenture under
the                Trust Indenture Act, or under any similar federal statute hereafter
enacted or                the Securities Law; or 

	 	(g) 	to
make any other change that does not adversely affect any right of the holders
               of Notes under this Indenture. 

- 34 -

Upon the written request of the
Issuer, accompanied by a copy of the resolutions of the Board of Directors certified by
its Secretary or Assistant Secretary authorizing the execution of any supplemental
indenture, the Trustees are hereby authorized to join with the Issuer in the execution of
any such supplemental indenture, to make any further appropriate agreements and
stipulations that may be therein contained and to accept the conveyance, transfer and
assignment of any property thereunder, but the Trustees shall not be obligated to, but may
in its discretion, enter into any supplemental indenture that affects the Trustees’
own rights, duties or immunities under this Indenture or otherwise. 

Any supplemental indenture authorized
by the provisions of this Section 11.01 may be executed by the Issuer and the
Trustees without the consent of the holders of any of the Notes at the time outstanding,
notwithstanding any of the provisions of Section 11.02 provided, the Trustee
and the Co-Trustee shall have received an opinion of counsel stating that such
supplemental indenture does not adversely affect any rights of the Noteholders. 

        Section 11.02. Supplemental
Indenture with Consent of Noteholders. With the approval of           the
Noteholders, the Trustees may, from time to time and at any time, enter into           an
indenture or indentures supplemental hereto for the purpose of adding any
          provisions to or changing in any manner or eliminating any of the provisions of
          this Indenture or any supplemental indenture or of modifying in any manner the
          rights of the holders of the Notes; provided that the entering into such
          supplemental indenture is approved by a resolution of the Noteholders meeting
in           accordance with Article 10, by the vote of Noteholders who (i) hold not less
          than a majority of the aggregate principal amount of the Notes at the time
          outstanding, determined in accordance with Section 9.04; and also (ii)
hold           at least 75% of the principal amount of the Notes present or represented
in that           Noteholders meeting; and provided further  that no such
supplemental           indenture shall modify any term, covenant or provisions hereof
which under the           provisions of the Trust Indenture Act cannot be modified or
amended without the           consent of the holders of each or all Notes then
outstanding or affected           thereby, without the consent of the holder of each Note
so affected.  

Upon the written request of the
Issuer, accompanied by a copy of the resolutions of the Board of Directors certified by
its Secretary or Assistant Secretary authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustees of evidence of the consent of Noteholders
as aforesaid, the Trustees shall join with the Issuer in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustees’ own
rights, duties or immunities under this Indenture or otherwise, in which case the Trustees
may in their discretion, but shall not be obligated to, enter into such supplemental
indenture. 

It shall not be necessary for the
consent of the Noteholders under this Section 10.02 to approve the particular form of
any proposed supplemental indenture, but it shall be sufficient if such consent shall
approve the substance thereof. 

        Section 11.03. Effect
of Supplemental Indenture. Any supplemental indenture executed           pursuant to
the provisions of this Article 11 shall comply with the Trust           Indenture
Act provided that this Section 11.03 shall not require such           supplemental
indenture or the Trustee to be qualified under the Trust Indenture           Act. Upon
the execution of any supplemental indenture pursuant to the provisions           of this
Article 11, this Indenture shall be and be deemed to be modified           and
amended in accordance therewith and the respective rights, limitation of
          rights, obligations, duties and immunities under this Indenture of the Trustee,
          the Issuer and the holders of Notes shall thereafter be determined, exercised
          and enforced hereunder, subject in all respects to such modifications and
          amendments and all the terms and conditions of any such supplemental indenture
          shall be and be deemed to be part of the terms and conditions of this Indenture
          for any and all purposes.  

        Section 11.04. Notation
on Notes. Notes authenticated and delivered after the execution           of any
supplemental indenture pursuant to the provisions of this Article 11           may
bear a notation in form approved by the Trustees as to any matter provided           for
in such supplemental indenture. If the Issuer or the Trustees shall so
          determine, new Notes so modified as to conform, in the opinion of the Trustees
          and the Board of Directors, to any modification of this Indenture contained in
          any such supplemental indenture may, at the Issuer’s expense, be prepared
          and executed by the Issuer, authenticated by the Trustee (or an authenticating
          agent duly appointed by the Trustee pursuant to Section 15.10) and
          delivered in exchange for the Notes then outstanding, upon surrender of such
          Notes then outstanding.  

- 35 -

        Section 11.05. Evidence
of Compliance of Supplemental Indenture to Be Furnished to Trustees. Prior to
entering into any supplemental indenture, the Trustees shall be           provided with
an Officers’ Certificate and an Opinion of Counsel as           conclusive evidence
that any supplemental indenture executed pursuant hereto           complies with the
requirements of this Article 11.  

ARTICLE 12 

MERGER AND
CONSOLIDATION 

        Section 12.01. Issuer
May Merge on Certain Terms. The Issuer shall not consolidate or           merge with
or into any other Person or Persons (whether or not affiliated with           the
Issuer), nor shall the Issuer or its successor or successors be a party or
          parties to successive consolidations or mergers unless: upon any such
          consolidation or merger, such successor Person assumes (either expressly as a
          matter of law or assume) the obligation to pay the principal of and interest on
          all of the Notes when due and payable hereunder and the obligation to observe
          all of the covenants and conditions that under this Indenture are to be
          performed by the Issuer.  

        Section 12.02. Successor
to Be Substituted. In case of any such consolidation or merger,           such
successor Person shall succeed to and be substituted for the Issuer, with           the
same effect as if it had been named herein as the party of this first part.
          Such successor Person thereupon may cause to be signed, and may issue either in
          its own name or in the name of Tower Semiconductor Ltd. any or all of the
Notes,           issuable hereunder that theretofore shall not have been signed by the
Issuer and           delivered to the Trustees; and, upon the order of such successor
Person instead           of the Issuer and subject to all the terms, conditions and
limitations in this           Indenture prescribed, the Trustee shall authenticate and
shall deliver, or cause           to be authenticated and delivered, any Notes that
previously shall have been           signed and delivered by the officers of the Issuer
to the Trustee for           authentication, and any Notes that such successor Person
thereafter shall cause           to be signed and delivered to the Trustee for that
purpose. All the Notes so           issued shall in all respects have the same legal rank
and benefit under this           Indenture as the Notes theretofore or thereafter issued
in accordance with the           terms of this Indenture as though all of such Notes had
been issued at the date           of the execution hereof. In the event of any such
consolidation, merger, sale,           conveyance, transfer or lease, the Person named as
the “Issuer”          in the first paragraph of this Indenture or any
successor that shall thereafter           have become such in the manner prescribed in
this Article 11 may be           dissolved, wound up and liquidated at any time
thereafter and such Person shall           be released from its liabilities as obligor
and maker of the Notes and from its           obligations under this Indenture.  

In case of any such consolidation or
merger, such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate. 

        Section 12.03. Opinion
of Counsel to Be Given to Trustees. The Trustees shall receive an           Officers’ Certificate
and an Opinion of Counsel as conclusive evidence that           any such consolidation or
merger and any such assumption by the successor Person           complies with the
provisions of this Article 12.  

