* Represents revenues from individual countries of less than 10% each.

We price our products on a per wafer basis, taking into account the unique value of our technology and its ability to enable customers to differentiate their products, the complexity of the technology, prevailing market conditions, volume forecasts, the strength and history of our relationships with the customer and our current capacity utilization. Most of our customers usually place purchase orders between two to six months before shipment.

To promote our products, technology offering and services, we publish press releases, articles, technology journals and white papers. In addition, we present and participate in panel sessions at industry conferences, hold a variety of regional and international technology seminars, and exhibit at various industry trade shows. We discuss advances in our process technology portfolio and progress on specific relevant programs with our prospective and existing customers, as well as industry analysts and research analysts, on a regular basis.

Our customers use our processes to design and market a broad range of analog and mixed-signal semiconductors for diverse end markets, including wired and wireless high-speed communications, consumer electronics, automotive, medical, security and industrial applications. We manufacture products for a wide range of electronic systems, including but not limited to, high-performance applications, such as antenna switches, transceivers and power management circuits for cellular phones; transceivers and power amplifiers for wireless local area networking products; power management, audio amplifiers and driver integrated circuits for consumer electronics; tuners for digital televisions and set-top boxes; modem chipsets for broadband access devices and gaming devices; serializer/deserializers, or SerDes, for fiber optic transceivers; high end video cameras, dental and medical x-ray vision, industrial cameras, focal plane arrays for imaging applications; infra-red detectors for gesture recognition, controllers for power amplifier and switching chips in cellular phones and wireline interfaces for switches and routers, magnetic field ,and gas and UV sensors.

COMPETITION

The global semiconductor foundry industry is highly competitive. We compete most directly in the specialty segment with foundries such as Global FoundriesGlobalFoundries (mainly in the RF business), Vanguard Semiconductor, DongBu, X-Fab and HH Semi.Hua Hong Semiconductor. We also compete in some areas with the pure-play advanced technology node-driven foundry service providers such as Taiwan Semiconductor Manufacturing Corporation (“TSMC”), United Microelectronics Corporation (“UMC”), and Semiconductor Manufacturing International Corp. (“SMIC”). These three pure-play semiconductor foundries primarily compete against one another and focus on 12-inch deep-submicron CMOS processing, though they each also have some capacity for specialty process technologies. The rest of the foundry industry, including existing Chinese, Korean and Malaysian foundries, generally targetstarget either industry standard 8-inch CMOS processing or specialty process technologies. This includes existing Chinese, Korean and Malaysian foundries. We also compete with IDMs that have internal semiconductor manufacturing capacity or foundry operations, such as ST, Intel, Samsung, Sony and others that produce ICs for their own use and may allocate a portion of their manufacturing capacity to external foundry customers. Most of the foundries with which we compete are located in Asia-Pacific that benefit from their close proximity to Asian companies involved in the design of ICs and the Asian customer base.

The principal elements of competition in the wafer foundry market are:

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technology offering and future roadmap;

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product performance;

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system level technical expertise;

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research and development capabilities;

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access to intellectual property;

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customer technical support;

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design services;

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product development kits (PDKs);

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manufacturing operational performance;

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quality systems;

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product quality;

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manufacturing yields;

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customer support and service;

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pricing;

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management expertise;

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strategic customer relationships;

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capacity availability; and

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stability and reliability of supply.

Some of our competitors, notably the pure-play advanced technology node-driven foundry service providers, have greater manufacturing capacity, may have greater scope and/or a greater number of research and development resources, better cost structure and greater financial, marketing and other resources. As a result, these companies may be able to compete more aggressively over a longer period of time than us.

We seek to compete primarily on the basis of advanced specialty analog/mixed-signal technology, research and development, breadth of process offering, production quality, technical support, and our design engineering and manufacturingengineering services. We have a highly differentiated specialty offering and proven track record in analog/mixed-signal markets, which enables us to effectively compete with larger foundry service providers.

Some semiconductor companies have advanced their CMOS designs to 10-14 nanometer or smaller geometries.5-10 nanometer. These smaller geometries may provide customers with performance and integration features that may be comparable to, or exceed, features offered by our specialty process technologies, and may be more cost-effective at higher production volumes for certain applications, such as when a large amount of digital content is required in a mixed-signal semiconductor and less analog content is required. Our specialty process technologies will therefore compete with these advanced CMOS processes for customers and some of our potential and existing customers could elect to design these advanced CMOS processes into their next generation products. We are not currently capable, andnor do not currently plan to become capable,our current plans include, the manufacture of providingproducts using CMOS processes at these smaller geometries.

WAFER FABRICATION SERVICES

Wafer fabrication is an intricate process that consists of constructing layers of conducting and insulating materials on raw wafers in intricate patterns that givedefine the IC itsIC’s function. IC manufacturing requires hundreds of interrelated steps performed on different types of equipment, and each step must be completed with extreme accuracy for finished ICs to work properly. The process can be summarized as follows:

Circuit DesignDesign.. IC production begins when a fabless IC company or IDM designs (or engages a third party or us)us to design) the layout of a device’s components and designates the interconnections between each component. The result is a pattern of components and connections that defines the function of the IC. In highly complex circuits, there may be more than 43 layers of electronic patterns. After the IC design is completed, we provide these companies with IC manufacturing services.

Mask Making.Making. The design for each layer of a semiconductor wafer is imprinted on a photographic negative, called a reticle or mask. The mask is the blueprint for each specific layer of the semiconductor wafer. We engage external mask shops for the manufacture and provision of such masks.

IC Manufacturing.Manufacturing. Transistors and other circuit elements comprising an IC are formed by repeating a series of processes in which photosensitive material is deposited on the wafer and exposed to light through a mask. Advanced IC manufacturing processes consist of hundreds of steps, including photolithography, oxidation, etching and stripping of different layers and materials, ion implantation, deposition of thin film layers, chemical mechanical polishing and thermal processing. The final step in the IC manufacturing process is wafer probing, which involves electronically inspecting each individual IC in order to identify those that are operable for assembly. Our customers often use third party service providers for the performance of such serviceswafer probing although we occasionally provide this service to certain customers.

Assembly and Test.Test. After IC manufacture, the wafers are transferred to assembly and test facilities. In the assembly process, each wafer is cut into dies, or individual semiconductors, and tested. Defective dies are discarded, while good dies are packaged and assembled. Assembly protects the IC, facilitates its integration into electronic systems and enables heat dissipation. Following assembly, the functionality, voltage, current and timing of each IC is tested. After testing, the completed IC is shipped either to our customer or to their customer’s printed circuit board manufacturing facility. Our customers often use third party service providers for the performance of wafer assembly and testing, and to a smaller extent, part of such process is performed independently by us.

RESEARCH AND DEVELOPMENT

Our future success depends, to a large degree, on our ability to continue to successfully develop and introduce to production advanced process technologies that meet our customers’ needs. Our process development strategy relies on CMOS process platforms that we license and transfer from third parties or develop ourselves.

From time to time, at a customer’s request, we develop a specialty process module, which in accordance with the applicable agreement, may be used for such customer on an exclusive basis or added to our process offering. Such developments are very common in all of our specialty process technologies noted above.

Our research and development activities have related primarily to our process, device and design development efforts in all specialty areas that were mentioned above, and have been sponsored and funded by us and in certain cases with somethe partial participation of the Government of the State of Israel through the IIA, pursuant to the Innovation Law and related regulations and guidelines. Under the terms of the Israeli Government participation and the Innovation Law as currently in effect, a royalty of 3% or up to 5% of the net sales of products and services developed from a project funded by the IIA must generally be paid to the IIA, up to an aggregate of 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the grant, plus interest at the rate of 12-month LIBOR. The Innovation Law imposes significant restrictions on manufacturing of products developed with IIA grants outside Israel and on the transfer (including by way of license) of IIA-funded technologies to third parties outside Israel. TransferFor example, the transfer or license of IIA-funded technologies to third parties outside Israel requires the prior approval of the IIA, which approval is generally contingent on payment of a redemption fee, calculated according to a formula under the Innovation Law, which may be in the amount of up to six times the grantgrant(s) amount (less paid royalties, if any, and depreciation, but no less than the total amount of grants actually received by us), plus accrued interest. See “Item 3. Key Information—D. Risk Factors—Risks Affecting Our Business—We received Israeli government grants for certain of our research and development activities, the terms of which subject us to certain conditions and restrictions”.

In addition to the above, we may be required to obtain export licenses before exporting certain technology or products to any third party and may be required to comply with Israeli, U.S. and other foreign export regulations, as may be applicable.

Our research and development activities seek to upgrade and improve our manufacturing technologies and processes. We maintain a central research and development team primarily responsible for developing cost-effective technologies that can serve the manufacturing needs of our customers. A substantial portion of our research and development activities are undertaken in cooperation with our customers and equipment vendors. Due to the rapid changes in technology that characterize the semiconductor industry, effective research and development is essential to our success. We plan to continue to invest significantly in research and development activities in order to develop advanced process technologies for new applications.

Research and development expenses for the years ended December 31, 2020, 2019 and 2018 and 2017 were $78.3 million, $75.6 million $73.1 million and $67.7$73.1 million, respectively, net of government participation of $0.9 million, $0.7 million $1.4 million and $0.9$1.4 million, respectively. As of December 31, 2019,2020, we employed 428421 professionals in our research and development departments, 3246 of whom have PhDs. In addition to our research and development departments located at our facilities in Migdal Haemek, Israel, Newport Beach, California, San Antonio, Texas and Hokuriku Japan, we maintain a design center in Netanya, Israel.

PROPRIETARY RIGHTS

Our success depends in part on our ability to obtain patents, licenses and other intellectual property rights coveringrelated to our production processes. To that end, we have obtained certain patents, acquired patent licenses and intend to continue to seek patents on our intellectual property.

