AS OF MARCH 31,
                                             (UNAUDITED)                                            AS OF DECEMBER 31,
                                      --------------------------       --------------------------------------------------------------------------
                                        2006              2005            2005            2004             2003            2002            2001
                                      ---------        ---------       ---------        ---------       ---------       ---------       ---------
                                                                                             (IN THOUSANDS, EXCEPT SHARE DATA)

SELECTED BALANCE SHEET DATA IN
ACCORDANCE WITH ISRAELI
GAAP:

Cash and cash equivalents,
   including short-term
   deposits and designated cash       $  32,696        $  52,121       $  38,998        $  81,457       $  56,490       $  69,695       $  33,202
Working capital                       $  23,874        $  26,728          (6,028)          63,591          50,492          21,927         (16,335)
Total assets                            636,039          781,433         678,686          847,508         788,335         716,261         472,054
Current maturities of
   long-term debt and other
   short-term debt                           --               --          21,103               --              --           4,000          14,000
Current maturities of
   convertible debentures                 5,734            6,575           6,453               --              --              --              --
Long-term debt from banks               514,966          497,000         497,000          497,000         431,000         253,000         115,000
2002 convertible debentures
   and 2005 convertible
   debentures                         $  34,429        $  19,724          44,851           26,651          25,783          24,121              --
Long-term liabilities in
   respect of customers'
   advances                              54,537           63,326          59,621           64,428          46,347          47,246          17,910
Shareholders' equity (deficit)          (44,806)         112,660         (30,067)         167,980         229,457         298,334         252,805
Weighted average number of
   ordinary shares outstanding
   (in thousands) (*)(**)                71,872           65,700          66,371           64,717          46,710          31,523          20,020
Number of shares issued and
   outstanding (in thousands) (**)       75,646           65,700          66,932           65,700          51,696          43,436          24,997



(*) Israeli Standard No. 21 is effective for periods ending after January 1,
2006 and has been retrospectively applied to all periods presented.

(**) Net of 1,300,000 Ordinary Shares held by us through a trustee as of each
date presented.


                             AS OF MARCH 31,
                              (UNAUDITED)                                     AS OF DECEMBER 31,
                                ---------        -----------------------------------------------------------------------------
                                   2006            2005             2004             2003             2002             2001
                                ---------        ---------        ---------        ---------        ---------        ---------
                                                                         (IN THOUSANDS, EXCEPT SHARE DATA)
RECONCILIATION TO US
   GAAP:

TOTAL ASSETS
According to Israel
   GAAP                         $ 636,039        $ 678,686        $ 847,508        $ 788,335        $ 716,261        $ 472,054
The effect of:
Presentation of
   long-term
   liabilities in
   respect of
   employees                       13,587           13,658           16,350           14,607           12,368           10,334
Hedging activities                   (466)          (1,524)          (4,619)          (5,947)          (5,727)          (4,564)
Sale of convertible
   debentures                       2,387             (196)            (196)            (196)            (196)              --
Deferred financing
   charges                         11,727               --               --               --               --               --
                                ---------        ---------        ---------        ---------        ---------        ---------

According to US GAAP            $ 663,274        $ 690,624        $ 859,043        $ 796,799        $ 722,706        $ 477,824
                                =========        =========        =========        =========        =========        =========

SHAREHOLDERS' EQUITY
(DEFICIT)
According to Israel GAAP        $ (44,806)       $ (30,067)       $ 167,980        $ 229,457        $ 298,334        $ 252,805
The effect of:
    Hedging                          (466)          (1,524)          (7,025)         (15,867)         (17,807)          (8,169)
    activities
    Proceeds on
    account of
    share capital                      --               --               --          (16,428)              --               --
    Sale of
    convertible
    debentures(*)                 (11,370)           2,363            2,363            2,363            2,363               --
                                ---------        ---------        ---------        ---------        ---------        ---------

According to US GAAP            $ (56,642)       $ (29,228)       $ 163,318        $ 199,525        $ 282,890        $ 244,636
                                =========        =========        =========        =========        =========        =========


(*) Including mainly the allocation of a portion of the total proceeds from the
sale of securities issued in January 2002 and the classification as liabilities
of the equity component of the 2002 and 2005 convertible debentures, presented,
following January 1, 2006, as equity under Israeli GAAP.

RECONCILIATION TO US GAAP OF THE STATEMENTS OF OPERATIONS DATA: The loss for the
three month period ended March 31, 2006 under US GAAP would have decreased in
the amount of approximately $4.9 million from its respective data in accordance
with Israeli GAAP and would result in a loss of approximately $40.2 million. The
loss under US GAAP for the other periods presented would not have materially
differed from the respective data in accordance with Israeli GAAP.


                                       6

RECENT EVENTS

AMENDMENT TO OUR FACILITY AGREEMENT

     In May 2006, we signed amendments to the facility agreement with our banks,
according to which: (i) repayments of long-terms loans in the amount of
approximately $100 million scheduled to be paid between October 2006 and June
2007, were deferred to July 2007; and (ii) the date on which we were required to
raise approximately $8 million was deferred from June 30, 2006 to September 30,
2006.

RAMP-UP OF FAB 2

     In March 2006, our board of directors approved a plan to ramp up Fab 2 in
order to meet our customer and product qualification needs, based on our
customer pipeline and reinforced by forecasted market conditions. According to
this plan, we will need to raise approximately $130 million during 2006, which
will take the current Fab 2 capacity to approximately 24,000 wafers per month.

     Depending on the process technology and product mix, when fully ramped-up
we estimate that Fab 2 will be able to achieve capacity levels of up to
approximately 40,000 wafers per month, which we currently estimate will require
the raising of approximately $150 million, in addition to the amounts described
above.

     As part of the financing efforts for that expansion plan, in May 2006, we
signed a Memorandum of Understanding (MOU) with our banks for the refinancing of
the approximately $526.7 million of long-term debt under our facility agreement,
according to which: (i) $158 million, representing 30% of such debt, will be
converted to equity for 51,973,684 of our ordinary shares, at a price per share
of $3.04, which is equal to twice the average closing price during the 10
consecutive trading days prior to signing the MOU; (ii) the interest rate of the
long-term loans will be decreased from LIBOR plus 2.5% per annum to LIBOR plus
1.1% per annum; and (iii) the commencement date for the repayment of principal
shall be postponed from July 2007 to no earlier than September 2009. The terms
of the MOU are subject to a commitment of Israel Corporation Ltd. (Israel Corp.)
to our banks to invest $100 million in our capacity expansion as described
below. The MOU is further subject to reaching a definitive amendment to the
facility agreement based on the terms of the MOU, and may include other terms to
be agreed to between us and our banks, including arrangements to compensate the
banks, under certain conditions, for the reduction in interest payments (such
compensation may include the issuance of our securities and/or the extension of
the exercise period of the banks' warrants), and revised financial ratios and
covenants based on our new working plan. In this regard, Israel Corp. has
committed to our banks to invest $100 million in consideration for 65,789,474 of
our 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.
Such amount may include amounts that may be payable by us to Israel Corp. in
connection with the agreement for the ordering of equipment described below.
Israel Corp.'s investment is subject to the signing of a definitive investment
agreement, the approvals of our audit committee, board of directors and
shareholders and the closing of a definitive amendment to the facility agreement
with our banks based on the terms of the MOU.


                                       7

     In order to implement the acceleration plan in a timely manner, we entered
into an agreement with Israel Corp. according to which Israel Corp. will order
up to approximately $100 million worth of equipment in connection with the
ramp-up of Fab 2. Under the terms of the agreement: (i) Israel Corp. has the
right to sell us the equipment at cost, plus related expenses; (ii) we have the
right to purchase the equipment from Israel Corp. at cost, plus related
expenses, subject to the us having raised $100 million; (iii) upon the sale of
the equipment by Israel Corp., we will assume Israel Corp.'s obligations to the
equipment suppliers; and (iv) if after 5 months from the signing of the
agreement, the equipment has not been sold to us by Israel Corp., Israel Corp.
may sell the equipment to a third party and we will pay Israel Corp. the
difference between the cost, plus related expenses, of the purchase of the
equipment by Israel Corp. and the net sale price.

OPTIONS GRANTED TO THE CHIEF EXECUTIVE OFFICER (CEO)

     In May 2006, our audit committee and board of directors approved the grant
of options to our CEO, who also serves as a director, in addition to the options
granted to him in April 2005, such that in total, the CEO will hold options to
purchase shares that represent 4% of our 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 additional options will be $1.45, the average closing
price of our shares on the Nasdaq during the 90 consecutive trading days prior
to the board of directors' approval. In the event of a future equity financing,
additional options will be granted to the CEO as described above with an
exercise price equal to the price per share of such investment. The vesting
period of the new options will be identical to the vesting period of the
existing options. The new grant of options and its terms are subject to the
approval of our shareholders. If the new grant of options is approved by our
shareholders, no additional options will be granted under the CEO's current
option agreement, which was approved by our shareholders in October 2005.

RE-PRICING OF EMPLOYEE OPTIONS

     Our board of directors approved a plan to offer each of our current
employees the opportunity to exchange their existing options to purchase our
ordinary shares for new options with an exercise price $1.45, which is the
average closing price of our shares on the Nasdaq during the 90 consecutive
trading days prior to the board of directors' approval. The new options will be
granted based on terms similar to our existing employee option plan with new
vesting periods. As of May 19, 2006, options to purchase approximately 9 million
ordinary shares held by our current employees, with exercise prices ranging from
$1.46 to $25, were outstanding. Our board of directors further approved that if
the total number of employee options, including the options to our CEO, during
the coming 24 months will represent less than 8% of the our shares on a fully
diluted basis, additional options will be allocated for grants to be made to our
employees. As of May 18, 2006, no options have been granted under such plan.

DISMISSAL OF 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 us and certain of our directors and shareholders. The District
Court accepted the motion to dismiss filed on behalf of the defendants and noted
that our status as a foreign private issuer exempts us, our directors and
controlling shareholders, from liability under the proxy rules of Section 14(a)
of the Securities Exchange Act.


                                       8

RISK FACTORS

     AN INVESTMENT IN OUR SECURITIES IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. THEREFORE, YOU SHOULD NOT INVEST IN OUR SECURITIES UNLESS YOU ARE ABLE
TO BEAR A LOSS OF YOUR ENTIRE INVESTMENT. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
BEFORE DECIDING TO INVEST IN OUR ORDINARY SHARES, OUR DEBENTURES WHICH ARE
CONVERTIBLE INTO OUR ORDINARY SHARES, OUR OPTIONS TO PURCHASE CONVERTIBLE
DEBENTURES AND OUR WARRANTS. THIS PROSPECTUS AND STATEMENTS THAT WE MAY MAKE
FROM TIME TO TIME MAY CONTAIN FORWARD-LOOKING INFORMATION. THERE CAN BE NO
ASSURANCE THAT ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM OUR EXPECTATIONS,
STATEMENTS OR PROJECTIONS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
FROM OUR EXPECTATIONS, STATEMENTS OR PROJECTIONS INCLUDE THE RISKS AND
UNCERTAINTIES RELATING TO OUR BUSINESS DESCRIBED BELOW. THE INFORMATION IN THIS
PROSPECTUS IS COMPLETE AND ACCURATE AS OF THIS DATE, BUT THE INFORMATION MAY
CHANGE AFTER THE DATE OF THIS PROSPECTUS.

     RISKS AFFECTING OUR BUSINESS

IF WE DO NOT RAISE ADDITIONAL FUNDS, WE MAY NOT BE ABLE TO MAINTAIN OUR
OPERATIONS.

     If we succeed to raise the minimum amount of immediate proceeds that may be
raised in this offering we expect to have sufficient liquidity to finance our
short-term activities and liabilities at least through 2006. If this offering is
delayed past July 2006 or was cancelled for any reason, we do not expect to have
adequate liquidity to meet our short-term activities and liabilities during the
next two to three month period and may have to cease our operations, unless we
were able to find alternative sources of funding. In addition, in accordance
with the credit facility agreement with our banks, as amended on May 30, 2006,
in addition to amounts we have raised to date, we are required to raise
approximately $8 million by September 30, 2006, which we expect to satisfy
through this offering. If we fail to raise the funds required under our facility
agreement in a timely manner and our banks do not waive our non-compliance, our
banks may require us to immediately repay all loans made by them to us, plus
penalties, and they would be entitled to exercise the remedies available to them
under the credit facility, including enforcement of their lien against all our
assets.

IF WE DO NOT COMPLETE THE EQUIPMENT INSTALLATION, TECHNOLOGY TRANSFER AND
RAMP-UP OF PRODUCTION IN FAB 2, OUR BUSINESS WILL BE MATERIALLY ADVERSELY
AFFECTED.

