Tower Semiconductor Signs Memorandum of Understanding to Significantly Improve Its Balance Sheet and Financial Position

Will Reduce Debt by $250 Million, Increase Shareholders’ Equity by $250 Million and Improve Future Cash Flow and Financial Results

MIGDAL HAEMEK, Israel — August 20, 2008 — Tower Semiconductor Ltd. (NASDAQ: TSEM; TASE: TSEM), a pure-play independent specialty foundry, today announced that it has signed a memorandum of understanding (MOU) with its lender banks and with Israel Corporation for the restructuring of the Company’s debt, which also includes a commitment by Israel Corp. for an additional investment in the Company. 

According to the MOU, $250 million of Tower’s debt to its banks, Bank Leumi and Bank Hapoalim and Israel Corp., will be converted into equity capital notes of the Company, exercisable into ordinary shares on the basis of $1.42 per share. This represents two times the average closing price per share on NASDAQ for the ten trading days prior to August 7, 2008, which was the date of the Company’s public announcement regarding its debt restructuring negotiations with the banks and Israel Corp.  The conversion of the debt into equity capital notes reduces Tower’s debt by approximately $250 million, increases its shareholders’ equity by approximately $250 million, as well as improves its cash flow margins, statement of operations results and financial position.

Also under the MOU, Israel Corp. will invest $20 million in Tower in exchange for 28,169,014 equity capital notes of the Company, exercisable into ordinary shares of the Company based on the average closing price per share on NASDAQ for the ten trading days prior to August 7, 2008. Furthermore, Israel Corp. committed to invest up to an additional $20 million by the end of 2009, in the event the Company has not raised such amount by the end of 2009 and subject to certain other conditions.  In consideration for such investment, Israel Corp. will receive an amount of equity capital notes of the Company, exercisable into ordinary shares of the Company, based on the lower of: (i) the average closing price per share on NASDAQ for the last ten trading days prior to the date on which the investment is made, or (ii) the average closing price per share used for the $20 million initial investment mentioned above. 

In addition, the MOU postpones repayment of the remaining principal, defers interest payments, modifies the interest rate and waives financial covenants as follows: (i) the repayment of the remaining principal of the loans is postponed to begin in September 2010; (ii) interest payments originally due September 2008 through June 2009 are postponed and are added to the principal payments, which are scheduled to begin in September 2010; (iii) the interest rate on the remaining bank debt will be LIBOR plus 2.5 percent per annum; and (iv) the banks waived in full the Company’s compliance with financial covenants through the end of 2008. 

Russell Ellwanger, Tower's chief executive officer, said, "The debt restructuring based on twice the market price will significantly improve our balance sheet, increase our shareholders’ equity, improve our position as a much stronger competitor in the industry and provide a strong base to build upon with the anticipated closing of the merger with Jazz Technologies.  Israel Corporation, under the leadership of its chairman Idan Ofer, continued to show its strong belief in Tower, as well as in our dedicated and professional employees and in the Company’s strategy and growth prospects through its additional investment in Tower and in having been the catalyst for the bank debt restructure. The resulting capital structure will serve as an excellent springboard into the future.”

The terms of the MOU, excluding the postponed interest payments and the financial covenants’ waiver which are definitive terms, are subject to, among other conditions, the signing of definitive documentation and the receipt of certain approvals.

About Tower Semiconductor Ltd.

Tower Semiconductor Ltd. (Nasdaq: TSEM, TASE: TSEM) is an independent specialty foundry that delivers customized solutions in a variety of advanced CMOS technologies, including digital CMOS, mixed-signal and RF (radio frequency) CMOS, CMOS image sensors, power management devices, and embedded non-volatile memory solutions. Tower’s customer orientation is complemented by its uncompromising attention to quality and service. Its specialized processes and engineering expertise provides highly flexible, customized manufacturing solutions to fulfill the increasing variety of customer needs worldwide. Boasting two world-class manufacturing facilities with standard and specialized process technologies ranging from 1.0- to 0.13-micron, Tower Semiconductor provides exceptional design support and technical services to help customers sustain long-term, reliable product performance, while delivering on-time and on-budget results. More information can be found at http://www.towersemi.com.

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