6-K

                                    FORM 6-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                     For the month of February 2008 (No. 2)

                            TOWER SEMICONDUCTOR LTD.
                 (Translation of registrant's name into English)

                          RAMAT GAVRIEL INDUSTRIAL PARK
                    P.O. BOX 619, MIGDAL HAEMEK, ISRAEL 23105
                    (Address of principal executive offices)

     Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.

                         Form 20-F [X]     Form 40-F [_]

     Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

                               Yes [_]     No [X]

     On February 6, 2008, the Registrant announced its financial results for the
fourth quarter and fiscal year ended December 31, 2007 and on February 7, 2008
issued its consolidated financial statements as of December 31, 2007 and 2006
and for the years ended December 31, 2007, 2006 and 2005. Attached hereto are
the following exhibits

     Exhibit 99.1      Registrant's consolidated financial statements as
                       of December 31, 2007 and 2006 and for the years ended
                       December 31, 2007, 2006 and 2005, and the report
                       thereon dated February 6, 2008 of Brightman Almagor & Co.

     Exhibit 99.2      Management's Discussion and Analysis of Financial
                       Condition and Results of Operations

     Exhibit 99.3      Consent of Independent Registered Accounting Firm

     This Form 6-K, including all exhibits hereto, is hereby incorporated by
reference into (1) all effective registration statements filed by us under the
Securities Act of 1933 and (2) Registration Statement No. 333-148747 on Form
F-3.

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                     TOWER SEMICONDUCTOR LTD.


Date: February 7, 2008                               By: /s/ Nati Somekh Gilboa
                                                     --------------------------
                                                     Nati Somekh Gilboa
                                                     Corporate Secretary

EX-99

                                                                    EXHIBIT 99.1

                            TOWER SEMICONDUCTOR LTD.
                                 AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2007

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       Page
                                                                      ------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                 F-1

BALANCE SHEETS                                                          F-2

STATEMENTS OF OPERATIONS                                                F-3

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                           F-4

STATEMENTS OF CASH FLOWS                                                F-5

NOTES TO FINANCIAL STATEMENTS                                        F-6 - F-55

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
TOWER SEMICONDUCTOR LTD.

We have audited the accompanying consolidated balance sheets of Tower
Semiconductors Ltd. and subsidiaries (the "Company") as of December 31, 2007 and
2006, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2007. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tower Semiconductors Ltd. and
subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.

Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu

Tel Aviv, Israel
February 6, 2008


                                     F - 1

           TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                  CONSOLIDATED BALANCE SHEETS
      (dollars in thousands, except share data and per share data)

                                                                                       AS OF DECEMBER 31,
                                                                                  --------------------------
                                                                      NOTE           2007           2006
                                                                   -----------    -----------    -----------

A S S E T S

    CURRENT ASSETS
       CASH AND CASH EQUIVALENTS                                                  $    44,536    $    39,710
       SHORT-TERM INTEREST-BEARING DEPOSITS                                                --          1,230
       TRADE ACCOUNTS RECEIVABLE:                                           15
         RELATED PARTIES                                                               12,823         13,625
         OTHERS                                                                        32,154         17,873
       OTHER RECEIVABLES                                                     3          4,748          5,425
       INVENTORIES                                                           4         27,806         34,763
       OTHER CURRENT ASSETS                                                             1,580          1,473
                                                                                  -----------    -----------
            TOTAL CURRENT ASSETS                                                      123,647        114,099
                                                                                  -----------    -----------

    LONG-TERM INVESTMENTS                                                    5         15,093         15,325
                                                                                  -----------    -----------

    PROPERTY AND EQUIPMENT, NET                                              6        502,287        532,798
                                                                                  -----------    -----------

    INTANGIBLE ASSETS, NET                                               13A(2)        34,711         44,981
                                                                                  -----------    -----------

    OTHER ASSETS , NET                                                       7         11,044          6,929
                                                                                  ===========    ===========

            TOTAL ASSETS                                                          $   686,782    $   714,132
                                                                                  ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES
       CURRENT MATURITIES OF CONVERTIBLE DEBENTURES                         10    $     7,887    $     6,902
       TRADE ACCOUNTS PAYABLE                                                          49,025         55,128
       OTHER CURRENT LIABILITIES                                             8         20,024         22,096
                                                                                  -----------    -----------
            TOTAL CURRENT LIABILITIES                                                  76,936         84,126

    LONG-TERM DEBT FROM BANKS (*)                                        9, 11        379,314        432,430

    DEBENTURES (**)                                                     10, 11        117,460         83,863

    LONG-TERM CUSTOMERS' ADVANCES                                          13A         27,983         46,042

    OTHER LONG-TERM LIABILITIES                                             12         40,380         28,155
                                                                                  -----------    -----------

            TOTAL LIABILITIES                                                         642,073        674,616
                                                                                  -----------    -----------

    SHAREHOLDERS' EQUITY                                           10, 13A, 14         44,709         39,516
                                                                                  ===========    ===========

            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                            $   686,782    $   714,132
                                                                                  ===========    ===========

(*) OF WHICH $365,563 AT FAIR VALUE AS OF DECEMBER 31, 2007

(**) OF WHICH $28,484 AT FAIR VALUE AS OF DECEMBER 31, 2007

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                     F - 2

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
          (dollars in thousands, except share data and per share data)

                                                                                                Year ended December 31,
                                                                                         -------------------------------------
                                                                              Note         2007          2006           2005
                                                                            ---------    ---------     ---------     ---------

REVENUES
     SALES                                                                         15    $ 230,853     $ 187,438     $  93,991
     REVENUES RELATED TO A JOINT DEVELOPMENT AGREEMENT                            13B           --            --         8,000
                                                                                         ---------     ---------     ---------
                                                                                           230,853       187,438       101,991

COST OF SALES                                                                              284,771       267,520       238,358
                                                                                         ---------     ---------     ---------

        GROSS LOSS                                                                         (53,918)      (80,082)     (136,367)
                                                                                         ---------     ---------     ---------

OPERATING COSTS AND EXPENSES

     RESEARCH AND DEVELOPMENT                                                               13,790        15,048        16,029
     MARKETING, GENERAL AND ADMINISTRATIVE                                                  31,604        25,831        17,418
                                                                                         ---------     ---------     ---------

                                                                                            45,394        40,879        33,447
                                                                                         =========     =========     =========

        OPERATING LOSS                                                                     (99,312)     (120,961)     (169,814)

FINANCING EXPENSE, NET                                                         11, 16      (34,976)      (47,563)      (35,651)

OTHER INCOME, NET                                                                               92           597         2,383
                                                                                         ---------     ---------     ---------

              LOSS FOR THE YEAR                                                          $(134,196)    $(167,927)    $(203,082)
                                                                                         =========     =========     =========

BASIC LOSS PER ORDINARY SHARE

     LOSS PER SHARE                                                                      $   (1.13)    $   (2.03)    $   (3.06)
                                                                                         =========     =========     =========

     WEIGHTED AVERAGE NUMBER OF ORDINARY
        SHARES OUTSTANDING - IN THOUSANDS                                                  118,857        82,581        66,371
                                                                                         =========     =========     =========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                     F - 3

                            TOWER SEMICONDUCTOR LTD.
             STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
          (dollars in thousands, except share data and per share data)

                                                                                                                                     Accumulated
                                                        Ordinary shares          Additional                Cumulative                   other
                                                    -------------------------     paid-in        Capital   stock based   Treasury   comprehensive   Accumulated   Comprehensive
                                                       Shares        Amount       capital         notes    compensation    stock      gain (loss)      deficit     income (loss)   Total
                                                    -----------    ----------    ----------    ----------    --------    ---------     --------     ------------     --------    ---------

    BALANCE - JANUARY 1, 2005                        66,999,796    $   16,274    $  519,839    $       --    $    (26)   $  (9,072)    $ (7,055)    $   (356,642)                $ 163,318

ISSUANCE OF SHARES                                    1,232,260           274         1,520                                                                                          1,794
STOCK-BASED COMPENSATION RELATED TO THE FACILITY
   AGREEMENT WITH THE BANKS, NOTE 14B(5)                                              2,793                                                                                          2,793
STOCK-BASED COMPENSATION RELATED TO RIGHTS
   OFFERED TO EMPLOYEES, NOTE 14I                                                       448                                                                                            448
OTHER COMPREHENSIVE GAIN                                                                                                                  5,501                         5,501        5,501
LOSS FOR THE YEAR                                                                                                                                       (203,082)    (203,082)    (203,082)
                                                                                                                                                                     --------
COMPREHENSIVE INCOME (LOSS)                                                                                                                                          (197,581)
                                                                                                                                                                     ========

                                                    -----------    ----------    ----------    ----------    --------    ---------     --------     ------------                  ---------
    BALANCE - DECEMBER 31, 2005                      68,232,056    $   16,548    $  524,600    $       --    $    (26)   $  (9,072)    $ (1,554)    $   (559,724)                $ (29,228)

ISSUANCE OF SHARES AND WARRANTS                      16,729,145         3,860        26,126                                                                                         29,986
CONVERSION OF CONVERTIBLE DEBENTURES TO SHARES       16,734,316         3,696        15,634                                                                                         19,330
EMPLOYEE STOCK-BASED COMPENSATION                                                                               4,896                                                                4,896
EXERCISE OF OPTIONS                                       7,250             2             9                                                                                             11
EXERCISE OF WARRANTS                                    350,000            81           469                                                                                            550
STOCK-BASED COMPENSATION RELATED TO THE FACILITY
   AGREEMENT WITH THE BANKS, NOTE 14B(5)                                              4,146                                                                                          4,146
CAPITAL NOTES                                                                                     176,401                                                                          176,401
OTHER COMPREHENSIVE GAIN                                                                                                                  1,351                         1,351        1,351
LOSS FOR THE YEAR                                                                                                                                       (167,927)    (167,927)    (167,927)
                                                                                                                                                                     --------
COMPREHENSIVE INCOME (LOSS)                                                                                                                                          (166,576)
                                                                                                                                                                     ========

                                                    -----------    ----------    ----------    ----------    --------    ---------     --------     ------------                 ---------
    BALANCE - DECEMBER 31, 2006                     102,052,767    $   24,187    $  570,984    $  176,401    $  4,870    $  (9,072)    $   (203)    $   (727,651)                $  39,516

ISSUANCE OF SHARES AND WARRANTS                      22,705,598         5,398        29,469                                                                                         34,867
CONVERSION OF CONVERTIBLE DEBENTURES TO SHARES          591,520           142           674                                                                                            816
EMPLOYEE STOCK-BASED COMPENSATION                                                                               8,731                                                                8,731
EXERCISE OF OPTIONS                                     176,231            44           183                                                                                            227
RECLASSIFICATION OF BIFURCATED CONVERSION
   OPTION TO SHAREHOLDERS' EQUITY                                                    28,377                                                                                         28,377
STOCK-BASED COMPENSATION, NOTE 14B(5)                                                 1,331                                                                                          1,331
OTHER COMPREHENSIVE LOSS                                                                                                                   (167)                         (167)        (167)
CUMULATIVE EFFECT ADJUSTMENT OF THE FACILITY
   AGREEMENT TO RETAINED EARNINGS                                                                                                                         65,207       65,207       65,207
LOSS FOR THE YEAR                                                                                                                                       (134,196)    (134,196)    (134,196)
                                                                                                                                                                     --------
COMPREHENSIVE INCOME (LOSS)                                                                                                                                           (69,156)
                                                                                                                                                                     ========
                                                    -----------    ----------    ----------    ----------    --------    ---------     --------     ------------                  --------
    BALANCE - DECEMBER 31, 2007                     125,526,116    $   29,771    $  631,018    $  176,401    $ 13,601    $  (9,072)    $   (370)    $   (796,640)                $  44,709
                                                    ===========    ==========    ==========    ==========    ========    =========     ========     ============     ========    =========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                     F - 4

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          (dollars in thousands, except share data and per share data)

                                                                                         YEAR ENDED DECEMBER 31,
                                                                                  -------------------------------------
                                                                                    2007           2006          2005
                                                                                  ---------     ---------     ---------
CASH FLOWS - OPERATING ACTIVITIES

   LOSS FOR THE YEAR                                                              $(134,196)    $(167,927)    $(203,082)
   Adjustments to reconcile loss for the year
     TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
       INCOME AND EXPENSE ITEMS NOT INVOLVING CASH FLOWS:
         DEPRECIATION AND AMORTIZATION                                              154,343       171,743       153,189
         EFFECT OF INDEXATION AND TRANSLATION ON DEBENTURES                           6,227         2,569        (1,031)
         WRITE DOWN OF CUSTOMER ADVANCE                                              (9,747)           --            --
         OTHER INCOME, NET                                                              (92)         (597)       (2,383)
       CHANGES IN ASSETS AND LIABILITIES:
         DECREASE (INCREASE) IN TRADE ACCOUNTS RECEIVABLE                           (13,479)      (14,722)        2,510
         DECREASE (INCREASE) IN OTHER RECEIVABLES AND OTHER CURRENT ASSETS              333        (2,662)        1,988
         DECREASE (INCREASE) IN INVENTORIES                                             459       (14,064)        1,086
         INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE                               15,435        (4,733)        3,289
         INCREASE (DECREASE) IN OTHER CURRENT LIABILITIES                            (1,363)        6,551        (1,839)
         INCREASE (DECREASE) IN OTHER LONG-TERM LIABILITIES                             935        (3,285)       (5,368)
                                                                                  ---------     ---------     ---------
                                                                                     18,855       (27,127)      (51,641)
         DECREASE IN LONG-TERM CUSTOMERS' ADVANCES, NET                              (2,172)       (2,306)         (760)
                                                                                  ---------     ---------     ---------
           NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                       16,683       (29,433)      (52,401)
                                                                                  ---------     ---------     ---------

CASH FLOWS - INVESTING ACTIVITIES

   DECREASE IN DESIGNATED CASH, SHORT-TERM AND LONG-TERM
      INTEREST-BEARING DEPOSITS, NET                                                     --        31,661        27,266
   INVESTMENTS IN PROPERTY AND EQUIPMENT                                           (107,485)     (161,187)      (47,215)
   INVESTMENT GRANTS RECEIVED                                                         1,654         5,219         7,496
   PROCEEDS RELATED TO SALE AND DISPOSAL OF PROPERTY AND EQUIPMENT                      108           600         2,179
   INVESTMENTS IN OTHER ASSETS AND INTANGIBLE ASSETS                                 (1,547)       (5,074)       (3,841)
   DECREASE (INCREASE) IN SHORT-TERM INTEREST-BEARING DEPOSITS                        1,230        (1,230)           --
   LONG-TERM INVESTMENTS                                                               (950)           --            --
                                                                                  ---------     ---------     ---------
           NET CASH USED IN INVESTING ACTIVITIES                                   (106,990)     (130,011)      (14,115)
                                                                                  ---------     ---------     ---------

CASH FLOWS - FINANCING ACTIVITIES

   PROCEEDS FROM ISSUANCE OF DEBENTURES AND WARRANTS, NET                            50,690        58,766        25,086
   PROCEEDS FROM LONG-TERM LOANS                                                     28,000        18,295        21,103
   PROCEEDS FROM ISSUANCE OF ORDINARY SHARES AND WARRANTS, NET                       26,534        20,673            --
   PROCEEDS FROM EXERCISE OF WARRANTS                                                    --           550            --
   PROCEEDS ON ACCOUNT OF CAPITAL NOTES                                                  --       100,000            --
   REPAYMENT OF DEBENTURE                                                            (7,088)       (6,476)           --
   PROCEEDS FROM EXERCISE OF SHARE OPTIONS                                              227             9            --
   DEBTS REPAYMENT                                                                   (3,230)           --            --
                                                                                  ---------     ---------     ---------
           NET CASH PROVIDED BY FINANCING ACTIVITIES                                 95,133       191,817        46,189
                                                                                  =========     =========     =========

       INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               4,826        32,373       (20,327)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                        39,710         7,337        27,664
                                                                                  ---------     ---------     ---------

       CASH AND CASH EQUIVALENTS - END OF YEAR                                    $  44,536     $  39,710     $   7,337
                                                                                  =========     =========     =========