     Fab 2 production capacity as of May 18, 2006 was approximately 15,000
200-mm wafers per month. Depending on the process technology and product mix,
when fully ramped-up, we estimate that Fab 2 will be able to achieve capacity
levels of up to approximately 40,000 wafers per month. We have not completed the
acquisition, installation, equipping and financing necessary in order for
production at our Fab 2 facility to reach such levels. Our determination as to
the timing of the implementation of the ramp-up plan recently approved by our
board of directors and the increase in Fab 2's production levels is dependent on
prevailing and forecasted market conditions and our ability to fund these
increases. We need to complete the qualification process of the 0.13-micron
technology transferred from Freescale Semiconductor, Inc. to Fab 2 and develop
new process technologies for Fab 2 in order to suit our customers' needs. The
ramp-up of Fab 2 is a substantial and complex project. We have and may in the
future experience difficulties that are customary in the installation,
functionality and operation of equipment during manufacturing. Failures or
delays in obtaining and installing the necessary equipment, technology and other
resources may delay the completion of the ramp-up of Fab 2 and add to its cost,
which would have a material adverse effect on our business and results of
operations.


                                       9

IF WE DO NOT HAVE SUFFICIENT FUNDS TO FULLY EQUIP FAB 2, OUR BUSINESS WILL BE
MATERIALLY ADVERSELY AFFECTED.

     Fab 2's cost is estimated to be approximately $1.5 billion, including costs
of construction, equipment, installation, libraries, intellectual property,
technology transfers and other related ramp-up and pre-operation costs. However,
the actual total cost of Fab 2 may exceed our estimates. If we cannot
successfully raise sufficient funding to complete the ramp-up and to fund other
related costs, we may be unable to meet our customers' production demands and as
a result we may lose customers and may not attract new ones. In addition, we
will be required to scale back our equipment purchases and capacity forecasts,
and, as a result, we will not fully utilize the substantial investment made in
constructing Fab 2, which will adversely affect our financial results.

IF THE INVESTMENT CENTER WILL NOT APPROVE OUR REQUEST FOR A NEW EXPANSION
PROGRAM, WE WOULD BE REQUIRED TO SEEK ALTERNATIVE FINANCING SOURCES TO COMPLETE
THE RAMP-UP OF FAB 2, WHICH MAY NOT BE AVAILABLE. OUR NOT COMPLETING INVESTMENTS
IN THE AMOUNT OF $1.25 BILLION BY THE END OF 2005 MAY RESULT IN THE INVESTMENT
CENTER REQUIRING US TO REPAY ALL OR A PORTION OF THE GRANTS ALREADY RECEIVED,
AND IF WE ARE UNABLE TO REFUND SUCH GRANTS, WE MAY HAVE TO CLOSE OUR OPERATIONS.

     In connection with Fab 2, we received approval for grants and tax benefits
from the Investment Center of the Israeli Ministry of Industry, Trade and Labor
(Investment Center) under its Approved Enterprise Program. Under the terms of
the approval, we were eligible to receive grants of 20% of up to $1.25 billion
invested in Fab 2 plant and equipment, or an aggregate of up to $250 million. As
of March 31, 2006, we received approximately $159 million in grants from the
Investment Center. Our eligibility to receive grants was with respect to
investments in Fab 2 plant and equipment made by the end of 2005. Any failure by
us to meet the conditions of our grants may result in the cancellation of all or
a portion of our grants to be received and tax benefits and in the Investment
Center requiring us to repay all or a portion of grants already received. We did
not complete investments in the amount of $1.25 billion by the end of 2005,
mainly since we reduced our rate of annual investments as a result of our
decision to slow-down the ramp-up of our Fab 2 facility in order to align our
capital investments with market conditions in the semiconductor industry.
Israeli law limits the ability of the Investment Center to extend this time
limitation, unless approved through an expansion plan. Under Israeli law, our
not completing investments in an amount of $1.25 billion by the end of 2005 may
permit the Investment Center to require us to repay all or a portion of grants
already received. We have been holding discussions with the Investment Center to
achieve satisfactory arrangements to approve a new expansion program to commence
as of January 1, 2006. In 2005, at the Investment Center's request, we submitted
a revised business plan to the Investment Center for the period commencing
January 1, 2006. Currently, we cannot estimate when we will receive a formal
response to our request for a new expansion program to commence as of January 1,
2006 or if the Investment Center will approve our request. If the Investment
Center will not approve our request for a new expansion program, we would be
required to seek alternative financing sources to complete the ramp-up of Fab 2,
which may not be available. While there can be no assurance that we will obtain
the Investment Center's approval for the new expansion program, we believe that
it is improbable that the Investment Center would demand that we repay all or a
portion of grants already received due to our not completing investments in an
amount of $1.25 billion by the end of 2005. If we would have to repay the
Investment Center all or a portion of grants already received, we would need to
seek alternative financing sources to refund the grants we received and if we do
not succeed in finding such alternative financing sources, we may have to close
our operations.


                                       10

IF OUR FUTURE OPERATIONS DO NOT INCREASE OR IF WE FAIL TO RAISE ADDITIONAL
FUNDING, WE MAY BE UNABLE TO REPAY OUR DEBT ON A TIMELY BASIS.

     There is no assurance that our future operations will increase or that we
will succeed in raising the additional funding required for the completion of
the ramp up of Fab 2 and the repayment of our short-term and long-term debt,
which consists mainly of bank debt, trade accounts payable and convertible
debentures and also includes moneys we may owe to Israel Corp. in connection
with the agreement we signed with it according to which Israel Corp. will order
up to approximately $100 million worth of equipment (See "Recent Events"). As a
result, our ramp-up of Fab 2 may be delayed and we may be unable to repay on
time or repay at all our short-term and long-term debt, which may significantly
harm our financial results or cause us to cease our operations. In accordance
with our amended facility agreement with our banks, under which we have drawn
down approximately $526.7 million as of March 31, 2006, we are required to repay
principal in the amount of approximately $100 million in July 2007 and begin
repaying the balance of the principal amount on a quarterly basis commencing
September 2007. We anticipate that we will not be in compliance with the
repayment schedule set forth in our amended facility agreement. In the event
that (i) a definitive amendment to our facility agreement based on the May 2006
MOU will not be signed and closed, (ii) we are otherwise unsuccessful in
negotiating a revised repayment schedule or (iii) our banks do not waive our
non-compliance, pursuant to the terms of our amended facility agreement, our
banks may require us to immediately repay all loans made by them to us, plus
penalties, and they would be entitled to exercise the remedies available to them
under our credit amended facility, including enforcement of their lien against
all our assets. This would have a material adverse effect on our company. There
can be no assurance that we will succeed in signing or closing a definitive
amendment to our facility agreement based on the May 2006 MOU or a definitive
investment agreement with Israel Corp. In addition, we cannot assure you we will
be successful at negotiating price reductions and arrangements to slow down or
postpone payments to our suppliers and service providers, or negotiating revised
repayment schedules of our other debt, when we have liquidity problems.

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY AND THE RESULTING PERIODIC
OVERCAPACITY HAVE ADVERSELY AFFECTED OUR BUSINESS IN THE PAST, RESULTING IN A
HISTORY OF LOSSES; DOWNWARD PRICE PRESSURE MAY SERIOUSLY HARM OUR BUSINESS.

     The semiconductor industry has historically been highly cyclical.
Historically, companies in the semiconductor industry have expanded aggressively
during periods of increased demand. This expansion has frequently resulted in
overcapacity and excess inventories, leading to rapid erosion of average sale
prices. We expect this pattern to repeat itself in the future. The overcapacity
and downward price pressures characteristic of a prolonged downturn in the
semiconductor market may not allow us to operate at a profit, even at full
utilization, and could seriously harm our financial results and business.

WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO OPERATE AT A LOSS FOR THE
FORESEEABLE FUTURE; OUR FACILITIES MUST OPERATE AT HIGH UTILIZATION RATES FOR US
TO BE PROFITABLE.

     We have operated at a loss for the last number of years. Because fixed
costs represent a substantial portion of the operating costs of semiconductor
manufacturing operations, we must operate our facilities at high utilization
rates for us to be profitable. We began construction of Fab 2 in 2001 and Fab 2
operations began in 2003. Our losses since 2003 are due primarily to significant
depreciation and amortization expenses related mainly to Fab 2, as well as
financing and operating expenses which have not yet been offset by a sufficient
increase in the level of our sales. If we do not succeed in operating our
facilities at high utilization rates, we expect to operate at a loss for the
foreseeable future, which may adversely affect our business and company.


                                       11

OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER WHICH MAKES IT DIFFICULT
TO PREDICT OUR FUTURE PERFORMANCE.

     Our revenues, expenses and operating results have varied significantly in
the past and may fluctuate significantly from quarter to quarter in the future
due to a number of factors, many of which are beyond our control. These factors
include, among others:

     o The cyclical nature of both the semiconductor industry and the markets
served by our customers;

     o Changes in the economic conditions of geographical regions where our
customers and their markets are located;

     o Shifts by integrated device manufacturers (IDMs) and customers between
internal and outsourced production;

     o Inventory and supply chain management of our customers;

     o The loss of a key customer, postponement of an order from a key customer,
failure of a key customer to pay accounts receivables in a timely manner or the
financial condition of our customers;

     o The occurrence of accounts receivables write-offs;

     o The rescheduling or cancellation of large orders or planned capital
expenditures;

     o Our ability to satisfy our customers' demand for quality and timely
production;

     o The timing and volume of orders relative to our available production
capacity;

     o Our ability to obtain raw materials and equipment on a timely and
cost-effective basis;

     o Environmental events or industrial accidents such as fires or explosions;

     o Our susceptibility to intellectual property rights disputes;

     o Our ability to continue with existing and to enter into new partnerships
and technology and supply alliances on mutually beneficial terms;

     o Actual capital expenditures exceeding planned capital expenditures;

     o Interest and currency rate fluctuations that may not be adequately
hedged;

     o Technological changes and short product life cycles; and

     o Timing for designing and the qualification of new products.

     Due to the factors noted above and other risks discussed in this section,
many of which are beyond our control, you should not rely on quarter to quarter
comparisons to predict our future performance. Unfavorable changes in any of the
above factors may seriously harm our company.

THE LACK OF A SIGNIFICANT BACKLOG RESULTING FROM OUR CUSTOMERS NOT PLACING
PURCHASE ORDERS FAR IN ADVANCE MAKES IT DIFFICULT FOR US TO FORECAST OUR
REVENUES IN FUTURE PERIODS.

     Our customers generally do not place purchase orders far in advance, partly
due to the cyclical nature of the semiconductor industry. As a result, we do not
typically operate with any significant backlog. The lack of a significant
backlog makes it difficult for us to forecast our revenues in future periods.
Moreover, since our expense levels are based in part on our expectations of
future revenues, we may be unable to adjust costs in a timely manner to
compensate for revenue shortfalls. We expect that in the future our revenues in
any quarter will continue to be substantially dependent upon purchase orders
received in that quarter and in the immediately preceding quarter. We cannot
assure you that any of our customers will continue to place orders with us in
the future at the same levels as in prior periods.


                                       12

OUR SALES CYCLES MAY BE LONG AND, AS A RESULT, ORDERS RECEIVED MAY NOT MEET OUR
EXPECTATIONS WHICH MAY ADVERSELY AFFECT OUR OPERATING RESULTS.

     Our sales cycles, which measure the time between our first contact with a
customer and the first shipment of product orders to the customer, vary
substantially and may last as long as two years or more, particularly for new
technologies. In addition, even after we make initial shipments of prototype
products, it may take several more months to reach full production of the
product. As a result of these long sales cycles, we may be required to invest
substantial time and incur significant expenses in advance of the receipt of any
product order and related revenue. If orders ultimately received differ from our
expectations with respect to the product, volume, price or other items, our
operating results may be adversely affected.

DEMAND FOR OUR FOUNDRY SERVICES IS DEPENDENT ON THE DEMAND IN OUR CUSTOMERS' END
MARKETS.

     We are ramping-up Fab 2 based on our expectations of customer demand and
our financial resources. In order for demand for our wafer fabrication services
to increase, the markets for the end products using these services must develop
and expand. For example, the success of our imaging process technologies will
depend, in part, on the growth of markets for certain image sensor product
applications. Because our services may be used in many new applications, it is
difficult to forecast demand. If demand is lower than expected, we may have
excess capacity, which may adversely affect our financial results. If demand is
higher than expected, we may be unable to fill all of the orders we receive,
which may result in the loss of customers and revenues.

IF WE DO NOT ATTRACT ADDITIONAL CUSTOMERS, OUR BUSINESS MAY BE ADVERSELY
AFFECTED.