- 36 -

ARTICLE 13 

SATISFACTION AND
DISCHARGE OF INDENTURE 

        Section 13.01. Discharge
of Indenture. When (a) the Issuer shall deliver to the           Trustee for
cancellation all Notes theretofore authenticated (other than any           Notes that
have been destroyed, lost or stolen and in lieu of or in substitution           for which
other Notes shall have been authenticated and delivered) and not           theretofore
canceled, or (b) all the Notes not theretofore canceled or           delivered to
the Trustee for cancellation shall have become due and payable, or           are by their
terms to become due and payable within one year or are to be called           for
redemption within one year under arrangements satisfactory to the Trustees           for
the giving of notice of redemption, and the Issuer shall deposit with the
          Trustees, in trust, funds sufficient to pay at maturity or upon redemption of
          all of the Notes (other than any Notes that shall have been mutilated,
          destroyed, lost or stolen and in lieu of or in substitution for which other
          Notes shall have been authenticated and delivered) not theretofore canceled or
          delivered to the Trustee for cancellation, including principal and interest due
          or to become due to such date of maturity or redemption date, as the case may
          be, accompanied by a verification report, as to the sufficiency of the
deposited           amount, from an independent certified accountant or other financial
professional           satisfactory to the Trustees, and if the Issuer shall also pay or
cause to be           paid all other sums payable hereunder by the Issuer, then this
Indenture shall           cease to be of further effect (except as to (i) remaining
rights of           registration of transfer, substitution and exchange and conversion of
Notes,           (ii) rights hereunder of Noteholders to receive payments of
principal of           and interest on, the Notes and the other rights, duties and
obligations of           Noteholders, as beneficiaries hereof with respect to the
amounts, if any, so           deposited with the Trustees and (iii) the rights,
obligations and           immunities of the Trustees hereunder), and the Trustees, on
written demand of           the Issuer accompanied by an Officers’ Certificate and
an Opinion of           Counsel as required by Section 15.05 and at the cost and
expense of the           Issuer, shall execute proper instruments acknowledging
satisfaction of and           discharging this Indenture; the Issuer, however, hereby
agrees to reimburse the           Trustees for any costs or expenses thereafter
reasonably and properly incurred           by the Trustees and to compensate the Trustees
for any services thereafter           reasonably and properly rendered by the Trustees in
connection with this           Indenture or the Notes.  

        Section 13.02. Deposited
Monies to Be Held in Trust by Trustees. Subject to           Section 13.04, all
monies deposited with the Trustees pursuant to           Section 13.01 shall be held
in trust for the sole benefit of the           Noteholders, and such monies shall be
applied by the Trustee to the payment,           either directly or through any paying
agent (including the Issuer if acting as           its own paying agent), to the holders
of the particular Notes for the payment or           redemption of which such monies have
been deposited with the Trustees, of all           sums due and to become due thereon for
principal and interest.  

        Section 13.03. Paying
Agent to Repay Monies Held. Upon the satisfaction and discharge of           this
Indenture, all monies then held by any paying agent of the Notes (other           than
the Trustees) shall, upon written request of the Issuer, be repaid to it or
          paid to the Trustees, and thereupon such paying agent shall be released from
all           further liability with respect to such monies.  

        Section 13.04. Return
of Unclaimed Monies. Subject to the requirements of applicable           law, any
monies deposited with or paid to the Trustees for payment of the           principal of
or interest on Notes and not applied but remaining unclaimed by the           holders of
Notes for two years after the date upon which the principal of or           interest on
such Notes, as the case may be, shall have become due and payable,           shall be
repaid to the Issuer by the Trustee on demand and all liability of the           Trustees
shall thereupon cease with respect to such monies; and the holder of           any of the
Notes shall thereafter look only to the Issuer for any payment that           such holder
may be entitled to collect unless an applicable abandoned property           law
designates another Person.  

        Section 13.05. Reinstatement.
If the Trustees or the paying agent are unable to apply           any money in
accordance with Section 13.02 by reason of any order or           judgment of any
court or governmental authority enjoining, restraining or           otherwise prohibiting
such application, the Issuer’s obligations under this           Indenture and the
Notes shall be revived and reinstated as though no deposit had           occurred
pursuant to Section 13.01 until such time as the Trustees or the           paying
agent are permitted to apply all such money in accordance with           Section 13.02;
provided that if the Issuer makes any payment of           interest on or
principal of any Note following the reinstatement of its           obligations, the
Issuer shall be subrogated to the rights of the holders of such           Notes to
receive such payment from the money held by the Trustees or paying           agent.  

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ARTICLE 14 

CONVERSION OF NOTES 

        Section 14.01. Right
to Convert. (a) Subject to and upon compliance with
the provisions of this Indenture, but subject to Section 14.04 below, at any time
commencing on the first trading date on the TASE after the date on which the Notes are
listed for trading on the TASE and until 5:00 p.m. (New York City time) on [ ], [ ], 2011,
inclusive (but if such last date is not a trading day on the TASE, then the last date to
convert the Notes will be the first trading day on the TASE after such date), the holder
of any Note shall have the right, at such holder’s option, to convert the principal
amount of the Note, in integral multiples of $1.00, into fully paid and non-assessable
Ordinary Shares at the Conversion Price in effect at such time, by surrender of the Note so
to be converted, together with any required funds, under the circumstances described in
this Section 14.01 and in the manner provided in Section 14.02.  

        (b)
 A
holder of Notes is not entitled to any rights of a holder of Ordinary Shares
          until such holder has converted his Notes to Ordinary Shares, and only to the
          extent such Notes are deemed to have been converted to Ordinary Shares under
          this Article 14.  

             (c)
          No accrued interest will be payable by the Issuer upon the conversion of the
          Notes into Ordinary Shares. A holder’s right to accrued interest, if any,
          will be lost up conversion of the Notes into Ordinary Shares. 

             (d)
          Fractional shares will not be issued upon conversion of the Notes. The number of
          shares issuable upon conversion of the Notes will be rounded down to the nearest
          whole number. No payment of cash or in kind will be made in lieu of fractional
          shares. 

        Section 14.02. Exercise
of Conversion Privilege; Issuance of Ordinary Shares on Conversion;           No
Adjustment for Interest. In order to exercise the conversion privilege           with
respect to any Note in certificated form, the Issuer must receive at the           office
or agency of the Issuer maintained for that purpose or, at the option of           such
holder, the Corporate Trust Office, such Note with the original or           facsimile of
the form entitled “Conversion Notice” on the           reverse thereof,
duly completed and manually signed, together with such Notes           duly endorsed for
transfer. Such notice shall also state the name or names (with           address or
addresses) in which the certificate or certificates for Ordinary           Shares which
shall be issuable on such conversion shall be issued, and shall be           accompanied
by transfer or similar taxes, if required pursuant to this           Indenture.  

As promptly as practicable after
satisfaction of the requirements for conversion set forth above, subject to compliance
with any restrictions on transfer if shares issuable on conversion are to be issued in a
name other than that of the Noteholder (as if such transfer were a transfer of the Note or
Notes so converted), the Issuer shall issue and shall deliver to such Noteholder at the
office or agency maintained by the Issuer for such purpose pursuant to Section 4.02,
a certificate or certificates for the number of full Ordinary Shares issuable upon the
conversion of such Note as determined by the Issuer in accordance with the provisions of
this Article 14, calculated by the Issuer as provided in Section 14.03. 

Each conversion shall be deemed to
have been effected as to any such Note on the date on which the requirements set forth
above in this Section 14.02 have been satisfied as to such Note, and the Person in
whose name any certificate or certificates for Ordinary Shares shall be issuable upon such
conversion shall be deemed to have become on said date the holder of record of the shares
represented thereby; provided that any such surrender on any date when the stock
transfer books of the Issuer shall be closed shall constitute the Person in whose name the
certificates are to be issued as the record holder thereof for all purposes on the next
succeeding day on which such stock transfer books are open, but such conversion shall be
at the Conversion Price in effect on the date upon which such Note shall be surrendered. 

Upon
conversion of a Note, and thereafter, no amount of principal and/or interest on account of
the Note shall be payable by the Issuer. 