As of December 31, 2019,2020, we held 259244 patents in force. We have entered into various patent and other technology license agreements with technology companies, including Synopsys, ARM, Cadence, Mentor Graphics and others, under which we have obtained rights to additional technologies and intellectual property.

We constantly seek to strengthen our technological expertise through relationships with technology companies. We seek to expand our core strengths in CMOS image sensors, non-imaging sensors, embedded flash, power management, Artificial Intelligence,AI, RF, SiGe, MEMS, mixed-signal and mixed-signalsilicon photonics technologies by continuous development in these areas. A main component of our process development strategy is to acquire licenses for standard CMOS technologies, cell libraries and specialized IPs (e.g., NVM) from leading providers, such as ARM and Synopsys, and further develop specialized processes through our internal design teams. The licensing of these technologies has significantly reduced our internal development costs.

Our ability to compete depends on our ability to operate without infringing upon the proprietary rights of others. The semiconductor industry is generally characterized by frequent litigation over patent and other intellectual property rights. As is the case with many companies in the semiconductor industry, we have from time to time received communications from third parties asserting that their patents cover certain of our technologies or alleging infringement of intellectual property rights. We expect that we will receive similar communications in the future. Irrespective of the validity or the successful assertion of such claims, we could incur significant costs and devote significant management resources in defending ourselves from such claims.

DESIGN SERVICES

To better serve our customers’ design needs using advanced CMOS and mixed-signal processes, we have entered into a series of agreements with leading providers of physical design libraries, mixed-signal and non-volatile memory design components. These components are basic design building blocks, such as standard cells, interface input-output (I/O) cells, software compilers for the generation of on-chip embedded memoriesmemory arrays, mixed-signal and non-volatile memory design blocks. To achieve optimal performance, all of these components must be customized to work with our manufacturing process. These components are used in most of our customers’ chip designs.

We interact closely with customers throughout the design development and prototyping process to assist them in the development of high performance and low power consumption semiconductor designs and to lower their final die, or individual semiconductor, costs through die size reductions and integration. We provide engineering support and services as well as manufacturing support in an effort to accelerate our customers’ design and qualification process so that our customers can achieve faster time to market. We have entered into alliances with Cadence Design Systems, Inc., Synopsys, Inc., Mentor Graphics Corp., and other suppliers of electronic design automation tools, and also licensed standard cells, I\O and memory technologies from ARM, Synopsys, Inc., and other leading providers of physical intellectual property components for the design and manufacture of ICs. Through these relationships, we provide our customers with the ability to simulate the behavior of their design in our processes using standard electronic design automation, or EDA tools.

The applications for which our specialty process technologies are targeted present challenges that require an in-depth set of simulation models. We provide these models as an integral part of our design support. At the initial design stage, our customers’ internal design teams use the proprietary design kits that we have developed to design semiconductors that can be successfully and cost-effectively manufactured using our specialty process technologies. These design kits, which collectively comprise our design library and design platform, allow our customers to quickly simulate the performance of a semiconductor design with our processes, enabling them to refine their product design to ensure alignment to our manufacturing process before actually manufacturing the semiconductor. Our engineers, who have significant experience with analog and mixed-signal semiconductor design and production, work closely with our customers’ design teams to provide design advice and help them optimize their designs for our processes and their performance requirements. After the initial design phase, we provide our customers with a multi-project wafer service to facilitate the early and rapid use of our specialty process technologies, which allows them to gain early access to actual samples of their designs. Under this multi-project wafer service, we schedule a periodic multi-project wafer run in which we manufacture several customers’ designs in a single mask set, providing our customers with an opportunity to reduce the cost and time required to test their designs. Our design center helps customers accelerate the design-to-silicon process and enhances first-time silicon success by providing them with the required design resources and capabilities.capabilities namely, accurate device models, rich PDKs, silicon proven ESD (Electro Static Discharge)protection structures for different voltages ranging from 2KV to 15KV and I/Os, special design rules per application and technical support. Our design support can assist in all or part of the design flow. Our in-depth knowledge of the fab and processes provide a substantive and competitive advantage for our customers, for example when time to market is critical (our design support reduces the number of required runs) or when implementing designs that reach the boundaries of technology. In addition, our IP and design services can assist andto relieve some of our customers' issues, providing the specific skills and expertise critical for quick and successful implementation of our customers’ design on our manufacturing process.

We believe that our circuit design expertise and our ability to accelerate our customers’ design cycle while reducing their design costs represent one of our more notable competitive strengths.

JAZZ SEMICONDUCTOR TRUSTED FOUNDRY

For purposes of our U.S. aerospace and defense business, Tower and Tower NPB have worked with the Defense Security Service of the United States Department of Defense (“DSS”) to mitigate concern of foreign ownership, control or influence over the operations in Fab 3, specifically relating to protection of classified information and prevention of potential unauthorized access by creating Jazz Semiconductor Trusted Foundry (“JSTF”) as a subsidiary of Newport Fab LLC, which is directly held by NPB Co., and limiting possession of all classified information solely to JSTF. In addition, Fab 3 has obtainedJSTF maintains facility security clearance and trusted foundry status.

C. ORGANIZATIONAL STRUCTURE

The legal name of our company is Tower Semiconductor Ltd. Tower was incorporated under the laws of the State of Israel in 1993.

Tower directly operates our Fab 1 and Fab 2 facilities in Israel.

Tower’s wholly-owned subsidiary, Tower US Holdings Inc., owns all of the shares of Tower Semiconductor NPB Holdings, Inc., which owns all of the shares of Tower Semiconductor Newport Beach, Inc. (all three companies are incorporated under the laws of the State of Delaware), which operates our Fab 3 facility.

Tower holds a 51% equity stake in TPSCo (and PSCSNTCJ holds the remaining equity of TPSCo). TPSCo is incorporated under the laws of Japan and operates three fabs Arai E, Uozo E and Tonami CD located in Japan.

Tower Semiconductor San Antonio, Inc., which is wholly-owned by Tower US Holdings, operates our Fab 9 facility in San Antonio, Texas, USA.

D. PROPERTY, PLANTS AND EQUIPMENT

Manufacturing Facilities

We manufacture semiconductor wafers at seven manufacturing facilities: Fab 1 and Fab 2 facilities in Israel, Fab 3 in Newport Beach, California in the U.S., TPSCo’s three fabs (Arai E, Uozo E and Tonami CD) in Japan, and Fab 9 in San Antonio, Texas, U.S. The capacity in each of our facilities at any particular time varies and depends on the combination of the processes being used and the product mix being manufactured at such time. Hence, it may be significantly lower at certain times as a result of certain combinations that may require more processing steps than others. We have the ability to rapidly change the mix of production processes in use in order to respond to changing customer needs and to maximize utilization of the fab. In general, our ability to increase our manufacturing capacity has been achieved through the addition of equipment, improvement in equipment utilization, and the reconfiguration and expansion of existing clean rooms area.room areas.

Capital expenditures in 20192020 and 20182019 were approximately $172$257 million and $170$172 million, respectively, net of proceeds from sale of equipment and fixed assets of approximately $19$57 million and $40$19 million, respectively.

Fab 1

We acquired our Fab 1 facility from National Semiconductor in 1993, which had operated the facility since 1986. The facility is located in Migdal Haemek, Israel. We occupy the facility under a long-term lease from the Israel Lands Authority which expires in 2032.

Due to the sensitivity and complexity of the semiconductor manufacturing process, a semiconductor manufacturing facility requires a special “clean room” in which most of the manufacturing functions are performed. Our Fab 1 facility includes an approximately 51,900 square foot clean room.

Since we commenced manufacturing at Fab 1, we increased its manufacturing capacity and expanded the technologies qualified in the fab, including specialized processes. Fab 1 supports geometries ranging from 1.0 micron to 0.35-micron.

Fab 2

In 2003, we commenced production in our Fab 2, also located in Migdal Haemek, Israel. Fab 2 supports geometries ranging from 0.35 to 0.11-micron, using advanced CMOS technology, including CMOS image sensors, embedded flash, advanced analog, RF SOI, power platforms and mixed-signal technologies. We have invested significantly in the purchase of fixed assets, primarily in connection with the construction of Fab 2, technology advancement and capacity expansion.

The land on which Fab 2 is located is subject to a long-term lease from the Israel Lands Authority that expires in 2049. The overall clean room area in Fab 2 is approximately 100,000 square feet.

Fab 3

NPB Co.’s manufacturing facility, Fab 3, and offices, which we acquired in 2008, are located in Newport Beach, California. Fab 3 supports geometries ranging from 0.80 to 0.13-micron.The0.13-micron. The manufacturing facility comprises 320,000 square feet, including 120,000 square feet of overall clean room area.

NPB Co’sCo. leases its fabrication facility and offices under a lease agreement that iswas initially in effect until March 2022, and canprovided NPB Co. an option, at its sole discretion, to extend the lease until 2027for an additional five year period, which NPB Co. elected to exercise for the lease to continue through the exercise of an option at our sole discretion.March 2027. Under the lease agreement as currently in effect, (i) NPB Co’s rental payments consist of fixed base rent and fixed management fees and NPB Co’sCo.’s pro rata share of certain expenses incurred by the landlord in the ownership of these buildings, including property taxes, building insurance and common area maintenance; and (ii) the lease agreement includes certain obligations of the parties, including certain noise abatement actions atin relation to the fabrication facility. The landlord has claimedis claiming that noise abatement actions that have been implemented according to the obligations under the agreement are not adequate under the terms of the lease agreement, which he claims gives him the right to terminate the lease and/or NPC Co.’s option to extend the lease. We do not agree with, and are disputing, these claims. See “Item 3. Key Information—D. Risk Factors—Risks Affecting Our Business—Risks relating to construction activities adjacent to Fab 3 and our Fab 3 lease could harm our operations and financial results.”