     During the three months ended March 31, 2006, approximately 55% of our
business was generated by four significant customers that contributed 18%, 14%,
12%, and 11% of our revenues, respectively. We expect to continue to receive a
significant portion of our revenue from a limited number of customers in 2006.
Loss or cancellation of business from, or decreases in, the sales volume or
sales prices to our significant customers, could seriously harm our financial
results, revenues and business. Since the sales cycle for our services typically
exceeds one year, if our customers order significantly fewer wafers than
forecasted, we will have excess capacity that we may not be able to sell in a
short period of time, resulting in lower utilization of our facilities. We may
have to reduce prices in order to try to sell the excess capacity. In addition
to the revenue loss that could result from unused capacity or lower sales
prices, we might have difficulty adjusting our costs to reflect the lower
revenues in a timely manner, which could harm our financial results.

WE DEPEND ON A RELATIVELY SMALL NUMBER OF PRODUCTS FOR A SIGNIFICANT PORTION OF
OUR REVENUES.

     From time to time, a significant portion of our revenue is generated from a
small number of very high volume products that are shipped to volatile
consumer-oriented markets. The volume of orders of such products may adversely
change or demand for such products may be abruptly discontinued. We expect that
in the foreseeable future we will continue to be dependent upon a relatively
limited number of products for a significant portion of our revenue due to the
nature of our business. We cannot assure you that revenue generated from these
products, individually or in the aggregate, will reach or exceed historical
levels in any future period. A decrease in the price of, or demand for, any of
these products could negatively impact our financial results.

IF WE DO NOT RECEIVE ORDERS FROM OUR WAFER PARTNERS WE MAY HAVE EXCESS CAPACITY.

     We have committed a portion of our Fab 2 capacity for future orders. During
the ramp-up of Fab 2, our capacity commitments to our wafer partners, which are
SanDisk Corporation, Alliance Semiconductor Corporation, Macronix International
Co. Ltd. and Quicklogic Corporation, are limited to approximately 50% of our Fab
2 capacity. Parties to whom we have committed capacity are generally not
obligated to utilize or pay for all or any portion of their allocated capacity,
and generally provide and confirm their orders to us less than one month before
the production start date. If these parties do not place orders with us, and if
we are unable to fill such unutilized capacity, our financial results may be
adversely affected.


                                       13

IF WE DO NOT MAINTAIN AND DEVELOP OUR TECHNOLOGY PROCESSES AND SERVICES, WE WILL
LOSE CUSTOMERS AND MAY NOT BE ABLE TO ATTRACT NEW ONES.

     The semiconductor market is characterized by rapid change, including the
following:

          o    rapid technological developments;

          o    evolving industry standards;

          o    changes in customer and product end user requirements;

          o    frequent new product introductions and enhancements; and

          o    short product life cycles with declining prices as products
               mature.

     In order to maintain our current customer base and attract new customers,
we must continue to advance our manufacturing process technologies. We are
developing and introducing to production specialized process technologies. Our
ability to achieve and maintain profitable operations depends on the successful
development and introduction to production of these processes, which we may not
achieve in a timely manner or at all.

IF WE DO NOT COMPETE EFFECTIVELY, WE WILL LOSE BUSINESS TO OUR COMPETITORS.

     The semiconductor foundry industry is highly competitive. We compete with
more than ten independent dedicated foundries, the majority of which are located
in Asia-Pacific, including new foundries based in Taiwan, China, Korea and
Malaysia, and with over twenty integrated semiconductor and end-product
manufacturers that allocate a portion of their manufacturing capacity to foundry
operations. The foundries with which we compete benefit from their close
proximity to other companies involved in the design and manufacture of
integrated circuits, or ICs. If we do not compete effectively, our business and
results of operations may be adversely affected. Many of our competitors may
have one or more of the following competitive advantages over us:

     o    greater manufacturing capacity;

     o    multiple and more advanced manufacturing facilities;

     o    more advanced technological capabilities;

     o    a more diverse and established customer base;

     o    greater financial, marketing, distribution and other resources;

     o    a better cost structure; and/or

     o    better operational performance in cycle time and yields.

WE HAVE A LARGE AMOUNT OF DEBT WHICH COULD HAVE SIGNIFICANT NEGATIVE
CONSEQUENCES.

     We have a large amount of long-term debt, which could have significant
negative consequences. As of March 31, 2006, we had approximately $526.7 million
of bank debt and approximately $60 million of convertible debt. Our current and
future indebtedness could have significant negative consequences, including:

     o requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness;

     o increasing our vulnerability to general adverse economic and industry
conditions;

     o limiting our ability to obtain additional financing;

     o limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete;


                                       14

     o placing us at a competitive disadvantage to less leveraged competitors
and competitors that have better access to capital resources; and/or

     o affecting our ability to make interest payments and other required debt
service on our indebtedness.

IF WE DO NOT RAISE THE FUNDS REQUIRED BY OUR AMENDED CREDIT FACILITY AGREEMENT
OR FAIL TO SATISFY THE COVENANTS SET FORTH IN OUR AMENDED CREDIT FACILITY, OUR
BANKS WILL BE ABLE TO CALL OUR LOANS.

     Our credit facility, under which we have drawn down approximately $526.7
million as of March 31, 2006, requires that we comply with certain financial,
capital raising and production milestone covenants. In accordance with the
credit facility agreement with our banks, as amended on May 30, 2006, in
addition to amounts we have raised to date, we are required to raise
approximately $8 million by September 30, 2006, which we expect to raise through
this offering. In the July 2005 amendment to our credit facility agreement, our
banks agreed to amend our financial ratios and covenants through the third
quarter of 2006. We anticipate that we will not be in compliance with all of the
financial ratios and covenants under the amended facility agreement commencing
in the fourth quarter of 2006. Should we fail to raise the funds required under
our facility agreement in a timely manner or to comply with our revised
covenants, and our banks do not waive our non-compliance, pursuant to the terms
of the credit facility agreement, our banks may require us to immediately repay
all loans made by them to us, plus penalties, and they would be entitled to
exercise the remedies available to them under the credit facility, including
enforcement of their lien against all our assets. This would have a material
adverse effect on our company.


                                       15

ISRAELI BANKING LAWS MAY IMPOSE RESTRICTIONS ON THE TOTAL DEBT THAT WE MAY
BORROW FROM OUR BANKS.

     Pursuant to an amendment to a directive published by the Israel Supervisor
of Banks, effective March 31, 2004, we may be deemed part of a group of
borrowers comprised of the Ofer Brothers Group, Israel Corp., 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 imposes limitations on amounts that banks may lend to
borrowers or groups of borrowers. Should our banks exceed these limitations,
they may limit our ability to borrow other money in the future and may require
us to return some or all of our outstanding borrowings (which were approximately
$526.7 million as of March 31, 2006), which may have a material adverse effect
on our business, financial condition and results of operations.

IF WE EXPERIENCE DIFFICULTY IN ACHIEVING ACCEPTABLE DEVICE YIELDS, PRODUCT
PERFORMANCE AND DELIVERY TIMES AS A RESULT OF MANUFACTURING PROBLEMS, OUR
BUSINESS WILL BE ADVERSELY AFFECTED.

     The process technology for the manufacture of semiconductor wafers is
highly complex, requires advanced and costly equipment and is constantly being
modified in an effort to improve device yields, product performance and delivery
times. Microscopic impurities such as dust and other contaminants, difficulties
in the production process, defects in the key materials and tools used to
manufacture a wafer and other factors can cause wafers to be rejected or
individual semiconductors on specific wafers to be non-functional. We have from
time to time experienced production difficulties that have caused delivery
delays or returns and lower than expected device yields. We may also experience
difficulty achieving acceptable device yields, product performance and product
delivery times in the future as a result of manufacturing problems. Any of these
problems could seriously harm our financial results and business.

IF WE ARE UNABLE TO PURCHASE EQUIPMENT AND RAW MATERIALS, WE MAY NOT BE ABLE TO
MANUFACTURE OUR PRODUCTS IN A TIMELY FASHION, WHICH MAY RESULT IN A LOSS OF
EXISTING AND POTENTIAL NEW CUSTOMERS.

     To complete the ramp-up of our Fab 2 facility and to maintain the quality
of production in our facilities, we must procure new equipment. In periods of
high market demand, the lead times from order to delivery of manufacturing
equipment could be as long as 12 to 18 months. In addition, our manufacturing
processes use many raw materials, including silicon wafers, chemicals, gases and
various metals, and require large amounts of fresh water and electricity.
Manufacturing equipment and raw materials generally are available from several
suppliers. In many instances, however, we purchase equipment and raw materials
from a single source. Shortages in supplies of manufacturing equipment and raw
materials could occur due to an interruption of supply or increased industry
demand. Any such shortages could result in production delays that could have a
material adverse effect on our business and financial condition.

OUR EXPOSURE TO CURRENCY EXCHANGE AND INTEREST RATE FLUCTUATIONS MAY INCREASE
OUR COST OF OPERATIONS.

     Almost all of our cash generated from operations and from our financing and
investing activities is denominated in U.S. dollars and New Israeli Shekels, or
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.

     Our borrowings under our Fab 2 credit facility provide for interest based
on a floating LIBOR rate, thereby exposing us to interest rate fluctuations.
Furthermore, if our banks incur increased costs in financing our Fab 2 credit
facility due to changes in law or the unavailability of foreign currency, our
banks may exercise their right to increase the interest rate on our Fab 2 credit
facility as provided for in the credit facility agreement.

     We regularly engage in various hedging strategies to reduce our exposure to
some, but not all, of these risks and intend to continue to do so in the future.
However, despite any such hedging activity, we are likely to remain exposed to
interest rate and exchange rate fluctuations, which may increase the cost of our
operating and financing activities.

                                       16

WE DEPEND ON INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES AND FAILURE TO
MAINTAIN OR ACQUIRE LICENSES COULD HARM OUR BUSINESS.

     We depend on third party intellectual property in order for us to provide
foundry and design services to our clients. If problems or delays arise with
respect to the timely development, quality and provision of such intellectual
property to us, our customers' design and production could be delayed, resulting
in underutilization of our capacity. If any of our third party intellectual
property right vendors go out of business, liquidate, merge with, or are
acquired by, another company that discontinues the vendor's previous line of
business, or if we fail to maintain or acquire licenses to such intellectual
property for any other reason, our business may be adversely affected. In
addition, license fees and royalties payable under these agreements may impact
our margins and operating results.

FAILURE TO COMPLY WITH THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR
DEFEND OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS.

     Our ability to compete successfully depends on our ability to operate
without infringing on the proprietary rights of others and defend our
intellectual property rights. Because of the complexity of the technologies used
and the multitude of patents, copyrights and other overlapping intellectual
property rights, it is often difficult for semiconductor companies to determine
infringement. Therefore, the semiconductor industry is characterized by frequent
litigation regarding patent, trade secret and other intellectual property
rights. There are no lawsuits currently pending against us regarding the
infringement of patents or intellectual property rights of others nor are we
currently a plaintiff in any such action against other parties. However, we have
been subject to such claims in the past, all of which have been resolved through
license agreements, the terms of which have not had a material effect on our
business. One of these agreements expired at the end of 2005, and we are
currently negotiating its renewal. If we are unable to renew it on similar
terms, we may have to agree to less favorable terms or consider other
alternatives, including designing around certain processes.

     Because of the nature of the industry, we may continue to be a party to
infringement claims in the future. In the event any third party were to assert
infringement claims against us or our customers, we may have to consider
alternatives including, but not limited to:

     o negotiating cross-license agreements;

     o seeking to acquire licenses to the allegedly infringed patents, which may
not be available on commercially reasonable terms, if at all;

     o discontinuing use of certain process technologies, architectures, or
designs, which could cause us to stop manufacturing certain integrated circuits
if we were unable to design around the allegedly infringed patents;

     o fighting the matter in court and paying substantial monetary damages in
the event we lose; or

     o seeking to develop non-infringing technologies, which may not be
feasible.

     Any one or several of these developments could place substantial financial
and administrative burdens on us and hinder our business. Litigation, which
could result in substantial costs to us and diversion of our resources, may also
be necessary to enforce our patents or other intellectual property rights or to
defend us or our customers against claimed infringement of the rights of others.
If we fail to obtain certain licenses and if litigation relating to alleged
patent infringement or other intellectual property matters occurs, it could
prevent us from manufacturing particular products or applying particular
technologies, which could reduce our opportunities to generate revenues.


                                       17

     As of March 31, 2006, we held 58 patents worldwide. We intend to continue
to file patent applications when appropriate. The process of seeking patent
protection may take a long time and be expensive. We cannot assure you that
patents will be issued from pending or future applications or that, if patents
are issued, they will not be challenged, invalidated or circumvented or that the
rights granted under the patents will provide us with meaningful protection or
any commercial advantage. In addition, we cannot assure you that other countries
in which we market our services and products will protect our intellectual
property rights to the same extent as the United States. Further, we cannot
assure you that we will at all times enforce our patents or other intellectual
property rights or that courts will uphold our intellectual property rights, or
enforce the contractual arrangements that we have entered into to protect our
proprietary technology, which could reduce our opportunities to generate
revenues.