NON-CASH ACTIVITIES

   INVESTMENTS IN PROPERTY AND EQUIPMENT                                          $  17,982     $  42,575     $  12,792
                                                                                  =========     =========     =========
   STOCK-BASED COMPENSATION RELATED TO
     THE FACILITY AGREEMENT WITH THE BANKS                                        $      --     $   4,146     $   2,793
                                                                                  =========     =========     =========
   STOCK-BASED COMPENSATION (SEE NOTE 14B(5))                                     $   1,331     $      --     $      --
                                                                                  =========     =========     =========
   STOCK-BASED COMPENSATION RELATED TO RIGHTS OFFERED
     TO EMPLOYEES, (SEE NOTE 14I)                                                 $      --     $      --     $     448
                                                                                  =========     =========     =========
   INVESTMENTS IN OTHER ASSETS                                                    $      --     $     433     $     442
                                                                                  =========     =========     =========
   CONVERSION OF LONG-TERM CUSTOMERS' ADVANCES
     TO SHARE CAPITAL                                                             $   6,414     $   7,621     $   1,794
                                                                                  =========     =========     =========
   CONVERSION OF CONVERTIBLE DEBENTURES TO SHARES CAPITAL                         $     816     $  19,330     $      --
                                                                                  =========     =========     =========
   CUMULATIVE EFFECT ADJUSTMENT OF THE FACILITY AGREEMENT TO RETAINED EARNINGS    $  65,207     $      --     $      --
                                                                                  =========     =========     =========
   RECLASSIFICATION OF BIFURCATED CONVERSION OPTION TO SHAREHOLDERS' EQUITY       $  28,377     $      --     $      --
                                                                                  =========     =========     =========
   CONVERSION OF LONG TERM DEBT TO CAPITAL NOTES                                  $      --     $  76,401     $      --
                                                                                  =========     =========     =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   CASH PAID DURING THE YEAR FOR INTEREST                                         $  28,831     $  35,008     $  32,805
                                                                                  =========     =========     =========
   CASH PAID DURING THE YEAR FOR INCOME TAXES                                     $      55     $     134     $      86
                                                                                  =========     =========     =========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                     F - 5

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 1 - DESCRIPTION OF BUSINESS AND GENERAL

     Tower Semiconductor Ltd. ("the Company"), incorporated in Israel, commenced
     operations in 1993. The Company is an independent wafer foundry that
     delivers customized solutions in a variety of advanced complementary metal
     oxide semiconductor (CMOS) technologies, including digital CMOS,
     mixed-signal and RF (radio frequency) CMOS, CMOS image sensors and power
     management devices. The Company manufactures integrated circuits in
     geometries ranging between 1.0 and 0.35 microns at its 150-millimeter
     fabrication facility ("Fab 1"), and in geometries ranging between 0.18 and
     0.13 microns at its 200-millimeter fabrication facility ("Fab 2"). As a
     foundry, the Company manufactures wafers using its advanced technological
     capabilities and the proprietary integrated circuit designs of its
     customers.

     The industry in which the Company operates is characterized by wide
     fluctuations in supply and demand. Such industry is also characterized by
     the complexity and sensitivity of the manufacturing process, by high levels
     of fixed costs, and by the need for constant advancements in production
     technology.

     The Company's Ordinary Shares are traded on the NASDAQ Global Market and on
     the Tel-Aviv Stock Exchange.

     In recent years, the Company has experienced significant recurring losses,
     recurring negative cash flows from operating activities and an increasing
     accumulated deficit. The Company is working in various ways to mitigate its
     financial difficulties. Since the second half of 2005, the Company
     increased its customer base, mainly in Fab 2, modified its organizational
     structure to better address its customers and its market positioning,
     increased its sales and its EBITDA, reduced its losses, increased its
     capacity level, utilization rates, raised funds and restructured its bank
     debt. See also Note 9B and Notes 14I-M.


                                     F - 6

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The Company's consolidated financial statements are presented in accordance
     with U.S. generally accepted accounting principles ("US GAAP"). The Company
     recasted the comparative amounts included in this financial statements to
     US GAAP. In prior years the Company prepared its financial reports in
     accordance with generally accepted accounting principles in Israel. ("IL
     GAAP") and provided reconciliation to US GAAP in the notes to the financial
     statements.

     A.   USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities as of
          the date of the financial statements, and the reported amounts of
          revenues and expenses during the reporting periods. Actual results
          could differ from those estimates.

     B.   PRINCIPLES OF CONSOLIDATION

          The Company's consolidated financial statements include the financial
          statements of the Company and its wholly-owned marketing subsidiary in
          the United States, after elimination of material inter-company
          transactions and balances. The effect of the subsidiary's operations
          on the Company's revenues, net loss and total assets was immaterial
          for the dates and periods presented.

     C.   CASH AND CASH EQUIVALENTS

          Cash and cash equivalents consist of banks deposits and short-term
          investments (primarily time deposits and certificates of deposit) with
          original maturities of three months or less.

     D.   ALLOWANCE FOR DOUBTFUL ACCOUNTS

          The allowance for doubtful accounts is computed on the specific
          identification basis for accounts whose collectibility, in
          management's estimation, is uncertain.

     E.   INVENTORIES

          Inventories are stated at the lower of cost or market. Cost is
          determined for raw materials and supplies on the basis of the weighted
          moving average cost per unit. Cost is determined for work in process
          and finished goods on the basis of actual production costs.


                                     F - 7

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     F.   PROPERTY AND EQUIPMENT

          (1)  Property and equipment are presented at cost, including financing
               expenses and other capitalizable costs. Capitalizable costs
               include only incremental direct costs that are identifiable with,
               and related to, the property and equipment and are incurred prior
               to its initial operation. Identifiable incremental direct costs
               include costs associated with the funding, acquiring,
               constructing, establishing and installing property and equipment
               (whether performed by others or by the Company), and costs
               directly related to preproduction test runs of property and
               equipment that are necessary to get it ready for its intended
               use. Those costs include payroll and payroll-related costs of
               employees who devote time and are dedicated to the acquiring,
               constructing, establishing and installing of property and
               equipment. Allocation, when appropriate, of capitalizable
               incremental direct costs is based on management's estimates and
               methodologies including time sheet inputs.

               Cost is presented net of investment grants received or
               receivable, and less accumulated depreciation and amortization.
               The accrual for grants receivable is determined based on
               qualified investments made during the reporting period, provided
               that the primary criteria for entitlement have been met.

               During the second quarter of 2007, the Company reassessed the
               estimated useful lives of its machinery and equipment and as a
               result, effective as of April 1, 2007, machinery and equipment is
               to be depreciated over estimated useful lives of 7 years rather
               than 5 years as estimated prior to such date. The change reflects
               the Company's best estimate of the useful lives of its equipment
               and is also based on experience accumulated from Fab 1 and on
               recent trends in industry practices. The Company believes that
               the change better reflects the economics associated with the
               ownership of the equipment. This change has been accounted for as
               a change in estimate and was applied prospectively. For the
               effect of this change, see Note 6A.

               Depreciation is calculated based on the straight-line method over
               the estimated economic lives commonly used in the industry of the
               assets or terms of the related leases, as follows:

               Building (including facility infrastructure)      14-25 years
               Machinery and equipment                           7 years (*)
               Transportation vehicles                           7 years

               (*) 5 years through March 31, 2007.

          (2)  Impairment examinations and recognition are performed and
               determined based on the accounting policy outlined in Q below.


                                     F - 8

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     G.   INTANGIBLE ASSETS

          TECHNOLOGY - The cost of Fab 2 technologies includes the technology
          process cost and incremental direct costs associated with implementing
          the technologies until the technologies are ready for their intended
          use. The costs in relation to Fab 2 technologies are amortized over
          the expected estimated economic life of the technologies, commonly
          used in the industry. Amortization phases commence on the dates on
          which each of the Fab 2 manufacturing lines is ready for its intended
          use. The technologies are presented net of accumulated amortization as
          of December 31, 2007 and 2006 in the amounts of $63,911 and $53,741.

          Impairment examinations and recognition are performed and determined
          based on the accounting policy outlined in Q below.

     H.   OTHER ASSETS

          DEFERRED FINANCING CHARGES

          Deferred financing charges in relation to funding the ramp-up of Fab 2
          are amortized over the lives of the borrowings as an adjustment to the
          yield using the effective interest method. During the ramp up period
          of Fab 2, amortized deferred financing charges are capitalized to
          property and equipment.

          PREPAID LONG-TERM LAND LEASE

          Prepaid lease payments to the Israel Land Administration ("ILA") as
          detailed in Notes 13A(8) and 13C are amortized during the lease
          period.

     I.   CONVERTIBLE DEBENTURES

          Under Accounting Principles Board Opinion No. 14 ("APB 14"), the
          proceeds from the sale of the securities are allocated to each
          security issued based on their relative fair value.

          SFAS 133 generally provides three criteria that, if met, require
          companies to bifurcate conversion options from their host instruments
          and account for them as free standing derivative financial
          instruments. These three criteria are (a) the economic characteristics
          and risks of the embedded derivative instrument are not clearly and
          closely related to the economic characteristics and risks of the host
          contract, (b) the hybrid instrument that embodies both the embedded
          derivative instrument and the host contract is not remeasured at fair
          value under otherwise applicable generally accepted accounting
          principles with changes in fair value reported in earnings and (c) a
          separate instrument with the same terms as the embedded derivative
          instrument would be considered a derivative instrument subject to the
          requirements of SFAS 133. One scope exception provided by SFAS 133 and
          relevant to convertibles is when the embedded conversion feature is
          both indexed to and classified in the Company's equity based on the
          criteria established in EITF 00-19 and other EITF's. Financing costs
          are generally expensed as incurred unless directly related to the new
          ramp-up of equipment. In such case the costs are capitalized to
          property and equipment during the installation period until the
          equipment ready for its intended use.


                                     F - 9

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     J.   INCOME TAXES

          The Company accounts for income taxes in accordance with SFAS No. 109,
          "Accounting for Income Taxes" ("SFAS No. 109"). This Statement
          prescribes the use of the liability method whereby deferred tax asset
          and liability account balances are determined based on differences
          between financial reporting and tax bases of assets and liabilities.
          Deferred taxes are computed based on the tax rates anticipated (under
          applicable law as of the balance sheet date) to be in effect when the
          deferred taxes are expected to be paid or realized.

          Deferred tax assets are recognized, if it is probable that such assets
          would be realized, for temporary differences, which will result in
          deductible amounts in future years and for carryforwards. An allowance
          against such deferred tax asset is recognized if it is probable that
          some portion or all of the deferred tax assets will not be realized.
          Due to the material loss carryforward of the Company as of December
          31, 2007 and uncertainties with regard to its utilization in the
          future, no deferred taxes were recorded in the Company's results of
          operations.

     K.   REVENUE RECOGNITION

          Revenues are recognized when persuasive evidence of an agreement
          exists with fixed or determinable prices, shipment has occurred or as
          services are rendered, when title has been transferred, collectibility
          is reasonably assured and acceptance provisions criteria are
          satisfied, based on performing electronic, functional and quality
          tests on the products prior to shipment and customer on-site testing.
          Such testing reliably demonstrates that the products meet all of the
          specified criteria prior to formal customer acceptance, and that
          product performance upon customer on-site testing can reasonably be
          expected to conform to the specified acceptance provisions. An accrual
          for estimated returns, computed primarily on the basis of historical
          experience, is recorded at the time when revenues are recognized.

     L.   RESEARCH AND DEVELOPMENT

          Research and development costs are charged to operations as incurred.
          Amounts received or receivable from the government of Israel and
          others, as participation in research and development programs, are
          offset against research and development costs. The accrual for grants
          receivable is determined based on the terms of the programs, provided
          that the criteria for entitlement have been met.


                                     F - 10

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     M.   LOSS PER ORDINARY SHARE

          Basic earnings per share is calculated, in accordance with SFAS No.
          128, "Earnings Per Share" ("SFAS No. 128"), by dividing profit or loss
          attributable to ordinary equity holders of the entity (the numerator)
          by the weighted average number of Ordinary Shares outstanding (the
          denominator) during the reported period. Diluted earnings per share is
          calculated by adjusting profit or loss attributable to ordinary equity
          holders of the entity, and the weighted average number of shares
          outstanding, for the effects of all dilutive potential Ordinary
          Shares.

     N.   COMPREHENSIVE INCOME (LOSS)

          In Accordance with SFAS 130, Comprehensive income (loss) represents
          the change in shareholder's equity during a reporting period from
          transactions and other events and circumstances from non-owner
          sources. It includes all changes in equity during a reporting period
          except those resulting from investments by owners and distributions to
          owners. Other comprehensive income (loss) represents gains and losses
          that are included in comprehensive income but excluded from net
          income.

     O.   FUNCTIONAL CURRENCY AND TRANSACTION GAINS AND LOSSES

          The currency of the primary economic environment in which the Company
          conducts its operations is the U.S. dollar ("dollar"). Accordingly,
          the Company uses the dollar as its functional and reporting currency.
          Financing expenses, net in 2007 and 2006 include net foreign currency
          transaction losses of $3,526, and $3,659, respectively. Financing
          expenses, net in 2005 include net foreign currency transaction gains
          of $1,398.

     P.   STOCK-BASED COMPENSATION

          In January 1, 2006, the Company adopted the provisions of SFAS No. 123
          (revised 2004), "Share-Based Payment" (SFAS No. 123(R)), under which
          employee share-based equity awards accounted for under the fair value
          method. Accordingly, stock-based compensation to employees and
          directors is measured at the grant date, based on the fair value of
          the award. The Company elected the modified prospective method as its
          transition method. Under the modified prospective method the
          compensation cost recognized by the Company beginning in 2006 includes
          (a) compensation cost for all equity incentive awards granted prior
          to, but not yet vested as of January 1, 2006, based on the grant-date
          fair value estimated in accordance with the original provisions of
          SFAS No. 123, and (b) compensation cost for all stock-based
          compensations granted subsequent to January 1, 2006, based on the
          grant-date fair value estimated in accordance with the provisions of
          SFAS No. 123(R). The Company uses the straight-line attribution method
          to recognize stock-based compensation costs over the service period of
          the award.


                                     F - 11

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     P.   STOCK-BASED COMPENSATION (CONT.)

          As for the periods before the adoption of the Standard, the Company
          accounted for employee and director stock-based compensation in
          accordance with Accounting Principles Board Opinion No. 25,
          "Accounting for Stock Issued to Employees" ("APB 25") and
          authoritative interpretations thereof. Accordingly, the Company
          accounted for share options granted to employees and directors based
          on the intrinsic value of the options on the measurement date.

          PRO FORMA LOSS PER SHARE ACCORDING TO SFAS 123 AND SFAS 148

               Had compensation cost for the Company's share option plans been
               determined based on the fair value at the grant dates for all
               awards made through December 31, 2005 in accordance with SFAS
               123, as amended by SFAS 148, the Company's pro forma loss per
               share would have been as follows:

                                           For the year ended
                                             December 31, 2005
                                                ---------
PRO FORMA LOSS
Loss for the year, as reported                  $(203,082)
Less - stock-based compensation
determined under APB 25                                --
Add - stock-based compensation
determined under SFAS 123                          (4,229)
                                                ---------
Pro forma loss                                  $(207,311)
                                                =========

BASIC LOSS PER SHARE
As reported                                     $   (3.06)
                                                =========
Pro forma                                       $   (3.12)
                                                =========

          STOCK-BASED COMPENSATION IN FINANCING TRANSACTIONS

               The Company calculates the fair value of stock-based compensation
               included in its financing transactions. That fair value is
               recognized in equity. The amount of fair value of the warrants is
               considered a discount on the debt issued and adjust the yield on
               the financing transaction.


                                     F - 12

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     Q.   IMPAIRMENT OF LONG-LIVED ASSETS

          Management reviews long-lived assets on a periodic basis, as well as
          when such a review is required based upon relevant circumstances, to
          determine whether events or changes in circumstances indicate that the
          carrying amount of such assets may not be recoverable. Management's
          review of possible impairment charges for the periods presented was
          performed based on management's business plan and approved by the
          board of directors of the Company. The business plan is based, among
          other things, on the future completion of the ramp-up of Fab 2.
          Application of SFAS No. 144 "Accounting for the Impairment or Disposal
          of Long-Lived Assets" ("SFAS No. 144") resulted in no impairment
          charges for the periods presented.

     R.   DERIVATIVES

          The Company issues from time to time derivatives, whether embedded or
          freestanding, that are denominated in currency other than its
          functional currency (generally the NIS in which its shares are also
          traded). The Company consider those instruments to be indexed only to
          its own stock and not dual indexed. The Company considered the various
          guidance on that issue and decided that pending the final consensus in
          EITF 07-5 it will continue to consider such instruments as indexed
          solely to its own shares.