Uozu E, Tonami CD and Arai E fabs

In March 2014, we acquired a 51% equity stake in TPSCo, a company initially formed by Panasonic Corporation to manufacture products for Panasonic and other third-party customers, using three semiconductor factories located in Hokuriku, Japan, which factories were established by Panasonic. Pursuant to the transaction, Panasonic transferred its semiconductor wafer manufacturing process and capacity tools (8 inch and 12 inch) at its three fabs located in Hokuriku (Uozu E, Tonami CD and Arai E) to TPSCo. The fabs support geometrics ranging down to 45 nanometer. The fabs’ land and buildings are leased by PSCS to TPSCo.

Fab 9

In FebruaryDuring 2016, we acquired Fab 9 in San Antonio Texas, USA from Maxim. The assets and related business that we acquired from Maxim are held and conducted through a wholly-owned US subsidiary, Tower SA. Fab 9 supports process geometries ranging from 0.18 to 0.8 micron for the manufacture of products using CMOS and analog based technologies. Under the terms of the acquisition agreement, until the termination or expiration of the supply agreement entered into between Maxim and Tower SA, Maxim has a right of first offer to re-purchase Fab 9 in the event Tower or any of its subsidiaries sell, transfer, dispose of, cease the operations of, close, transfer or relocate Fab 9, or if Tower or its operations at Fab 9 become subject to a petition of bankruptcy or liquidation.

Environmental, Safety and Quality Matters and Certifications

We have placed significant emphasis on achieving and maintaining a high standard of manufacturing quality. All our facilities are ISO 9001 certified, an international quality standard that provides guidance to achieve an effective quality management system. In addition, all our facilities are IATF16949 certified, a stringent automotive quality standard.

Our operations are subject to a variety of laws and governmental regulations relating to the use, discharge and disposal of toxic or otherwise hazardous materials used in our production processes. Failure to comply with these laws and regulations could subject us to material costs and liabilities, including costs to clean up contamination caused by our operations. All of our facilities are ISO 14001 certified, an international standard that provides management guidance on how to achieve an effective environmental management system. Risks have been evaluated and mitigation plans are in place to prevent and control accidental spills and discharges. Procedures have also been established at all our locations to ensure all accidental spills and dischargesthat any such potential situations are properly addressed. The environmental management system assists in evaluating compliance status with all applicable environmental laws and regulations as well as establishing loss prevention and control measures. In addition, our facilities are subject to strict regulations and periodic monitoring by governmentgovernmental agencies.

For safety, all of our facilities are OHSAS 1800145001 certified, an international occupational health and safety standard that provides guidance on how to achieve an effective health and safety management system. The health and safety standard management system assists in evaluating compliance status with all applicable health and safety laws and regulations as well as establishing preventative and control measures.

Our goal in implementing OHSAS 18001,45001, ISO 14001, ISO 9001and9001 and IATF16949 systems is to continually improve our environmental, health, safety and quality management systems.

In addition, we are committed to environment, social and governance (“ESG”) criteria with a corporate focus on social contribution and sustainability through diverse initiatives and activities. We are currently preparing a dedicated report on our ESG policies, including our strategy and long-term plan.

ITEM 4A.UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. OPERATING RESULTS

The information contained in this section should be read in conjunction with our audited consolidated financial statements for the years ended December 31, 20192020 and 20182019 and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with US GAAP. The following discussion and analysis may contain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.

Overview

We are a pure-play independent specialty foundry dedicated to the manufacturing of semiconductors. As a pure-play foundry, we do not offer products of our own, but focus on producing ICs, based on the design specifications of our customers. We manufacture semiconductors for our customers primarily based on their designs or their end customers’ designs or other third-party designs. We currently offer the process manufacture geometries of 0.35, 0.50, 0.55, 0.60, 0.80-micron and above on 150-mm wafers and 0.35, 0.18. 0.16, 0.13 and 0.11-micron on 200-mm wafers and 90 nanometer, 65 nanometer and 45 nanometer on 300-mm wafers. We also provide design support and complementary technical services. ICs manufactured by us are incorporated into a wide range of products in diverse markets, including consumer electronics, personal computers, communications, automotive, industrial, aerospace and medical device products. The technology platforms that we offer are focused on the mega trends of seamless connectivity, green everything and interactive smart systems.

For the year ended December 31, 2020, our revenues were derived from customers located around the globe, of which 44% were located in the United States, 28% in Japan, 22% in Asia (excluding Japan) and 6% in Europe, as compared to 52%, 29%, 15% and 4%, respectively, for the year ended December 31, 2019.

For the year ended December 31, 2020, 25% of our revenues were derived from NTCJ (formerly known as PSCS until September 2020), 33% of our revenues were derived from five different customers each comprising 4% to 11% of our revenues, and the remaining 42% of our revenues were derived from many other smaller customers, as compared to 27%, 32% and 41%, respectively, for the year ended December 31, 2019.

The primary changes in financial and business conditions that could have impacted our business and financial results in 2020 were as follows:

COVID-19. The COVID-19 outbreak, which was declared a global pandemic by the World Health Organization during March 2020, did not adversely affect our revenue, business and financial results for the year ended December 31, 2020. While we faced some specific supply chain and shortage of supply issues due to local restrictions, lockdowns and isolation periods imposed by the governments of vendors, or due to no or limited international courier delivery services, and while attendance of employees and service providers at our facilities and offices was reduced due to local restrictions and isolation periods imposed by the local government, customer orders and pricing did not materially decrease due to the COVID-19 pandemic or any related or resulting global economic downturn.

While at the beginning of the COVID-19 outbreak, customer orders did not increase to the higher levels we had initially planned for, we did not face any material reductions or cancellations of orders and did not face any halt or stoppages of any of our seven manufacturing lines.

As a result, our 2020 quarterly revenues did not fluctuate and remained stable through the year, with a significant increase of revenues commencing in the second half of 2020 and into the first quarter of 2021. This significant increase in revenues is mainly attributed to our radio frequency (RF) business unit product sales for the infrastructure market for data centers and cloud computing, which were driven by the work-from-home trend and huge needs for ICs we manufacture for data storage and other markets.

As another result of the foregoing spike in customer demand, the utilization measured at most of our manufacturing facilities increased during the second half of 2020 and the beginning of 2021, as compared to the year ended December 31, 2019 and the first half of 2020.

In order to address the growing demand for our products and to attract and retain our customers, in 2020, we increased by almost 50% our investments in capital expenditure, net from $172.2 million during 2019 to $256.5 million in 2020, directed to all our fabs in Israel, the United States and Japan, including to our most advanced 12 inch fab located in Japan. The expansion of our capacity by capital expenditure is expected to remain high in 2021 as customer orders currently exceed our capacity at most of our 7 fabs.

Cyber event. In September 2020, we experienced a cyber event during which our information technology (IT) security systems identified a security incident on some of our computerized systems. As a preventive measure, in order to avoid significant potential disruption and loss that may be caused by such events, especially due to the possible substantial damage if operations would not be quickly restored, we proactively halted our servers and proactively halted operations in some of our manufacturing facilities for a few days. We then gradually resumed operations and returned to full capability in all facilities. Due to the immediate procedures that we implemented, the functionality and quality of the work in progress, as well as customer and employee data, remained protected. Since we executed these preventive measures and returned to production relatively quickly, and as we maintain a cyber insurance policy, the event had no material impact on our business, operations or financial position.

Key Factors Affecting Our Results

The following are key factors that impact our results of operations:

Ability to attract and retain customers.

We are a trusted, customer-oriented service provider that has built a solid reputation in the foundry industry over more than twenty-five years. We have built strong relationships with customers. Our consistent focus on providing high-quality, value-add services, including engineering and design support, has allowed us to attract customers that seek to work with a proven provider of foundry solutions. Our emphasis on working closely with customers and accelerating the time-to-market and performance of their next-generation products has enabled us to maintain a high customer retention rate, while increasing the number of new customers and new products for production.

We continuously target to expand our manufacturing footprint and business by attracting new customers that will utilize our existing manufacturing facilities, some of which have recently implemented further capacity expansion projects, as well as by acquiring external capacity through, acquisitions of existing or newly established fabs, as we have done in the past, with or without third-party collaboration and/or funding (including cash, equity or in-kind investment). We also offer from time to time a wide range of support services for the establishment of new semiconductor fabrication facilities or the ramp-up of existing facilities owned by third parties, using our technological, operational and integration expertise, for which we receive payments based on the achievement of pre-defined milestones and may also be entitled to certain capacity allocation and other rights.

Design wins with new and existing customers.

We work with our customers and potential customers to understand their product roadmaps and strategies. We consider design wins to be critical to our future success. We define a design win as the successful completion of the evaluation stage, where a customer has verified that our platform process meets its requirements and qualified our libraries and IPs for their products. The revenue that we generate, if any, from each design win can vary significantly. Our long-term sales expectations are based on forecasts from customers, internal estimates of customer demand factoring in expected time to market for end-customer products incorporating our products and associated revenue potential and internal estimates of overall demand based on historical trends.

Selling prices and manufacturing costs.

Our gross margin has been and will continue to be affected by a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes in product mixes, changes in our purchase price of raw materials, including silicon starting material wafers, and manufacturing yields. In general, newly introduced products and products with higher performance and more features tend to be priced higher than older, more mature products. Average selling prices in the semiconductor industry typically decline as products mature. Consistent with this historical trend, we expect that the average selling prices of our products will decline as they mature. In the normal course of business, we will seek to offset the effect of declining average selling prices on existing products by reducing manufacturing costs and introducing new and higher value-add products. If we are unable to maintain overall average selling prices or offset any declines in average selling prices with realized savings on product costs, our gross margin will decline.

Investment in growth.