WE COULD BE SERIOUSLY HARMED BY FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS.

     Our business is 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 our production processes. If we fail to use,
discharge or dispose of hazardous materials appropriately, or if applicable
environmental laws or regulations change in the future, we could be subject to
substantial liability or could be required to suspend or adversely modify our
manufacturing operations.

WE ARE SUBJECT TO THE RISK OF LOSS DUE TO FIRE BECAUSE THE MATERIALS WE USE IN
OUR MANUFACTURING PROCESSES ARE HIGHLY FLAMMABLE.

     We use highly flammable materials such as silane and hydrogen in our
manufacturing processes and are therefore subject to the risk of loss arising
from fires. The risk of fire associated with these materials cannot be
completely eliminated. We maintain insurance policies to reduce losses caused by
fire, including business interruption insurance. If any of our fabs were to be
damaged or cease operations as a result of a fire, or if our insurance proves to
be inadequate, it would reduce our manufacturing capacity and revenues.

POSSIBLE PRODUCT RETURNS COULD HARM OUR BUSINESS.

     Products manufactured by us may be returned within specified periods if
they are defective or otherwise fail to meet customers' prior agreed upon
specifications. Product returns in excess of established provisions may have an
adverse effect on our business and financial condition.

WE MAY BE REQUIRED TO REPAY GRANTS TO THE INVESTMENT CENTER THAT WE RECEIVED IN
CONNECTION WITH FAB 1.

     We received grants and tax benefits for Fab 1 under the government of
Israel Approved Enterprise program. As of December 31, 2001, we completed our
investments under our Fab 1 program and are no longer entitled to any further
investment grants for future capital investments in Fab 1. We have agreed that
if we do not achieve Fab 1 revenues of $90 million for 2003 and $100 million for
2004 and maintain at Fab 1 at least 600 employees for 2003 and 625 employees for
2004, subject to prevailing market conditions, we will, if demanded by the
Investment Center, be required to repay the Investment Center up to
approximately $2.5 million. Since our actual level of Fab 1 revenues and
employees for 2003 and 2004 were not in compliance with the above mentioned
levels, we may be required to repay the Investment Center up to approximately
$2.5 million.

WE ARE SUBJECT TO RISKS RELATED TO OUR INTERNATIONAL OPERATIONS.

     Since 2003, we have made substantial sales to customers located in
Asia-Pacific and in Europe. Because of our international operations, we are
vulnerable to the following risks:

     o we price our products primarily in U.S. dollars; if the Euro, Yen or
other currencies weaken relative to the U.S. dollar, our products may be
relatively more expensive in these regions, which could result in a decrease in
our sales;

     o the need to comply with foreign government regulation;

     o general geopolitical risks such as political and economic instability,
potential hostilities and changes in diplomatic and trade relationships;



                                       18

     o natural disasters affecting the countries in which we conduct our
business, such as the earthquakes experienced in China, Japan and Taiwan;

     o reduced sales to our customers or interruption in our manufacturing
processes in Asia Pacific that may arise from regional issues in Asia;

     o imposition of regulatory requirements, tariffs, import and export
restrictions and other barriers and restrictions; o adverse tax rules and
regulations;

     o weak protection of our intellectual property rights; and

     o delays in product shipments due to local customs restrictions.

OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO RETAIN AND RECRUIT QUALIFIED
PERSONNEL.

     We depend on the continued services of our executive officers, senior
managers and skilled technical and other personnel. Our business could suffer if
we lose the services of some of these personnel and we cannot find and
adequately integrate replacement personnel into our operations in a timely
manner. We seek to recruit highly qualified personnel and there is intense
competition for the services of these personnel in the semiconductor industry.
Competition for personnel may increase significantly in the future as new
fabless semiconductor companies as well as new semiconductor manufacturing
facilities are established. We may need to review employee compensation
competitiveness with the purpose of retaining our existing officers and
employees and attracting and retaining additional personnel, including granting
large packages of options to purchase our ordinary shares.

     RISKS RELATED TO OUR SECURITIES

OUR STOCK PRICE MAY BE VOLATILE IN THE FUTURE.

     The stock market, in general, has experienced extreme volatility that often
has been unrelated to the operating performance of particular companies. In
particular, the stock prices for many companies in the semiconductor industry
have experienced wide fluctuations, which have often been unrelated to the
operating performance of such companies. These broad market and industry
fluctuations may adversely affect the market price of our ordinary shares,
regardless of our actual operating performance.

     In addition, it is possible that in some future periods our operating
results may be below the expectations of public market analysts and investors.
In this event, the price of our securities may under perform or fall.

ISSUANCE OF ADDITIONAL SHARES PURSUANT TO OUR FAB 2 FINANCING ARRANGEMENTS AND
OPTIONS GRANTED TO OUR FAB 2 BUILDING CONTRACTOR, EMPLOYEES AND DIRECTORS MAY
DILUTE THE INTEREST OF OUR SHAREHOLDERS.

     In connection with Fab 2, we have issued as of May 19, 2006, approximately
65.3 million ordinary shares to our wafer and equity partners and other
shareholders. In December 2003, we issued to our banks and to one of our
shareholders warrants exercisable into 896,596 and 58,906 ordinary shares,
respectively, with an exercise price of $6.17. In addition, in connection with
the July 2005 amendment to our credit facility agreement, we issued warrants to
our banks exercisable into an aggregate 8,264,464 ordinary shares with an
exercise price of $1.21, one-half of which shall only be exercisable if our
banks agree to reschedule the repayment dates of the loans made to us under the
July 2005 amendment. As of May 19, 2006, up to approximately 51.4 million
additional ordinary shares may be issued upon the conversion of our 2002
outstanding convertible debentures, 2005 outstanding convertible debentures and
upon exercise of warrants held by some of our shareholders and others.


                                       19

     In addition, as of April 30, 2006, we had outstanding employee and
directors options to purchase up to approximately 13 million shares at a
weighted average exercise price of $4.15. We have also entered into a number of
agreements which may result in our issuing large numbers of shares, particularly
if we complete the transactions contemplated by these agreements at a time when
our share price is low. For example, we have agreed that our three major wafer
partners may elect to convert, on a quarterly basis through 2006, wafer credits
we have issued to them into our ordinary shares rather than use these credits to
reduce their cash payments for wafers manufactured in Fab 2, based on the
average trading price of our ordinary shares during the 15 consecutive trading
days preceding the relevant quarter. As of May 19, 2006, we had issued
approximately 2.2 million of our ordinary shares to SanDisk Corporation and
approximately 2.6 million ordinary shares to Alliance Semiconductor upon
conversion of approximately $7.6 million of wafer credits. Following such
conversions, an aggregate of approximately $30 million of credits issued to our
three major wafer partners were outstanding as of May 19, 2006.

     The MOU we signed with our banks contemplates the issuance of 51,973,684 of
our ordinary shares and, in connection thereto, Israel Corp. committed to our
banks to invest $100 million in consideration for 65,789,474 of our ordinary
shares. Our audit committee and board of directors approved, subject to
shareholder approval, the grant of options to our CEO, such that the CEO will
hold options to purchase shares that represent 4% of our shares on a fully
diluted basis, our board of directors approved a plan to offer our current
employees the opportunity to exchange their existing options to purchase our
ordinary shares for new options and approved the allocation of additional
options to be made to our employees if the total number of employee options,
including the options to our CEO, during a 24 month period will represent less
than 8% of the our shares on a fully diluted basis.

     In addition to the proceeds we may raise in this offering and the
contemplated investment by Israel Corp., we will need to raise significant
additional funds from other sources to finance the ramp-up of Fab 2, which we
currently estimate to be up to an additional $150 million and our payments on
the long-term loans from our banks and other debt. We are engaged in discussions
with potential investors in order to attract them to make investments in our
company. However, no understandings have been reached with respect to the amount
of any investment or the terms of any investment and there can be no assurance
that any investment will be made. These investments may be for shares or for
securities convertible into shares, which would materially dilute the holdings
of our current shareholders.

MARKET SALES OF LARGE AMOUNTS OF OUR SHARES ELIGIBLE FOR FUTURE SALE MAY LOWER
THE PRICE OF OUR ORDINARY SHARES.

     Of our 77,561,979 outstanding ordinary shares as of May 19, 2006,
approximately 33.3 million are freely tradable and held by non-affiliates under
U.S. securities laws. In addition, certain of our affiliates (Israel Corp.,
SanDisk Corporation, Alliance Semiconductor, and Macronix International) hold
approximately 44.3 million of our shares, of which approximately 4.1 million are
registered for resale and are therefore freely tradable under U.S. securities
laws and approximately 35.5 million are currently eligible for sale subject to
the time, volume and manner of sale limitations of Rule 144 promulgated under
the U.S. Securities Act of 1933, as amended. An additional approximately 2.6
million shares held by Alliance Semiconductor and 2 million shares held by
SanDisk Corporation, will become eligible for sale subject to the time, volume
and manner of sale limitations of Rule 144 through 2007. Shares held by these
affiliates are subject to the share transfer restrictions set forth in the
shareholders agreement to which they are a party and which remain in effect
through January 2008. As of May 19, 2006, up to 36,598,425 additional shares
issuable upon the conversion of our convertible debentures due 2012 are held by
non-affiliates or are registered for resale and are therefore freely tradable
under U.S. securities laws. In addition, 9,161,060 shares issuable upon the
exercise of warrants we granted to our banks are registered for resale and are
therefore freely tradable under U.S. securities laws. The sales of large amounts
of our ordinary shares (or the potential for those sales even if they do not
actually occur) may depress the market price of our ordinary shares. This could
also impair our ability to raise capital through the sale of our equity
securities.


                                       20

OUR PRINCIPAL SHAREHOLDERS COLLECTIVELY OWN A CONTROLLING INTEREST IN US AND
WILL BE ABLE TO EXERCISE THEIR VOTING RIGHTS IN WAYS WHICH MAY BE ADVERSE TO
YOUR INTERESTS.

     As of May 19, 2006, our wafer partners and Israel Corp. collectively owned
approximately 57% of our outstanding shares. Under our articles of association,
two shareholders holding together 33% of our outstanding shares constitute a
quorum for conducting a shareholders meeting. Our wafer partners and Israel
Corp. could constitute a quorum for purposes of conducting a shareholders
meeting. While we have always solicited proxies from our shareholders prior to
our shareholders meetings, we would have a sufficient quorum with two large
shareholders even if none of our other shareholders were to participate in our
shareholders meetings. If only two large shareholders, owning collectively at
least 33% of our shares, were to participate in one of our shareholders
meetings, these shareholders would determine the outcome of our shareholders
meeting without the benefit of the participation of our other shareholders. In
addition, even if our other shareholders were to participate in our shareholders
meetings in person or by proxy, our wafer partners and Israel Corp. collectively
control our company and may exercise this control in a manner adverse to the
interests of our other shareholders.

THE PAYMENT OF THE REDEMPTION AMOUNT ON ACCOUNT OF THE DEBENTURES IS
SUBORDINATED TO OUR INDEBTEDNESS TO OUR BANKS AND OBLIGATIONS TO SECURED
CREDITORS.

     The payment of the redemption amount on account of the debentures is
subordinated to the prior payment of all amounts payable by us to Bank Hapoalim
B.M and Bank Leumi Le-Israel Ltd. under our credit facility agreement with them,
to any obligations to the Investment Center of the Israeli Ministry of Industry,
Trade and Labor related to $159 million in grants received through March 31,
2006 under the Investment Center's "Approved Enterprise" program, and to a first
ranking charge in favor of Siliconix Technology C.V., on approximately $20
million of equipment purchased in connection with the performance of our
obligations under our agreement with Siliconix. As a result, upon any
distribution to our creditors in liquidation or reorganization or similar
proceedings, these secured creditors will be entitled to be paid in full before
any payment may be made with respect to the debentures issuable under this
prospectus. In any of these circumstances, we may not have sufficient assets
remaining to pay amounts due on any or all of the debentures then outstanding.
In addition, we are not permitted under the terms of our facility agreement to
make a payment on account of the debentures if on the date of such payment an
"Event of Default" exists under our facility agreement The terms of the
Indenture permit the Trustee to initiate legal proceedings against us only in a
limited number of cases, and always provided that an advance notice is given to
us and to the banks.

WE MAY INCUR ADDITIONAL INDEBTEDNESS, INCLUDING INDEBTEDNESS THAT WOULD BE
SENIOR TO OUR DEBENTURES.

     Although we are limited by the covenants in the facility agreement, we
could enter into certain transactions that would increase the amount of our
outstanding senior indebtedness. It is possible that all or part of these
borrowings would be senior to the debentures. If new indebtedness is added to
our current indebtedness levels, the related risks that we now face could
intensify.