        Section 14.03. Conversion
Price. Each $[  ] principal amount of the Notes shall be           convertible
into one Ordinary Share specified in the form of Note (herein called           the “Conversion
Price”) attached as Exhibit A hereto, subject to           adjustment as
provided in this Article 14. The adjusted Conversion Price to           the
debentures shall under no circumstances be lower than $0.01. Fractional           shares
will not be issued upon conversion of the Notes. The number of shares           issuable
upon conversion of the Notes will be rounded down to the nearest whole           number.
No payment of cash or in kind will be made in lieu of fractional shares.  

- 38 -

        Section 14.04.
 Adjustment
of Conversion Price. Except as set forth in this Section 14.04 below, the Conversion Price will be adjusted if:  

	 	(a) 	In the event that
by [    ], 2006, the Issuer consummates one or more financings (excluding the
offering under which the Notes were issued) in which the Issuer receives gross proceeds from each
such financing that equal or exceed $5 million, the Conversion Price of the Notes will be adjusted
to 90% of the lowest price per share (as calculated below) at which the Issuer sold securities in
any one of these financings, provided that the lowest price per share at which the Issuer sold
securities in any one of these financings is lower than the original Conversion Price. The Issuer
shall issue a press release, with a copy to the Trustee and Co-Trustee, to announce the adjusted
Conversion Price on the fifth TASE Trading Day after_____ __, 2006 and the adjustment will take
effect on the first TASE Trading Day following the twenty-first day after the date of the press
release. 

	 	(b) 	In the event that by
[    ], 2006, the Issuer does not receive in any one financing (excluding the
offering under which the Notes were issued) gross proceeds that equal or exceed $5 million, but
executes prior to [    ], 2006, one or more agreements relating to transactions which have not
closed, letters of intent, memorandums of understanding or similar agreements or understandings, for
a proposed financing or financings, which have not been abandoned prior to [    ], 2006, and the
Issuer receives in any one of these financings gross proceeds that equal or exceed $5 million by
[    ], 2007, then, the Conversion Price will be adjusted to 90% of the lowest price per
share (as calculated below) at which the Issuer sold securities in any of these financings, provided
that the lowest price per share at which the Issuer sold securities in any one of these financings
is lower than the original Conversion Price.  The Issuer shall issue a press release, with a copy to
the Trustee and Co-Trustee, to announce the adjusted Conversion Price on the fifth TASE Trading Day
after _____ __, 2007 and the adjustment will take effect on the first TASE Trading Day following the
twenty-first day after the date of the press release. 

	 	
In
the event that the Issuer executes prior to ______ __, 2006 one or more agreements,
letters of intent, memorandums of understanding or similar agreements or understandings
for a proposed $75 million financing that is not consummated prior to______ __, 2006,
even if the Issuer receives gross proceeds of at least $5 million in a financing by
______ __, 2006, then the Conversion Price will be subject to the aforementioned
adjustment only following ______ __, 2007, and if the Issuer consummates the
aforementioned $75 million financing by _____, 2007, the price per share in such
financing will be taken into account for such purposes. 

	 	
Notwithstanding the adjustment to the Conversion Price provided for  in this Section 14.04, the
Issuer may at its discretion elect that  such adjustment shall not and will not apply in certain
circumstances as provided in this Section 14.04 below.  

	 	
A
“financing” for purposes of adjustments to the Conversion Price means:  

	 	(a) 	the
sale of the Issuer’s Ordinary Shares, warrants or additional
               convertible debentures, other than employee options, existing outstanding
               warrants, employee options, convertible debentures or other rights; and 

	 	(b) 	the
conversion of existing debt of the Issuer into equity, other than the
               conversion of existing wafer credits into the Issuer’s Ordinary
Shares and                existing convertible debentures. 

	 	
The
Issuer shall calculate the price per share for the purposes of the adjustment to the
Conversion Price as follows:  

	 	(a) 	If,
in the financing or financings the Issuer issues only Ordinary Shares, the
               price per share for the purposes of calculating the adjustment will be the
price                per Ordinary Share in the financing or financings. 

	 	(b) 	If,
in the financing or financings the Issuer issues only convertible
               debentures, the price per share for the purposes of calculating the
adjustment                will be the result of dividing the purchase price of the
debentures issued in                the financing or financings less the present value of
the cumulative amount of                interest payable prior to the last conversion
date of the debentures issued in                the financing or financings, by the
number of Ordinary Shares issuable upon                conversion of the debentures
issued in the financing or financings. 

- 39 -

	 	(c) 	If,
in the financing or financings the Issuer issues only warrants, the price
               per share for the purposes of calculating the adjustment will be the
purchase                price of the warrants less the difference between the economic
value of the                warrants and the purchase price of the warrants, plus the
present value of the                exercise price of the warrants. 

	 	(d) 	If,
in the financing or financings the Issuer issues units consisting of
               Ordinary Shares and warrants, the price per share for the purposes of
               calculating the adjustment will be the result of dividing the purchase
price per                unit in the financing or financings, less the economic value of
the warrants, by                the number of Ordinary Shares in each unit (not including
the number of Ordinary                Shares issuable upon exercise of the warrants). 

	 	(e) 	If,
in the financing or financings the Issuer issues units consisting of
               convertible debentures and warrants, the price per share for the purposes
of                calculating the adjustment will be the result of dividing the price per
unit in                the financing or financings, less the present value of the
cumulative amount of                interest payable prior to the last conversion date of
the debentures issued in                the financing or financings and less the economic
value of the warrants included                in the units, by the number of Ordinary
Shares in each unit issuable upon                conversion of the debentures issued in
the financing or financings, but not                including the number of Ordinary
Shares issuable upon exercise of the warrants. 

	 	(f) 	If,
in the financing or financings the Issuer issues units consisting of
               Ordinary Shares and convertible debentures, the price per share for the
purposes                of calculating the adjustment will be the result of dividing the
purchase price                per unit in the financing or financings, less the present
value of the                cumulative amount of interest payable prior to the last
conversion date of the                debentures issued in the financing or financings,
by the number of Ordinary                Shares in each unit including the number of
Ordinary Shares issuable upon                conversion of the debentures issued in the
financing or financings. 

	 	(g) 	If,
in the financing or financings the Issuer issues units consisting of
               Ordinary Shares, convertible debentures and warrants, the price per share
for                the purposes of calculating the adjustment will be the result of
dividing the                price per unit in the financing or financings, less the
present value of the                cumulative amount of interest payable prior to the
last conversion date of the                debentures issued in the financing or
financings and less the economic value of                the warrants included in the
units, by the number of Ordinary Shares in each                unit including the number
of Ordinary Shares issuable upon conversion of the                debentures issued in
the financing or financings, but not including the number                of Ordinary
Shares issuable upon exercise of the warrants. 

        For
the purposes of the adjustments set forth above, the “economic value” of the
warrants will be calculated according to the Black and Scholes model as set forth in the
TASE Rules for registered companies based on the average closing price of the
Issuer’s Ordinary Shares on NASDAQ (or such other stock exchange or quotation system
on which the Issuer’s Ordinary Shares are listed in that the event that they cease to
be traded on NASDAQ) during the 15 consecutive trading days immediately prior to the date
on which the financing agreement is signed. The interest rate for this calculation will be
the interest rate as published by the TASE on the date of the relevant financing. 

        For
the purposes of the adjustments set forth above, the “present value” will be
calculated using the interest rate then applicable to the long term loans (more than 12
months maturity) under the Credit Facility. In the event that the financing or financings
is denominated in a currency other than United States dollars, the amounts in the
financing or financings will be converted to United States dollars according to the last
known exchange rate on the date of the consummation of the relevant financing. 