We have invested, and intend to continue to invest, in expanding our operations, increasing our headcount, developing our products to support our growth and expanding our infrastructure and specifically, we intend to acquire additional 300mm manufacturing capacity, including by establishing in-organic capacity outside of our existing 300mm fab, which may be a costly project that will require us to use a significant portion of our cash and we may need to raise additional funds by way of debt and/or equity offerings, which funds may not be available at reasonable terms, if at all. We plan to continue to invest in our operational capabilities throughout the world through significant capital expenditure, and the return on these investments may be lower than we expect and these investments may significantly reduce our net profit and cash balance, and require us to raise additional funds by way of debt or equity offerings. In addition, as we invest in expanding our operations into new areas internationally, our business and results will become further subject to the risks and challenges of operations in those locations, including potentially higher fixed costs and operating expenses, potential impact of legal and regulatory developments, as well as high depreciation on fixed assets that will reduce our profitability.

Critical Accounting Policies

Marketable securities

We account for investments in debt securitiesOur financial statements are prepared in accordance with ASC 320, “Investments - DebtUS GAAP. The preparation of these financial statements requires us to make estimates, assumptions and Equity Securities.” Management determinesjudgments that affect the appropriate classificationreported amounts of its investments in debt securities at the time of purchaseassets, liabilities, revenue and re-evaluates such determinations at each balance sheet date.

Marketable securities classifiedexpenses, as "available-for-sale"well as related disclosures. We evaluate our estimates, assumptions and judgments on an ongoing basis. Our estimates, assumptions and judgments are carried at fair value, based on quoted market prices. Unrealized gainshistorical experience and losses are reported in a separate component of shareholders' equity in accumulatedvarious other comprehensive income (“OCI”). Gains and losses are recognized when realized, on a specific identification basis, in our consolidated statements of income.

Our securities are reviewed for impairment in accordance with ASC 320-10-35. If such assets are consideredfactors that we believe to be impaired,reasonable under the impairment charge is recognized in earnings when a decline incircumstances. Different assumptions and judgments would change the fair value of its investments below the cost basis is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and our intent to sell, including whether it is more likely than not that we will be required to sell the investment before recovery of cost basis. For securities that we intend to sell with an unrealized loss, or in cases that it is more likely than not that we will be required to sell before recovery of their amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings.

For securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while declines in fair value related to other factors are recognized in OCI.

If quoted prices for identical instruments are available in an active market, marketable securities are classified within Level 1 of the fair value hierarchy. If quoted prices for identical instruments in active markets are not available, fair values are estimated using quoted prices of similar instruments and are classified within Level 2 of the fair value hierarchy.

Revenue Recognition

ASC Topic 606 “Revenue from Contracts with Customers” (“Topic 606”), supersedes the previous revenue recognition guidance and industry-specific guidance under ASC Topic 605 “Revenue Recognition”. Topic 606 requires an entity to recognize revenue when it transfers the control of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 on January 1, 2018, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018.

Under the modified retrospective method, prior period financial positions and results are not adjusted. There was no transition adjustment to our retained earnings upon adoption.

Our revenues are generated principally from sales of semiconductor wafers. To a lesser extent, we derive revenues from design support and other technical and support services incidental to the sale of semiconductor wafers. The vast majority of our sales are achieved through the effort of our direct sales force.

Wafer sales are recognized at a point in time, which is upon shipment or upon delivery of the our products to unaffiliated customers, depending on shipping terms. Accordingly, control of the products transfers to the customer in accordance with the transaction's shipping terms. Sales revenue is recognized for the amount of consideration that we expect to be entitled to in exchange for our products. Taxes imposed by governmental authorities, such as sales taxes or value-added taxes, are excluded from net sales. Our contracts typically contain a single performance obligation that is fulfilled on the date of delivery based on shipping terms stipulated in the contract.

We provide for sales returns allowance relating to specified yield or quality commitments as a reduction of revenues, based on past experience and specific identification of events necessitating an allowance, which has been in immaterial amounts.

We provide our customers with other services that are less significant in scope and amount and for which recognition is over time when customer receives the services.

Our revenue recognition policy is significant because our revenues are a key component of our results of operations. We follow very specific and detailed guidelines in measuring revenues. Any changes in the factors affecting revenue recognition may affect mainly the timing of our revenue recognition, which may affect our financial position and results of operations.

Depreciation and Amortization of Fixed Assets and Intangible Assets

We are heavily capital oriented, and the amount of depreciation is a significant amount of our yearly expenses. Fixed and intangible assets depreciation and amortization expenses in 2019 amounted to $198 million. We estimate that the expected economic life of our assets is as follows: (i) buildings (including facility infrastructure) -10 to 25 years; (ii) machinery and equipment, software and hardware – 3 to 15 years; and (iii) technology and other intangible assets - 4 to 19 years. The amounts attributed to intangible assets as part of the purchase price allocations for the acquisitions of our subsidiaries are amortized over the expected estimated economic lives of the intangible assets commonlyestimates used in the industry. Changes in our estimates regarding the expected economic lifepreparation of our assets will affectfinancial statements, which, in turn, could change the results from those reported.

The critical accounting policies used in the preparation of our depreciationconsolidated financial statements that we believe were most affected by significant management estimates and amortization expenses.judgments are discussed below. See Note 2 to the consolidated financial statements included elsewhere in this annual report for further information on all significant accounting policies that we used to prepare our consolidated financial statements.

Income Taxes

We account for income taxes using an asset and liability approach as prescribed in ASC 740-10 “Income Taxes” (“ASC 740-10”). This topic prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred taxes are computed based on the tax rates anticipated (under applicable law as of the balance sheet date) to be in effect when the deferred taxes are expected to be paid or realized.

We evaluate the potential realization of our deferred tax assets for each jurisdiction in which we operate at each reporting date and establish valuation allowances when it is more likely than not that all or a part of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities and projected future taxable income. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more-likely-than-not realizable, we establish a valuation allowance, see Note 19 to our annual financial statements included herein.

ASC 740-10 prescribes a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more-likely-than-not sustainable, based solely on their technical merits, upon examination and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that we believe is more-likely-than-not realizable. Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements represent our unrecognized income tax benefits. Our policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense.

Our provision for income taxes is affected by income taxes in Israel, the United States and Japan.a multinational tax environment. The income tax provision is an estimate determined based on management’s understanding of current enacted tax laws and tax rates at each of each tax jurisdiction andour geographic locations with the use of acceptable allocation methodologies (transfer pricing) to allocate taxable income between tax jurisdictions based upon theour organizational structure, of our operations and customer arrangements. Subsidiaries that are semiconductors fabrications located outside Israel are dependent on the allocationbusiness mode of production orders, managed centrally by the corporate global planning division, which directly affects the generation of incomework, and result in applicable local taxable income. income attributable to those locations.

For the year-endedyear ended December 31, 2019,2020, the consolidated provision for income taxes was $2.9$5.4 million comprised of amounts related to Israel, Japan and U.S. operations, as detailed in Note 19 to our annual financial statements included herein.statements.

Leases

In February 2016, the FinancialNew Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “LeasesPronouncements” (“Topic 842”), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all operating and capital leases with a term greater than twelve months and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs (“ASC 842”).

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective transition method. Results for the reporting period beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with historical accounting under ASC 840, “Leases”. Due to the adoption of ASC 842, as of December 31, 2019, operating lease ROU in the amount of approximately $18 million are recorded as assets and as operating lease liabilities. The aforementioned did not have any impact on the results of operations or cash flows.

For all leases that commenced before the effective date of ASC 842, the permitted “practical expedients” as stipulated in the ASC was elected and accordingly, we did not reassess: (1) whether any expired or existing contracts contain leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing leases.

The determination regarding whether an arrangement is a lease is to be made at the inception of a lease contract. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Whenever leases do not provide an implicit interest rate, incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. Certain lease agreements require payments for lease and non-lease components, and we elected to account for these as a single lease component related to other operating facilities. For additional information, see Notes 11D and 11E to our annual financial statements included herein.

For recently issued accounting pronouncements see Note 2W2X and Note 2Y to our annual financial statements included herein.

Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes thereto included in this annual report. The following table sets forth certain statement of operations data as a percentage of total revenues for the years indicated.

Year ended December 31, 20192020 compared to year ended December 31, 20182019

Revenues. Revenues for the year ended December 31, 20192020 were $1,234.0$1,265.7 million, as compared to $1,304.0$1,234.0 million for the year ended December 31, 2018.2019. The $70.0$31.7 million decrease in revenue increase is attributed mainly to a revenue reductionan increased quantity of products (CMOS silicon wafers) manufactured and shipped to our foundry customers from PSCS, primarily resultingour factories, especially from the terms of three-year contracts entered into in March 2019 between Tower, TPSCo and PSCS, renewing the previously signed 2014-2019 contracts. Under the renewed contracts, among other things, PSCS continues to utilize TPSCo’s manufacturing facilitiesour Uozu E 300mm factory in Japan for its semiconductor business under a new pricing structure, which results in lower prices charged to PSCS and therefore, lower annual and quarterly revenue commencing the second quarter of 2019, as compared to previous periods.(Fab 7), while our average selling price per product remained stable.

Cost of Revenues. Cost of revenues for the year ended December 31, 20192020 amounted to $1,004.3$1,032.4 million as compared to $1,011.1$1,004.3 million for the year ended December 31, 2018. This decrease of only $6.82019. The $28.1 million increase in manufacturing cost, as compared to the $70.0 million reduced revenues, is attributed mainly to the reduced prices charged to PSCS, as described above, while a large portion of our cost of revenues is comprisedmainly due to higher variable cost directly associated with the increased volume of fixed cost.wafers we manufactured and shipped as described above, as well as depreciation expense increase associated with the property and equipment we acquired and installed in 2020, as compared to 2019.

Gross Profit. Gross profit for the year ended December 31, 20192020 amounted to $229.7$233.3 million as compared to $292.9$229.7 million for the year ended December 31, 2018.2019. The $63.2$3.6 million decreaseincrease in gross profit resulted mainly from the $70.0$31.7 million revenue reduction described above, whileincrease, net of the decrease in$28.1 million increased cost of revenues, was only $6.8 million, as described above.