THE PRICE OF OUR ORDINARY SHARES MAY DECLINE AFTER THE WARRANTS ARE EXERCISED
INTO OUR ORDINARY SHARES, AFTER OPTIONS ARE EXERCISED INTO OUR DEBENTURES OR
AFTER DEBENTURES ARE CONVERTED INTO OUR ORDINARY SHARES.

     We cannot assure you that the public trading market price of our ordinary
shares will not decline after the warrants are exercised into our ordinary
shares, options are exercised into our convertible debentures or after the
debentures are converted into our ordinary shares. If the prevailing market
price were to decline below the exercise price of our warrants or the conversion
price of our debentures then you may not be able to sell your ordinary shares at
a price equal to or greater than the exercise price or the conversion price, as
the case may be.



                                       21

THE SUBSCRIPTION PRICE PER UNIT, THE CONVERSION PRICE OF THE CONVERTIBLE
DEBENTURES OR THE EXERCISE PRICE OF THE WARRANTS ARE NOT AN INDICATION OF OUR
PRESENT OR FUTURE VALUE.

     Our board of directors set all of the terms and conditions of the units in
this offering, including the minimum subscription price per unit, the conversion
price of the convertible debentures the exercise price of the warrants and
options to purchase our convertible debentures. Our company's objective in
establishing the terms of the securities issued in this prospectus was to
reflect recent trading prices and to raise the targeted proceeds. In
establishing the commercial terms, our board of directors considered the
following factors: the strategic alternatives available to us for raising
capital, the market price of our ordinary shares, pricing of similar
transactions, the effect on our existing securities, our business prospects and
general conditions in the securities markets. The terms of the securities issued
hereby however, do not necessarily bear any relationship to our past or expected
future results of operations, book value of our results, cash flows, current
financial condition, or any other established criteria for value.

     You should not consider the minimum subscription price per unit, the
conversion price of the convertible debentures or the exercise price of the
warrants and options to purchase our convertible debentures as an indication of
our present or future value.

THE CONVERTIBLE DEBENTURES, THE OPTIONS TO PURCHASE CONVERTIBLE DEBENTURES AND
THE WARRANTS ARE A NEW ISSUANCE OF SECURITIES FOR WHICH THERE HAS BEEN NO PRIOR
PUBLIC TRADING MARKET, AND WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET
WILL DEVELOP FOR THESE SECURITIES.

     The convertible debentures, the options to purchase convertible debentures
and the warrants will be listed for trade on the Tel-Aviv Stock Exchange.
However, there has been no prior market for such securities. We cannot predict
whether an active trading market for the securities will develop or, if such
market develops, how liquid it will be. If an active trading market for the
securities does not develop, the market price and liquidity of such securities
may be adversely affected.

RISKS RELATED TO OUR OPERATIONS IN ISRAEL

INSTABILITY IN ISRAEL MAY HARM OUR BUSINESS.

     All of our manufacturing facilities and our corporate and some of our sales
offices are located in Israel. Accordingly, political, economic and military
conditions in Israel may directly affect our business.

     Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors, as well as
incidents of civil unrest. In addition, Israel and companies doing business with
Israel have, in the past, been the subject of an economic boycott. Although
Israel has entered into various agreements with Egypt, Jordan and the
Palestinian Authority, Israel has been and is subject to civil unrest and
terrorist activity, with varying levels of severity. Parties with whom we do
business have sometimes declined to travel to Israel during periods of
heightened unrest or tension, forcing us to make alternative arrangements where
necessary. In addition, the political and security situation in Israel may
result in parties with whom we have agreements claiming that they are not
obligated to perform their commitments under those agreements pursuant to force
majeure provisions. We can give no assurance that security and political
conditions will have no impact on our business in the future. Any hostilities
involving Israel or the interruption or curtailment of trade between Israel and
its present trading partners could adversely affect our operations and could
make it more difficult for us to raise capital. Furthermore, our manufacturing
facilities are located exclusively in Israel, which has been experiencing civil
unrest, terrorist activity and military action. We could experience serious
disruption of our manufacturing if acts associated with this conflict result in
any serious damage to our manufacturing facilities. In addition, our business
interruption insurance may not adequately compensate us for losses that may
occur, and any losses or damages incurred by us could have a material adverse
effect on our business.


                                       22

OUR OPERATIONS MAY BE NEGATIVELY AFFECTED BY THE OBLIGATIONS OF OUR PERSONNEL TO
PERFORM MILITARY SERVICE.

     In the event of severe unrest or other conflict, individuals could be
required to serve in the military for extended periods of time. In response to
increases in terrorist activity, there have been periods of significant call-ups
of military reservists, and it is possible that there will be additional
call-ups in the future. A large part of male Israeli citizens, including our
employees, are subject to compulsory military reserve service through middle
age. Our operations could be disrupted by the absence for a significant period
of time of one or more of our key employees or a significant number of our other
employees due to military service. Such disruption could harm our operations.

OUR OPERATIONS MAY BE AFFECTED BY NEGATIVE ECONOMIC CONDITIONS IN ISRAEL.

     In recent years, Israel has experienced periods of recession in economic
activity, resulting in low growth rates and growing unemployment. Our operations
could be adversely affected if the economic conditions in Israel deteriorate. In
addition, Israel has experienced several general strikes and other work
stoppages, affecting banks, government offices, airports and ports. These
strikes have had an adverse effect on the Israeli economy and on business,
including our ability to deliver products to our customers or to receive raw
materials from our suppliers in a timely manner. From time to time, the Israeli
trade unions threaten strikes or work-stoppages, which may, if carried out, have
a material adverse effect on the Israeli economy and our business.

IF THE EXEMPTION ALLOWING US TO OPERATE OUR MANUFACTURING FACILITIES SEVEN DAYS
A WEEK IS NOT RENEWED, OUR BUSINESS WILL BE ADVERSELY AFFECTED.

     We operate our manufacturing facilities seven days a week pursuant to an
exemption from the law that requires businesses in Israel to be closed from
sundown on Friday through sundown on Saturday. This exemption expires by its
terms on December 31, 2006. In addition, a significant increase in the number of
employees permitted to work under this exemption will be needed as we ramp-up
production at Fab 2. If the exemption is not renewed and we are forced to close
any or all of the facilities for this period each week, our financial results
and business will be harmed.

RATIO OF EARNINGS TO FIXED CHARGES

     Our ratio of earnings to fixed charges in accordance with Israeli GAAP for
the periods presented are as follows:


                              THREE
                              MONTHS
                              ENDED
                              MARCH
                                31,
                            (UNAUDITED)        YEAR ENDED DECEMBER 31,
                               ----     -----------------------------------------
                               2006     2005     2004      2003      2002    2001
                               ----     ----     ----      ----      ----    ----
Ratio of earnings to
fixed charges                 __(1)    __(2)    __(3)     __(4)     __(5)  __(6)

- ----------

(1)  Earnings as adjusted were inadequate to cover fixed charges by $43.5
     million for the three months ended March 31, 2006.

(2)  Earnings as adjusted were inadequate to cover fixed charges by $201.7
     million in 2005.

(3)  Earnings as adjusted were inadequate to cover fixed charges by $134.2
     million in 2004.

(4)  Earnings as adjusted were inadequate to cover fixed charges by $127.3
     million in 2003.

(5)  Earnings as adjusted were inadequate to cover fixed charges by $63.7
     million in 2002.

(6)  Earnings as adjusted were inadequate to cover fixed charges by $49.5
     million in 2001.


                                       23

                                        THREE MONTHS                              YEAR ENDED DECEMBER 31,
                                           ENDED         ------------------------------------------------------------------------
                                       MARCH 31, 2006      2005            2004            2003            2002            2001
                                         --------        --------        --------        --------        --------        --------
                                        (UNAUDITED)
                                         --------
                                                                           DOLLARS IN THOUSANDS
                                         ----------------------------------------------------------------------------------------
EARNINGS (LOSSES):

Losses before income taxes                (45,056)       (203,082)       (137,768)       (114,261)        (51,402)        (38,522)

Amortization of capitalized
interest (a)                                1,510           4,206           3,557             954               -               -

Interest capitalized (d)                        -          (2,793)              -         (14,042)        (12,300)        (10,994)
                                         --------        --------        --------        --------        --------        --------

                                          (43,546)       (201,669)       (134,211)       (127,349)        (63,702)        (49,516)
                                         --------        --------        --------        --------        --------        --------

FIXED CHARGES:

Amortization of expenses
related to indebtedness (b)                   549             523             524             271               -               -

Interest expenses (c)                       9,859          32,360          26,582           7,891             708           1,568

Interest capitalized (d)                        -           2,793               -          14,042          12,300          10,994
                                         --------        --------        --------        --------        --------        --------

Total Fixed Charges                        10,408          35,676          27,106          22,204          13,008          12,562
                                         --------        --------        --------        --------        --------        --------


EARNINGS (LOSSES), AS ADJUSTED            (33,138)       (165,993)       (107,105)       (105,145)        (50,694)        (36,954)

RATIO OF EARNINGS TO FIXED CHARGES           - (1)           - (2)           - (3)           - (4)           - (5)           - (6)


(1)  Earnings as adjusted were inadequate to cover fixed charges by $43.5
     million for the three months ended March 31, 2006.

(2)  Earnings as adjusted were inadequate to cover fixed charges by $201.7
     million in 2005.

(3)  Earnings as adjusted were inadequate to cover fixed charges by $134.2
     million in 2004.

(4)  Earnings as adjusted were inadequate to cover fixed charges by $127.3
     million in 2003.

(5)  Earnings as adjusted were inadequate to cover fixed charges by $63.7
     million in 2002.

(6)  Earnings as adjusted were inadequate to cover fixed charges by $49.5
     million in 2001.

(a)  Includes amortization of deferred financing charges in connection with
     obtaining long-term bank loans which are comprised mainly of stock-based
     compensation related to warrants issued to banks.

(b)  Includes amortization of convertible debentures discount and deferred
     issuance expenses.

(c)  Includes, mainly, the effective interest of long-term loans based on their
     terms and the effect of hedge agreements with knock-out and knock-in
     features and interest expenses in relation to convertible debentures.

(d)  Includes, mainly, the effective capitalized interest of long-term loans
     based on their terms and the effect of hedge agreements with a knock-out
     feature, capitalized interest in relation to convertible debentures and
     deferred financing charges in connection with obtaining long-term bank
     loans which are comprised mainly of stock-based compensation related to
     warrants issued to banks.



                                       24

CAPITALIZATION

     The following table sets forth our long-term debt, convertible debentures
and capitalization as of March 31, 2006 on an actual basis and, on an as
adjusted basis to give effect to the issuance contemplated by this prospectus
before deducting estimated expenses of the offering. For the purposes of this
table we have assumed that each unit will be sold at the minimum price of NIS
1,785 per unit and a U.S. dollar/NIS exchange rate of 4.458. This table does not
take into account the exercise of the options to purchase our convertible
debentures, the exercise of the 3-month or 3-year warrants or the issuance of
shares issuable upon the conversion of the convertible debentures or upon the
exercise of the warrants).

                                                 ACTUAL        AS ADJUSTED(1)
                                                ---------        ---------
                                                 (US dollars in thousands)

Options to purchase convertible
 debentures                                                      $   1,605
Current maturities of convertibles
 debentures                                     $   5,734        $   5,734

Long-term debt (4)                                514,966          514,966
2002 convertible debentures and 2005
 convertible debentures excluding current
 maturities                                        34,429           34,429
Long-term liability in respect of
 customer advances                                 54,537           54,537
Convertible debentures offered in this
 offering                                                           26,999
Shareholders' equity (deficit):
Ordinary Shares, NIS 1.00 par value per
 share; 500,000,000 authorized shares*,
 76,946,189 issued shares** and
 75,646,189 outstanding shares;                    18,403           18,403

Additional paid-in capital                        531,123          533,871
Equity component of convertible
 debentures and cumulative stock based
 compensation                                      19,550           19,550
Accumulated deficit                              (604,810)        (604,810)
Treasury stock, 1,300,000 shares                   (9,072)          (9,072)
                                                ---------        ---------

Total shareholders' equity (deficit)              (44,806)         (42,058)
                                                ---------        ---------
Total capitalization                            $ 636,039        $ 667,391
                                                =========        =========

- ----------

This financial data is derived from unaudited interim consolidated financial
statements as of March 31, 2006.

*    In March 2006, our Board of Directors approved the increase of our
     authorized shares to 800 million. This increase is subject to the approval
     of our shareholders.

**   Includes 1,300,000 treasury shares.

(1)  As adjusted to reflect our issuance of NIS 163,800,000 in principal amount
     of convertible debentures, 390,000 options to purchase convertible
     debentures, 10,920,000 3-month warrants and 5,460,000 3-year warrants as
     well as our issuance of NIS 630,000 in principal amount of convertible
     debentures, 1,500 options to purchase convertible debentures, 42,000
     3-month warrants and 21,000 3-year warrants to IBI Israel Brokerage and
     Investment Services Ltd., which has agreed to be our market maker. The
     amounts are adjusted to reflect the estimated immediate gross proceeds to
     be received from this offering.