     S.   INITIAL ADOPTION OF NEW STANDARDS

          SFAS NO. 159, "THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
          FINANCIAL LIABILITIES" - In February 2007, the FASB issued SFAS No.
          159, "The Fair Value Option for Financial Assets and Financial
          Liabilities" (SFAS No. 159). SFAS No. 159 permits companies to choose
          to measure certain financial instruments and certain other items at
          fair value. The standard requires that unrealized gains and losses on
          items for which the fair value option has been elected be reported in
          earnings. The Company adopted the provisions of this standard,
          together with the adoption of FASB No. 157 FAIR VALUE MEASUREMENTS,
          starting with the first quarter of 2007.


                                     F - 13

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     T.   RECENTLY ISSUED ACCOUNTING STANDARDS

          SFAS NO. 141 (REVISED 2007 ) "BUSINESS COMBINATIONS" - In December
          2007, the FASB issued FASB 141(R), "Business Combinations" of which
          the objective is to improve the relevance, representational
          faithfulness, and comparability of the information that a reporting
          entity provides in its financial reports about a business combination
          and its effects. The new standard requires the acquiring entity in a
          business combination to recognize all (and only) the assets acquired
          and liabilities assumed in the transaction; establishes the
          acquisition-date fair value as the measurement objective for all
          assets acquired and liabilities assumed; and requires the acquirer to
          disclose to investors and other users all of the information they need
          to evaluate and understand the nature and financial effect of the
          business combination. In December 2007, the FASB issued FASB 160
          "Non-controlling Interests in Consolidated Financial Statements - an
          amendment of ARB No.51" of which the objective is to improve the
          relevance, comparability, and transparency of the financial
          information that a reporting entity provides in its consolidated
          financial statements by establishing accounting and reporting
          standards by requiring all entities to report non controlling
          (minority) interests in subsidiaries in the same way - as equity in
          the consolidated financial statements. Moreover, Statement 160
          eliminates the diversity that currently exists in accounting for
          transactions between an entity and non-controlling interests by
          requiring they be treated as equity transactions. Both FASB 141(R) and
          FASB 160 are effective for fiscal years beginning after December 15,
          2008. The Company is currently examining this new standard; however,
          at this stage, it is unable to estimate the standard's effect, if any,
          on its financial position and results of operations.

     U.   RECLASSIFICATION

          Certain amounts in prior years' financial statements have been
          reclassified in order to conform to the 2007 presentation.

NOTE 3 - OTHER RECEIVABLES

     Other receivables consist of the following:

                                                         As of December 31,
                                                       --------------------
                                                         2007        2006
                                                       --------    --------

Government of Israel - investment grants receivable    $     24    $  1,530
Other government agencies                                 4,661       3,847
Others                                                       63          48
                                                       --------    --------
                                                       $  4,748    $  5,425
                                                       ========    ========


                                     F - 14

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 4 - INVENTORIES

     Inventories consist of the following (*):

                            As of December 31,
                          ----------------------
                            2007          2006
                          --------      --------

Raw materials             $ 12,351      $ 11,234
Work in process             14,964        22,884
Finished goods                 491           645
                          --------      --------
                          $ 27,806      $ 34,763
                          ========      ========

     (*) Net of aggregate write-downs to net realizable value of $6,497 and
     $5,948 as of December 31, 2007 and 2006, respectively.

NOTE 5 - LONG-TERM INVESTMENTS

     Long-term investments consist of the following:

                                                     As of December 31,
                                                   ----------------------
                                                     2007          2006
                                                   --------      --------

Severance pay funds, see Note 12B                  $ 13,848      $ 13,535
Investment in Limited partnership, see below            950            --
Others                                                  295         1,790
                                                   --------      --------
                                                   $ 15,093      $ 15,325
                                                   ========      ========

     INVESTMENT IN LIMITED PARTNERSHIP:

     In December 2007, the Company together with CMT Medical Technologies Ltd.,
     a leading provider of advanced digital X-ray imaging systems for medical
     diagnosis, establishment a limited partnership to develop and market X-ray
     detectors for medical applications. The Company owns 38% of the limited
     partnership and accounts for the investment in the limited partnership
     using the equity method.

                                     F - 15

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 6 - PROPERTY AND EQUIPMENT, NET

     A.   Composition:

                                                       As of December 31,
                                                   --------------------------
                                                      2007            2006
                                                   ----------      ----------

COST:
Buildings (including facility infrastructure)      $  235,960      $  233,781
Machinery and equipment                               985,608         895,725
Transportation vehicles                                   304             307
                                                   ----------      ----------
                                                    1,221,872       1,129,813
                                                   ----------      ----------

ACCUMULATED DEPRECIATION AND AMORTIZATION
Buildings (including facility infrastructure)          75,227          61,200
Machinery and equipment                               644,111         535,548
Transportation vehicles                                   247             267
                                                   ----------      ----------
                                                      719,585         597,015
                                                   ==========      ==========
                                                   $  502,287      $  532,798
                                                   ==========      ==========

          Supplemental disclosure relating to cost of property and equipment:

          (1)  As of December 31, 2007 and 2006, the cost of property and
               equipment included costs relating to Fab 2 in the amount of
               $966,164 and $879,413, respectively. Said amounts are net of
               investment grants of $164,675 and $164,587, respectively.

          (2)  As of December 31, 2007, the cost of buildings, machinery and
               equipment was reflected net of investment grants in the aggregate
               of $267,922 (as of December 31, 2006 - $267,866).

          (3)  Cost of property and equipment as of December 31, 2007 and 2006
               includes capitalized financing costs in the aggregate of $19,625
               and $11,839, respectively.

          (4)  Depreciation expenses, in relation to Fab 2 property and
               equipment were $113,393, $123,422 and $114,141 in 2007, 2006 and
               2005 respectively.

          (5)  Had depreciation been calculated using five years of useful life
               depreciation method (see Note 2F(1)), depreciation expenses for
               2007 would have been $167,356 as compared to $122,647 recognized
               in this financial statements.


                                     F - 16

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 6 - PROPERTY AND EQUIPMENT, NET (CONT.)

     B.   INVESTMENT GRANTS

          In January 1996, an investment program ("1996 program") for expansion
          of Fab 1 in the aggregate amount (as amended in December 1999 and
          2001) of $228,680, entitling the Company to investment grants, was
          approved by the Investment Center. The Company completed its
          investments under the 1996 program in December 2001 and invested
          through such date approximately $207,000. In May 2002, the Company
          submitted the final report in relation to the 1996 program. As of
          December 31, 2007, the report has not yet received final approval from
          the Investment Center.

          See Note 13A(7) with respect to the Fab 2 program approved by the
          Investment Center in December 2000.

          Entitlement to the above grants and other tax benefits is subject to
          various conditions stipulated by the Israeli Law for the Encouragement
          of Capital Investments - 1959 ("Investments Law") and the regulations
          promulgated thereunder, as well as the criteria set forth in the
          certificates of approval. In the event the Company fails to comply
          with such conditions, the Company may be required to repay all or a
          portion of the grants received plus interest and certain inflation
          adjustments. In order to secure fulfillment of the conditions related
          to the receipt of investment grants, floating liens were registered in
          favor of the State of Israel on substantially all of the Company's
          assets, see also Note 17A.

     C.   For liens, see Note 13A(7) Notes 13D(1) and (2) and 9D.

NOTE 7 - OTHER ASSETS, NET

     Other assets, net consist of the following:

                                                       As of December 31,
                                                      --------------------
                                                       2007          2006
                                                      -------      -------

Prepaid expenses - long-term                          $ 1,270      $ 1,346
Deferred Financing Charges, net                         1,734           --
Debentures issuance expenses, net (see Note 14)         3,418          834
Prepaid long-term Land Lease, net (see Note 13C)        4,622        4,749
                                                      -------      -------
                                                      $11,044      $ 6,929
                                                      =======      =======


                                     F - 17

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 8 - OTHER CURRENT LIABILITIES

     Other current liabilities consist of the following:

                                                                           As of December 31,
                                                                        ----------------------
                                                                          2007          2006
                                                                        --------      --------

Accrued salaries                                                        $  6,138      $  8,730
Vacation accrual                                                           3,574         3,385
Interest payable (primarily in relation to convertible debentures)           742         1,089
Due to related parties                                                     7,459         5,895
Other                                                                      2,111         2,997
                                                                        --------      --------
                                                                        $ 20,024      $ 22,096
                                                                        ========      ========

NOTE 9 - LONG-TERM DEBT FROM BANKS

     A.   Composition:

                                                        As of December 31, 2007
                                                       -------------------------
                                                   Effective interest
                                                        rate (*)
                                                       ---------       ---------

In U.S. Dollar                                              5.98%      $ 288,693
In U.S. Dollar                                              5.10%         80,000
In U.S. Dollar                                              7.88%         14,000
                                                                       ---------
Total long-term debt from Banks- principle amount                        382,693
Fair value adjustments                                                    (3,379)
                                                                       ---------
Total long-term debt from Banks                                        $ 379,314
                                                                       =========

                                                                       As of December 31, 2006
                                                                        ----------------------
                                                                   Effective interest
                                                                         rate (*)
                                                                        --------      --------

In U.S. Dollar                                                              6.48%     $288,693
In U.S. Dollar                                                              5.10%       80,000
In U.S. Dollar                                                                              --
                                                                                      --------
Total long-term debt from Banks- principle amount                                      368,693
Deferred gain on debt restructuring in accordance with SFAS No. 15                      53,622
                                                                                      --------
Total carrying amount                                                                  422,315
Embedded feature                                                                        10,115
                                                                                      --------
Total long-term debt from Banks                                                       $432,430
                                                                                      ========

     (*)  See E below


                                     F - 18

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 9 - LONG-TERM DEBT FROM BANKS (CONT.)

     B.   FACILITY AGREEMENT

          In January 2001, the Company entered into a Facility Agreement, as
          amended to date, with two leading Israeli banks ("Banks") entitling
          the Company to borrow an aggregate, of $500,000 to finance the
          construction and equipping of Fab 2 ("Facility Agreement"). Of that
          amount, the Company withdrew an aggregate of $497,000. Under the
          original terms of the Facility Agreement the loans bore interest at a
          rate of three-month USD LIBOR plus 1.55% per annum payable at the end
          of each quarter. The loans were originally to be paid in 12 quarterly
          installments 3 years from date of each loan drawn down. The loans were
          subject to certain prepayment provisions. The Facility Agreement was
          since amended in various instances. Prior to the closing of the
          September 2006 Amendment, the loans bore interest based on the
          three-month USD LIBOR rate plus 2.5%. For interest rates following
          September 2006 Amendment, see below.

          JULY 2005 AMENDMENT - In July 2005, the Company and its Banks entered
          into a definitive amendment to the Facility Agreement, which closed in
          August 2005. The Amendment provided, among other things, for the Banks
          to provide additional financing of up to approximately $30,000,
          subject to the Company raising through the issuance of shares or
          convertible debentures $30,000 by March 31, 2006. In connection with
          the Amendment, The Israel Corporation Ltd ("TIC" or "Equity Investor")
          and SanDisk Corporation, Alliance Semiconductor Corporation and
          Macronix International Co. Ltd. (collectively, the "primary Wafer
          Partners") committed to invest an aggregate of $23,500 towards such
          funding in the context of a rights offering. Following the
          satisfaction of all the Company's commitments under the July 2005
          Amendment, the Banks provided the Company with $29,693 in additional
          loans.


                                     F - 19

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 9 - LONG-TERM DEBT FROM BANKS (CONT.)

     B.   FACILITY AGREEMENT (CONT.)

          SEPTEMBER 2006 AMENDMENT - As part of the financing for the ramp-up
          plan, in September 2006, the Company closed a definitive amendment to
          the Facility Agreement to refinance the approximately $527,000 of
          long-term debt under its Facility Agreement. Pursuant to the
          Amendment, among other things: (i) $158,000 of the debt under the
          Facility Agreement was converted into capital notes of the Company,
          which notes are convertible into 51,973,684 of the Company's Ordinary
          Shares, representing twice the average closing price per share during
          the ten days prior to signing on the Memorandum of Understanding
          ("MOU") that preceded the final Amendment; (ii) the interest rate
          applicable for the quarterly actual interest payment on the loans was
          decreased from three-month USD LIBOR plus 2.5% per annum to
          three-month USD LIBOR plus 1.1% per annum, effective from May 17, 2006
          (the "Decreased Amount"). As compensation for the Decreased Amount and
          subject to adjustment, in January 2011, the Banks will be issued such
          number of shares (or equity equivalent capital notes or convertible
          debentures) that equals the Decreased Amount divided by the average
          closing price of the Company's Ordinary Shares during the fourth
          quarter of 2010 (the "Fourth Quarter 2010 Price"). If during the
          second half of 2010, the closing price of Company's Ordinary Shares on
          every trading day during this period exceeds $3.49, then the Banks
          will only be granted such number of shares (or equity equivalent
          capital notes or convertible debentures) that equals half of the
          Decreased Amount divided by the Fourth Quarter 2010 Price. If during
          the period ending December 31, 2010, the Banks sell a portion of the
          capital notes or shares issuable upon the conversion of the capital
          notes described in (i) above, at a price per share in excess of $3.49,
          then the consideration payable for the interest rate reduction will be
          reduced proportionately. The amounts payable in securities of the
          Company may be payable in cash under certain circumstances and the
          Decreased Amount may be reduced in the event the Company prepays any
          part of the outstanding loans; (iii) the commencement date for the
          repayment of the outstanding loans, which following the conversion are
          approximately $369,000, was postponed from July 2007 to September
          2009, such that the outstanding loans shall be repaid in 12 quarterly
          installments between September 2009 and June 2012; (iv) the exercise
          periods of the warrants held by the Banks immediately prior to the
          signing of the September 2006 Amendment, were extended such that they
          are exercisable until September 2011, see also Note 14B(5)(a); and (v)
          the financial ratios and covenants that the Company is to satisfy were
          revised to be inline with the Company's working plan as of the time of
          the Amendment.

          SEPTEMBER 2007 CREDIT LINE AGREEMENTS WITH THE BANKS AND TIC AND
          SEPTEMBER 2007 AMENDMENT - In September 2007, the Company signed and
          closed definitive agreements with the Banks and with TIC, providing
          for credit lines totaling up to $60,000, 25% of which from each Bank
          and 50% from TIC, to be used for the funding of equipment required for
          a ramp up plan in Fab 2 to increase its capacity to beyond 24,000
          wafers per month. As of December 31, 2007, $28,000 had been borrowed
          under these credit lines and an additional $32,000 was borrowed during
          January 2008, each drawdown comprised of 25% from each bank and 50%
          from TIC. Loans under the credit lines are bearing interest at an
          annual rate of three-month USD LIBOR plus 3% and are repayable 2 years
          from the date any loan was borrowed. The Company paid the Banks and
          TIC customary fees. For details regarding 5,411,764 warrants granted
          to the Banks and TIC in connection with this agreement, see Note
          14B(5). Further, in September 2007, the Company signed and closed a
          definitive amendment to the Facility Agreement to mainly reflect into
          it the Credit Line Agreements described above and to revise the
          financial ratios and covenants that the Company is to satisfy to be
          inline with the Company's working plan as of the time of the
          Amendment.


                                     F - 20

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 9 - LONG-TERM DEBT FROM BANKS (CONT.)

     B.   FACILITY AGREEMENT (CONT.)

          ACCOUNTING FOR THE LOANS UNDER THE FACILITY AGREEMENT

          Loans received under the Facility Agreement, as amended to date, are
          presented commencing January 1, 2007 at fair value, with changes in
          value reflected on the statement of operations, following an election
          under FASB No. 159 "The Fair Value Option for Financial Assets and
          Financial Liabilities". Such loans bear interest based on the
          three-month USD LIBOR rate plus 1.1%, effective from May 17, 2006.
          Prior to the fair value election, in 2006, the loans under the
          Amendment of September 2006 was treated as a troubled debt
          restructuring within the scope of FASB No. 15 which required the
          following: (i) the amount considered settled for shares and classified
          in equity is based on the price per share as quoted at the closing
          date; (ii) the remaining balance after deduction of the amount used as
          proceeds for the shares issuance in (i) above, will remain
          outstanding; (iii) a new, lower effective interest rate will be
          calculated as the interest rate that equates future payments to the
          outstanding balance; and (iv) no gains or losses are recognized in the
          current period.