Research and Development. Research and development expense for the year ended December 31, 2019,2020, amounted to $75.6$78.3 million as compared to $73.1$75.6 million for the year ended December 31, 2018.2019, both reflecting approximately 6% of our revenues. The $2.5$2.7 million increase in research and development expense reflects our continuous focus on enhancing our mid-term and long-term products’ development funnel, technology capabilities and future design wins.

Marketing, General and Administrative. Marketing, general and administrative expense for the year ended December 31, 20192020 amounted to $67.4$64.0 million, an increasea decrease of $2.4$3.4 million as compared to $65.0$67.4 million for the year ended December 31, 2018.2019, mainly due to cost reduction activities we executed following the outbreak of the COVID-19 pandemic.

Operating Profit. Operating profit for the year ended December 31, 20192020 amounted to $86.7$91.0 million as compared to $154.9$86.7 million for the year ended December 31, 2018.2019. The $68.2$4.3 million decreaseincrease in operating profit resulted mainly from the $63.2$3.6 million reductionincrease in gross profit described above and the $3.4 million savings in marketing, general and administrative expense described above, offset by the $2.7 million increase in research and development expense described above.

Financing Income, (Expense), Net. Financing income, net for the year ended December 31, 20192020 amounted to $0.01$2.9 million as compared to financing expense, net of $13.2$0.01 million for the year ended December 31, 2018. During the year ended December 31, 2019, interest2019. The $6.2 million increase in finance income, net was higher resulting from a higher balance of interest-bearing bank deposits and investment in marketable securities and higher yields, profits and interest income with respect to such deposits and securities; and financing expense was lower than in 2018, mainly due to NIS-to-USD exchange rate changes during 2020 as compared to 2019 and its impact on the full conversionUSD value of Tower NPB Notes during 2018, as well as the early repayment in July 2018 of a $40NIS-denominated assets and liabilities, which was partially offset by $4.5 million loan that Tower SA,lower interest income due to lower interest rates and other returns received on our fully-owned U.S. subsidiary, borrowed in 2016 from JA Mitsui (US), in connectiondeposits and other investments associated with the acquisition of the San Antonio fab from Maxim.worldwide reduction in such rates during 2020 as compared to 2019.

Other Income (Expense), Net. Other income,expense, net for the year ended December 31, 20192020 amounted to $4.3$5.2 million as compared to other expense,income, net of $2.4$4.3 million for the year ended December 31, 2018. The $6.7 million increase in other2019. Other income (expense), net isinclude mainly due tonon-recurring items such as gains and losses from the measurementsale and disposal of ourproperty and equipment, as well as evaluation or devaluation of the value of investments in privately held companies in accordance with ASC 321, as detailed in Notes 2I2J and 12E to our annualthe consolidated financial statements included herein.as of December 31, 2020.

Income Tax Expense, Net. Income tax expense, net for the year ended December 31, 20192020 amounted to $2.9$5.4 million as compared to $5.9$2.9 million for the year ended December 31, 2018. The $3.0 million decrease2019, reflecting mainly an increase in income tax expense, net mainly resulted from the $48.3 million decreaseprofitability of TPSCo, which is located in profit before taxa higher-tax region as described above.compared to our other subsidiaries.

Net Profitprofit. Net profit for the year ended December 31, 20192020 amounted to $90.0$83.3 million as compared to a net profit of $135.6$88.1 million for the year ended December 31, 2018.2019. The $45.6$4.8 million decrease in net profit was mainly due to the decrease of $68.2 millionincreases in operating profit,other expense, net and in income tax expense, net, offset in part by a $13.2 millionthe increase in operating profit and financing income, net, $6.7 million increase in other income, net and $3.0 million decrease in income tax expense, as described above.

Year ended December 31, 2018 comparedNet loss (income) attributable to year ended December 31, 2017the non-controlling interest.

Revenues. RevenuesNet loss (income) attributable to the non-controlling interest for the year ended December 31, 2018 were $1,3042020 amounted to $1.0 million income as compared to a $2.0 million loss in the year ended December 31, 2019, reflecting the increase in the profitability of TPSCo, of which we hold 51%.

Net Profit attributable to the company. Net profit attributable to the company for the year ended December 31, 2020 amounted to $82.3 million as compared to $1,387$90.0 million for the year ended December 31, 2017. While our average selling price per layer didn’t change in 2018 as compared to 2017, our revenue was 6% lower, mainly due to lower number of layers shipped by the Company during 2018, as compared with 2017.

Cost of Revenues. Cost of revenues for the year ended December 31, 2018 amounted to $1,0112019. The $7.7 million as compared to $1,033 million for the year ended December 31, 2017. The decrease of $22 million in manufacturing cost is mainly attributed to a lower amount of variable costs required to be spent to manufacture a lower volume of layers ordered, manufactured and shipped by the Company.

Gross Profit. Gross profit for the year ended December 31, 2018 amounted to $293 million as compared to $354 million for the year ended December 31, 2017. The decrease in gross profit resulted directly from the 6% or $83 million revenue reduction described above, partially offset by the $22 million cost reduction described above.

Research and Development. Research and development expense for the year ended December 31, 2018, amounted to $73.1 million as compared to $67.7 million recorded in the year ended December 31, 2017, an 8% increase which reflects our focus on enhancing our mid-term and long-term products’ funnel, technology capabilities and future design wins.

Marketing, General and Administrative. Marketing, general and administrative expense for the year ended December 31, 2018 amounted to $65.0 million, as compared to $66.8 million recorded in the year ended December 31, 2017, both representing 5% of revenues.

Operating Profit. Operating profit for the year ended December 31, 2018 amounted to $154.9 million as compared to $219.8 million for the year ended December 31, 2017. The $64.9 million decrease in operating profit resulted mainly from the $61.4 million reduction in gross profit described above.

Financing Expense, Net. Financing expense, net for the year ended December 31, 2018 amounted to $13.2 million as compared to financing expense, net of $15.4 million for the year ended December 31, 2017. The main reason for the decrease in financing expense, net was a higher level of interest income we earned from our higher balance of interest-bearing bank deposits and our investment in marketable securities.

Other expense, Net. Other expense, net for the year ended December 31, 2018 amounted to $2.4 million as compared with other expense of $2.6 million in the year ended December 31, 2017.

Income Tax Benefit (Expense), Net. Income tax benefit (expense), net for the year ended December 31, 2018 amounted to $5.9 million expense, net as compared to $99.9 million income tax benefit, net in the year ended December 31, 2017. Income tax benefit, net for the year ended December 31, 2017 included mainly (i) $82 million income tax benefit resulted from the release of valuation allowance with regards to the net operating loss carryforward in the Israeli parent company (Tower Semiconductor Ltd), since it was concluded that it is more-likely-than-not that such deferred tax assets will be realized, and (ii) $13 million income tax benefit resulted from the US Tax Cut and Jobs Act which has been signed into law in December 2017, following which, among others, there was a reduction in federal income tax rates from 35% to 21%. Income tax expense, net for the year ended December 31, 2018, included a change in deferred tax assets, at a rate of 7.5%, as a result of utilizing our losses carried forward against current year taxable income.

Net Profit. Net profit for the year ended December 31, 2018 amounted to $135.6 million as compared to a net profit of $298.0 million for the year ended December 31, 2017. The decrease in net profit inattributable to the amount of $162.4 millioncompany was mainly due to the decrease of $105.8 million in income tax benefit, net as explained above and the decrease of $64.9 million in operating profit, as described above.

For details with regards to risks associated with the COVID-19 pandemic and/or risks that may result from the pandemic, see our disclosure under Note 1 to our consolidated financial statements as of December 31, 2020 and “Item 3. Key Information—D. Risk Factors—Risks Affecting Our Business—Certain effects of the COVID-19 pandemic may hurt our business”.

Impact of Currency Fluctuations

We currently operate in three different regions: Japan, the United States and Israel. The functional currency of our entities in the United States and Israel is the USD. The functional currency of our subsidiary in Japan is the JPY. Our expenses and costs are denominated mainly in USD, JPY and NIS, revenues are denominated mainly in USD and JPY and our cash from operations, investing and financing activities are denominated mainly in USD, JPY and NIS. Therefore, we are exposed to the risk of currency exchange rate fluctuations in Israel and Japan.

The USD cost of our operations in Israel is influenced by changes in the USD to NISUSD-to-NIS exchange rate, with respect to costs that are denominated in NIS. During the year ended December 31, 2019,2020, the USD depreciated against the NIS by 7.8%7.0%, as compared to 8.1% appreciation7.8% depreciation during the year ended December 31, 2018.

2019. The fluctuation of the USD against the NIS can affect our results of operations as it relates to the entity in Israel. Appreciation of the NIS has the effect of increasing the cost, in USD terms, of some of the purchases and labor costs that are denominated in NIS, which may lead to erosion inof the profit margins. The Company usesWe use foreign currency cylinder transactions to hedge a portion of this currency exposure to be contained within a pre-defined, fixed range. In addition, we executedexecute swap-hedging transactions to hedge the exposure to the fluctuation of the USD against the NIS to the extent it relates to our non-convertible Series G debentures,Debentures, which are denominated in NIS.

The majority of TPSCo revenues are denominated in JPY and the majority of TPSCo expenses are denominated in JPY, which limits the exposure to fluctuations of the USD / JPY exchange rate on TPSCo’s results of operations. In order to mitigate a portion of the net exposure to the USD / JPY exchange rate, the Company has engagedwe engage in cylinder hedging transactions to contain the currency’s fluctuation within a pre-defined, fixed range.

During the year ended December 31, 2019,2020, the USD depreciated against the JPY by 1.2%5.0%, as compared to 2.4%1.2% depreciation during the year ended December 31, 2018.2019. The net effect of the USD depreciation against the JPY on TPSCo’s assets and liabilities denominated in JPY is presented in the Cumulative Translation Adjustment (“CTA”) as part of Other Comprehensive Income (“OCI”) in the balance sheet.

B. LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2019,2020, we had an aggregate amount of $355.6$211.7 million in cash and cash equivalents, as compared to $385.1$355.6 million as of December 31, 2018.2019. The main cash activities during the year ended December 31, 20192020 were: $291.3$276.6 million net cash provided by operating activities; $172.2$313.7 million invested in property and equipment, net of proceeds received from sales of equipment; $132.9equipment of $57.1 million; $107.1 million invested in short-term deposits, marketable securities and other assets, net; and $19.4$63.7 million debt repaid.

Long-term debt Short-term and short-termlong-term debt presented on the balance sheet as of December 31, 2019 include2020 amounted to $106.5 million and $283.8 million, respectively, and included mainly bank loans, debentures operating leases and capital leases, and totaled $245.8 million and $65.9 million, respectively, as of such date.leases. As of December 31, 2019,2020, the aggregate principal amount of debentures was $135.4$104.0 million and its carrying amount in the balance sheet was $132.3$102.4 million, of which $37.7$40.9 million was presented as a short-term liability.

Based on our current operations and expected short term growth, our cash generated from operations and existing balance of cash, deposits and marketable securities, we have sufficient resources to meet our cash needs for operating activities, capital expenditures and debt repayments in the short term and long term.

If we execute a merger or acquisition transaction(s) per our company strategy, or a joint partnership or another large transaction to expand our capacity, we may utilize our current cash balance, deposits and/or investments in marketable securities and/or we may be required to secure additional financing by way of public or private offerings of equity and/or debt and/or re-financing or other financing alternatives. In May 2020, we filed a shelf registration statement with the Israel Securities Authority, following the expiration of our previously filed 2016 shelf, which provides us with a platform for future public fundraisings in Israel, in which case we would publish a supplemental shelf takedown report containing specific information about the terms of any such transaction. The timing, terms, size and pricing of any future fundraising, if any, would be subject to the then-prevailing capital market conditions and our business and financial situation. There is no assurance that we would be able to obtain the necessary funding in a timely manner, in sufficient amount or on favorable terms. See “Item 3. Key Information—D. Risk Factors—Risks Affecting Our Business—We may be required to obtain financing for strategic opportunities, which may dilute the holdings of our shareholders and/or require us to incur additional debt.”

Recent Financing Transactions:Transactions

Capital Leases

Certain of our subsidiaries enter into, from time to time, capital lease agreements for certain machinery and equipment operated in some of our fabrication facilities, usually for a period of four years, with an option to buy the machinery and equipment after a period of between three to four years from the start of the lease period. The lease agreements contain annual interest raterates of up to 1.95% and the assets under the lease agreements are pledged to the lender until the time at which the respective subsidiary will buybuys the assets. The obligations under the capital lease agreements are guaranteed by Tower, except for TPSCo’s obligations under its capital lease agreements.

As of December 31, 20192020 and 2018,2019, the outstanding capital lease liabilities for fixed assets was $60.2were $159.7 million and $47.2$60.2 million, respectively, of which $21.1$34.9 million and $10.8$21.1 million, respectively, were included under current maturities of long-term debt.

Tower Debentures Series G Debentures

In June 2016, Tower raised approximately $115 million through the issuance of long-term unsecured non-convertible debentures (“Series G Debentures”)payable in seven semi-annual consecutive equal installments from March 2020 to March 2023, and carrying an annual fixed interest rate of 2.79% payable in thirteen semi-annual consecutive equal installments from March 2017 to March 2023. The Series G DebenturesDebentures’ aggregate principal amount is NIS 468334 million as of December 31, 2019.2020. The principal and interest amounts are denominated in NIS and are not linked to any index or to any other currency. We entered into hedging transactions to mitigate the foreign exchange rate differences on the principal and interest using a cross currency swap see(see Note 10B10 to our consolidated financial statements for the year ended December 31, 2019.2020). The Series G Debentures include customary financial and other terms and conditions, including a negative pledge and financial covenants. As of December 31, 2019,2020, Tower was in compliance with the financial covenants under the Series G Debentures.

NPB Co. / Wells Fargo Asset-Based Revolving Credit Line

In December 2013, NPB Co. entered into an agreement with Wells Fargo Capital Finance, part of Wells Fargo & Company (“Wells Fargo”), for a five-year secured asset-based revolving credit line in the total amount of up to $70 million, maturing in December 2018. In February 2018, NPB Co. and Wells Fargo signed an amendment to the credit line, under which the line was extended by five years, to mature in 2023, and the total amount remained at up to $70 million (the “NPB Co. Credit Line Agreement”). The applicable interest on the loans is at a rate equal to, at lender’s option, either the lender’s prime rate plus a margin ranging from 0.0% to 0.5% or the LIBOR rate plus a margin ranging from 1.25% to 1.75% per annum.

The outstanding borrowing availability varies from time to time based on the levels of NPB Co.’s eligible accounts receivable, eligible equipment, eligible inventories and other terms and conditions described in the NPB Co. Credit Line Agreement. The obligations of NPB Co. under the NPB Co. Credit Line Agreement are secured by a security interest on all the assets of NPB Co. The NPB Co. Credit Line Agreement contains customary covenants and other terms, including customary events of default. If any event of default will occur, Wells Fargo may declare all borrowings under the facility due immediately and foreclose on the collateral. NPB Co.’s obligations pursuant to the NPB Co. Credit Line Agreement are not guaranteed by Tower or any of its affiliates.

As of December 31, 2019, NPB Co. was in compliance with all of the covenants under the NPB Co. Credit Line Agreement.

As of December 31, 2019, borrowing availability under the NPB Co. Credit Line Agreement was approximately $70 million, of which approximately $1 million was utilized through letters of credit.

As of December 31, 2019 and 2018, no loan amounts were outstanding under the NPB Co. Credit Line Agreement.

Long Term Loan Agreement from Japanese Financial Institutions

In June 2018, TPSCo refinanced its two then outstanding loan facilitiesloans with 11 Billion JPY (approximately $100 million) in new asset-based loan agreements with a consortia of financial institutions comprised of (i) JA Mitsui Leasing, Ltd., (ii) Sumitomo Mitsui Trust Bank, Limited (SMTB) replaced in 2020 by Sumitomo Mitsui Finance and Leasing Company, Limited (SMFL), (iii) Sumitomo Mitsui Banking Corporation (SMBC) and (iv) China trust Commercial Bank Corporation (CTBC) (“JP, replaced in 2020 by Mitsubishi UFJ Lease & Finance Co. Ltd (MUL) (the “JP Loan”). The JP Loan carries a fixed interest rate of 1.95% per annum, with principal payable in nine semiannual payments from 2021 until 2025. The JP Loan is secured mainly by a lien over the machinery and equipment of TPSCo located in the Uozu and Tonami manufacturing facilities. OutstandingThe outstanding principal amount was approximately $101$107 million as of December 31, 2019.2020.

The JP Loan also contains certain financial ratios and covenants, as well as customary definitions of events of default and acceleration of the repayment schedule. TPSCo’s obligations pursuant to the JP Loan are not guaranteed by Tower, Panasonic Corporation, PSCSNTCJ, or any of its affiliates.

As of December 31, 2019,2020, TPSCo was in compliance with all of the financial ratios and covenants under the JP Loan.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

Our research and development activities are related primarily to our manufacturing process by way of improvements, upgrades and development for our use in the manufacturing of our customers’ products, and have been sponsored and funded by us with some participation by the Israeli government. Our research and development expenses for the years ended December 31, 2020, 2019 and 2018 and 2017 were $78.3 million, $75.6 million $73.1 million and $67.7$73.1 million, respectively, net of government participation of $0.8 million, $0.4 million $1.4 million and $0.9$1.4 million, respectively.

For a description of our research and development policies and our patents and licenses, see “Item 4. Information on the Company–Company – B. Business Overview”.

D. TREND INFORMATION

We operate as a specialty foundry in the semiconductor industry. The semiconductor industry is historically characterized as highly cyclical, both seasonally and over the long term. Over time, the market fluctuates, cycling through periods of weak demand, production excess capacity, excess inventory and price pressure, and periods of strong demand, full capacity utilization, and product shortages, commanding higher selling prices.

There is a trend within the semiconductor industry toward ever-smaller features and ever-growing wafer sizes. State-of-the-art digital fabs are currently supporting process geometries of 10-28down to 5-10 nanometers and even below with 300mm wafers. As demand for smaller geometries increases, there is downward pressure on the pricing of larger geometry products, and potential underutilization of fabs that are limited to manufacturing these larger geometry products, which may result in reduced profitability for the associated manufacturers. However, our strategy to focus on differentiated specialty analog technologies, along with our deep applications knowledge, design enablement tools and customer technical support, enable us to achieve higher product selling prices as compared to manufacturers of “commoditized” standard products. We currently offer process geometries of (i) 0.35, 0.50, 0.55, 0.60, 0.80-micron and above on 150-mm wafers; (ii) 0.35, 0.18. 0.16, 0.13 and 0.11-micron on 200-mm wafers; and (iii) 65 nanometer and 45 nanometer on 300-mm wafers. We continue to invest in our portfolio of specialty process technologies and Intellectual Propertyintellectual property (IP) to address the key product and system requirements of our customers, enabling them to compete in their respective markets.