                                       25

     The information set forth on an actual basis in the foregoing table
excludes the following securities as of May 19, 2006:

     (i) approximately 13 million ordinary shares issuable upon exercise of
options granted to employees and directors at a weighted average exercise price
of $4.15;

     (ii) up to 2,022,801 ordinary shares issuable upon conversion of unsecured,
subordinated convertible debentures, net that we issued in January 2002, which
are convertible through December 31, 2008;

     (iii) 3,594,070 ordinary shares issuable upon exercise of warrants with an
exercise price of $7.50 exercisable until October 2006;

     (iv) 896,596 ordinary shares issuable upon the exercise of warrants issued
to our banks in connection with our credit facility with an exercise price of
$6.17 per share exercisable until December 2008;

     (v) 58,906 ordinary shares issuable upon exercise of warrants issued to
Israel Corp. in connection with the November 2003 amendment to our facility
agreement with an exercise price of $6.17 per share and exercisable until
December 2008;

     (vi) 8,264,464 ordinary shares issuable upon exercise of the warrants we
issued to our banks with an exercise price of $1.21 in connection with the July
2005 amendment to our facility agreement one-half of which shall only be
exercisable if our banks agree to reschedule the repayment dates of the loans
made available to us under the July 2005 amendment; and

     (vii) 37,789,535 ordinary shares issuable upon conversion of our debentures
due 2012 convertible until December 2011, pursuant to the prospectus dated
December 15, 2005.

     In addition, the information does not reflect the 724,680 shares issued in
April 2006 to two of our wafer partners in connection with their conversion of
wafer credits.

     This information does not take into account the following potential
dilutive issuances of securities pursuant to our credit facility agreement and
agreements with our major wafer partners and with Israel Corp. which cannot be
calculated as of the date of this prospectus since the number of shares issuable
will depend upon future transactions in which we may engage: (i) ordinary shares
issuable upon conversion of up to approximately $30 million in wafer prepayment
credits (as of May 19, 2006) which we have issued to our major wafer partners;
and (ii) ordinary shares issuable upon conversion of securities we may be
required to issue in connection with a rights offering and outside investor
provisions agreed to in the November 2003 amendment to our facility agreement.

USE OF PROCEEDS

     We intend to use the net proceeds from this offering towards the further
ramp-up and deployment of Fab 2 and for marketing expenses for the sale of our
products and services as well as for general corporate purposes, including
working capital.

     The net proceeds that we will receive from this offering are estimated to
be $28.8 million after deduction of the underwriters' fees and commissions and
the estimated expenses of the offering and the issuance of NIS 630,000 in
principal amount of convertible debentures, 1,500 options to purchase
convertible debentures, 42,000 3-month warrants and 21,000 3-year warrants to
IBI Israel Brokerage and Investment Services Ltd., which has agreed to be our
market maker in consideration for NIS 526,000. The aforementioned does not take
into account proceeds that may be received from the exercise of the warrants or
the options to purchase convertible debentures.

     For the purposes of estimating net proceeds we have assumed that each unit
will be sold at the minimum price of NIS 1,785 per unit.


                                       26

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     See our audited consolidated financial statements for the year ended
December 31, 2005, included in our Form 6-K, filed on February 2, 2006 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" attached as exhibit 99.3 thereto and our unaudited consolidated
financial statements for the three months ended March 31, 2006, included in our
Form 6-K, filed on May 18, 2006 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" attached as exhibit 99.2 thereto,
as amended on Form 6-K/A on June 19, 2006.

MAJOR SHAREHOLDERS

     The following table and notes thereto set forth information, as of May 19,
2006, concerning the beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), and on a diluted basis, of
ordinary shares by any person who is known to own at least 5% of our issued and
outstanding ordinary shares. On such date, 77,561,979 ordinary shares were
issued and outstanding. The voting rights of our major shareholders do not
differ from the voting rights of other holders of our ordinary shares. However,
certain of our shareholders have entered into a shareholders agreement pursuant
to which they may be able to exercise control over matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions.

                                                                                     PERCENT OF CLASS
       IDENTITY OF PERSON OR GROUP         AMOUNT OWNED (1)  PERCENT OF CLASS (1)       (DILUTED)(2)
       ---------------------------         ----------------  -------------------       ------------

Israel Corporation Ltd. (3)                 33,324,887(4)          34.49%                23.50%

SanDisk Corporation (3)                     14,650,132(5)          18.06%                10.33%

Alliance Semiconductor Corporation (3)      13,492,975(6)          16.67%                 9.52%

Macronix International Co. Ltd.(3)           9,979,485(7)          12.67%                 7.04%


(1)  Assumes the holder's beneficial ownership of all Ordinary Shares and all
     securities that the holder has a right to purchase within 60 days.

(2)  Assumes that all currently outstanding securities to purchase Ordinary
     Shares, other than those which cannot be calculated as of the date of this
     prospectus (see "Capitalization"), have been exercised by all holders.

(3)  Pursuant to a shareholders agreement among Israel Corp., Alliance
     Semiconductor Corporation, SanDisk Corporation and Macronix Co. Ltd., each
     of Israel Corp., Alliance Semiconductor Corporation, SanDisk Corporation
     and Macronix Co. Ltd. may be said to have shared voting and dispositive
     control over approximately 57% of the outstanding shares of Tower.

(4)  Based on information provided by Israel Corp., represents 14,260,504 shares
     currently owned by Israel Corp., 882,560 shares issuable upon the exercise
     of currently exercisable warrants and 18,181,823 shares issuable upon
     conversion of debentures.


                                       27

(5)  Based on information provided by SanDisk, represents 11,108,002 shares
     currently owned by SanDisk, 360,312 shares issuable upon the exercise of
     currently exercisable warrants and 3,181,818 shares issuable upon
     conversion of debentures.

(6)  Based upon information provided by Alliance, represents 10,125,410 shares
     currently owned by Alliance, 357,747 shares issuable upon the exercise of
     currently exercisable warrants and 3,009,818 shares issuable upon
     conversion of debentures.

(7)  Based on information provided by Macronix, represents 8,773,395 shares
     currently owned by Macronix, 297,000 shares issuable upon the exercise of
     currently exercisable warrants and 909,090 shares issuable upon conversion
     of debentures.

     Pursuant to a shareholders agreement dated January 18, 2001, among Israel
Corp., Alliance Semiconductor, SanDisk and Macronix, such parties have agreed,
among other things, to vote or cause to be voted all their respective shares for
the election to the Board of Directors of nominees designated by each party,
nominees recommended by the Board, the election of a designee of the Israel
Corp. to serve as Chairman of the Board, and against the election of any other
persons to the Board of Directors. In addition, subject to certain exceptions,
each shareholder agreed to restrictions on the transfer of its shares, including
certain rights of first refusal, and through January 2008, to maintain minimum
shareholdings. Nothing in this prospectus shall be construed as an admission
that any of the aforementioned shareholders is the beneficial owner of any of
our securities, other than the securities held directly by such party, nor that
any such shareholder or other persons or entities constitute a "group", for
purposes of Section 13(d) of the Securities Exchange Act of 1934 and the rules
promulgated thereunder.

ADDITIONAL INFORMATION

     SHARE CAPITAL

ORDINARY SHARES

     Our authorized share capital consists of 500 million ordinary shares, par
value NIS 1.00 per share. Under our articles of association, the ordinary shares
do not have preemptive rights. We may from time to time, by approval of a
majority of our shareholders, increase our authorized share capital. All
ordinary shares are registered shares, rather than bearer shares. In March 2006,
our Board of Directors approved the increase of our authorized share capital to
800 million ordinary shares, par value NIS 1.00 per share. This increase is
subject to the approval of our shareholders.

     The ownership or voting rights of our ordinary shares by non-residents of
Israel is not restricted in any way by our memorandum of association or articles
of association. The State of Israel does not restrict in any way the ownership
or voting rights of ordinary shares of Israeli entities by non-residents of
Israel, except with respect to subjects of countries that are in a state of war
with Israel. Our ordinary shares do not have cumulative voting rights for the
election of directors. The affirmative vote of the shareholders present in
person or by proxy that represent more than 50% of the voting power present in
person or by proxy have the power to elect all nominees up for election to our
board of directors.

     In the event of our liquidation, after satisfaction of liabilities to
creditors, our assets will be distributed to the holders of our ordinary shares
in proportion to the nominal value of their respective holdings. This
liquidation right may be affected by the grant of a preferential dividend or
distribution right to the holder of a class of shares with preferential rights
that may be authorized in the future. Dividends may be paid only out of profits,
as defined in the Israeli Companies Law. Our Board of Directors is authorized to
declare dividends, although our bank covenants currently in effect prohibit the
payment of dividends on our ordinary shares, unless such payments are approved
by our banks.


                                       28

     Holders of ordinary shares have one vote for each ordinary share held on
all matters submitted to a vote of shareholders. Subject to the provisions set
forth in Section 46B of the Israeli Securities Law, these voting rights may be
affected by the grant of any special voting rights to the holders of a class of
shares with preferential rights that may be authorized in the future. Our major
shareholders do not have different voting rights from each other or other
shareholders.

     Resolutions of shareholders (e.g. resolutions amending our articles of
association, electing or removing directors, appointing an independent
registered public accounting firm, authorizing changes in capitalization or the
rights attached to our shares or approving a wind-up or merger) require the
affirmative vote (at a meeting convened upon advance notice of twenty one days)
of shareholders present in person or by proxy and holding shares conferring, in
the aggregate, at least a majority of the votes actually cast on such
resolutions.

     The quorum required for a meeting of shareholders is at least two
shareholders present, in person or by proxy, within half an hour of the time
fixed for the meeting's commencement that together hold shares conferring in the
aggregate more than 33% of the total voting power of our shares. A meeting
adjourned for lack of a quorum is adjourned to the same day in the following
week at the same time and place. At the reconvened meeting, in the event a
quorum is not present within half an hour of the time fixed for the meetings
commencement, the persons present shall constitute a quorum.

     Our registration number at the Israeli Registrar of Companies is
52-004199-7.

     The objective stated in our articles of association is to engage in any
lawful activity.

     Modification or abrogation of the rights of any existing class of shares
requires either the written consent of all of the holders of the issued shares
of such class or the adoption of a resolution by an ordinary majority of a
general meeting of holders of such class. The quorum required for a class
meeting is at least two shareholders present, in person or by proxy, within half
an hour of the time fixed for the meetings commencement that together hold
shares conferring in the aggregate at least 33% of the total voting power of the
issued shares of such class. If no quorum is present, the meeting shall be
adjourned to another time and at the adjourned meeting a quorum shall be
constituted in the presence of any number of participants, regardless of the
number of shares held by them.

     As of March 31, 2006, 75,646,189 of our ordinary shares were outstanding.
As of May 19, 2006, 77,561,979 of our ordinary shares were outstanding. The
above numbers of outstanding ordinary shares do not include 1.3 million treasury
shares held by us through a trustee.

     For a summary of our securities which are convertible or exercisable into
our ordinary shares, see "Capitalization".

     DIVIDEND POLICY

     Since 1998, we have not declared or paid cash dividends on any of our
shares and we have no current intention of paying any cash dividends in the
future. The facility agreement that we entered into with our banks, as amended,
prohibits the payment of dividends prior to January 1, 2008, and before any such
distribution, we must have placed on deposit with our banks in an amount equal
to the debt service for the quarter in which the distribution is to be made and
charged such deposit in favor of our banks, and we must have complied with
financial ratios and covenants. In addition, we may only declare and pay a
dividend provided that:

          o    the dividend is only paid from excess cash flow from Fab 2;

          o    there is no event of default outstanding under the credit
               facility agreement; and

          o    an event of default could not reasonably exist after such
               distribution.

     The Companies Law also restricts our ability to declare dividends. We can
only distribute dividends from profits (as defined in the Companies Law),
provided that there is no reasonable suspicion that the dividend distribution
will prevent us from meeting our existing and future expected obligations as
they come due.