          The obligation to issue additional securities of the Company in
          January 2011 under the restructuring in September 2006 Amendment as
          compensation to the Decreased Amount, is considered to include an
          embedded derivative that should be separately accounted for. The
          Company considered the obligation to issue shares as agreed with the
          Banks and determined that it contains two components: (i) a contingent
          component and (ii) an uncontingent component. The contingent component
          is the obligation to issue shares equal to half of the amount of the
          Decreased Amount if the Fourth Quarter 2010 Price is less than $3.49.
          The uncontingent component is the obligation to issue shares equal to
          half of the Decreased Amount regardless of the Fourth Quarter 2010
          Price. The Company accounted for the uncontingent component as an
          additional interest expense and calculated the effective interest rate
          to include such expense. The Company treated the uncontingent
          component as an embedded derivative that needs to be bifurcated and
          separately accounted for based on fair value. Initial separation of
          the embedded derivative will be done using the "with and without"
          method described in DIG Issue B6. Changes in the fair value of the
          embedded derivative will be included in financing expenses.

          In the first quarter of 2007, the Company adopted the provisions of
          SFAS No. 159. As required by such Standard the Company also adopted
          the provisions of FASB 157 FAIR VALUE MEASUREMENTS. The adoption of
          the Standard is effective January 1, 2007. According to the Standard
          the Company can choose to carry at fair value eligible items as
          defined in the Standard, from the date of early adoption and
          accordingly the Company decided to apply the fair value option to the
          Facility Agreement.


                                     F - 21

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 9 - LONG-TERM DEBT FROM BANKS (CONT.)

     B.   FACILITY AGREEMENT (CONT.)

          ACCOUNTING FOR THE LOANS UNDER THE FACILITY AGREEMENT (CONT.)

          The effect of the election of fair value option to the Facility
          Agreement as of January 1, 2007 was a gain of $65,207 which has been
          recorded as a cumulative effect adjustment to retained loss (no tax
          effects have been recorded). The carrying amount of the Facility
          Agreement prior to the adoption was $432,430 and immediately after was
          $367,223. The Company reasoned it election of the fair value option
          for the Facility Agreement on the fact that the application of
          previous GAAP prescribed in FASB 15 Accounting by Debtors and
          Creditors for Troubled Debt Restructurings to the Facility Agreement
          did not reflect the economic benefits that were achieved with the
          consummation of the Amendment to the Facility Agreement and that the
          application of the fair value better reflects such benefits. For fair
          value measurement, see Note 11D below.

     C.   REPAYMENT SCHEDULE

          The principle amount of the long-term debt as of December 31, 2007 is
          repayable as follows:

          2009                     $ 75,449
          2010                      122,898
          2011 and thereafter       184,346
                                   --------
                                   $382,693
                                   ========

     D.   The Facility Agreement with the Banks restricts the Company's ability
          to place liens on its assets (other than to the State of Israel in
          respect of investment grants - see Note 13A(7), to Siliconix - see
          Note 13D(1) and to SanDisk - see Note 13D(2)), without the prior
          consent of the Banks. Furthermore, the agreements contain certain
          restrictive financial ratios and covenants. For further details
          concerning the Facility Agreement and its amendments, see Note 13A(6).

     E.   The effective interest rate as of December 31, 2007 and 2006 of loans,
          the amount of which as of such dates was $80,000 and $207,000,
          includes the terms of the collar agreements with knock-out and
          knock-in features described in Note 11A. Interest is payable at the
          end of each quarter.


                                     F - 22

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 10 - DEBENTURES

     A.   Composition:

                                                                            As of December 31, 2007
                                                                 --------------------------------------------
                                                                            Bifurcated
                                                    Interest     Carrying    embedded
                                                      rate        amount      feature   Fair value     Total
                                                                 --------    --------    --------    --------

2002 Convertible debentures series A                  4.7%       $ 15,774    $     --    $     --    $ 15,774
2005 Convertible debentures series B                    5%          9,547          --          --       9,547
2006 Convertible debentures series C                   --(*)       36,602       7,313          --      43,915
2007 Non-convertible debentures series D                8%         27,627          --          --      27,627

2007 Convertible debentures series E, see Note 11       8%             --          --      28,484      28,484
                                                                 --------    --------    --------    --------
                                                                   89,550       7,313      28,484     125,347
Less - current maturities                                           7,887          --          --       7,887
                                                                 --------    --------    --------    --------
                                                                 $ 81,663    $  7,313    $ 28,484    $117,460
                                                                 ========    ========    ========    ========

                                                         As of December 31, 2006
                                                    --------------------------------
                                                               Bifurcated
                                        Interest    Carrying    embedded
                                          rate       amount      feature     Total
                                                    --------    --------    --------

2002 Convertible debentures series A      4.7%      $ 20,704    $     --    $ 20,704
2005 Convertible debentures series B        5%         4,790      28,377      33,167
2006 Convertible debentures series C       --(*)      25,381      11,513      36,894
                                                    --------    --------    --------
                                                      50,875      39,890      90,765
Less - current maturities                              6,902          --       6,902
                                                    --------    --------    --------
                                                    $ 43,973    $ 39,890    $ 83,863
                                                    ========    ========    ========

     (*) See D below

     If on a payment date of the principal or interest on the debentures there
     exists an infringement of certain covenants and conditions under the
     Facility Agreement, the dates for payment of interest and principal on the
     debentures may be postponed, depending on various scenarios under the
     Facility Agreement until such covenant or condition is settled. The
     debentures and interest thereon are unsecured and subordinated to the
     Company's existing and future secured indebtedness, including indebtedness
     to the Banks under the Facility Agreement - see Note 13A(6), to Siliconix -
     see Note 13D(1), to SanDisk- see Note 13D(2) and to the government of
     Israel - see Note 6B.


                                     F - 23

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 10 - DEBENTURES (CONT.)

     B.   2002 CONVERTIBLE DEBENTURES SERIES A

          In January 2002, the Company issued on the Tel-Aviv Stock Exchange,
          NIS 110,579,800 (approximately $24,300) principal amount of
          convertible debentures, linked to the Israeli Consumer Price Index
          ("CPI"). The debentures were issued at 96% of their par value, and
          bear annual interest at the rate of 4.7%, payable in January of each
          year commencing in January 2003. The principal amount is payable in
          four equal installments in January of each year between 2006 and 2009.
          The outstanding principal amount of convertible debentures as of
          December 31, 2007, adjusted to the CPI was $15,984, half of which was
          paid on January 2008 and the other half is due on January 2009. The
          debentures may be converted until December 31, 2008 into Ordinary
          Shares, at a conversion rate of one Ordinary Share per each NIS 41.00
          principal amount of the debentures.

     C.   2005 CONVERTIBLE DEBENTURES SERIES B

          The Company issued $48,169 principal amount of convertible debentures
          by way of rights offering based on a prospectus which became effective
          on December 2005. The debentures are listed for trade on the Tel-Aviv
          Stock Exchange and on the NASDAQ Capital Market ("Series B"). The
          debentures accrue annual interest at the rate of 5% which will be
          payable, together with the principal of the debentures, in one
          installment on January 2012.

          The debentures are convertible into the Company's Ordinary Shares at a
          conversion price of $1.10 per share. The conversion price was subject
          to downward adjustment under certain circumstances if the Company had
          sold securities in future financings at a price per share which was
          lower than the conversion price, provided that such financings closed,
          or agreements for such financings were signed, through December 2006.
          No such adjustment was or will be required and the downward adjustment
          mechanism has expired.

          The Equity Investors and the primary Wafer Partners, which were
          considered related parties, invested $27,811 in the framework of the
          rights offering.

          Through December 31, 2007, $19,055 in aggregate principal amount of
          debentures were converted into 17,322,575 Ordinary Shares of the
          Company, hence the outstanding principal amount of convertible
          debentures as of December 31, 2007 was $29,114.


                                     F - 24

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 10 - CONVERTIBLE DEBENTURES (CONT.)

     D.   2006 CONVERTIBLE DEBENTURES SERIES C

          In a public offering the Company issued NIS 164,430,000 principal
          amount of convertible debentures linked to the CPI, for gross proceeds
          of NIS 139,765,500 (approximately $31,219), and 391,500 options each
          exercisable for three months ending on September 27, 2006 for NIS 100
          principal amount of convertible debentures at an exercise price equal
          to 85% of their face amount, linked to the CPI. The convertible
          debentures are convertible into the Company's Ordinary Shares at a
          conversion rate of one ordinary share per NIS 8.40 principal amount of
          convertible debentures. The convertible debentures carry a zero coupon
          with principal payable at maturity in December 2011, at a premium of
          37% over principal value, linked to the CPI. The conversion price is
          subject to reduction in certain limited circumstances. The outstanding
          principal amount of convertible debentures as of December 31, 2007 was
          $53,570.

     E.   2007 NON-CONVERTIBLE DEBENTURES SERIES D AND CONVERTIBLE DEBENTURES E

          In the second half of 2007, the Company consummated a private
          placement with Israeli institutions of long-term convertible and
          non-convertible debentures and warrants, by which the Company raised a
          gross proceeds of approximately $40,000. In the funding, 342 units
          were sold, each comprised of: (i) long-term
          non-convertible-debentures, repayable in six equal annual installments
          between the dates of December 2011 and December 2016, with a face
          amount of NIS 250,000 (approximately $59.7) and carrying an annual
          interest rate of 8 percent ("series D"); (ii) long-term
          convertible-debentures repayable in December 2012 with a 17.2 NIS
          conversion price, with a face amount of NIS 262,500 (approximately
          $62.7), carrying an annual interest of 8 percent("series E"), and
          (iii) 5,800 warrants, each exercisable until 2011, for one Tower
          ordinary share at a price of $2.04. The debentures are linked to the
          CPI and were issued at 95.5% of par value. The conversion and exercise
          prices are subject to reduction in certain limited circumstances.

          In September 2007, the Company expanded its series of long-term
          debentures and warrants, by selling 12,118 units, each comprised of
          long-term non-convertible debentures, with a face amount of NIS 2,500
          (approximately $0.62), long-term convertible debentures, with a face
          amount of NIS 2,625 (approximately $0.65), and 58 warrants. The
          debentures were issued at 90% of par value and with the other same
          terms as the debentures and the warrants issued in the private
          placement. In this expansion, the Company raised gross proceeds of
          approximately $14,000.

          The outstanding principal amount of series D and E as of December 31,
          2007 was $30,865 and $32,408, respectively. The Company elected to
          carry series E at fair value in accordance with provisions of SFAS No.
          155.


                                     F - 25

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 11 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASURMENTS

     The Company makes certain disclosures with regard to financial instruments,
     including derivatives. These disclosures include, among other matters, the
     nature and terms of derivative transactions, information about significant
     concentrations of credit risk, and the fair value of financial assets and
     liabilities.

     A.   HEDGING ACTIVITIES

          A derivative is typically defined as an instrument whose value is
          derived from an underlying instrument, index or rate, has a notional
          amount, requires no or little initial investment and can be net
          settled.

          SFAS 133 requires that all derivatives be recorded in the financial
          statements at their fair value at the date of the financial
          statements. The changes in the fair value of the derivatives are
          charged to the statement of operations unless designated as hedging
          item in a cash flows hedge at which time changes are classified in
          other comprehensive income, to the extent effective.

          The Company, from time to time, enters into agreements to hedge
          variable interest rate exposure on long-term loans. The Company uses
          interest rate collar agreements with a knock-out and knock-in features
          to hedge its LIBOR-based variable long-term debt cash flow exposure.
          The knock-out feature was set above the cap level and the knock-in
          feature was set below the floor level. The Company determined that the
          probability that the cap will be knocked-out is remote and thus
          expected that the hedge will be highly effective. The Company assessed
          and measured the effectiveness of the hedge, at inception and
          throughout the hedge, based on total changes in cash flows of the
          collar, and reported changes in fair value in other comprehensive
          income. Amounts presented in other comprehensive income are
          reclassified to operations or capitalized to property and equipment,
          as applicable, as interest payment become due.

          As of December 31, 2007 and 2006, the Company had outstanding
          agreements to hedge interest rate exposure on loans drawn down under
          the Facility Agreement, the aggregate amount of which was $80,000 and
          $207,000 respectively, all of which is attributable to Fab 2. These
          agreements resulted in 2007 and 2006 in a gain of $1,074 and $880,
          respectively and in 2005 in a loss of $1,756

          The Company does not hold or issue derivative financial instruments
          for non-hedging purposes.

          Financial instruments that potentially subject the Company to
          concentrations of credit risk consist principally of cash and cash
          equivalents, short-term bank deposits, trade receivables and
          government agencies receivables. The Company's cash, cash equivalents
          are maintained with high-quality banks, and the composition and
          maturities of investments are regularly monitored by management.
          Generally, these securities may be redeemed upon demand and bear
          minimal risk.


                                     F - 26

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 11 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASURMENTS (CONT.)

     B.   CONCENTRATION OF CREDIT RISKS

          The Company generally does not require collateral; however, in certain
          circumstances, the Company maintains a credit insurance policy or may
          require letters of credit. An allowance for doubtful accounts is
          determined with respect to those amounts that the Company has
          determined to be doubtful of collection. The Company performs ongoing
          credit evaluations of its customers.

          The Company is exposed to credit-related losses in respect of
          derivative financial instruments in a manner similar to the credit
          risk involved in the realization or collection of other types of
          assets. In management's estimation, due to the fact that derivative
          financial instrument transactions are entered into solely with
          financial institution counterparties, it is not expected that such
          counterparties will fail to meet their obligations.

     C.   FAIR VALUE OF FINANCIAL INSTRUMENTS

          The estimated fair values of the Company's financial instruments,
          excluding the Company's long-term debentures do not materially differ
          from their respective carrying amounts as of December 31, 2007 and
          2006. The fair value of the interest rate hedging transactions as of
          December 31, 2007, 2006 and 2005 would have resulted in an unrealized
          capitalizable gain of $295, $1,790 and $1,767, respectively. The fair
          values of debentures as of December 31, 2007, 2006 and 2005 were
          $157,683, $126,048 and $22,750, respectively, based on quoted market
          prices for the respective dates.

     D.   FAIR VALUE MEASUREMENTS

          The Company decided to early adopt the provisions of SFAS No. 157
          effective January 1, 2007, concurrent with the adoption of FASB 159
          "The Fair Value Option for Financial Assets and Financial Liabilities"
          (SFAS No. 159)

          The income approach was applied using a present value technique.

          For Loans - The cash flows used in that technique reflect the income
          stream expected to be used to satisfy the obligation over its economic
          life.

          For Embedded Derivatives - the Company utilized the Black Scholes
          Merton formula.

          For Over the Counter derivatives - the Company used the market
          approach using quotation from dealer markets.

          For convertible debentures series E - The market approach was applied
          using quoted prices for the same debentures.


                                     F - 27

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 11 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASURMENTS (CONT.)

     D.   FAIR VALUE MEASUREMENTS (CONT.)

     Recurring Fair Value Measurements Using:

                                                   Quoted prices
                                                    in active       Significant
                                                    market for         other
                                                     identical      observable      Significant
                                     December 31,   liability         Inputs        Unobservable
                                        2007         (Level 1)      (Level 2)     Inputs (Level 3)
                                      ---------      ---------       ---------       ---------

Trading securities - convertible
debentures series E                   $  28,484      $  28,484       $      --       $      --
Long-term debt                          365,563             --              --         365,563
Derivatives                               7,018             --            (295)          7,313
                                      ---------      ---------       ---------       ---------
                                      $ 401,065      $  28,484       $    (295)      $ 372,876
                                      =========      =========       =========       =========

     Asset Measurement on a Recurring Basis Using Significant Unobservable
     Inputs (Level 3):

                                                                          Long-term debt   Derivatives
                                                                            ---------       ---------

As of January 1, 2007- at fair value                                        $ 367,223       $  11,513
Total gains unrealized in earnings                                             (1,660)         (4,200)
                                                                            ---------       ---------
As of December 31, 2007 - at fair value                                     $ 365,563       $   7,313
                                                                            =========       =========

Unrealized gain  in earnings from liabilities still held at period end      $  (1,660)      $  (4,200)
                                                                            =========       =========

NOTE 12 - OTHER LONG-TERM LIABILITIES

     A.   Composition:

                                                                            As of December 31,
                                                                        ------------------------
                                                                           2007           2006
                                                                        ---------      ---------

Accrued Severance pay, see B below:                                     $  18,374      $  16,816
Long-term liabilities in respect of license agreements                         --          1,804
LONG-TERM LOANS FROM RELATED PARTIES, NET OF CURRENT MATURITY, SEE
NOTES 9B,13A(5) AND 13D(2)                                                 19,073          8,096
Other (*)                                                                   2,933          1,439
                                                                        ---------      ---------
                                                                        $  40,380      $  28,155
                                                                        =========      =========

     (*)  Includes $2,468 and $1,183 as of December 31, 2007 and 2006,
          respectively, of interest payable to related parties in regard to
          Series B, see also Note 10C.