Another key element of our strategy is to target multiple large, growing and diversified end markets. We target end markets characterized by high growth and high performance, for which we believe our specialty process technologies and design services offer a strong, compelling value proposition to our customers. We focus on markets driven by three industry mega-trends: “Green Everything”, “Wireless Everything”, and “Smart Everything”. Our target markets include the Internet of Things (IoT), machine-to-machine communication devices, ultra-low power mobile applications, wireless and high-speed wireline communications, consumer electronics, automotive, and industrial markets. For example, we believe that our specialty SOI, SiGe and SiGephase change materials process technologies can provide performance and cost advantages over current GaAs solutions in the realization of switches and power amplifiers for wireless handsets. Our Power Managementpower management platforms enable the industry’s analog IC suppliers to differentiate their product offerings in the markets we serve. Our specialized CMOS image sensor platforms allow customers to fabricate ultra high sensitivity/low noise CIS products for operation in visible, infra-red, ultra-violet and X-ray spectral ranges, develop both ultra small-size cameras and imagers occupying the whole surface of a 200mm wafer. We also target the rapidly growing non-visual sensor markets by developing specialized sensors some of them based on nanowire elements to be fabricated on silicon (SOI) and GaN technological platforms, in particular advanced integrated UV, gas and gasBioFET sensors. We are also engaged in development of IPs for enabling data processing using artificial intelligence based on our original device approaches by using our patented memristor solutions for emulating synapses in artificial neural networks. Our specialty products and target market strategy allow us to grow and diversify our business by attracting new customers, expandingwhich expands our customer base, and growbroadening our business atwith existing customers.

During recent years, we have accelerated our plans to expand manufacturing capacity. We have significantly increasedcapacity, including capacity in Fab 1, Fab 2, Fab 3, and acquired in 2014 3 additional fabs: Tonami CD, Arai & Uozu fabs located in Japan. In February 2016, we completed the acquisition from Maxim of an additional fab, Fab 9, located in San Antonio, Texas to help us meet our customers’ demand.300mm fab. We are focused on successfully integrating all of our fabs globally and increasing the utilization of our fabs, by attracting new customers and opportunities.

We seek to maintain capital efficiency by leveraging our capacity and manufacturing model to ensure cost-effective manufacturing. With a global manufacturing footprint, including seven fabs in three continents, we are focused on sharing and applying best practices across the organization, to provide our customers with high quality solutions, along with the applications knowledge and technical support that allow them to benefit from a competitive edge in the market. Our geographical diversity allows us to perform an internal benchmark among our acquired facilities to gain knowledge on work processes and methodologies, thereby ensuring that we maintain a high level of operations across all facilities. Our global foothold also provides our customers with manufacturing flexibility and business continuity in terms of opportunity for capacity availability.

Over the last several years, we have been constantly looking to expand our presence in the global markets, penetrate new geographical areas, increase our served markets and expand our technology offering through business and development ventures. This may also be accomplished through the establishment of new facilities with third party, collaboration and/or funding, mergers and acquisitions with potential target fabrication facilities that may include a solid base of customer demand, for the increase of our manufacturing capacity and/or development of technologies that may expand our servable and/ or available market potential, and increase our revenue, customer base and margins. Such transactions, mergers and acquisitions are also beneficial as they provide our customers with manufacturing diversification and opportunity for additional growth through access to increased capacity.Wecapacity. We continuously evaluate potential acquisition opportunities.opportunities and seek to secure additional manufacturing capacity. Our current cash balance, deposits and/or investments in marketable securities may be used to enable us to realize and execute on such opportunities, and we may require additional financing through, among other things, debt (including convertible debt, bonds, notes or debentures) and/or equity issuances (including shares and warrants), in order to consummate such opportunities and/ or fund our other operational and capital expenditure cash needs, as well as our M&A strategy to expand our global footprint, capacity and capabilities.

E. OFF-BALANCE SHEET ARRANGEMENTSN/A

We are not a party to any material off-balance sheet arrangements except for the purchase commitments, standby letters of credit and guarantees detailed in the table set forth under Item 5F, “Tabular Disclosure of Contractual Obligations”, below.

E. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations and commercial commitments as of December 31, 2019:

In addition to the contractual obligations detailed above, we have committed approximately $1.5 million in standby letters of credit and guarantees.

The above table does not include other contractual obligations or commitments we have, such as undertakings pursuant to royalty agreements, commissions and service agreements. We are unable to reasonably estimate the total amounts or the time table for such payments to be paid under the terms of these agreements, as the royalties, commissions and required services are a function of future revenues, the volume of business and hourly-based fees. In addition, the above table does not include our liability with respect to advances received from our customers, which as of December 31, 2019, amounted to approximately $26.6 million that may be utilized by them against future purchases of products. We are unable to reasonably estimate the total amounts that may be utilized by our customers since we cannot reasonably estimate their future orders in the periods set forth in the above chart.

The table above reflects our commitments and contingencies that are known to us as of December 31, 2019. Any new developments in our business plans, our modification of engagements with supply and service providers as well as changes in our commitments and contingencies following the date hereof and actual payments may vary significantly from those presented above.

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

Set forth below is information regarding our senior management and directors as of April 30, 2020:2021:

(*) Dr. Itzhak Edrei served as the Company President until November 2019.

(**) Russell Ellwanger also serves as a director; his information is included under Senior Management above.

Russell C. Ellwanger has served as our Chief Executive Officer since May 2005. Mr. Ellwanger has also served as a director since September 2016, and previously served as a director between May 2005 and April 2013. Mr. Ellwanger serves as Chairman of the Board of Directors of our subsidiaries, Tower Semiconductor USA, Inc., Tower US Holdings, Inc., Tower Semiconductor NPB Holdings, Inc., Tower Semiconductor Newport Beach, Inc., TowerJazz PanasonicTower Partners Semiconductor Co., Ltd. and Tower Semiconductor San Antonio, Inc. Mr. Ellwanger also served as a director of Tower between May 2005 and April 2013. 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.

Oren Shirazi has served as our Chief Financial Officer and Senior VP Finance since November 2004. Mr. Shirazi serves as a board member of Tower Semiconductor Newport Beach, Inc. Mr. Shirazi joined us in October 1998, serving initially as vice controller and then as controller commencing in July 2000. 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). Mr. Shirazi holds an MBA degree from the Graduate School of Business of Haifa University with honors and a B.A. degree in economics and accounting from the Haifa University.

Dr. Itzhak Edrei. has served as President Emeritus since November 2019 and as a member of the board of directors of TPSCo since 2014. From November 2011 until November 2019, Dr. Edrei served as our President. Prior thereto, Dr. Edrei served as Executive Vice President of Business Groups commencing in September 2008 and as Senior Vice President of Product Lines and Sales commencing in August 2005. Dr. Edrei served as a board member of Tower Semiconductor Newport Beach, Inc. and TowerJazz Panasonic Semiconductor Co., Ltd. From August 2001 to August 2005, Dr. Edrei served as Vice President of Research and Development, 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 Mor has served as Chief Operating Officer of Tower since August 2014. Mr. Mor serves as a board member of Tower Semiconductor Newport Beach, Inc., Tower Semiconductor NPB Holdings, Inc., TowerJazz PanasonicTower Partners Semiconductor Co., Ltd. and Tower Semiconductor San Antonio, Inc. Mr. Mor served as Chief Executive Officer of TowerJazz Japan from October 2011 until August 2014, after serving as Senior Vice President and General Manager of Tower Semiconductor Newport Beach, Inc. from September 2008. In October 2010, RafiMr. Mor was nominated to be the manager of our Newport Beach Fab, in addition to his General Manager role. Prior thereto, Mr. Mor served in Tower Semiconductor Ltd. as Vice President of Business Development from April 2007, after serving as Vice President and Fab 2 Manager from August 2005, and as Fab 1 Manager from 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 holds M.A. and B.A. degrees in chemical engineering from Ben Gurion University.

Dr. Marco Racanelli has served as Senior Vice President and General Manager of the Analog Business Unit since December 2018 and also serves as the Newport Beach Site Manager since April 2014. Previously, Dr. Racanelli served as Senior Vice President from June 2012 and General Manager, RF & High Performance Analog Business Group and Aerospace & Defense Group from September 2008. Prior to that, Dr. Racanelli served as Vice President of Technology & Engineering, and Aerospace & Defense General Manager for Jazz Semiconductor. Prior to that, Dr. Racanelli held several positions at Conexant Systems and Rockwell Semiconductor from 1996 in the area of technology development, where he helped establish industry leadership in SiGe and BiCMOS and MEMS technology and built a strong design support organization. Prior to Rockwell, Dr. Racanelli worked at Motorola, Inc., where he contributed to bipolar, SiGe and SOI development for its Semiconductor Products Sector. Dr. Racanelli holds a Ph.D. and a M.Sc. degree in Electrical and Computer Engineering from Carnegie Mellon University, and a B.Sc. degree in Electrical Engineering from Lehigh University. Dr. Racanelli holds over 35 U.S. patents.

Nati Somekh has served as Senior Vice President, Chief Legal Officer and Corporate Secretary since February 2010, after serving as Vice President, Chief Legal Officer and Corporate Secretary from September 2008, after serving as Corporate Secretary and General Counsel from March 2005, and as Associate General Counsel from May 2004. From 2001 to 2004, Ms. Somekh was employed by Goldsobel & Kirshen, Adv. Ms. Somekh holds an LL.M. and J.D. degrees from Boston University and a B.A. degree from Johns Hopkins University. Ms. Somekh is a member of the Israel Bar Association and is admitted as an attorney in the State of New York.

Yossi Netzer has served as Senior Vice President of Corporate Planning since July 2012, after serving as VP of Corporate Planning from November 2008, as General Manager of Mixed Signal, RF & Power Management Product Line from 2005 and as Director, FAB 2 Yield & Device Engineering Manager from 2000. From 1995 to 2000, Mr. Netzer served in various engineering management positions within the R&D division dealing with CMOS, Mixed Signal, RF, and NVM Technologies. Prior to joining Tower, Mr. Netzer was employed at National Semiconductor and the Technion – Israel Institute of Technology. Mr. Netzer holds a B.Sc. degree in electrical engineering from the Technion – Israel Institute of TechnologyTechnology.

Dalit Dahan has served as Senior Vice President of Human Resources and IT since 2008. Prior thereto, Ms. Dahan served as Vice President of Human Resources commencing in April 2004. Ms. Dahan joined us in November 1993 and served as Personnel Manager commencing in 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 three years. Ms. Dahan holds a B.A. degree in social science from Haifa University and an MBA degree from the University of Derby.