                                       29

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     We are allowed to "incorporate by reference" the information we file with
the Israel Securities Authority (ISA) on the Magna system, which means that we
can disclose important information to you by referring to those documents. The
information incorporated by reference is considered to be part of this
prospectus. References to documents filed by us are references to such forms as
filed with the Israel Securities Authority on the Magna system. We incorporate
by reference the documents listed below:

          o    our registration on Form 8-A filed on November 22, 2005, as
               amended on December 29, 2005;

          o    our annual report on Form 20-F for the year ended December 31,
               2004, filed on June 29, 2005, to the extent the information in
               that report has not been updated or superseded by this
               prospectus;

          o    our registration statement on Form F-1, file no. 333-126909,
               declared effective by the Securities and Exchange Commission on
               December 15, 2005;

          o    our report on Form 6-K filed on February 2, 2006;

          o    our report on Form 6-K filed on February 6, 2006;

          o    our report on Form 6-K filed on February 16, 2006;

          o    our registration statement on Form F-3, file no. 333-13135,
               declared effective by the Securities and Exchange Commission on
               March 15, 2006;

          o    our reports on Form 6-K filed on May 17, 2006;

          o    our reports on Form 6-K filed on May 18, 2006, as amended on Form
               6-K/A on June 19, 2006; and

          o    our report on Form 6-K filed on June 6, 2006.

     As you read the above documents, you may find inconsistencies in
information from one document to another. If you find inconsistencies between
the documents and this prospectus, you should rely on the statements made in the
most recent document. All information appearing in this prospectus is qualified
in its entirety by the information and financial statements, including the notes
thereto, contained in the documents incorporated by reference herein.

     We will provide to each person, including any beneficial owner, to whom
this prospectus is delivered, a copy of these filings, at no cost, upon written
or oral request to us at: Ramat Gavriel Industrial Park, Post Office Box 619,
Migdal Haemek, 23105 Israel, Attn: Corporate Secretary, telephone number:
972-4-650-6611. Copies of these filings may also be accessed at our website,
www.towersemi.com. Click on "Investor Relations" and then "Filings."

     A copy of this prospectus, our memorandum of association and our articles
of association, are available for inspection at our offices at Hamada Avenue,
Ramat Gavriel Industrial Park, Migdal Haemek, Israel and on the Israel
Securities Authority's Magna website, www.magna.isa.gov.il.

     Our ordinary shares are listed on the Tel Aviv Stock Exchange. However,
because our ordinary shares are also listed on the NASDAQ National Market, we
are exempt from certain of the reporting obligations specified in Chapter Six of
the Israel Securities Law, 1968, that would otherwise by applicable to a company
whose securities are listed for trade on the Tel Aviv Stock Exchange, provided
that a copy of each report submitted or published in accordance with applicable
United States law or that we publish or circulate to holders of our registered
securities is filed with the Israel Securities Authority and the Tel Aviv Stock
Exchange within the time specified under Israeli law.


                                       30

EXEMPTION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

     The Israeli Companies Law-1999, or the Companies Law, provides that a
company may include in its articles of association provisions allowing it to:

1.   partially or fully, exempt in advance, an office holder of the company from
     his responsibility for damages caused by the breach of his duty of care to
     the company, except for damages caused to the Company due to any breach of
     such Office Holder's duty of care towards the company in a "distribution"
     (as defined in the Companies Law).

2.   enter into a contract to insure the liability of an office holder of the
     company by reason of acts or omissions committed in his capacity as an
     office holder of the company with respect to the following:

     (a)  the breach of his duty of care to the company or any other person;

     (b)  the breach of his fiduciary duty to the company to the extent he acted
          in good faith and had a reasonable basis to believe that the act or
          omission would not prejudice the interests of the company; and

     (c)  monetary liabilities or obligations which may be imposed upon him in
          favor of other persons.

3.   indemnify an office holder of the company for:

     (a)  monetary liabilities or obligations imposed upon, or actually incurred
          by, such officer holder in favor of other persons pursuant to a court
          judgment, including a compromise judgment or an arbitrator's decision
          approved by a court, by reason of acts or omissions of such officer
          holder in his or her capacity as an office holder of the company;

     (b)  reasonable litigation expenses, including attorney's fees, actually
          incurred by such office holder or imposed upon him or her by a court,
          in an action, suit or proceeding brought against him or her by or on
          behalf of us or by other persons, or in connection with a criminal
          action from which he or she was acquitted, or in connection with a
          criminal action which does not require criminal intent in which he was
          convicted, in each case by reason of acts or omissions of such officer
          holder in his or her capacity as an office holder; and

     (c)  reasonable litigation expenses, including attorneys' fees, actually
          incurred by such office holder due to an investigation or a proceeding
          instituted against such office holder by an authority competent to
          administrate such an investigation or proceeding, and that was
          finalized without the filing of an indictment against such office
          holder and without any financial obligation imposed on such office
          holder in lieu of criminal proceedings, or that was finalized without
          the filing of an indictment against such office holder but with
          financial obligation imposed on such office holder in lieu of criminal
          proceedings of a crime which does not require proof of criminal
          intent, in each case by reason of acts of such officer holder in his
          or her capacity as an office holder of the company.


                                       31

     The Companies Law provides that a company's articles of association may
provide for indemnification of an office holder post-factum and may also provide
that a company may undertake to indemnify an office holder in advance, as
described in:

     i.   sub-section 3(a) above, provided such undertaking is limited to and
          actually sets forth the types of occurrences, which, in the opinion of
          the company's board of directors based on the current activity of the
          company, are, at the time such undertaking is provided, foreseeable,
          and to an amount and degree that the board of directors has determined
          is reasonable for such indemnification under the circumstances; and

     ii.  sub-sections 3(b) and 3(c) above.

     The Companies Law provides that a company may not indemnify or exempt the
liabilities of an office holder or enter into an insurance contract which would
provide coverage for the liability of an office holder with respect to the
following:

          o a breach of his fiduciary duty, except to the extent described
     above;

          o a breach of his duty of care, if such breach was done intentionally,
     recklessly or with disregard of the circumstances of the breach or its
     consequences;

          o an act or omission done with the intent to unlawfully realize
     personal gain; or

          o a fine or monetary settlement imposed upon him.

     Under the Companies Law, the term "office holder" includes a director,
managing director, general manager, chief executive officer, executive vice
president, vice president, other managers directly subordinate to the managing
director and any other person fulfilling or assuming any such position or
responsibility without regard to such person's title.

     The grant of an exemption, an undertaking to indemnify or indemnification
of, and procurement of insurance coverage for, an office holder of a company
requires, pursuant to the Companies Law, the approval of our audit committee and
board of directors, and, in certain circumstances, including if the office
holder is a director, the approval of our shareholders.

     We have entered into an insurance contract for directors and officers and
have procured indemnification insurance for our office holders to the extent
permitted by our Articles of Association. We have never had the occasion to
indemnify any of our office holders.


                                       32

RECENT SALES OF UNREGISTERED SECURITIES

     The following is a summary of transactions during the proceeding three
years involving sales of our securities that were not registered under the
Securities Act.

     (a) In February 2003, we issued an aggregate of 400,000 warrants to
purchase ordinary shares to our contractor of our Fab 2 facility. The warrants
have an exercise price of $7.50 and expire in February 2007.

     (b) In May 2003, we issued an aggregate of 4,505,532 shares to our wafer
and financial partners Sandisk Corporation, Alliance Semiconductor, Macronix
International, Israel Corp and the Challenge Fund-Etgar II. These ordinary
shares were issued in connection with a milestone payment in the amount of
$13,440,000 under our Fab 2 agreements.

     (c) In August 2003, we issued an aggregate of 838,082 shares to Sandisk
Corporation, Alliance Semiconductor, Macronix International and Israel Corp. The
ordinary shares were issued in connection with a milestone payment in the amount
of $2,500,000 under our Fab 2 agreements.

     (d) In December 2003, we issued warrants to purchase 58,906 of our ordinary
shares to Israel Corp. These warrants were issued in connection with its
undertaking to our banks to purchase our securities in certain circumstances.
The warrants have an exercise price of $6.17 and expire in December 2008.

     (e) In December 2003, we issued warrants for the purchase of 896,596 of our
ordinary shares to our banks Bank Hapoalim and Bank Leumi. These warrants were
issued in connection with an amendment to our credit facility agreement. The
warrants have an exercise price of $6.17 and expire in December 2008.

     (f) In December 2003, we issued an aggregate of 2,916,951 shares, to the
persons mentioned in (b) above. The ordinary shares were issued in connection
with a milestone payment in the amount of $8,701,263 under our Fab 2 agreements.

     (g) In January 2004, we issued an aggregate of 2,346,786 shares, to the
persons mentioned in (b) above. The ordinary shares were issued in connection
with a second installment milestone payment in the amount of $16,427,508 under
our Fab 2 agreements.

     (h) In 2004, we issued ordinary shares to Sandisk Corporation in connection
with its conversion of wafer credits as follows: in May 2004, 11,960 ordinary
shares for their conversion of $80,250 of wafer credits; in July 2004, 40,378
ordinary shares for its conversion of $225,711 of wafer credits; and in October
2004, 64,825 ordinary shares for its conversion of $232,076 of wafer credits.

     (i) In April 2005, we issued 586,391 ordinary shares to Sandisk Corporation
in connection with its conversion of $944,089 of wafer credits.

     (j) In July 2005, we issued 421,422 ordinary shares to Sandisk Corporation
in connection with its conversion of $501,492 of wafer credits.

     (k) In August 2005, we issued warrants for the purchase of 8,264,464 of our
ordinary shares to Bank Hapoalim and Bank Leumi. These warrants were issued in
connection with an amendment to our credit facility agreement. They have an
exercise price of $1.21. Half of these warrants expire in August 2010. Half of
these warrants will only become exercisable upon the agreement of repayment
terms of the loans under the July 2005 amendment and will expire five years from
the date of any such agreement.

     (l) In October 2005, we issued 161,598 ordinary shares to Sandisk
Corporation in connection with its conversion of $272,822 of wafer credits.

     (m) In October 2005, we issued 62,849 ordinary shares to Alliance
Semiconductor in connection with its conversion of $75,479 of wafer credits.

     (n) In January 2006, we issued 218,292 ordinary shares to Sandisk
Corporation in connection with its conversion of $344,901 of wafer credits.


                                       33

     (o) In January 2006, we issued 39,199 ordinary shares to Alliance
Semiconductor in connection with its conversion of $61,935 of wafer credits.

     (p) In January 2006, we issued an aggregate of 31,191,606 convertible
debentures to Israel Corporation Ltd., Alliance Semiconductor Corporation,
Macronix (BVI) Co Ltd., SanDisk Corporation, Sphera Master Fund LP, Do Tzah
Ltd., Ramco 20 Flexible, and Ramco Stocks convertible into 28,356,005 ordinary
shares in connection with our 2006 rights offering.

     (q) In February 2006, we issued 2,455,905 ordinary shares to Alliance
Semiconductor in connection with its conversion of $3,880,330 of wafer credits.

     (r) In April 2006, we issued 660,887 ordinary shares to Sandisk Corporation
in connection with its conversion of $912,024 of wafer credits.

     (s) In April 2006, we issued 63,793 ordinary shares to Alliance
Semiconductor in connection with its conversion of $88,035 of wafer credits.

     The offer and sale of our securities summarized above were made pursuant to
the exemption provided under Section 4(2) and/or Regulation S of the Securities
Act.

     No underwriter or underwriting discount or commission was involved in any
of the transactions set forth above.


                                       34

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     Set forth below is information regarding the members of our administrative,
supervisory or management bodies and our directors.

                                       AGE         TITLE
                                       ---         -----
SENIOR MANAGEMENT

Russell C. Ellwanger                   51          Chief Executive Officer
Oren Shirazi                           36          Acting Chief Financial Officer
Dudu Vidan                             44          Vice President and Fab 1 Manager
Dr. Itzhak Edrei                       46          Senior Vice President of Product Lines and Sales
Rafi Nave                              56          Chief Technology Officer
Ephie Koltin                           44          Vice President of Business Development
Dalit Dahan                            38          Vice President of Human Resources
Shimon Dahan                           43          Vice President of Manufacturing Services
Nati Somekh Gilboa                     31          Corporate Secretary and General Counsel
Rafi Mor                               42          Vice President and Fab 2 Manager

DIRECTORS

Udi Hillman                            53          Chairman of the Board
Russell C. Ellwanger                   51          Director
Yossi Rosen                            66          Director
Dr. Eli Harari                         61          Director
Miin Wu                                57          Director
N. Damodar Reddy                       68          Director
Kalman Kaufman                         60          Director
Hans Rohrer                            56          Independent Director
Tal Yaron-Eldar                        42          Independent Director

     RUSSELL C. ELLWANGER has served as our Chief Executive Officer since May
2005. From 1998 to 2005, Mr. Ellwanger served in various executive positions for
Applied Materials Corporation, including Group Vice President, General Manager
of the Applied Global Services (AGS), from 2004 to 2005, Group Vice President,
General Manager of the CMP and Electroplating Business Group, from 2002 to 2004.
Mr. Ellwanger also served as Corporate Vice President, General Manager of the
Metrology and Inspection Business Group, from 2000 to 2002, during which he was
based in Israel. From 1998 to 2000, Mr. Ellwanger served as Vice President of
Applied Materials' 300-mm Program Office, USA. Mr. Ellwanger served as General
Manager of Applied Materials' Metal CVD Division from 1997 to 1998 and from 1996
to 1997, Mr. Ellwanger served as Managing Director of CVD Business Development,
during which he was based in Singapore. In addition, Mr. Ellwanger held various
managerial positions in Novellus System from 1992 to 1996 and in Philips
Semiconductors from 1980 to 1992.