- 40 -

        In the event that by
[    ], 2006  or by [    ], 2007 (in the event that the Issuer executes
prior to ______ __, 2006 one or more agreements, letters of intent, memorandums of understanding or
similar agreements or understandings for a proposed $75 million financing, as described in this
Section 14.04 above, even if the Issuer receives gross proceeds of at least $5 million in a
financing by ______ __, 2006), as applicable, the Issuer consummates a financing or series of
related financings (excluding the offering under which the Notes were issued) in which the Issuer
receives gross proceeds of at least $75 million, the Issuer may, at its discretion, elect that the
adjustment to the Conversion Price set forth in this Section 14.04 above shall not apply and will no
longer apply. Following the signing of an agreement for a financing or series of related financings
in which it is contemplated that the Issuer may receive gross proceeds of at least $75 million, if
the Issuer so elects, it shall announce such election, subject to the consummation of such $75
million financing, by the filing of a Report on Form 6-K to be filed with the Commission and in an
Immediate Report as well as in a notice to be published in two Israeli newspapers with wide
circulation in Israel. When such $75 million financing has been consummated, the Issuer will
announce such consummation by filing a report on Form 6-K and in an Immediate Report in Israel, as
well as a notice to be published in two Israeli newspapers with wide circulation in Israel. In the
event that the Issuer has elected  that the Conversion Price shall not be subject to adjustment,
then: 

	 	(a) 	If the closing price of the Issuer’s ordinary shares on NASDAQ (or such other stock exchange or
quotation system on which its ordinary shares are listed in the event that they cease to be traded
on NASDAQ) on the trading day immediately prior to the date on which the $75 million financing is
consummated is greater than [$_____], then the Conversion Price shall not be subject to adjustment
and the original Conversion Price of one ordinary share per $___ aggregate principal amount of Notes
will apply to any conversion of the Notes until the maturity thereof; or 

	 	(b) 	If the closing price of the Issuer’s ordinary shares on NASDAQ (or such other stock exchange or
quotation system on which its ordinary shares are listed in the event that they cease to be traded
on NASDAQ) on the trading day immediately prior to the date on which the $75 million financing is
consummated is equal to or is lower than [$_____], then the Notes will be subject to mandatory
redemption in accordance with the provisions set forth in Section 3.03. Notes will not be
convertible during the 16 day period prior to redemption thereof. Therefore, in the event such
redemption shall have been announced, the Notes shall only be convertible for the  period (which may
be as few as five days but no more than fourteen days) after announcement by the Issuer and before
the commencement of the 16-day period.

        Section 14.05. Effect
of Reclassification, Consolidation, Merger, Bonus Shares, Rights           Offerings. 

	 	(a) 	If
the Issuer shall effect a subdivision or consolidation of its Ordinary Shares
               into a greater or lesser number of Ordinary Shares (by reclassification,
stock                split, reverse stock split or otherwise than by payment of a
dividend in                Ordinary Shares) then, upon conversion of Notes following the
record date for                the determination of holders of Ordinary Shares to be
affected by such                subdivision or consolidation, the number of Ordinary
Shares issuable upon the                conversion of each Note will be increased or
decreased, as the case may be, by                such number of Ordinary Shares that
would have been received if such Note had                been converted on the record
date fixed for such subdivision or consolidation. 

	 	(b) 	If
the Issuer shall effect a distribution of bonus Ordinary Shares then, upon
               conversion of Notes following the record date for the determination of
holders                of Ordinary Shares entitled to the bonus share distribution, the
number of                Ordinary Shares issuable upon the conversion of each Note will
be increased by                such number of Ordinary Shares that would have been
received if such Note had                been converted on the record date fixed for the
bonus share distribution. 

	 	(c) 	In
the event of the Issuer shall consummate a rights offering to its
               shareholders of any type of its securities prior to the conversion of the
Notes,                the number of Ordinary Shares issuable upon the conversion of the
Notes shall be                adjusted to take into account the element of economic
benefit in the future                rights offering as is represented by the ratio
between the price per share of                the Issuer’s Ordinary Shares on the
effective date of the future rights                offering and the opening price per
share of the Issuer’s Ordinary Shares                that is established by the TASE
on the following TASE Trading Day. If the TASE                does not establish an
opening price per share of the Issuer’s Ordinary                Shares, no
adjustment in the number of shares issuable upon conversion of the                Notes
will be made with respect to such future rights offering. 

- 41 -

	 	(d) 	In
the event of a consolidation or merger of the Issuer with another Person as a
               result of which the Issuer is not the surviving Person, the Issuer shall
provide                notice to the Trustees prior to the date of consummation of such
consolidation                or merger. Notes which are not converted prior to the date
of consummation of                such consolidation or merger shall no longer be
convertible. The surviving                Person shall execute with the Trustee a
supplemental indenture (which shall                comply with the Trust Indenture Act as
in force at the date of execution of such                supplemental indenture)
providing that each Note shall continue to hold such                rights and/or
privileges with respect to payment of interest and/or principal                from the
surviving Person as further set forth in section 12.01. 

The Issuer shall cause notice of the
execution of such supplemental indenture to be mailed to each holder of Notes, at its
address appearing on the Note register provided for in Section 2.05 of this
Indenture, within twenty (20) days after execution thereof. Failure to deliver such
notice shall not affect the legality or validity of such supplemental indenture. 

The above provisions of this Section
shall similarly apply to successive reclassifications, consolidations, mergers and
combinations. 

If Section 14.05(d) applies,
thereafter, the adjustments under Section 14.04 shall no longer apply. 

        Section 14.06 Reserved. 

        Section 14.07. Taxes
on Shares Issued. The issue of stock certificates on conversions of           Notes
shall be made without charge to the converting Noteholder for any           documentary,
stamp or similar issue or transfer tax in respect of the issue           thereof. The
Issuer shall not, however, be required to pay any such tax which           may be payable
in respect of any transfer involved in the issue and delivery of           stock in any
name other than that of the holder of any Note converted, and the           Issuer shall
not be required to issue or deliver any such stock certificate           unless and until
the Person or Persons requesting the issue thereof shall have           paid to the
Issuer the amount of such tax or shall have established to the           satisfaction of
the Issuer that such tax has been paid.  

        Section 14.08. Reservation
of Shares, Shares to Be Fully Paid; Compliance with Governmental           Requirements;
Listing of Ordinary Shares. The Issuer shall provide, free           from preemptive
rights, out of its authorized but unissued shares or shares held           in treasury,
sufficient Ordinary Shares to provide for the conversion of the           Notes from time
to time as such Notes are presented for conversion.  

Upon taking any action which would
cause an adjustment to the Conversion Price to an amount that would cause the Conversion
Price to be reduced below the then par value, if any, of the Ordinary Shares issuable upon
conversion of the Notes, the Issuer will take all corporate action which may, in the
opinion of its counsel, be necessary in order that the Issuer may validly and legally
issue Ordinary Shares at such adjusted Conversion Price. 

The Issuer covenants that all
Ordinary Shares which may be issued upon conversion of Notes will upon issue be fully paid
and non-assessable by the Issuer and free from all taxes, liens and charges with respect
to the issue thereof. 

The Issuer covenants that, if any
Ordinary Shares to be provided for the purpose of conversion of Notes hereunder require
registration with or approval of any governmental authority under any federal or state law
before such shares may be validly issued upon conversion, the Issuer will in good faith
and as expeditiously as possible, to the extent then permitted by the rules and
interpretations of the Commission (or any successor thereto), endeavor to secure such
registration or approval, as the case may be. 