                                     F - 28

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 12 - OTHER LONG-TERM LIABILITIES (CONT.)

     B.   EMPLOYEE TERMINATION BENEFITS

          Israeli law and labor agreements determine the obligations of the
          Company to make severance payments to dismissed employees and to
          employees leaving employment under certain circumstances. Generally,
          the liability for severance pay benefits, as determined by Israeli
          Law, is based upon length of service and the employee's monthly
          salary. This liability is primarily covered by regular deposits made
          each month by the Company into recognized severance and pension funds
          and by insurance policies purchased by the Company, based on the
          employee's salary for the relevant month. The amounts so funded and
          the liability are reflected separately on the balance sheets in
          Long-term investments and Other Long-term Liabilities, respectively.
          Commencing January 1, 2005 the Company is implementing a labor
          agreement according to which, monthly deposits into recognized
          severance and pension funds or insurance policies releases it from any
          additional severance obligation to its employees and therefore incur
          no liability or asset, since that date. Any net severance pay amount
          as of such date will be released thereafter, as fixed amount on
          employee termination date. Payments relating to employee termination
          benefits were approximately $3,323, $2,807 and $2,631 for 2007, 2006
          and 2005, respectively.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2

          (1)  OVERVIEW

               In 2001, the Company's Board of Directors approved the
               establishment of the Company's second wafer fabrication facility
               in Israel ("Fab 2"). In Fab 2, the Company manufactures
               semiconductor integrated circuits on silicon wafers in geometries
               of 0.18 to 0.13 micron on 200-millimeter wafers. In connection
               with the establishment, equipping and financing of Fab 2, the
               Company has entered into several related agreements and other
               arrangements and has completed several public and private
               financing transactions. The agreements and arrangements include
               those with technology partners, with SanDisk Corporation,
               Alliance Semiconductor Corporation, Macronix International Co.,
               Ltd. and QuickLogic Corporation (collectively, the "Wafer
               Partners"), Equity Investors, Banks, the Government of Israel
               through the Investment Center and others. The Company has also
               entered into agreements for the design and construction of Fab 2,
               for equipping Fab 2 and for the transfer to the Company of
               process technologies to produce wafers in Fab 2.



                                     F - 29

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2 (CONT.)

          (1)  OVERVIEW (CONT.)

               In 2006, the board of directors of the Company approved a plan to
               ramp up Fab 2's capacity to approximately 24,000 wafers per month
               in order to help meet customer needs and product qualification
               needs, based on its customer pipeline and reinforced by
               forecasted market conditions. This plan was completed during
               2007. During 2007, the Company announced an additional plan to
               further ramp up to reach capacity beyond 24,000 wafers per month.

               For details regarding the financing efforts of the ramp-up plans
               to reach capacity of 24,000 wafers per month and beyond, see Note
               13A(4) for TIC investment of $100,000; Note 9B for Facility
               Agreement amendments with the Banks and for credit lines from TIC
               and the Banks; Notes 14J-M for public and private fund raisings.

               The Company continues to examine alternatives for additional
               funding sources in order to fund its Fab2 ramp-up.

          (2)  TECHNOLOGY TRANSFER AGREEMENTS

               TOSHIBA - In 2000, the Company entered into a technology transfer
               agreement with Toshiba Corporation ("Toshiba"), a Japanese
               corporation. This agreement provided for the transfer by Toshiba
               to the Company of advanced semiconductor manufacturing process
               technologies to be installed in Fab 2 including related
               technology transfer assistance in exchange for certain fees for
               patent licenses, technology transfer and technical assistance.
               The transfer of the technology was substantially completed during
               2003. The Company's commitment under the Toshiba agreement to
               reserve for Toshiba a certain portion of Fab 2 wafer
               manufacturing capacity expired in December 2005.

               FREESCALE - In 2002, the Company entered into a non-exclusive
               technology transfer, development and licensing agreement with
               Freescale. This agreement provides for the transfer by Freescale
               to the Company of existing and newly developed versions of
               advanced semiconductor manufacturing process technologies to be
               installed in Fab 2, and for the provision by Freescale of related
               technology transfer assistance, in exchange for certain fees for
               patent and other licenses, technology transfer and development,
               and technical assistance. Subject to prior termination for cause
               by Freescale, the licenses under the agreement are perpetual.


                                     F - 30

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2 (CONT.)

          (3)  WAFER PARTNER AGREEMENTS

               During the years 2000 and 2001, the Company entered into various
               shares purchase agreements ("Wafer Partner Agreements") with
               Wafer Partners to partially finance the construction and
               equipping of Fab 2. Pursuant to the Wafer Partner Agreements, the
               Wafer Partners agreed to invest an aggregate of $250,000 to
               purchase Ordinary Shares of the Company. According to the Wafer
               Partner Agreements, the Company agreed, subject to certain
               conditions, to reserve for each Wafer Partner a certain portion,
               and collectively approximately 50%, of Fab 2 wafer manufacturing
               capacity for a period of 10 years ending January 2011.

               Through December 31, 2004, the Wafer Partners invested under the
               Wafer Partner Agreements an aggregate of $246,823. Of such
               amount, $201,059, was credited as paid in capital and $45,764,
               was established as long-term customers' advances which may be,
               subject to the terms and conditions stipulated in the Wafer
               Partner Agreements, as amended to date, utilized as credit
               against purchases to be made by the Wafer Partners, primarily
               through December 2010, or converted into paid-in-capital for
               limited term. Through December 31, 2007, the Wafer Partners were
               issued an aggregate of 36,489,681 Ordinary Shares at an average
               price per share of $6.94, which was determined based on the
               average closing sale price of the Company's Ordinary Shares for
               the 15-30 trading days prior to making any capital investment:
               see also (5) below.

               Due to recent changes in one of the Company's primary Wafer
               Partner's operations and its recent exit of its semiconductor
               activities, the Company believes that no future utilization is
               expected and determined that a full write-down of the its
               outstanding amount is appropriate.

               For additional investments made by the primary Wafer Partners in
               the aggregate amount of $19,089 in connection with the 2002 and
               2005 rights offerings, see Notes 14G and 14I, respectively.

               In August 2006, the Company signed an agreement with SanDisk, one
               of the Wafer Partners, to invest in the expansion of its 0.13
               micron manufacturing capacity, see Note 13D(2).

               For amendments to the Wafer Partner agreements, see (5) below.


                                     F - 31

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2 (CONT.)

          (4)  EQUITY INVESTOR AGREEMENTS

               During the years 2001-2004, TIC has invested in the Company
               $50,000 for the purchase of an aggregate of 6,749,669 Ordinary
               Shares of the Company at an average price per share of $7.41,
               which was determined based on the average closing sale price of
               the Company's Ordinary Shares for the 15-30 trading days prior to
               making any investment. The investment of TIC was made in
               accordance with shares purchase agreement the Company entered
               into in January 2001. For a description of an undertaking and
               additional investments made by TIC in the aggregate amount of
               $29,152 in connection with the 2002 and 2005 rights offerings,
               see Notes 14G and 14I, respectively.

               In regard to the Company's financing efforts for the ramp-up plan
               to reach capacity of 24,000 wafers per month and in connection
               with the September 2006 Amendment to the Facility Agreement,
               following TIC's commitment to invest $100,000, the Company
               entered into a securities purchase agreement with TIC (the
               "Securities Purchase Agreement"). The Securities Purchase
               Agreement was approved by the Company's Audit Committee, Board of
               Directors and the Company's shareholders. The principal terms of
               the Securities Purchase Agreement were: (i) in consideration for
               its $100,000 investment, the Company agreed to issue to TIC
               capital notes convertible into 65,789,474 of the Company's
               Ordinary Shares at a conversion price per share of $1.52 (which
               equals the average closing price during the 10 consecutive
               trading days prior to signing the May 2006 Memorandum of
               Understanding with the Banks and TIC which was the basis of this
               agreement); (ii) the Company would be deemed to have exercised
               the Call Option under the Equipment Purchase Agreement described
               below; and (iii) the Company and TIC would settle the amounts
               payable by TIC under the Securities Purchase Agreement with the
               amounts payable by the Company under the Equipment Purchase
               Agreement. The Securities Purchase Agreement closed
               contemporaneously with the closing of the September 2006
               Amendment.

               In order to implement the ramp-up plan in a timely manner, in May
               2006, the Company entered into an Equipment Purchase Agreement
               with TIC according to which TIC will order up to approximately
               $100,000 worth of equipment for Fab 2. Under the terms of the
               Equipment Purchase Agreement: (i) TIC had the right to sell to
               the Company the equipment at cost, plus related expenses; (ii)
               the Company had the right to purchase the equipment from TIC at
               cost, plus related expenses, subject to the Company having raised
               $100,000; and (iii) upon the purchase of the equipment from TIC
               the Company would assume TIC's obligations to the equipment
               suppliers.


                                     F - 32

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2 (CONT.)

          (4)  EQUITY INVESTOR AGREEMENTS (CONT.)

               Upon the closing of the September 2006 Amendment and the
               Securities Purchase Agreement, TIC transferred ownership over the
               purchased equipment to the Company and the Company assumed TIC's
               obligations to the equipment suppliers.

               For a credit line agreement signed with TIC in September 2007,
               see Note 9B.

          (5)  AMENDMENTS TO THE PRIMARY WAFER PARTNER AGREEMENTS

               Pursuant to the primary Wafer Partner Agreements, as amended to
               date, each of the primary Wafer Partners had an option to
               convert, at the end of each calendar quarter commencing 2004,
               that portion of the long-term customers' advances which it is
               entitled to utilize, based upon payments made by such primary
               Wafer Partner and purchase orders received from the Wafer
               Partners through December 31, 2006, (subject to the below
               amendment with one of the Wafer Partners), into fully-paid
               Ordinary Shares of the Company. The number of shares has been
               determined based on the average closing sale price of the
               Company's Ordinary Shares for the 15 trading days preceding the
               end of the relevant quarter. Accordingly, through December 31,
               2007, two of the primary Wafer Partners had elected to convert an
               aggregate of $12,487 of long-term customer advances into
               7,908,063 fully-paid Ordinary Shares of the Company, at an
               average share price of $1.58 per share. Any quarterly amount,
               which the primary Wafer Partners had elected not to so convert,
               was utilizabled against purchases and was to be repaid on
               December 2007 ("December 2007 Date"). The amounts bear interest,
               payable at the end of each quarter, at an annual rate equal to
               three-month USD LIBOR plus 2.5% through December 31, 2007,
               subject to the below amendment with one of the Wafer Partners.

               In 2006, the Company and one of the primary Wafer Partners,
               entered into an agreement to defer the December 2007 Date to be
               December 2009. Further, according to the agreement, with respect
               to certain orders placed until July 2006, and all orders placed
               thereafter through December 2009, such unutilized advances will
               bear interest at an annual rate equal to three-month USD LIBOR
               plus 1.1%, payable at the end of each quarter, through December
               2009.


                                     F - 33

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13      -  COMMITMENTS AND CONTINGENCIES (CONT.)

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2 (CONT.)

          (6)  FACILITY AGREEMENT

               COMPLIANCE WITH FINANCIAL RATIOS AND COVENANTS - As of the
               balance sheet date, the Company was in full compliance with all
               of the financial ratios and covenants under the Facility
               Agreement, as amended to date. According to the Facility
               Agreement, satisfying the financial ratios and covenants is a
               material provision. The amended Facility Agreement provides that
               if, as a result of any default, the Banks were to accelerate the
               Company's obligations, the Company would be obligated, among
               other matters, to immediately repay all loans made by the Banks
               (which as of the approval date of the financial statements
               amounted to approximately $400,000) plus penalties, and the Banks
               would be entitled to exercise the remedies available to them
               under the Facility Agreement, including enforcement of their
               liens against all of the Company's assets.

               LIENS - Under the Facility Agreement, the Company agreed to
               register liens in favor of the Banks on substantially all its
               present and future assets. If, as a result of any default under
               the Facility Agreement, the Banks were to accelerate the
               Company's obligations, the Company would be obligated to
               immediately repay all loans made by the Banks (which as of the
               approval date of the financial statements amounted to
               approximately $400,000), plus penalties, and the Banks would be
               entitled to exercise the remedies available to them under the
               Facility Agreement, including enforcement of the liens against
               the Company's assets.

               OFFEROR BY THE BANKS - If one or more certain bankruptcy related
               events occur, the Banks are entitled to bring a firm offer made
               by a potential investor to purchase the Company's Ordinary Shares
               ("the Offer") at a price provided in the Offer. In such case, the
               Company shall be required thereafter to procure a rights offering
               to invest up to 60% of the amount of the Offer on the same terms.
               If the Offer is conditioned on the offeror purchasing a majority
               of the Company's outstanding share capital, the rights offering
               will be limited to allow for this, unless TIC and the primary
               Wafer Partners agree to exercise in a rights offering rights
               applicable to their shareholdings and agree to purchase in a
               private placement enough shares to ensure that the full amount of
               the Offer is invested.

               For further details in regard to the Facility Agreement, see Note
               9B.


                                     F - 34

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2 (CONT.)

          (7)  APPROVED ENTERPRISE STATUS

               In December 2000, the Investment Center approved an investment
               program in connection with Fab 2 for expansion of the Company's
               plant. The approval certificate for the program provided for a
               benefit track entitling the Company to investment grants at a
               rate of 20% of qualified investments of up to $1,250,000, or an
               aggregate of up to $250,000, of which as of the balance sheet
               date, an aggregate of approximately $165,000 has been received
               from the Investment Center. Under the terms of the program,
               investments in respect of Fab 2 were to be completed by December
               31, 2005, five years from the date the approval certificate was
               obtained. Due to the later than planned construction of Fab 2,
               market conditions and slower than planned ramp-up, the Company
               completed approximately 72% of the investments under the approved
               enterprise program. In December 2007, the Company submitted the
               final report in relation to the program. The Company has been
               holding discussions with the Investment Center to achieve
               satisfactory arrangements to approve a new expansion program
               commencing as of January 1, 2006. As of the approval date of the
               financial statements, the Company's management cannot estimate
               when, if at all, the Company will receive approval of its request
               for a new expansion program.

               Any failure by the Company to meet the conditions of the 2000
               approval certificate may result in the cancellation of all or a
               portion of the grants to be received and tax benefits and in the
               Investment Center requiring the Company to repay all or a portion
               of grants already received. Under Israeli law, the Company's
               non-completion of investments in an amount of $1,250,000 by
               December 31, 2005 may permit the Investment Center to require the
               Company to repay all or a portion of grants already received.
               Management believes that it is improbable that the Investment
               Center would demand the Company to repay all or a portion of
               grants already received, or deny investment grants receivable as
               of December 31, 2005, due to its non-completion of investments in
               the amount of $1,250,000 by December 31, 2005 - see also Note 17A

          (8)  AGREEMENT WITH THE ILA

               In November 2000, the Company entered into a development
               agreement with the Israel Land Administration ("ILA") with
               respect to a parcel of land on which Fab 2 was constructed.
               Following the completion of the construction of Fab 2 on the
               land, in June 2003, the Company entered into a long-term lease
               agreement with the ILA for a period ending in 2049. The lease
               payments through 2049 relating to this lease have been paid in
               advance and are expensed through the operational lease period.


                                     F - 35

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     A.   COMMITMENTS AND CONTINGENCIES RELATING TO FAB 2 (CONT.)

          (9)  HEDGING ACTIVITIES

               For hedging transactions and agreements of the Company, see Note
               11A.

          (10) OTHER AGREEMENTS

               Through December 31, 2007, the Company had entered into several
               additional agreements related mainly to the construction,
               equipping and transfer of technology for Fab 2. The Company's
               aggregate commitment in connection with these agreements which
               were not supplied or rendered as of such date amounted to
               approximately $45,000.

     B.   LICENSE AGREEMENTS

          (1)  In June 2000, the Company entered into a cross license agreement
               with a major technology company. According to the agreement, each
               party acquired a non-exclusive license to certain of the other's
               patents. The Company agreed to pay an annual license fee through
               July 2005. In July 2006, the Company extended its cross license
               agreement with the major technology company until December 2010.
               According to terms of the new agreement, each party acquired a
               non-exclusive license to certain of the other's patents, and the
               Company agreed to pay an annual license fee through 2010.