                                       35

     OREN SHIRAZI was appointed as our acting Chief Financial Officer in
November 2004. Mr. Shirazi joined us in October 1998 and served as our
controller since July 2000, after serving as vice controller since October 1998.
Prior to joining us, Mr. Shirazi was employed as an Audit Manager in the
accounting firm of Ratzkovski-Fried & Co., which merged into Ernst &
Young (Israel). Mr. Shirazi is a Certified Public Accountant in Israel (CPA). He
has an MBA from the Graduate School of Business of Haifa University with honors
and a BA in economics and accounting from the Haifa University.

     DUDU VIDAN was appointed Vice President and Fab 1 Manager in August 2005,
having served previously as FAB2 production manager since March 2003 and as FAB2
tool installation manager from March 2001. Previously, Mr. Vidan was employed by
MDF, serving as plant manager, and Carcom Aviation Products serving as
production manager. Mr Vidan served as a Naval Reserve Lt. Colonel in the Israel
Defense Forces. Mr. Vidan holds a B.Sc. in Industrial and Management Engineering
from the Technion - Israel Institute of Technology.

     DR. ITZHAK EDREI was appointed Senior Vice President of Product Lines and
Sales in August 2005 after serving as Vice President of Research and Development
since August 2001, having served as Director of Research and Development since
1996. From 1994 to 1996, Dr. Edrei served as our Device and Yield Department
Manager. Prior to joining Tower, Dr. Edrei was employed by National
Semiconductor as Device Section Head. Dr. Edrei earned his Ph.D. in physics from
Bar Ilan University and his post-doctorate from Rutgers University.

     RAFI NAVE was appointed Chief Technology Officer in August 2005 after
serving as Vice President of Customer Services since August 2003. From 1996 to
2003, Mr. Nave served as Vice President of Research and Development for NDS
Group. From 1974 to 1995, Mr. Nave was employed by Intel Corporation in a
variety of positions of increasing responsibility, among them chip design
engineer and General Manager of Intel's design center in Israel. Mr. Nave earned
master and bachelor degrees in electrical engineering from the Technion - Israel
Institute of Technology.

     EPHIE KOLTIN was appointed Vice President of Business Development in August
2005, having served as Vice President, General Foundry and Mixed Signal
Technology from 2003 and as Senior Director, FAB2 Process Engineering since
2000. From 1996-1999, Mr. Koltin served in several senior positions as Director,
NVM Technology, CIS technology and ERS manager, FAB1. Prior to joining Tower,
Mr. Koltin was employed at National Semiconductor and the Technion - Israel
Institute of Technology. Mr. Koltin holds a B.Sc. in Mechanical Engineering and
M.Sc. in Materials Engineering from the Technion - Israel Institute of
Technology.

     DALIT DAHAN was appointed Vice President of Human Resources in April 2004.
Ms. Dahan joined us in November 1993 and served as Personnel Manager since April
2000, after having served as Compensation & Benefits Manager and in various
other positions in the Human Resources Department. Prior to joining us, Ms.
Dahan served as Manager of the North Branch of O.R.S - Manpower Company for 3
years. Ms. Dahan holds a bachelor's degree in social science from Haifa
University and an MBA from the University of Derby.

     SHIMON DAHAN was appointed Vice President of Manufacturing Services in
January 2006, having served previously as Test & MTG manager since August
2005 and prior to that as Research and Development Operation Manager from
November 2000. Prior to that, Mr. Dahan was employed by National Semiconductor
in various capacities. Mr. Dahan holds a bachelors degree in Political Science
from Haifa University, and an MBA from the University of Derby.


                                       36

     NATI SOMEKH GILBOA was appointed as Corporate Secretary and General Counsel
in March 2005, has served as our Associate General Counsel since May 2004. From
2001 to 2004, Ms. Somekh Gilboa was employed by Goldsobel & Kirshen, Adv.
Ms. Somekh Gilboa holds an LL.M. and J.D. from Boston University and a B.A. from
Johns Hopkins University. She is a member of the Israeli Bar Association and the
New York bar.

     RAFI MOR was appointed Vice President and Fab 2 Manager in August 2005,
having served as Fab 1 Manager since August 2003 and Senior Director and Fab 1
Manager since March 2003. From November 2000 to March 2003, Mr. Mor served as
Senior Director of Process Device & Yield of Fab 1. From 1998 to 2000, Mr.
Mor served as Director of Equipment Reliability & Support of Fab 1.
Previously, Mr. Mor was employed by National Semiconductor in various
engineering and management capacities. Mr. Mor earned master and bachelor
degrees in chemical engineering from Ben Gurion University.

     UDI HILLMAN has served as Chairman of the Board since May 2005. Mr. Hillman
served as Acting Chief Executive Officer from February 2005 to April 2005. Mr.
Hillman has served as a director from October 1996 through August 1999 and was
reappointed to the Board in January 2000. In January 2001, Mr. Hillman was
appointed Vice Chairman of the Board and resigned as Vice Chairman in March
2005. Mr. Hillman serves on the Tender Committee. Since March 2001, Mr. Hillman
has served as President and Chief Executive Officer of ICTech, a subsidiary of
Israel Corp., which is one of our current principal shareholders. Since February
2004, Mr. Hillman has served as a member of the Board of Directors of ZIM
Integrated Shipping Services. Mr. Hillman served as Chief Financial Officer of
Israel Corp. from September 1996 to 1997 and as Executive Vice President and
Chief Financial Officer of Israel Corp. from May 1997 to 2001. Mr. Hillman
served as a director of several subsidiaries of Israel Corp., including Israel
Chemicals Ltd., ZIM Integrated Shipping Services and others. Prior thereto, Mr.
Hillman was Vice President and Controller of Clal Industries Ltd. and a director
of several companies in the Clal Group.

     YOSSI ROSEN has served as a director and Chairman of the Stock Option and
Compensation Committee since February 2005. Since November 30, 1998, Mr. Rosen
has served as the President and CEO of The Israel Corporation. Mr. Rosen is also
Chairman of the Board of Directors of Israel Chemicals Ltd. and a director of
its subsidiaries, a member of the Board of Directors and Executive Committee of
ZIM Integrated Shipping Services, Chairman of the Board of Dead Sea Magnesium
Ltd. and a director of Oil Refineries Ltd. Mr. Rosen was previously President of
Mashav Initiating & Development Ltd. and Chairman of the Board of various
industrial companies, such as Nesher cement. Mr. Rosen holds a BA in Economics
from the Hebrew University of Jerusalem and an MA in Business Management from
the Hebrew University of Jerusalem.

     DR. ELI HARARI has served as a director since January 2001. Dr. Harari
serves on the Stock Option and Compensation Committee. Dr. Harari served as
President and Chief Executive Officer and as a Director of SanDisk Corporation
from its inception in 1988 until May 2006, and currently serves as Chief
Executive Officer and Chairman of the Board of SanDisk. Dr. Harari is a pioneer
in non-volatile semiconductor storage with more than 100 U.S. and foreign
patents and numerous technical articles and has more than 30 years of experience
in the electronics industry. His extensive operational and technological
development experiences include co-founding Waferscale Integration, overseeing
the development and transfer into production of Intel Corporation's
first-generation stepper and dry etch technology, and technical management
positions at Hughes Aircraft and Honeywell, Inc. He holds an M.A. and Ph.D. in
Solid State Sciences from Princeton University and a B.S. (Honors) degree in
Physics from Manchester University.

     MIIN WU has served as a director since January 2001. Mr. Wu serves as
President, Chief Executive Officer and an Executive Director of Macronix
International and has been an executive officer of Macronix since its formation
in 1989. Mr. Wu received both a B.S. and an M.S. in Electrical Engineering from
National Cheng-Kung University in Taiwan as well as an M.S. in Material Science
& Engineering from Stanford University.


                                       37

     N. DAMODAR REDDY has served as a director since January 2001. Mr. Reddy
serves on the Audit Committee. Mr. Reddy is the co-founder of Alliance
Semiconductor Corporation and has served as its Chairman of the Board since its
inception in February 1985. Mr. Reddy also served as President and Chief
Executive Officer since its inception and until December 2005. In addition, Mr.
Reddy served as Chief Financial Officer of Alliance Semiconductor from June 1998
to January 1999 and from May 2001 until April 2002. From September 1983 to
February 1985, Mr. Reddy served as President and Chief Executive Officer of
Modular Semiconductor, Inc., and from 1980 to 1983, he served as manager of
Advanced CMOS Technology Development at Synertek, Inc., a subsidiary of
Honeywell, Inc. Prior to that time, Mr. Reddy held various research and
development and management positions at Four Phase Systems, a subsidiary of
Motorola, Inc., Fairchild Semiconductor and RCA Technology Center. He holds an
MS degree in Electrical Engineering from North Dakota State University and an
MBA from Santa Clara University.

     KALMAN KAUFMAN has served as a director and as a member of our Audit
Committee since August 2005. Mr. Kaufman also served as Corporate Vice President
at Applied Materials from 1994 to 2005. Between 1985 and 1994, Mr. Kaufman
served as President of KLA Instruments Israel, a company he founded, and General
Manager of Kulicke and Soffa Israel. Mr. Kaufman is currently the Chairman of
Solgel Nanotechnology and is a member of several boards of directors. He holds
engineering degrees from the Technion - Israel Institute of Technology.

     HANS ROHRER has been a director and member of the Audit Committee since
April 2002. Since May 2002, Mr. Rohrer serves as President and Chief Executive
Officer of Acuid Corporation. From 1999 to 2002, Mr. Rohrer served as President
of Taiwan Semiconductor Manufacturing Company -- Europe (TSMC - Europe). Mr.
Rohrer has held various engineering, marketing, sales and general management
positions, including Vice President and General Manager, Europe, with National
Semiconductor between 1980 and 1998. Mr. Rohrer started his career in the
semiconductor industry with Texas Instruments.

     TAL YARON-ELDAR has been a director and member of the Audit Committee and
the Stock Option and Compensation Committee since January 2005. Since September
2004, Ms. Yaron-Eldar serves as Chief Executive Officer of Arazim Investment
Ltd. and she is a partner in Cohen, Cohen, Yaron-Eldar & Co. law offices.
Ms. Yaron-Eldar served as Israel's Income Tax and Real Property Tax Commissioner
from 2002 to 2004. Between 1998 and 2001, Ms. Yaron-Eldar served as the Chief
Legal Advisor to the Customs and V.A.T. Authority. During the preceding ten
years, Ms. Yaron-Eldar served in various positions with Israel's Income Tax and
Real Property Tax Commission, including Senior Head of its legislation
department and Deputy Chief Legal Advisor. Ms. Yaron-Eldar holds a master's
degree in business and a bachelor's degree in law from Tel-Aviv University and
is a member of the Israeli Bar Association.


                                       38

WHERE YOU CAN FIND MORE INFORMATION

     We are required to file reports and other information with the SEC under
the Securities Exchange Act of 1934 and the regulations thereunder applicable to
foreign private issuers. You may read and copy the registration statement and
any other documents we have filed at the Securities and Exchange Commission's
Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the Public Reference Room. Our Securities and Exchange Commission filings are
also available to the public at the U.S. Securities and Exchange Commission's
Internet site at "http://www.sec.gov."Although as a foreign private issuer we
are not required to file periodic information as frequently or as promptly as
United States companies, we generally do publicly announce our quarterly and
year-end results promptly and file periodic information with the SEC under cover
of Form 6-K. As a foreign private issuer, we are also exempt from the rules
under the Exchange Act prescribing the furnishing and content of proxy
statements and our officers, directors and principal shareholders are exempt
from the reporting and other provisions in Section 16 of the Exchange Act.

     You may also find our reports filed with the Israel Securities Authority on
the Magna site whose address is "http://www.magna.isa.gov.il".

LEGAL MATTERS

     The validity of the securities offered in this prospectus will be passed
upon for us by Yigal Arnon & Co., our Israeli counsel.

EXPERTS

     The audited consolidated financial statements incorporated in this
prospectus by reference from our Annual Report on Form 20-F for the year ended
December 31, 2004 and our report on Form 6-K filed on February 2, 2006, have
been audited by Brightman Almagor & Co., a member firm of Deloitte Touche
Tohmatsu, an independent registered public accounting firm, as stated in their
report, which is incorporated herein by reference (which report expressed an
unqualified opinion and included an explanatory paragraph about the differences
between accounting principles generally accepted in Israel and in the United
States of America), and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.

                                      * * *

     You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell the securities in any jurisdiction where the offer or sale is not
permitted. The information in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed.




                                       39