- 42 -

The Issuer further covenants that, if
at any time the Ordinary Shares shall be listed on the NASDAQ National Market and the TASE
or any other national securities exchange or automated quotation system, the Issuer will,
if permitted by the rules of such exchange or automated quotation system, list and keep
listed, so long as the Ordinary Shares shall be so listed on such exchange or automated
quotation system, all Ordinary Shares issuable upon conversion of the Notes;
provided that if the rules of such exchange or automated quotation system permit the
Issuer to defer the listing of such Ordinary Shares until the first conversion of the
Notes into Ordinary Shares in accordance with the provisions of this Indenture, the Issuer
covenants to list such Ordinary Shares issuable upon conversion of the Notes in accordance
with the requirements of such exchange or automated quotation system at such time. 

        Section 14.09. Responsibility
of Trustees. The Trustees and any other conversion agent           shall not at any
time be under any duty or responsibility to any holder of Notes           to determine
the Conversion Price or whether any facts exist which may require           any adjustment
of the Conversion Price, or with respect to the nature or extent           or calculation
of any such adjustment when made, or with respect to the method           employed, or
herein or in any supplemental indenture provided to be employed, in           making the
same. The Trustees and any other conversion agent shall not be           accountable with
respect to the validity or value (or the kind or amount) of any           Ordinary
Shares, or of any securities or property, which may at any time be           issued or
delivered upon the conversion of any Note; and the Trustees and any           other
conversion agent make no representations with respect thereto. Neither the
          Trustees nor any conversion agent shall be responsible for any failure of the
          Issuer to issue, transfer or deliver any Ordinary Shares or stock certificates
          or other securities or property or cash upon the surrender of any Note for the
          purpose of conversion or to comply with any of the duties, responsibilities or
          covenants of the Issuer contained in this Article 14. Without limiting the
          generality of the foregoing, neither the Trustees nor any conversion agent
shall           be under any responsibility to determine the correctness of any
provisions           contained in any supplemental indenture entered into pursuant to
          Section 14.05 relating to any adjustment to be made with respect thereto,
          but, subject to the provisions of Section 7.01, may accept as conclusive
          evidence of the correctness of any such provisions, and shall be protected in
          relying upon, the Officers’ Certificate (which the Issuer shall be
          obligated to file with the Trustees prior to the execution of any such
          supplemental indenture) with respect thereto.  

        Section 14.10. Notice
to Holders Prior to Certain Actions. In case of the taking of any           of the
actions listed in Section 14.05 above or of the voluntary or involuntary
          dissolution, liquidation or winding up of the Issuer, the Issuer shall cause to
          be filed with the Trustees and to be mailed to each holder of Notes at his
          address appearing on the Note register provided for in Section 2.05 of
this           Indenture, as promptly as possible but in any event at least ten (10) days
          prior to the applicable date hereinafter specified, a notice stating
          (x) the date on which a record is to be taken for the purpose of such
          distribution of bonus shares, or rights offering, or, if a record is not to be
          taken, the date as of which the holders of Ordinary Shares of record to be
          entitled to such bonus shares, or to participate in such rights offering are to
          be determined, or (y) the date on which such, consolidation, merger
          dissolution, liquidation or winding up is expected to become effective or
occur.           Failure to give such notice, or any defect therein, shall not affect the
          legality or validity of such dividend, distribution, reclassification,
          consolidation, merger, dissolution, liquidation or winding up.  

ARTICLE 15 

MISCELLANEOUS
PROVISIONS 

        Section 15.01. Provisions
Binding on Issuer’s Successors. All the covenants,           stipulations,
promises and agreements by the Issuer contained in this Indenture           shall bind
its successors and assigns whether so expressed or not.  

        Section 15.02. Official
Acts by Successor Corporation. Any act or proceeding by any           provision of
this Indenture authorized or required to be done or performed by           any board,
committee or officer of the Issuer shall and may be done and           performed with
like force and effect by the like board, committee or officer of           any Person
that shall at the time be the lawful sole successor of the Issuer.  

- 43 -

        Section 15.03. Notices; Addresses
for Notices, Etc. Any notice or demand which by any provision of this Indenture is to be given by publication and/or
the filing of a report with the Commission and/or the ISA, shall, if and to the extent so required
by the provision of any applicable law or stock exchange rule, be mailed to each holder of Notes at
his address appearing on the Note register provided for in Section 2.05 of this Indenture.

Any notice or demand which by any provision           of this
Indenture is required or permitted to be given or served by the Trustees           or by
the holders of Notes on the Issuer shall be deemed to have been           sufficiently
given or made, for all purposes, if given or served by being           deposited postage
prepaid by registered or certified mail in a post office           letter box or sent by
telecopier transmission addressed as follows:  

to the Issuer:

Tower Semiconductor Ltd.

Ramat Gavriel Industrial Park

P.O. Box 619 Migdal Haemek 23150

Israel

Attention: Chief Financial Officer

Facsimile: +972 (0) 4-654-6510.

Any notice, direction, request or
demand hereunder to or upon the Trustees shall be deemed to have been sufficiently given
or made, for all purposes, if given or served by being deposited, postage prepaid, by
registered or certified mail in a post office letter box or sent by telecopier
transmission addressed as follows: 

The Bank of New York

One Canada Square

London E14 5AL

United Kingdom

Facsimile: +44 (0) 207-964 6399

Attention: Corporate Trust Administration

and

Hermetic Trust (1975) Ltd

of Hayarkon Street 113

Tel Aviv

Israel

Facsimile: +972 (0) 3-527 1736

Attention: Dan Avnon, Esq.

The Trustees, by notice to the
Issuer, may designate additional or different addresses for subsequent notices or
communications. 

Any notice or communication mailed to
a Noteholder shall be mailed to him by first class mail, postage prepaid, at his address
as it appears on the Note register and shall be sufficiently given to him if so mailed
within the time prescribed. 

Failure to mail a notice or
communication to a Noteholder or any defect in it shall not affect its sufficiency with
respect to other Noteholders. If a notice or communication is mailed in the manner
provided above, it is duly given, whether or not the addressee receives it. 

        Section 15.04. Governing
Law. THIS INDENTURE AND EACH NOTE SHALL BE DEEMED TO BE A           CONTRACT MADE
UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES           SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  

        Section 15.05. Evidence
of Compliance with Conditions Precedent, Certificates to Trustees. Upon any
application or demand by the Issuer to the Trustees to take any           action under
any of the provisions of this Indenture, the Issuer shall furnish           to the
Trustees an Officers’ Certificate stating that all conditions           precedent,
if any, provided for in this Indenture relating to the proposed           action have
been complied with, and an Opinion of Counsel stating that, in the           opinion of
such counsel, all such conditions precedent have been complied with.  

- 44 -

Each certificate or opinion provided
for in this Indenture and delivered to the Trustees with respect to compliance with a
condition or covenant provided for in this Indenture shall include: (1) a statement
that the person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such certificate or opinion is based;
(3) a statement that, in the opinion of such person, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (4) a statement as to
whether or not, in the opinion of such person, such condition or covenant has been
complied with. 

        Section 15.06. Legal
Holidays. In any case in which the date of maturity of interest on           or
principal of the Notes or the redemption date of any Note will not be a
          Business Day, then payment of such interest on or principal of the Notes need
          not be made on such date, but may be made on the next succeeding Business Day
          with the same force and effect as if made on the date of maturity or the
          redemption date, and no interest shall accrue for the period from and after
such           date.  