          (2)  In May 2002, the Company entered into a joint development and
               royalty-free, non-exclusive cross-license agreement with a
               Japanese semiconductor manufacturer corporation, for the joint
               development of certain technology to be used by the Company in
               its Fab 2 and by the Japanese manufacturer in its facilities. In
               April 2005, the Japanese semiconductor manufacturer corporation
               elected, and the Company agreed, to cease the joint development
               of certain technology and to terminate the agreement. However,
               the license rights granted to the parties continue pursuant to
               the terms of the May 2002 agreement. According to the terms of
               the termination agreement, the Japanese manufacturer paid the
               Company an amount of $2,500 in 2005. In addition, each party
               expressly released the other party from any obligations or
               liabilities of any nature in connection with the original
               agreement. Revenues for 2005 include $8,000 in relation to this
               agreement.


                                     F - 36

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     B.   LICENSE AGREEMENTS (CONT.)

          (3)  In October 1997 the Company and Saifun Semiconductors Ltd
               ("Saifun") entered into an agreement for certain exclusive
               semiconductor manufacturing rights on certain licensed
               technology. The agreement set certain limitations on Saifun
               regarding future licensing of such technology. Pursuant to
               certain provisions of the agreement, the Company and Saifun were
               obligated to pay each other royalties. The agreement was
               terminated in 2006, with the signing of a new agreement,
               according to which, among other things, Saifun extended the term
               of the license granted to the Company for certain licensed
               technology.

          (4)  The Company from time to time enters into intellectual property
               and licensing agreements with third parties. The effect of each
               of them on the Company's total assets and results of operations
               is immaterial. Certain of these agreements call for royalties to
               be paid by the Company to these third parties, see also Note 12A.

     C.   LEASES

          (1)  The Company's offices and engineering and manufacturing
               operations are located in a building complex situated in an
               industrial park in Migdal Ha'emek, in the northern part of
               Israel. These premises are currently occupied under a long-term
               lease from the ILA, which expires in 2032. The Company has no
               obligation for lease payments related to this lease through the
               year 2032.

          (2)  With respect to a long-term lease agreement of land on which Fab
               2 was constructed, see A(8) above.

          (3)  The Company occupies certain other premises under various
               operating leases. The obligations under such leases were not
               material as of December 31, 2007.


                                     F - 37

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     D.   OTHER PRINCIPAL AGREEMENTS

          The Company, from time to time in the ordinary course of business,
          enters into long-term agreements with various entities for the joint
          development of products and processes utilizing technologies owned by
          both the other entities and the Company.

          (1)  SILICONIX - In 2004, the Company and chip maker Siliconix
               incorporated ("Siliconix"), a wholly-owned subsidiary of Vishay
               Intertechnology Inc., entered into a definitive long-term foundry
               agreement for semiconductor manufacturing. Pursuant to the
               agreement, Siliconix will place with the Company orders for the
               purchase of wafers to be manufactured in the Company's Fab 1.
               According to the agreement, in 2004 Siliconix provided the
               Company $20,000 to be used primarily for the purchase of
               additional equipment required to satisfy Siliconix's production
               wafer requests. The advanced amount is credited towards the
               purchase price of wafers. Under the agreement, Siliconix is
               entitled to register liens over the equipment purchased in
               connection with the transaction.

          (2)  SANDISK CORPORATION - In 2006, in connection with Fab2 0.13
               micron capacity expansion, the Company signed an agreement with
               SanDisk Corporation ("SanDisk"), one of its wafer partners,
               according to which, SanDisk is committed to purchase volume
               quantities of 0.13 micron wafers during 2007 and 2008 and will
               have a right of first refusal for a portion of the Company's 0.13
               micron capacity in 2009. The Company and SanDisk also signed a
               Loan Agreement under which the Company borrowed approximately
               $10,000 from SanDisk for the purpose of financing the purchase of
               a portion of the equipment needed for said expansion. The loan
               bears interest on the amounts outstanding at three-month USD
               LIBOR plus 1.1%. Pursuant to the agreement, SanDisk has been
               granted a first ranking charge on the equipment purchased
               therewith.

     E.   ENVIRONMENTAL AFFAIRS

          The Company's operations are subject to a variety of laws and
          governmental regulations in Israel relating to the use, discharge and
          disposal of toxic or otherwise hazardous materials used in the
          production processes. Operating permits and licenses are required for
          the operations of the Company's facilities and these permits and
          licenses are subject to revocation, modification and renewal.
          Government authorities have the power to enforce compliance with these
          regulations, permits and licenses. As of the approval date of the
          financial statements, the Company was in compliance with the terms of
          the permits and licenses.


                                     F - 38

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT.)

     F.   CLASS ACTION

          In June 2006, the United States Court of Appeals for the Second
          Circuit affirmed the August 2004 decision of the United States
          District Court for the Southern District of New York to dismiss the
          class action suit filed in July 2003 against the Company and certain
          of its directors, Wafer Partners and Equity Investors (the
          "Defendants"). The plaintiffs had asserted claims arising under the
          Securities Exchange Act of 1934, alleging misstatements and omissions
          made by the Defendants in materials sent to the Company's shareholders
          in April 2002 with respect to the approval of an amendment to the
          Company's investment agreements with its Fab 2 investors. The District
          Court accepted the motion to dismiss filed on behalf of the defendants
          and noted that the Company's status as a foreign private issuer
          exempts the Company, its directors and controlling shareholders, from
          liability under the proxy rules of Section 14(a) of the Securities
          Exchange Act.

     G.   AMENDMENT TO ISRAELI BANKING REGULATIONS

          Pursuant to an amendment to a directive published by the Israel
          Supervisor of Banks, effective March 31, 2004, the Company may be
          deemed part of a group of borrowers comprised of the Ofer Brothers
          Group, TIC, and other companies which are also included in such group
          of borrowers pursuant to the directive, including companies under the
          control or deemed control of these entities. The directive provides
          for limits on amounts that banks may lend to borrowers or groups of
          borrowers. Should the Banks exceed these limitations, they may limit
          the Company's ability to borrow other money in the future and may
          require the Company to return some or all of the outstanding
          borrowings (which were approximately $400,000 as of the approval date
          of the financial statements). As of the approval date of the financial
          statements, the Company had received no such request.

     H.   OTHER COMMITMENTS

          Receipt of certain research and development grants from the government
          of Israel is subject to various conditions. In the event the Company
          fails to comply with such conditions, the Company may be required to
          repay all or a portion of the grants received. In management's
          opinion, the Company has been in full compliance with the conditions
          through December 31, 2007. In regard to investment center grants, see
          A(7) above.


                                     F - 39

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY

     A.   DESCRIPTION OF ORDINARY SHARES

          As of December 31, 2007 and 2006, the Company had 800,000,000
          authorized Ordinary Shares, par value NIS 1.00 each, of which
          124,226,116 and 100,752,767, respectively, were issued and outstanding
          (net of 1,300,000 Ordinary Shares held by the Company as of such
          dates). As of the balance sheet date, there were 243,905,535 Ordinary
          Shares of the Company contingently issuable. This amount includes
          Ordinary Shares to be issued under various agreements according to
          their provisions: (i) Equity Investor warrants, see B(5)(b) below;
          (ii) the exercise of outstanding warrants, see J,K,L and M below;
          (iii) options granted to employees and non-employees, see B(1) below;
          (iv) the conversion of all outstanding convertible debentures, see
          Note 10 above; and (v) the exercise of all capital notes, see C below.
          Holders of Ordinary Shares are entitled to participate equally in the
          payment of cash dividends and bonus share (stock dividend)
          distributions and, in the event of the liquidation of the Company, in
          the distribution of assets after satisfaction of liabilities to
          creditors. Each ordinary share is entitled to one vote on all matters
          to be voted on by shareholders.

     B.   SHARE OPTION PLANS

          (1)  EMPLOYEE, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
               OFFICER AND DIRECTOR SHARE OPTIONS

               (A)  GENERAL - The Company has granted to its employees options
                    to purchase its Ordinary Shares under several option plans
                    adopted by the Company since 1995. The particular provisions
                    of each plan and grant vary as to vesting period, exercise
                    price, exercise period and other terms. Generally, the
                    options are granted at an exercise price which equals the
                    market value of the Ordinary Shares at the date of grant;
                    vest over a three to four-year period according to various
                    vesting schedules; and are not exercisable beyond ten years
                    from the grant date.


                                     F - 40

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (1)  EMPLOYEE, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
               OFFICER AND DIRECTOR SHARE OPTIONS (CONT.)

               (B)  OPTIONS TO THE CHAIRMAN OF THE COMPANY'S BOARD OF DIRECTORS
                    - In December 2006, the Audit Committee and Board of
                    Directors of the Company approved the appointment of a new
                    Chairman to the Board of Directors of the Company and
                    approved to grant him options to purchase 3,158,090 Ordinary
                    Shares of the Company, which constituted 1% of the Company's
                    issued and outstanding share capital on a fully diluted
                    basis as of December 2006, the date the Board of Directors
                    approved the grant. The exercise price is $1.88, which was
                    the closing price of the Company's Ordinary Shares on the
                    NASDAQ Global Market on the trading day immediately prior to
                    the date of approval of the grant by the Shareholders of the
                    Company. The options vest over 4 years, 25% on the 12 month
                    anniversary of the shareholders approval date and 6.25% on
                    each 3 month anniversary of the first vesting date until
                    fully vested. The options grant to the chairman of the Board
                    of Directors was approved by the shareholders of the Company
                    in January 2007. The compensation cost of the options
                    granted was determined based on the fair value at the grant
                    dates and amounted to $3,568. Such amount is expensed on an
                    accelerated basis over the vesting periods of the options.

               (C)  OPTIONS TO THE COMPANY'S CHIEF EXECUTIVE OFFICER AND
                    DIRECTOR - In April 2005, the Company's Board of Directors
                    approved the grant of options to purchase up to 1,325,724
                    Ordinary Shares to the Company's Chief Executive Officer
                    ("CEO"), who also serves as a director, which was further
                    approved by the Company's shareholders in October 2005.
                    These options are exercisable at an exercise price of $1.56,
                    which was the closing market price of the Company's shares
                    on the last trading day prior to the board approval of the
                    grant. These options will vest over a four-year period, with
                    25% vesting over each year of employment. The options
                    granted are exercisable for a period of ten years from the
                    date of grant.


                                     F - 41

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (1)  EMPLOYEE, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
               OFFICER AND DIRECTOR SHARE OPTIONS (CONT.)

               (C)  OPTIONS TO THE COMPANY'S CHIEF EXECUTIVE OFFICER AND
                    DIRECTOR (CONT.)

                    In May 2006, the Company's Audit Committee and Board of
                    Directors approved the grant of options to the CEO, in
                    addition to the options granted to him in 2005, such that in
                    total, the CEO will hold options to purchase shares that
                    represent 4% of the Company's shares on a fully diluted
                    basis during the two-year period from the approval of the
                    Audit Committee. The exercise price of the initial grant of
                    the additional options was $1.45, the 90-day average closing
                    price of the Company's shares prior to the Board of
                    Directors' approval. Future dilutive events following May
                    2006 and until May 2008 also entitles him for additional
                    options grants with an exercise price equal to the price per
                    share of the newly issued securities. Under certain
                    circumstances, the exercise price will equal the 30-day
                    average closing price of the Company's shares prior to the
                    dilutive event. The additional options granted during the
                    two-year period, will vest in equal amounts over 4 years of
                    employment commencing from May 2006. Any decrease in the
                    Company's shares on a fully diluted basis during the
                    two-year period from the approval of the Audit Committee
                    will be followed by the cancellation of the corresponding
                    options granted to the CEO. The options are exercisable for
                    a period of 10 years from the date of grant. No additional
                    options will be granted under the CEO's 2005 option
                    arrangement, which was approved by the Company's
                    shareholders in October 2005. The new grant of options and
                    its terms were approved by the Company's shareholders in
                    September 2006.

                    As of the balance sheet date, a total of 14,872,087 options
                    were outstanding to the CEO. The compensation cost of the
                    total options granted to the CEO was determined based on the
                    fair value at the grant dates and amounted to $11,723. Such
                    amount is expensed on an accelerated basis over the vesting
                    periods of the options.


                                     F - 42

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (1)  EMPLOYEE, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
               OFFICER AND DIRECTOR SHARE OPTIONS (CONT.)

               (D)  EMPLOYEE OPTIONS - In May 2006, the Company's board of
                    directors approved a plan to offer each of the Company's
                    employees the opportunity to exchange their existing options
                    to purchase Ordinary Shares for new options with an exercise
                    price of $1.45, which is the average closing price of the
                    Company's shares on the NASDAQ during the 90 consecutive
                    trading days prior to the board of directors' approval.
                    Accordingly, 4,299,250 options were exchanged. The new
                    options were granted based on terms similar to the existing
                    employee option plan with new vesting periods, starting May
                    2006. The cost of the new options was determined based on
                    the fair value at the grant dates in and amounted to $1,726.
                    Such amount is amortized as an expense on an accelerated
                    basis over the vesting periods of the new options. The Board
                    of Directors further approved that if the total number of
                    employee options, including the options to the CEO, during
                    the two-year period from May 2006 will represent less than
                    8% of the Company's shares on a fully diluted basis,
                    additional options will be allocated for grants to the
                    Company's employees. As of the balance sheet date,
                    approximately 3,938,000 options are reserved for future
                    grant of options to employees.

               (E)  OPTIONS GRANTED TO DIRECTORS - During 2001, the Audit
                    Committee, the Board of Directors of the Company and the
                    shareholders of the Company approved a stock option plan
                    pursuant to which certain of the Company's directors will be
                    granted options to purchase up to 400,000 Ordinary Shares of
                    the Company (40,000 to each eligible director appointed to
                    the Board of Directors) at an exercise price equal to the
                    market price of the Company's shares on the grant dates. In
                    accordance with this option plan, 80,000 options were
                    granted in 2007 to two director who were appointed in 2007
                    at an average exercise prices of $1.74, which equals the
                    market price of the Company's shares on the grant date. As
                    of December 31, 2007, 190,000 options were outstanding under
                    the plan with a weighted average exercise price of $3.68.

                    Options granted under the plan vest over a four-year period
                    according to various vesting schedules, and generally may
                    not be exercised beyond five years from the date they first
                    become exercisable. So long as the Independent Directors
                    Option Plan described below remains in effect, no new
                    independent director, following January 2007, will be
                    entitled to receive options under the 2001 director options
                    plan.


                                     F - 43

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (1)  EMPLOYEE, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
               OFFICER AND DIRECTOR SHARE OPTIONS (CONT.)

               (F)  INDEPENDENT DIRECTORS OPTION PLAN - In November 2006, the
                    Company's Board of Directors approved, following the
                    approval by the Audit Committee, the grant to each
                    independent director options to purchase Ordinary Shares
                    ("Initial Options") that shall equal 150,000 less the number
                    of options to purchase Ordinary Shares held by such
                    independent director as of January 31, 2007, the date the
                    shareholders approved the grant (the "Initial Grant Date")
                    and which, as of the Initial Grant Date, have not vested.
                    The Initial Options shall vest over 3 years, one third will
                    vest on the 12 month anniversary of the Initial Grant Date,
                    and thereafter, the remaining two thirds will vest on a
                    monthly basis until fully vested. The exercise price of the
                    Initial Options was $1.88, which was the closing price of
                    the Company's Ordinary Shares on the NASDAQ on the trading
                    day immediately prior to the Initial Grant Date. Each new
                    independent director appointed after the Initial Grant Date
                    shall be granted 150,000 options to purchase Ordinary Shares
                    ("Subsequent Options"), which, shall vest over 3 years, one
                    third on the 12 month anniversary of the date on which such
                    independent director shall have served on the Board of
                    Directors of the Company, the remaining two thirds will vest
                    on a monthly basis until fully vested. The exercise price
                    per Subsequent Option shall be the closing price of the
                    Company's Ordinary Shares on the NASDAQ on the trading day
                    immediately prior to the relevant date of appointment.

                    Upon each 36 month anniversary of a previous grant of
                    options to an independent director (each a "Tenure Grant
                    Date"), each such independent director shall be granted an
                    additional 150,000 options to purchase Ordinary Shares
                    ("Tenure Options"), which will vest over 3 years on a
                    monthly basis until fully vested. The exercise price per
                    Tenure Option shall be the closing price of the Company's
                    Ordinary Shares on the NASDAQ on the trading day immediately
                    prior to the relevant Tenure Grant Date. Subject to certain
                    conditions, the Initial Options, Subsequent Options and
                    Tenure Options that have vested shall be exercisable by an
                    Independent Director for a period of ten years following the
                    date on which the Initial Options, Subsequent Options or
                    Tenure Options, as the case may be, first vested. So long as
                    this option plan remains in effect, no future grants will be
                    made to independent directors under the plan described in
                    (1)(e) above. The independent directors' option plan was
                    approved by the shareholders of the Company in January 2007.


                                     F - 44

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (1)  EMPLOYEE, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE
               OFFICER AND DIRECTOR SHARE OPTIONS (CONT.)

               (F)  INDEPENDENT DIRECTORS OPTION PLAN (CONT.)

                    The compensation cost of the total options granted to the
                    directors under the plan described in (1)(e) above and to
                    the independent directors under the plan described in this
                    section was determined based on the fair value at the grant
                    dates and amounted to $594. Such amount is expensed on an
                    accelerated basis over the vesting periods of the options.

          (2)  SUMMARY OF THE STATUS OF ALL THE COMPANY'S EMPLOYEE AND DIRECTOR
               SHARE OPTIONS

               A summary of the status of all the Company's employee and
               director share option plans as of December 31, 2007, 2006 and
               2005, as well as changes during each of the years then ended, is
               presented below (for options granted to the Banks, a related
               party and a consultant, see B(5) below):

                                    2007                            2006                          2005
                         ---------------------------    ---------------------------    ---------------------------
                                          Weighted                       Weighted                       Weighted
                           Number          average        Number          average        Number         average
                           of share       exercise       of share        exercise        of share       exercise
                           options          price         options          price         options          price
                         -----------     -----------    -----------     -----------    -----------     -----------

Outstanding as of
beginning of year         23,514,042     $      1.87     13,011,575     $      4.19     10,212,920     $      5.71
Granted                    9,127,384            1.88     17,414,268            1.52      5,000,224            1.54
Exercised                   (176,231)           1.30         (7,250)           1.58             --
Terminated                  (525,000)           7.07       (132,176)          10.95        (77,214)          12.45
Forfeited                 (2,344,660)           1.81     (6,772,375)           5.23     (2,124,355)           4.99
                         -----------                    -----------                    -----------
Outstanding as of end
of year                   29,595,535            1.79     23,514,042            1.87     13,011,575            4.19
                         ===========                    ===========                    ===========

Options exercisable
as of end of year          7,827,743     $      2.15      2,849,132     $      4.25      4,602,447     $      7.77
                         ===========                    ===========                    ===========


                                     F - 45

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (3)  SUMMARY OF INFORMATION ABOUT EMPLOYEE SHARE OPTIONS OUTSTANDING

               The following table summarizes information about employee share
               options outstanding as of December 31, 2007:

                                                               Exercisable as of
        Outstanding as of December 31, 2007                    December 31, 2007
- -------------------------------------------------------    -------------------------
                               Weighted
                                average      Weighted                    Weighted
 Range of                      remaining      average                      average
 exercise           Number    contractual     exercise       Number       exercise
  PRICES         outstanding      life         price       exercisable      price
- -------------    ----------    ----------    ----------    ----------    ----------
                               (in years)

$ 1.16-$1.30        401,203          7.35    $     1.26       197,501    $     1.26
  1.37-1.40         922,332          8.52          1.40       232,333          1.40
     1.45         7,990,416          8.37          1.45     2,010,515          1.45
  1.46-1.58       9,355,391          8.11          1.54     3,168,731          1.55
  1.60-1.98       7,817,044          9.05          1.83       479,952          1.82
  2.02-2.28       2,071,492          8.28          2.13       971,921          2.17
  3.25-3.70         239,687          6.47          3.26       199,328          3.26
  4.11-4.56         416,269          8.40          4.23       185,761          4.33
 5.00-10.75         158,601          2.89          7.18       158,601          7.18
    11.81           200,000          3.41         11.81       200,000         11.81
$16.50-$25.00        23,100          2.62    $    22.23        23,100    $    22.23
                 ----------                                ----------
                 29,595,535                                 7,827,743
                 ==========                                ==========

          (4)  WEIGHTED AVERAGE GRANT-DATE FAIR VALUE OF OPTIONS GRANTED TO
               EMPLOYEES

               The weighted average grant-date fair value of the options granted
               during 2007, 2006 and 2005 to employees and directors amounted to
               $0.87, $0.81 and $0.83 per option, respectively. The Company
               utilized the Binomial lattice model since 2006 and the
               Black-Scholes option-pricing model in 2005. The Company estimated
               the fair value, utilizing the following assumptions for the years
               2007, 2006 and 2005 (all in weighted averages):

                                  2007          2006            2005
                              -----------    -----------    -----------

Risk-free interest rate       3.61%-6.09%    4.44%-4.81%    3.69%-4.34%
Expected life of options       10 years       10 years      4.49 years
Expected annual volatility      55%-65%        65%-67%        54%-69%
Expected dividend yield          None           None           None


                                     F - 46

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (5)  NON-EMPLOYEE WARRANTS

               (A)  BANKS WARRANTS - As of December 31, 2007, 11,631,648
                    warrants to purchase Ordinary Shares of the Company, at
                    terms described below, were outstanding and exercisable, at
                    a weighted average exercise price of $1.77 per share.
                    9,161,060 of the warrants are exercisable until September
                    2011 and 2,470,588 exercisable through March 2010

                    The cost of the 9,161,060 warrants issued to the Banks,
                    determined based on the fair value at the grant and
                    amendment dates in accordance with SFAS 123, amounted to a
                    total of $10,886. Such amount was amortized as deferred
                    financing charges over the terms of the loans under the
                    Facility Agreement.

                    In September 2007, as part of as part of the Company's
                    credit line agreement with the Banks described in Note 9B,
                    the Banks received an aggregate of 2,470,588 warrants to
                    purchase Ordinary Shares of the Company at an exercise price
                    of $2.04 per share. All the warrants are exercisable until
                    March 2010. The cost of the warrants, determined based on
                    the fair value at the grant and amendment dates in
                    accordance with SFAS 123, amounted to a total of $608. Such
                    amount was amortized as deferred financing charges over the
                    term of the loans under the Facility Agreement.

                    In lieu of paying the exercise price in cash, the Banks are
                    entitled to exercise their warrants on a "cashless" basis,
                    i.e. by forfeiting part of the warrants in exchange for
                    Ordinary Shares equal to the aggregate fair market value of
                    the shares underlying the warrants forfeited less the
                    aggregate exercise price.

               (B)  WARRANTS GRANTED TO TIC - The Company issued TIC warrants
                    for the purchase of 58,906 of the Company's Ordinary Shares.
                    The exercise price for the warrants is $6.17 per share, the
                    15-day average closing price of the Company's Ordinary
                    Shares prior to the date the November 2003 Amendment with
                    the Banks was signed. All the warrants are fully vested and
                    none of them was exercised. The warrants are exercisable for
                    a five-year period ending December 2008. The cost of the
                    warrants award granted to TIC, determined based on the fair
                    value at the grant date in accordance with SFAS 123,
                    amounted to a total of $259. Such amount was allocated to
                    other assets as deferred financing charges and was amortized
                    as financing expense over the terms of the loans under the
                    Facility Agreement with the Banks.


                                     F - 47

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     B.   SHARE OPTION PLANS (CONT.)

          (5)  NON-EMPLOYEE WARRANTS (CONT.)

               WARRANTS ISSUED IN SEPTEMBER 2007 - In September 2007, as part of
               the Company's credit line agreement with TIC described in Note
               9B, TIC received an aggregate of 2,941,176 warrants to purchase
               Ordinary Shares of the Company at an exercise price of $2.04 per
               share. All the warrants are exercisable until March 2010. The
               cost of the warrants, determined based on the fair value at the
               grant and amendment dates in accordance with SFAS 123, amounted
               to a total of $723. Such amount was amortized as deferred
               financing charges over the term of the loans under the Facility
               Agreement.

     C.   CAPITAL NOTES

          (1)  BANKS' CAPITAL NOTES

               As part of the September 2006 Amendment to the Facility
               Agreement, an amount of $158,000 of debt was converted into
               capital notes of the Company, convertible into 51,973,684 of the
               Company's Ordinary Shares, representing twice the average closing
               price per share during the ten consecutive trading days prior to
               signing the MOU underlying the September 2006 Amendment to the
               Facility Agreement. The capital notes are instruments of equity
               and not debt. The capital notes' holders may convert the face
               amount of the capital notes, in whole or in part, without
               additional consideration, into Ordinary Shares of the Company,
               however, prior to such conversion, if at all, the capital notes
               (i) do not grant their holders with any of the rights of the
               Company's shareholders; (ii) have no maturity date, do not carry
               interest, are not linked to any index and are not redeemable; and
               (iii) are not registered. For additional information regarding
               the capital notes to the Banks, see Note 9B.

          (2)  TIC'S CAPITAL NOTES

               Contemporaneous with the closing of the September 2006 Amendment
               and as part of the Securities Purchase Agreement between the
               Company and TIC, the Company issued TIC in consideration of its
               $100,000 investment, capital notes convertible into 65,789,474 of
               the Company's Ordinary Shares, at a price per share of $1.52
               (which equals the average closing price during the 10 consecutive
               trading days prior to signing the MOU). The capital notes terms
               are the same as in (1) above. For additional information
               regarding the capital notes to TIC see Note 9B.


                                     F - 48

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     D.   TREASURY STOCK

          During 1998, the Board of Directors of the Company authorized, subject
          to certain conditions, the purchase of up to 1,400,000 Ordinary Shares
          of the Company to facilitate the exercise of employee stock options
          under the Company's share option plans. During 1999 and 1998, the
          Company funded the purchase by a trustee of 142,500 and 1,157,500,
          respectively, of the Company's Ordinary Shares.

     E.   DIVIDEND DISTRIBUTIONS

          According to the Facility Agreement, as amended to date, the Company
          undertook not to distribute any dividends prior to the date that all
          amounts payable under the Facility Agreement have been paid in full.

     F.   PUBLIC OFFERING IN ISRAEL - JANUARY 2002

          In January 2002, the Company issued on the Tel Aviv Stock Exchange,
          NIS 110,579,800 principal amount of convertible debentures Series A,
          under terms described in Note 10B. Together with the convertible
          debentures the Company issued for no consideration an aggregate of
          552,899 options exercisable into debentures and 2,211,596 Options
          (Series 1). As of the date of the financial statements, all said
          options expired and none were exercised. The total initial proceeds
          raised were $23,200, and costs related to the issuance of the
          securities and the prospectus were approximately $1,750.

     G.   RIGHTS OFFERING - OCTOBER 2002

          In October 2002, the Company issued in connection with a rights
          offering done on the NASDAQ and on the Tel-Aviv Stock Exchange
          4,097,964 Ordinary Shares of the Company and 1,844,070 warrants to
          purchase Ordinary Shares of the Company, in consideration for
          aggregate gross proceeds of $20,490. Of these amounts, 4,086,037
          Ordinary Shares and 1,838,715 warrants were issued to Wafer Partners
          and Equity Investors in consideration for an aggregate of $20,430.
          Each warrant was exercisable for the purchase of one Ordinary Share at
          an exercise price of $7.50 for a period ending on October 31, 2006.
          None of the warrants were exercised. Costs in relation to the
          prospectus and the issuance of the securities were approximately $800.

     H.   PUBLIC OFFERING - JANUARY 2004

          In January 2004, the Company completed a public offering of its
          Ordinary Shares in the U.S. at a price of $7.00 per share. Following
          the offering, and including the partial exercise in February 2004 of
          an over-allotment option the Company granted the underwriters, the
          Company issued 11,444,500 of its Ordinary Shares, in consideration for
          gross proceeds of $80,112 (net of related costs - $75,086).


                                     F - 49

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     I.   RIGHTS OFFERING - DECEMBER 2005

          In December 2005, the Company filed in Israel and the U.S. a
          prospectus for the distribution of transferable rights to purchase up
          to $50,000 U.S. dollar denominated debentures Series B that are
          convertible into up to 45,454,545 of the Company's Ordinary Shares.
          The rights were distributed to the shareholders of record of the
          Company on December 20, 2005 (the record date), and to certain
          employees who on the record date held options to purchase the
          Company's Ordinary Shares under share options plans that entitle the
          options holders to participate in a rights offering. Each 138.98
          Ordinary Shares and/or eligible employee options held on the record
          date entitled their holder to one right. The rights were exercisable
          until January 12, 2006. Each right entitled its holder to purchase, at
          a subscription price of $0.1, 100 U.S. dollar denominated convertible
          debentures.

          In connection with the exercise of the rights, the Company issued
          48,169,300 convertible debentures under terms described in Note 10C.

          For investment by primary Wafer Partners and Equity Investor see also
          Note 10C.

     J.   PUBLIC OFFERING IN ISRAEL - JUNE 2006

          In June 2006 the Company completed an underwritten public offering of
          the Company's securities on the Tel-Aviv Stock Exchange resulting in
          immediate gross proceeds of approximately NIS 140,000,000
          (approximately $31,000). The units sold consisted of (i) convertible
          debentures Series C in the face amount of NIS 163,800,000
          (approximately $36,661), (ii) 390,000 options each exercisable for the
          three months ended September 27, 2006 for NIS 100 principal amount of
          convertible debentures at an exercise price equal to 85% of their face
          amount, (iii) 10,920,000 warrants each exercisable for the three
          months ended September 27, 2006 for one Ordinary Share of the Company
          at a price of NIS 6.75 (approximately $0.00157, and (iv) 5,460,000
          warrants each exercisable for three years ending on June 28, 2009 for
          one Ordinary Share of the Company at a price of NIS 7.40
          (approximately $0.00175). The convertible debentures are convertible
          into the Company's Ordinary Shares at a conversion rate of one
          Ordinary Share per NIS 8.40 (approximately $0.00199) principal amount
          of convertible debentures. The convertible debentures carry a zero
          coupon with principal payable at maturity in December 2011, at a
          premium of 37% over face value, linked to the CPI. The conversion
          price is subject to reduction in certain limited circumstances.

          In addition, the Company issued similar units including principle
          value of NIS 630,000 convertible debentures in consideration for NIS
          526,000 through a private placement to its market maker in connection
          with said offering.

          Through September 2006, 391,500 options to purchase convertible
          debentures described in (ii) above were exercised and 350,000 short
          term warrants described in (iii) above were exercised into Ordinary
          Shares, totaling in proceeds of approximately $8,000.


                                     F - 50

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 14 - SHAREHOLDERS' EQUITY (CONT.)

     K.   PRIVATE PLACEMENT IN ISRAEL - NOVEMBER 2006


          In the fourth quarter of 2006, the Company received and accepted
          orders from Israeli investors in private placements for 11,615,000
          Ordinary Shares and 5,227,500 warrants ("Series 5 Warrants"). The
          price of the Ordinary Shares was equal to the closing price of the
          Company's shares on the Tel-Aviv Stock Exchange prior to the relevant
          private placements and the warrants were issued for no consideration.
          Total immediate gross proceeds amounted to approximately $22,000. Each
          of the Series 5 Warrants is exercisable at any time during a period of
          four years ending in December 2010 at a price per share equal to a 25%
          premium to the market price of the Company's shares at the date the
          prospectus is published. As of December 28, 2006, following the
          publication of the prospectus, the exercise price was finalized and
          determined to be NIS 9.48 (approximately $0.0022) linked to the CPI.
          Series 5 Warrants have been classified to equity.

     L.   PRIVATE PLACEMENT IN THE US - MARCH 2007

          In March 2007, the Company completed a private placement of its
          securities in which it sold Ordinary Shares and warrants for the
          purchase of Ordinary Shares, raising a total of approximately $29,000
          in gross proceeds. In the private placement, the Company issued
          approximately 18.8 million shares and warrants exercisable into
          approximately 9.4 million shares at an exercise price of $2.04
          (subject to possible adjustments under certain circumstances)
          exercisable until March 15, 2012 ("Series I Warrants"). The Company
          also issued short-term warrants at an exercise price of $1.70 ("Series
          II Warrants"), however all Series II Warrants were not exercised and
          were fully expired as of December 31, 2007.