        Section 15.07. Trust
Indenture Act. This Indenture is hereby made subject to, and shall           be
governed by, the provisions of the Trust Indenture Act required to be part of
          and to govern indentures qualified under the Trust Indenture Act;If any
          provision hereof limits, qualifies or conflicts with another provision hereof
          which is required to be included in an indenture qualified under the Trust
          Indenture Act, such required provision shall control.  

        Section 15.08. No
Security Interest Created. The Notes are not secured. Nothing in this
          Indenture or in the Notes, expressed or implied, shall be construed to
          constitute a security interest under the Uniform Commercial Code or similar
          legislation, as now or hereafter enacted and in effect, in any jurisdiction in
          which property of the Issuer or its subsidiaries is located.  

        Section 15.09. No limitation on the Issuer’s Future Financings. For the removal of
doubt, it is clarified that the Issuer shall be entitled to create pledges and security
interests over any of its assets, without the consent of the Trustees and/or the
Noteholders, and that the Issuer shall be entitled at any time to take any credit with no
limitation, to issue additional series of debentures, with any terms whatsoever as the
Issuer decide, whether subordinated or senior or equal to the rights of the Noteholders
hereunder.  

        Section 15.10. Benefits
of Indenture. Nothing in this Indenture or in the Notes, express           or
implied, shall give to any Person, other than the parties hereto, any paying
          agent, any authenticating agent, any Note registrar and their successors
          hereunder and the holders of Notes any benefit or any legal or equitable right,
          remedy or claim under this Indenture.  

        Section 15.11. Table of Contents, Headings, Etc. The table of contents and the
titles           and headings of the Articles and Sections of this Indenture have been
inserted           for convenience of reference only, are not to be considered a part
hereof, and           shall in no way modify or restrict any of the terms or provisions
hereof.  

        Section 15.12. Authenticating
Agent. The Trustee may appoint an authenticating agent           that shall be
authorized to act on its behalf, and subject to its direction, in           the
authentication and delivery of Notes in connection with the original           issuance
thereof and transfers and exchanges of Notes hereunder, including under
          Sections 2.04, 2.05, 2.06, 2.07 and 3.02, as fully to all intents and purposes
          as though the authenticating agent had been expressly authorized by this
          Indenture and those Sections to authenticate and deliver Notes. For all
purposes           of this Indenture, the authentication and delivery of Notes by the
          authenticating agent shall be deemed to be authentication and delivery of such
          Notes “by the Trustee” and a certificate of authentication executed
on           behalf of the Trustee by an authenticating agent shall be deemed to satisfy
any           requirement hereunder or in the Notes for the Trustee’s certificate of
          authentication. Such authenticating agent shall at all times be a Person
          eligible to serve as trustee hereunder pursuant to Section 7.09.  

- 45 -

Any corporation into which any
authenticating agent may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, consolidation or conversion to which any
authenticating agent shall be a party, or any corporation succeeding to the corporate
trust business of any authenticating agent, shall be the successor of the authenticating
agent hereunder, if such successor corporation is otherwise eligible under this
Section 15.12, without the execution or filing of any paper or any further act on the
part of the parties hereto or the authenticating agent or such successor corporation. 

Any authenticating agent may at any
time resign by giving written notice of resignation to the Trustee and to the Issuer. The
Trustee may at any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Issuer. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time any
authenticating agent shall cease to be eligible under this Section, the Trustee shall
either promptly appoint a successor authenticating agent or itself assume the duties and
obligations of the former authenticating agent under this Indenture and, upon such
appointment of a successor authenticating agent, if made, shall give written notice of
such appointment of a successor authenticating agent to the Issuer and shall mail notice
of such appointment of a successor authenticating agent to all holders of Notes as the
names and addresses of such holders appear on the Note register. 

The Issuer agrees to pay to the
authenticating agent from time to time such reasonable compensation for its services as
shall be agreed upon in writing between the Issuer and the authenticating agent. 

The provisions of Sections 7.02,
7.03, 7.04 and 8.03 and this Section 15.12 shall be applicable to any authenticating
agent. 

        Section 15.13. Execution
in Counterparts. This Indenture may be executed in any number           of
counterparts, each of which shall be an original, but such counterparts shall
          together constitute but one and the same instrument.  

        Section 15.14. Severability.
In case any provision in this Indenture or in the Notes           shall be invalid,
illegal or unenforceable, then (to the extent permitted by           law) the validity,
legality and enforceability of the remaining provisions shall           not in any way be
affected or impaired thereby.  

The Bank of New York and Hermetic
Trust (1975) Ltd. each hereby accepts the trusts in this Indenture declared and provided,
upon the terms and conditions herein above set forth. 

- 46 -

        IN
WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed. 

			TOWER SEMICONDUCTOR LTD.,

By: 
——————————————

   Name:
   Title: 

			THE BANK OF NEW YORK, as Trustee

By: 
——————————————

   Name:
   Title: 

			HERMETIC TRUST (1975) LTD., as Co-Trustee

By: 
——————————————

   Name:
   Title: 

Exhibit A 

FORM OF NOTE 

[FORM OF FACE OF NOTE] 

 [THE FOLLOWING LEGEND
SHALL APPEAR ON THE FACE OF EACH RESTRICTED NOTE]  

THE NOTE EVIDENCED HEREBY AND
THE ORDINARY SHARES ISSUABLE UPON CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY
STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF A
REGISTRATION STATEMENT WITH RESPECT TO THE SECURITIES SO OFFERED OR SOLD IN EFFECT UNDER
THE SECURITIES ACT OR AN OPINION OF COUNSEL (SATISFACTORY IN FORM AND SUBSTANCE TO THE
ISSUER) THAT SUCH REGISTRATION IS NOT REQUIRED. 

TOWER SEMICONDUCTOR
LTD. 

5% SUBORDINATED
CONVERTIBLE DEBENTURES DUE 2011 

CUSIP: M87915 AB 6

No.  

$___________

        Tower
Semiconductor Ltd., a company with limited liability incorporated under the laws of
the State of Israel (herein called the “Issuer), for value received hereby promises to pay to
[ ] or its registered assigns, the principal sum of           Dollars at
maturity on [ ], 2011, and to pay interest on said principal sum, at the rate per annum of
5%, from December __, 2005 until the principal hereof is duly paid or provided for. Interest on the
Notes shall be computed on the basis of a 365-day year.  

        All
payments of the principal of, premium, if any, and interest due and payable on this Note at the
maturity thereof or on any redemption date, shall be made only upon the surrender of this Note, at
the option of the holder, at the Corporate Trust Office or at the office or agency maintained by the
Issuer for that purpose in London, England, in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private debts. 

        No
accrued interest will be payable upon the redemption of this Note with premium or upon
any portion of this Note converted into the Issuer’s Ordinary Shares, as provided on
the reverse hereof and in the Indenture. 

        Reference
is made to the further provisions of this Note set forth on the reverse hereof. Such
further provisions shall for all purposes have the same effect as though fully set forth
at this place. 

        This
Note shall not be valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been manually signed by the Trustee or a duly authorized
authenticating agent under the Indenture. 

        IN
WITNESS WHEREOF, the Issuer has caused this Note to be duly executed.  

	

Attest:	

By:
——————————————

Name:
Title:	TOWER SEMICONDUCTOR LTD.,

By:
——————————————

Name:
Title: 

Name:
Title:

Dated: 

TRUSTEE’S
CERTIFICATE OF AUTHENTICATION  
    

This is one of the Notes described in
the within-named Indenture.   

THE BANK OF NEW YORK, as Trustee 

	

By: ______________________________

       Authorized Signatory

                            , or

	

By: ______________________________

       As Authenticating Agent
       (if different from Trustee)

	

By: ______________________________

       Authorized Signatory

- A-2 -

FORM OF REVERSE OF NOTE 

TOWER SEMICONDUCTOR
LTD. 