     M.   LONG-TERM DEBENTURES ISSUED IN ISRAEL - 2007

          In the second half of 2007, the Company consummated two private
          placements with Israeli institutions of long-term convertible and
          non-convertible debentures and warrants, see Note 10E.

     N.   U.S SHELF PROSPECTUS

          In January 2008, the Company filed a shelf registration statement on
          Form F-3 with the US Securities and Exchange Commission to allow for
          the registration of a possible offer and sale of up to $30,000 of
          securities of the Company, it may elect to execute during the three
          years following the effective date of the registration statement. As
          of the approval date of the financials statements, the registration
          statement has not yet been declared effective. The Company has made no
          decisions as to when, if at all, it will actually raise funds under
          the shelf registration.


                                     F - 51

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 15 - INFORMATION ON GEOGRAPHIC AREAS AND MAJOR CUSTOMERS

     A.   REVENUES BY GEOGRAPHIC AREA (as percentage of total sales)

                                        Year ended December 31,
                                   ----------------------------------
                                     2007         2006         2005
                                   --------     --------     --------

United States                            75%          69%          64%
Israel                                    7            7            7
Asia Pacific                             10           16           20
Europe                                    8            8            9
                                   --------     --------     --------
Total                                   100%         100%         100%
                                   ========     ========     ========

     B.   LONG-LIVED ASSETS BY GEOGRAPHIC AREA - Substantially all of the
          Company's long-lived assets are located in Israel.

     C.   MAJOR CUSTOMERS (as percentage of total sales)

                               Year ended December 31,
                         ----------------------------------
                           2007         2006         2005
                         --------     --------     --------

Customer A (*)                 29%          23%          22%
Customer B                     13            9            5
Customer C                     11            2            1
Customer D                      7           10           14
Customer E (*) (**)             5           11            8

Other customers (***)          11           21           20

          (*)  Related party

          (**) Including its affiliates

          (***) Represents sales to two different customers each of whom
               accounted for between 5% and 6% of sales during 2007; to five
               different customers each of whom accounted for between 2% and 6%
               of sales during 2006 and to five customers accounted for between
               2% and 8% of sales during 2005.

          As of December 31, 2007 and 2006, the above major customers
          constituted the majority of the trade accounts receivable reflected on
          the balance sheets.

NOTE 16 - FINANCING EXPENSES, NET

     Financing expenses, net consist mainly of Bank loans payable interest- see
     Note 9, and interest and other financing expenses in relation to our
     debentures- see Note 10.


                                     F - 52

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 17 - INCOME TAXES

     A.   APPROVED ENTERPRISE STATUS

          Substantially all of the Company's existing facilities and other
          capital investments through December 31, 2005 have been granted
          approved enterprise status, as provided by the Israeli Law for the
          Encouragement of Capital Investments - 1959 ("Investments Law") see
          Note 6B.

          The tax benefits derived from approved enterprise status relate only
          to taxable income attributable to each approved enterprise investments
          program. Pursuant to the Investments Law and the approval
          certificates, the Company's income attributable to its various
          approved enterprise investments is taxed at a rate of up to 25%
          through 2012. Taxable income attributable to the Fab 2 approved
          program shall be tax-exempt for the first two years it arises. The
          portion of the Company's taxable income that is not attributable to
          approved enterprise investments is taxed at a rate of 29% in 2007
          (regular "Company Tax"). The regular Company Tax rate is to be
          gradually reduced to 25% until 2010.

          The tax benefits are also conditioned upon fulfillment of the
          requirements stipulated by the Investments Law and the regulations
          promulgated thereunder, as well as the criteria set forth in the
          certificates of approval. In the event of a failure by the Company to
          comply with these conditions, the tax benefits could be canceled, in
          whole or in part, and the Company would be required to refund the
          amount of the canceled benefits, plus interest and certain inflation
          adjustments. In management's opinion, the Company has been in
          compliance with the conditions through the approval date of the
          financial statements. See also Notes 6B and 13A(7).


                                     F - 53

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 17 - INCOME TAXES (CONT.)

     B.   COMPONENTS OF DEFERRED TAX ASSET/LIABILITY

          The following is a summary of the components of the deferred tax
          benefit and liability reflected on the balance sheets as of the
          respective dates:

                                                              As of December 31,
                                                          -----------------------
                                                             2007          2006
                                                          ---------     ---------

DEFERRED TAX BENEFIT - CURRENT
Amounts relating to employees benefits
                                                          $     797     $   1,717
Other                                                           438           115
                                                          ---------     ---------
                                                              1,235         1,832
Valuation allowance                                          (1,235)       (1,832)
                                                          ---------     ---------
Total current deferred tax benefit                        $      --     $      --
                                                          =========     =========

NET DEFERRED TAX BENEFIT - LONG-TERM
Deferred tax assets -
Net operating loss carryforwards                          $ 200,000     $ 174,000
Research and development                                      1,851         2,063
Liability for employee rights upon severance                    905           656
                                                          ---------     ---------
                                                            202,756       176,719
Valuation allowance                                        (151,844)     (128,707)
                                                          ---------     ---------
                                                             50,912        48,012
Deferred tax liability - depreciation and amortization      (50,912)      (48,012)
                                                          ---------     ---------
Total net long-term deferred tax benefit                  $      --      $     --
                                                          =========     =========

     C.   EFFECTIVE INCOME TAX RATES

          The reconciliation of the statutory tax rate to the Company's
          effective tax rate is as follows:

                                                   Year ended December 31,
                                            ------------------------------------
                                              2007          2006          2005
                                            --------      --------      --------

Israeli statutory rate                           (29)%         (31)%         (34)%
Reduced tax rate for approved enterprise           9            11            14
Tax benefits for which deferred taxes
were not recorded                                 17            13            21
Permanent differences and other, net               3             7            (1)
                                            --------      --------      --------
                                                  --%           --%           --%
                                            ========      ========      ========

     D.   NET OPERATING LOSS CARRYFORWARD

          As of December 31, 2007, the Company had net operating loss
          carryforwards for tax purposes of approximately $1,000,000, which may
          be carried forward for an unlimited period of time.


                                     F - 54

                     TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (dollars in thousands, except share data and per share data)

NOTE 17 - INCOME TAXES (CONT.)

     E.   FINAL TAX ASSESSMENTS

          The Company possesses final tax assessments through the year 1998. In
          addition, the tax assessments for the years 1999-2003 are deemed
          final.

NOTE 18 - RELATED PARTIES BALANCES AND TRANSACTIONS

     A.   BALANCES

                                                                 As of December 31,
                                                                --------------------
                                                                  2007         2006
                                                                --------    --------

Trade accounts receivable                                       $ 12,823    $ 13,625
                                                                ========    ========
Long-term investment                                            $    950    $     --
                                                                ========    ========
Current liabilities, including current maturity of long-term
loans                                                           $  7,459    $  5,895
                                                                ========    ========
Convertible debentures                                          $ 24,500    $ 24,500
                                                                ========    ========
Long-term liability in respect of customers' advances           $  9,922    $ 27,340
                                                                ========    ========
Other long-term liabilities, including long-term loans from
related parties, net of current maturity                        $ 21,541    $  9,279
                                                                ========    ========
Capital note                                                    $100,000    $100,000
                                                                ========    ========

     B.   TRANSACTION

                                                   As of December 31,
                                            --------------------------------
                                              2007        2006        2005
                                            --------    --------    --------

Revenue                                     $ 78,870    $ 64,055    $ 33,456
                                            ========    ========    ========
Interest on loans and debentures            $  2,252    $  1,632    $     60
                                            ========    ========    ========
Expenses paid                               $    289    $     46    $     47
                                            ========    ========    ========
Equity conversion of customer advances -
see Note 13A(5)                             $  6,414    $  7,621    $  1,794
                                            ========    ========    ========
Conversion of customer advances into
Long-term loans - see Note 13A(5)           $  1,258    $  2,823    $    936
                                            ========    ========    ========
Long-term loan received                     $ 14,000    $  9,705    $     --
                                            ========    ========    ========
Loans repayment                             $  2,974    $     --    $     --
                                            ========    ========    ========
Stock-based compensation - see Note 14B(5)  $    723    $     --    $     --
                                            ========    ========    ========

     C.   For commitments, contingencies and other transaction relating to Fab 2
          Wafer Partner and Equity Investor agreements, see Note 13A.


                                     F - 55

EX-99

                                                                    EXHIBIT 99.2

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

THE INFORMATION CONTAINED IN THIS SECTION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND RELATED NOTES FOR
THE YEAR THEN ENDED. OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN UNITED STATES ("US GAAP").

TRANSITION TO U.S. GAAP

Beginning fourth quarter of 2007, the Company elected to present its financial
statements in accordance with U.S. GAAP. The Company elected to use U.S. GAAP to
increase transparency and comparability of the Company's financial reports and
facilitate research and analysis by shareholders, analysts and other
participants in the U.S. capital markets.

Commencing January 1, 2008 Israeli GAAP is no longer an alternative and can not
be used by public companies. Israel Accounting Standard 29 stipulates that
Israeli public companies that previously reported their financial results based
on Israeli GAAP must begin to report their financial results in accordance with
International Financial Reporting Standards, or IFRS, for periods beginning on
or after January 1, 2008. However, Israeli public companies that are listed in
the U.S. may elect to report using either U.S. GAAP or IFRS. We decided on the
change prior to the required deadline due to the importance of the year-end
reporting and our belief that this would be the best transition point.

The Company recasted the comparative amounts included in its financial
statements and in this report to US GAAP. In prior years the Company prepared
its financial reports in accordance with generally accepted accounting
principles in Israel ("IL GAAP") and provided reconciliation to US GAAP in the
notes to the financial statements.

RESULTS OF OPERATIONS

     The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated.

                                           YEAR ENDED DECEMBER 31,
                                             -------------------
                                              2007          2006
                                             -----         -----

STATEMENT OF OPERATIONS DATA:
Total revenues                                 100%          100%
Cost of total revenues                       123.4         142.7
                                             -----         -----
Gross loss                                   (23.4)        (42.7)


Research and development expenses, net         6.0           8.0
Marketing, general and administrative
expenses                                      13.7          13.8
                                             -----         -----
Operating loss                               (43.0)        (64.5)
Financing expense, net                       (15.2)        (25.4)
Other income, net                              0.0           0.3
                                             -----         -----
Loss                                         (58.1)%       (89.6)%
                                             =====         =====

YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006

     REVENUES. Revenues for the year ended December 31, 2007 increased by 23.2%
to $230.9 million from $187.4 million for the year ended December 31, 2006. This
$43.4 million increase was mainly attributable to a higher volume of wafer
shipments.

     COST OF TOTAL SALES. Cost of total sales for the year ended December 31,
2007 amounted to $284.8 million, compared with $267.5 million for the year ended
December 31, 2006. This increase of 6.4% in cost of sales, which is relatively
low in relation to the 23.2% increase in sales, was mainly achieved due to the
Company's cost structure, according to which the Company has reasonable margins
for each incremental dollar of revenue and a reduction in depreciation and
amortization expenses, as described below. During the second quarter of 2007,
the Company reassessed the estimated useful lives of its machinery and equipment
and as a result, with effect from April 1, 2007, the Company's machinery and
equipment is to be depreciated over estimated useful lives of 7 years rather
than 5 years prior to such date. The change reflects the Company's best estimate
of the useful lives of its machinery and equipment and is based on experience
accumulated from Fab 1 and recent trends in industry practices. The Company
believes that the change better reflects the economics associated with the
ownership of the equipment. This change has been accounted for as a change in
estimate and is applied prospectively. Total depreciation and amortization
expenses included in Cost of Total Sales was approximately $137 million for the
year ended December 31, 2007, as compared to approximately $155 million for the
year ended December 31, 2006. Said reduction was mainly attributed to the
aforementioned change.

     GROSS LOSS. Gross loss for the year ended December 31, 2007 was $53.9
million compared to a gross loss of $80.1 million for the year ended December
31, 2006. The decrease in gross loss was mainly attributable to the 23% increase
in sales as compared to a 6% increase in Cost of Total Sales as described above.

     RESEARCH AND DEVELOPMENT. Research and development expenses for the year
ended December 31, 2007 decreased to $13.8 million from $15.0 million for the
year ended December 31, 2006.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses for the year ended December 31, 2007 increased to $31.6
million from $25.8 million for the year ended December 31, 2006. The increase is
primarily due to stock based compensation expenses and increased expenses
deriving directly from the higher revenues mentioned above.

     OPERATING LOSS. Operating loss for the year ended December 31, 2007 was
$99.3 million, compared to $121.0 million for the year ended December 31, 2006.
The decrease in the operating loss is attributable mainly to the decrease in the
gross loss described above.

     FINANCING EXPENSES, NET. Financing expenses, net for the year ended
December 31, 2007 were $35.0 million compared to financing expenses, net of
$47.6 million for the year ended December 31, 2006. This decrease is mainly due
to the consummation of the debt restructuring with our banks which was closed in
the third quarter of 2006, pursuant to which, approximately 30% of our then
outstanding loans were converted into capital notes and the interest rate
applicable to the interest payments was reduced from the three month LIBOR rate
plus 2.5% to the three month LIBOR rate plus 1.1%.

     OTHER INCOME, NET. Other income, net, for the year ended December 31, 2007
was $0.09 million compared to $0.6 million for the year ended December 31, 2006.

     LOSS. Loss for the year ended December 31, 2007 was $134.2 million,
compared to $167.9 million for the year ended December 31, 2006. This decrease
is primarily attributable to the decrease of $21.6 million in the operating loss
and to the $12.6 million decrease in financing expenses described above.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

     The dollar cost of our operations in Israel is influenced by the timing of
any change in the rate of inflation in Israel and the extent to which such
change is not offset by the change in valuation of the NIS in relation to the
dollar. During the year ended December 31, 2007, the exchange rate of the dollar
in relation to the NIS decreased by 9.0%, and the Israeli Consumer Price Index,
or CPI, increased by 3.4% (during the year ended December 31, 2006 there was a
decrease of 8.2% in the exchange rate of the dollar in relation to the NIS and a
decrease of 0.1% in the CPI).

     We believe that the rate of inflation in Israel has not had a material
effect on our business to date. However, our dollar costs will increase if
inflation in Israel exceeds the devaluation of the NIS against the dollar, or if
the timing of such devaluation lags behind inflation in Israel.

     Almost all of the cash generated from our operations and from our financing
and investing activities is denominated in U.S. dollars and NIS. Our expenses
and costs are denominated in NIS, U.S. dollars, Japanese Yen and Euros. We are,
therefore, exposed to the risk of currency exchange rate fluctuations. The
recent devaluation of the US dollar in relation to the NIS increased mainly our
dollar expenses related to our NIS denominated debentures and the dollar amount
of our NIS denominated expenses.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2007, we had an aggregate of $44.5 million in cash and
cash equivalents. This compares to $40.9 million we had as of December 31, 2006
in cash, cash equivalents, and short-term interest-bearing deposits.

     During the year ended December 31, 2007, we raised $77.2 million in net
proceeds from the issuance of debentures, ordinary shares and warrants, $28
million as long-term loans, $1.7 million from Investment Center grants and
generated a net amount of $16.7 million from our operating activities. These
liquidity resources financed the capital expenditure investments we made during
the year ended December 31, 2007, which aggregated $109.0 million, mainly in
connection with the purchase and installation of equipment and other assets for
the ramp up of Fab 2, repayment of convertible debentures in the amount of $7.1
million and repayment of long-term debt in the amount of $3.2 million.

We continue to examine alternatives for additional funding sources in order to
fund our Fab2 ramp-up, support our growth plans and improve our shareholders'
equity, otherwise expected to become negative during 2008.

As of December 31, 2007, we had long-term loans from banks, at fair value, in
the amount of $379.3 million which we obtained mainly in connection with the
establishment of Fab 2. As of such date, we had outstanding, in the aggregate of
$125.3 million of debentures, of which $7.9 million are presented as current
maturities.

EX-99

                                                                    EXHIBIT 99.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements Nos.
333-85090, 333-108896, 333-110486, 333-131315, 333-140174, 333-141640 and
333-148747 on Form F-3, and Nos. 33-80947, 333-06482, 333-11720, 333-83204,
333-107943, 333-117565, 333-138837 and 333-147071 on Form S-8, of our report
dated February 6, 2008, relating to the consolidated financial statements of
Tower Semiconductor Ltd., appearing in this Report on Form 6-K of Tower
Semiconductor Ltd.

Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu

Tel Aviv, Israel
February 7, 2008