5% SUBORDINATED
CONVERTIBLE DEBENTURES DUE 2011 

        Notes;
Indenture; Trustees. This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its 5% Subordinated Convertible Debentures due 2011 (the
“Notes”), limited in aggregate principal amount to $50,000,000 and to be
issued under and pursuant to an Indenture dated as of [ ], 2005 (the
“Indenture”), by and between the Issuer, and The Bank of New York, as
trustee (the “Trustee”) and Hermetic Trust (1975) Ltd., as co-trustee
(the “Co-Trustee”, and, together with the Trustee, the
“Trustees”), to which Indenture and all indentures supplemental thereto
reference is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustees, the Issuer and the holders
of the Notes. 

        No
reference herein to the Indenture and no provision of this Note or of the Indenture shall
(i) alter or impair the obligation of the Issuer, which is absolute and unconditional, to
pay the principal of, premium, if any, and interest on this Note at the place, at the
respective times, at the rate and in the coin or currency herein prescribed; (ii) affect
the relative rights against the Issuer of the Holders of the Notes and creditors of the
Issuer other than the Lenders; or (iii) prevent the Trustees or the holder of any Notes
from exercising all remedies otherwise permitted by applicable law upon default under the
Indenture (subject to any conditions and limitations set forth therein). 

        Capitalized
but otherwise undefined terms used in this Note that are defined in the Indenture are used
herein as therein defined. 

        Form;
Denomination; Exchange; Transfer. The Notes are issuable in fully registered form,
without coupons, in denominations of $1.00 principal amount and any integral multiple of
$1.00, at the office or agency of the Issuer referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax, assessment or other
governmental charge that may be imposed in connection with any registration or exchange of
Notes, Notes may be exchanged for a like aggregate principal amount of Notes of any other
authorized denominations. Upon surrender for registration of transfer of this Note to the
Note registrar or any co-registrar, and satisfaction of the requirements for such transfer
set forth in Section 2.05 of the Indenture, the Issuer shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or transferees,
one or more new Notes of authorized denominations and of like aggregate principal amount
and bearing such restrictive legends as may be required by this Indenture, subject to the
limitations provided in the Indenture and without charge except for any tax, assessment or
other governmental charge imposed in connection therewith. 

             Redemption.
          The Issuer may, at its option, announce the early redemption of the Notes,
          provided that the outstanding aggregate balance of principal on account of the
          Notes is equal to or less than $500,000. In such case, the Issuer shall redeem
          100% of the Notes; no partial redemptions shall be permitted. The Issuer will
          provide notice to the holders of the Notes and the Trustees at least 30 days
          (but not more than 45 days) prior to any such redemption. 

        The
Notes are also subject to mandatory redemption in accordance with the terms of and in the
circumstances described in Section 3.03 of the Indenture, at a redemption price equal to
the outstanding principal amount of the Notes, plus an early redemption premium equal to
15% of the outstanding principal amount of the Notes. No accrued interest will be payable
by the Issuer upon mandatory redemption pursuant to Section 3.03 of the Indenture. 

        The
Notes are not subject to redemption through the operation of any sinking fund. 

- A-3 -

             Subordination.
          All payments pursuant to the Notes made by or on behalf of the Issuer are subordinated to the extent
and in the manner provided in the Indenture to all existing and future obligations of the Issuer
under the Credit Facility. Any Holder by accepting this Note agrees to and shall be bound by the
subordination provisions set forth in the Indenture. Upon any dissolution, winding up, liquidation
or reorganization of the Issuer, the Lenders will be entitled to receive payment in full of all
amounts due to them under the Credit Facility before the holders of Notes are entitled to receive
any payment. In addition, the dates for payment of the principal of, premium, if any, and interest
on the Notes may be postponed (with interest continuing to accrue at regular rates), under certain
circumstances as described in the Indenture. The Lenders may, at any time and from time to time,
without the consent of or notice to the Trustees or the holders of the Notes, take any action under
the Credit Facility or vary any terms of the Credit Facility agreement, as set forth in Article 8 of
the Indenture. 

             Conversion.
          Subject to and in compliance with the provisions of the Indenture, commencing on
          the first trading date on the TASE after the date on which the Notes are listed for trading on the TASE and until 5:00 p.m. (New York City time) on
          ___________ _____, 2011, inclusive (but if such last date is not a trading day
          on the TASE, then the last date to convert the Notes will be the first trading
          day on the TASE after such date), the holder hereof has the right, at its
          option, to convert the principal amount of the Notes, in integral multiples of
          $1.00, into the Issuer’s Ordinary Shares at the Conversion Price in
          effect at such time, subject to adjustment from time to time as provided in
          Section 14.04 of the Indenture, upon surrender of this Note with the form
          entitled “Conversion Notice” on the reverse hereof duly
          completed, to the Issuer at the office or agency of the Issuer maintained for
          that purpose in accordance with the terms of the Indenture, or at the option of
          such holder, the Corporate Trust Office, and, unless the shares issuable on
          conversion are to be issued in the same name as this Note, duly endorsed for
          transfer. 

        The
Conversion Price is subject to adjustment if the Issuer consummates one or more financings as
described in Section 14.04 of the Indenture on or before _____, 2006, or in certain circumstances on
or before _______, 2007, subject to and as provided in Section 14.04 of the Indenture. In certain
circumstances described in Section 14.04, the Issuer may elect that the adjustment to the Conversion
Price otherwise provided for in the Indenture shall not and will not apply not to apply in certain
circumstances. 

        The
Conversion Price is also subject to adjustment as a result of certain corporate events such
as consolidation, reclassification, stock split, payment of bonus shares (stock
dividends), mergers or rights offering, as provided in Section 14.05 of the
Indenture. 

        Fractional
shares will not be issued upon any conversion of this Note. The number of Ordinary Shares
issuable upon conversion of this Note will be rounded down to the nearest whole number. No
payment of cash or in kind will be made in lieu of fractional shares. 

        No
accrued interest will be payable by the Issuer upon the conversion of this Note into the
Issuer’s Ordinary Shares. The holder’s right to accrued interest, if any, will
be lost upon conversion of this Note into Ordinary Shares. 

        Persons
Deemed Owners. The Issuer, the Trustees, any authenticating agent, any
paying agent, any conversion agent and any Note registrar may deem and treat the
registered holder hereof as the absolute owner of this Note (whether or not this Note
shall be overdue and notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Issuer or any Note registrar) for the purpose of receiving
payment hereof, or on account hereof, for the conversion hereof and for all other
purposes, and neither the Issuer nor the Trustees nor any other authenticating agent nor
any paying agent nor other conversion agent nor any Note registrar shall be affected by
any notice to the contrary. All payments made to or upon the order of such registered
holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for
monies payable on this Note. 

        No
Recourse Against Incorporator, Stockholder, Etc. No recourse for the
payment of the principal of or interest on this Note, or for any claim based hereon or
otherwise in respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Issuer in the Indenture or any supplemental indenture or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer or director or subsidiary, as such,
past, present or future, of the Issuer or of any successor corporation, either directly or
through the Issuer or any successor corporation, whether by virtue of any constitution,
statute or rule of law or by the enforcement of any assessment or penalty or otherwise,
all such liability being expressly waived and released as a condition of, and as a
consideration for, the execution of the Indenture and the issue of this Note. 

- A-4 -

        Events
of Default. An Event of Default on this Note is (i) any corporate action taken by the Issuer or other steps
taken or proceedings started or consented to or any order made for the Issuer’s winding up,
liquidation, bankruptcy, dissolution, administration or re-organization (or for the suspension of
payments generally or any process giving protection against creditors), or for the appointment of a
liquidator, receiver, administrator, administrative receiver or similar officer for all or any part
of the Issuer’s revenues or assets or such a person is appointed, which action, steps, proceedings
or order are not cancelled or withdrawn within 60 days of the occurrence or the institution thereof,
or (ii) failure by the Issuer to pay an amount of principal or interest due hereon within 14
Business Days of the date the Issuer is required to make the payment hereon as such date may be
postponed in accordance with the terms hereof. 

        In case an Event of Default shall have occurred and be continuing, the principal of, premium, if
any, and accrued interest on all Notes may be declared by the Trustee, the Co-Trustee or both acting
jointly, and upon said declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture. 

        Waivers
of Events of Default. The holders of a majority in aggregate principal amount of the
Notes at the time outstanding determined in accordance with Section 9.04 of the
Indenture, shall have the right (subject to the next sentence below) to direct, in
accordance with Section 9.01 of the Indenture, a waiver, on behalf of the holders of all
of the Notes, of any past default or Event of Default and its consequences, provided that
such direction to waive is given at a meeting of the Noteholders, in accordance with
Article 10 of the Indenture, and that such waiver be approved by the vote of holders of
at least a majority of the aggregate principal amount of the Notes at the time
outstanding, determined in accordance with Section 9.04, who also hold at least 75% of
the principal amount of the Notes present or represented in that Noteholders meeting.
Notwithstanding the preceding sentence, the following defaults may not be waived without
the consent of the holders of each or all Notes then outstanding or affected thereby: (i)
a default in the payment of interest on, or the principal of, the Notes, (ii) a failure
by the Issuer to convert any Notes into Ordinary Shares, (iii) a default in the payment
of the redemption premium pursuant to Section 3.03 of the Indenture, or (iv) a default in
respect of a covenant or provisions of the Indenture which under the provisions of the
Trust Indenture Act cannot be modified or amended without the consent of the holders of
each or all Notes then outstanding or affected thereby. Upon any such waiver, the Issuer,
the Trustees and the holders of the Notes shall be restored to their former positions and
rights under the Indenture; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon. Whenever any default
or Event of Default under the Indenture shall have been waived as permitted by Section
6.07 of the Indenture, said default or Event of Default shall for all purposes of the
Notes and the Indenture be deemed to have been cured and to be not continuing; but no
such waiver shall extend to any subsequent or other default or Event of Default or impair
any right consequent thereon.  

        Supplemental
Indentures. The Issuer, when authorized by the resolutions of the Board of Directors, and
the Trustees may, from time to time, and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes: (i) evidence
the succession of another Person to the Issuer, or successive successions, and the
assumption by the successor Person of the covenants, agreements and obligations of the
Issuer pursuant to Article 12 of the Indenture; (ii) add covenants, restrictions or
conditions to the Issuer so long as they are deemed by the Board of Directors and the
Trustees as for the benefit of the Noteholders (provided the Trustees shall first have
received an opinion of counsel to this effect), (iii) provide for the issuance of Notes
in coupon form; (iv) to cure any ambiguity or to correct or supplement any provision in
the Indenture or in any supplemental indenture; (v) evidence and provide for the
acceptance of appointment hereunder by a successor trustee with respect to the Notes;
(vi) modify, eliminate or add to the provisions of this Indenture to such extent as shall
be necessary to effect the qualifications of this Indenture under the Trust Indenture
Act, or under any similar federal statute hereafter enacted or the Securities Law; or
(vii) make any other change that does not adversely affect any right of the Noteholders
under the Indenture. The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Noteholders, to execute supplemental indentures adding
any provisions to or changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or modifying in any manner the rights of the
Noteholders; provided that the entering into such supplemental indenture is approved by a
resolution of the Noteholders meeting in accordance with Article 10 of the Indenture, by
the vote of Noteholders who (i) hold not less than a majority of the aggregate principal
amount of the Notes at the time outstanding, determined in accordance with Section 9.04
of the Indenture; and also (ii) hold at least 75% of the principal amount of the Notes
present or represented in that Noteholders meeting; and provided further that no such
supplemental indenture shall modify any term, covenant or provisions hereof which under
the provisions of the Trust Indenture Act cannot be modified or amended without the
consent of the holders of each or all Notes then outstanding or affected thereby, without
the consent of the holder of each Note so affected.  

        Governing
Law. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF NEW
YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK. 

- A-5 -

ABBREVIATIONS 

        The
following abbreviations, when used in the inscription of the face of this Note, shall be
construed as though they were written out in full according to applicable laws or
regulations. 

	TEN COM -
TEN ENT -
JT TEN - 	as tenants in common 
as tenant by the entireties       
as joint tenants with right of    
survivorship and not as tenants in
common                            	UNIF GIFT MIN ACT-	__________	Custodian	__________	 
	 	(Cust) 	  	(Minor) 
	under Uniform Gifts to Minors Act 	 	 
	  	 	 	 	 	 	 
	__________________________ 	 	 	 	 
	 	 	(State) 	 

Additional
abbreviations may also be used though not in the above list. 

- A-6 -

CONVERSION NOTICE: 

TO: TOWER SEMICONDUCTOR LTD. 

        The
undersigned registered owner of this Note hereby irrevocably exercises the option to
convert this Note, or the portion thereof (which is $1.00 or an integral multiple thereof)
below designated, into Ordinary Shares of Tower Semiconductor Ltd. in accordance with the
terms of the Indenture referred to in this Note, and directs that the shares issuable and
deliverable upon such conversion, be issued and delivered to the registered holder hereof
unless a different name has been indicated below. Capitalized terms used herein but not
defined shall have the meanings ascribed to such terms in the Indenture. If shares or any
portion of this Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned will provide the appropriate information below and pay all
transfer taxes payable with respect thereto. 

	Dated: __________________________
	_________________________________

Signature(s)

Signature(s) must be guaranteed by an “eligible guarantor institution”
meeting the requirements of the Note registrar, which requirements
include membership or participation in the Security Transfer Agent
Medallion Program (“STAMP”) or such other “signature guarantee program”
as may be determined by the Note registrar in a
substitution for, STAMP, all in accordance with
Act of 1934, as amended.

_________________________________

Signature Guarantee

Fill in the registration of Ordinary
Shares if to be issued, and Notes if to be delivered, other than to and in the name of the
registered holder 

__________________________________

(Name)                                                              

__________________________________

(Street Address)                      

__________________________________

(City, State and Zip Code)            

__________________________________

Please print name and address         

                                          

Principal amount to be converted

(if less than all):

Social Security or Other Taxpayer

Identification Number:

- A-7 -

ASSIGNMENT 

        For
value received                    THE UNDERSIGNED hereby sells assigns and transfers unto
                             (Please insert name of
assignee and social security or other Taxpayer Identification Number of assignee) the within Note,
and hereby irrevocably constitutes and appoints                attorney to transfer said
Note on the books of the Issuer, with full power of substitution in the premises. 

	 	_________________________________

Signature(s)

Signature(s) must be guaranteed by an “eligible guarantor institution”
meeting the requirements of the Note registrar, which requirements
include membership or participation in the Security Transfer Agent
Medallion Program (“STAMP”) or such other “signature guarantee program”
as may be determined by the Note registrar in a
substitution for, STAMP, all in accordance with
Act of 1934, as amended.

_________________________________

Signature Guarantee 

NOTICE: The signature on the
Conversion Notice or the Assignment must correspond with the name as written upon the face
of the Note in every particular without alteration or enlargement or any change whatever. 

- A-8 -

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