Dr. Marco Racanelli has served as Senior Vice President and General Manager of the Analog Integrated Circuits (IC) Business Unit since December 2018 and also serves as the Newport Beach Site Manager since April 2014. Previously, Dr. Racanelli served as Senior Vice President from June 2012 and General Manager, RF & High Performance Analog Business Group and Aerospace & Defense Group from September 2008. Prior to that, Dr. Racanelli served as Vice President of Technology & Engineering, and Aerospace & Defense General Manager for Jazz Semiconductor. Prior to Jazz, Dr. Racanelli held several positions at Conexant Systems and Rockwell Semiconductor since 1996 in the area of technology development where he helped establish industry leadership in SiGe and BiCMOS and MEMS technology, and built a strong design support organization. Prior to Rockwell, Dr. Racanelli worked at Motorola, Inc., where he contributed to bipolar, SiGe and SOI development for its Semiconductor Products Sector. Dr. Racanelli holds a Ph.D. and a M.Sc. degree in Electrical and Computer Engineering from Carnegie Mellon University, and a B.Sc. in Electrical Engineering from Lehigh University. Dr. Racanelli holds over 35 U.S. patents.

Guy Eristoff has served as Chief Marketing, StrategicStrategy Officer and Head of Pathfinder Activities since December 2019, and2019. Mr. Eristoff also serves as a member of the board of directors of TPSCo since April 2014. Previously, Mr. Eristoff served as TPSCo’s Chief Executive Officer from its foundation in April 2014 until December 2019. Previously, Mr. Eristoff served as Vice President, Global Operational Excellence at Tower Semiconductor Ltd. Prior to that, Mr. Eristoff served in various positions in the semiconductor industry such as Director of 200mm Fabs Core Engineering at Global-Foundries (Technology Development, Marketing, Industrial Engineering & Central Engineering) for the 200mm Business Unit, (5 fabs), General Manager, Singapore and Asia Region at Intevac, Thin Films Section Manager, Thin Films Module Manager and Process Integration Deputy Director at Chartered Semiconductor and Process/Hardware Engineer and Field Service Manager at Applied Materials. Mr. Eristoff received hisholds a B.S. degree in Physics from Rensselaer Polytechnic Institute, (RPI) Troy New York.

Dr. Avi Strum has served as our Senior Vice President and General Manager of the CMOS Image SensorSensors and Displays Business Unit since 2018, and also serves as a member of the board of directors of TPSCo since 2019. Previously, Dr. Strum served as Vice President and General Manager of the Specialty Business Unit, Vice President of Europe Sales, Head of the Design Center in Netanya and Device and Integration Department Manager. Prior to joining Tower, Dr. Strum served as the President and COO of TransChip Inc. and from 1996 to 2001, he served in various positions with Intel Corp., both in Israel and the US. From 1990 to 1996, he was the R&D Manager of SCD and was in charge of all the Infrared Detectors development in SCD. Dr. Strum received his Ph.D. and B.Sc. degree in Electrical Engineering from the Technion - Israel Institute of Technology.

Dani Ashkenazi has served as Senior Vice President Excellence and Quality since July 2020. Previously, Mr. Ashkenazi served as Senior Vice President and General Manager of Transfer, Optimization and Development Process Services Business Unit (TOPS) and Europe Sales sincefrom June 2019. Previously, Mr. Ashkenazi served2019, and as Vice President of Worldwide Customer Solutions from 2015. Mr. Ashkenazi served as Vice President of Sales for APAC & Israel from 2008, after serving as General Manager, CMOS Product Line from 2005 and as Director of Customer Support, and Director of Reliability from 2003. Prior to that, Mr. Ashkenazi served as Application Manager at Tower USA in Santa Clara and prior to that Mr. Ashkenazi held engineering management positions within the process, test and product engineering groups. Mr. Ashkenazi holds M.Sc. and B.Sc. degrees in Physics from the Hebrew University of Jerusalem.

Noit Levy has served as our Senior Vice President of Investor Relations and Corporate Communications and is heading our investor relations, public relations and marketing communications since 2008, having served as Director of Investor Relations and Public Relations since 2006. From 2001 to 2006 she has served in various other positions within the Company. Ms. Levy holds an MBA degree from Haifa University in Israel and a B.A. degree in Social Science and Management from the College of Management Academic Studies.

Amir Elstein has served as the Chairman of our Board of Directors since January 2009. Mr. Elstein serves as a Director of Teva Pharmaceutical Industries Ltd. and serves as Chairman of the Israel Democracy Institute. During 2010-2013, Mr. Elstein served as Chairman of the Board of Directors of Israel Corporation. Mr. Elstein serves as Chairman of the Israel Democracy Institute, and as chairman/member of the board of several non-governmental organizations in academic, scientific and educational, social and cultural institutions.. Mr. Elstein was a member of Teva Pharmaceutical Industries senior management team from 2005 to 2008, where he ultimately held the position of the Executive Vice President at the Office of the Chief Executive Officer, overseeing Global Pharmaceutical Resources. Prior thereto, Mr. Elstein was an executive at Intel Corporation, where he worked for 23 years, eventually serving as General Manager of Intel Electronics Ltd., an Israeli subsidiary of Intel.Intel Corporation. Mr. Elstein received a B.Sc. degree in physics and mathematics from the Hebrew University of Jerusalem and M.Sc. degree in the Solid State Physics Department of Applied Physics from the Hebrew University in 1982. In 1992, Mr. Elstein received his diploma of Senior Business Management from the Hebrew University of Jerusalem.

Kalman Kaufman has served as a director since 2005 and as chairman of the NominationCorporate Governance and Nominating Committee since January 2018. Mr. Kaufman 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 the board of directors of Medasense and Invisia, a director at ATP labs and a memberTrellis Inc, Chair of the management boardgeneral assembly of the Kinneret College.Academic College and chairman of the Tzemach Kineret Development Corporation. Mr. KalmanKaufman holds engineering degrees from the Technion - Israel Institute of Technology.

Alex Kornhauser has served as a director since August 2008 (until November 2016 as an external director, within the meaning of the Companies Law). Previously, Mr. Kornhauser served as a member of the Compensation Committee from June 2009 until October 2019. From 2017, Mr. Kornhauser serves as a board member at Priortech. From 2008 until 2010, Mr. Kornhauser served as Senior VP and General Manager of Global Operations at Numonyx Corporation. From 1978 until 2008, Mr. Kornhauser held many senior management positions at Intel Corporation and Intel Israel serving as General Manager of Intel Israel, General Manager of Intel Electronics, VP of Technology and Manufacturing Group and President of Intel Israel. Mr. Kornhauser holds a B.Sc. degree in electronics from Bucharest Polytechnic Institute in Romania.

Dana Gross has served as a director since November 2008, as a member of the NominationCorporate Governance and Nominating Committee since January 2018, and as a member of the Compensation Committee since February 2013.2013 and as chair of the Compensation Committee since November 2020. In addition, Mrs. Gross has served as a director on the board of Tower Semiconductor Newport Beach, Inc.,our wholly owned subsidiary, since March 2009. Mrs. Gross is currently the COO of Prospera Technologies Ltd., an AgTech Data Company. Mrs. Gross was the CFO of eToro, a FinTech company that developed a Social Investment network from 2014 to 2016, and the CEO of Btendo, a start-up company that developed MEMS based PICO projection solutions, until it was acquired by ST Microelectronic in 2012. Mrs. Gross was a Venture Partner at Viola Ventures, a leading Israeli venture capital firm as a Venture Partner, from 2018 until 2010. From 2006 to 2008, Mrs. Gross was a Senior VP, Israel Country Manager at SanDisk Corporation. From 1992 to 2006, Mrs. Gross held various senior positions at M-Systems, including Chief Marketing Officer, VP World Wide Sales, President of M-Systems Inc. (US Subsidiary)subsidiary) and CFO, VP Finance and Administration. In addition, Mrs. Gross served as a director of M-Systems Ltd., Audiocodes Ltd. and Power Dsine Ltd. Mrs. Gross holds a B.Sc. degree in industrial engineering from Tel-Aviv University and an M.A. degree in business administration from San Jose State University.

Ilan Flato has served as a director since February 2009 (until November 2016 as an external director, within the meaning of the Companies Law). Mr. Flato served as chairman of the Compensation Committee from February 2013 until October 2019 and since such time continues to serve as a member of the Compensation Committee. Mr. Flato has served as a member of the Audit Committee since April 2009. Mr. Flato is classified by the Board of Directors as an audit committee financial expert under applicable SEC rules. Mr. Flato has served as President of The Association of Publicly Traded Companies on the Tel-Aviv Stock Exchange since January 2012. Since 2011, Mr. Flato has been a member of the Israel Bar Association. From 2009 until 2018, Mr. Flato served as a director in two Provident Funds. From 2009 until April 2018, Mr. Flato served as Chairman of the Business Executive of Kibbutz Kfar Blum. SinceFrom January 2018 until April 2020, Mr. Flato servesserved as Chairman of the Business Executive Kibbutz “NAAN”. Since 2004, Mr. Flato has functioned as an independent financial adviser. Until 2004, Mr. Flato served as the VP for planning, economics and online banking in United Mizrahi Bank and as the Chief Economist of the bank. From 1992 until 1996, Mr. Flato served as the Economic Advisor to the Prime Minister of Israel. Prior to that position, Mr. Flato served in the Treasury Office as the deputy director of the budget department. In addition, Mr. Flato served as a member of the board of directors of many government-owned companies. Mr. Flato holds a B.A. degree in economics from Tel-Aviv University, an LL.B. degree from Netanya College, an LL.M.M.A. degree in law from Bar-Ilan University and an MSIT from Clark University.

Rami Guzman has served as a director since February 2009, as chairman and member of the Compensation Committee since October 2019, as a member of the Nomination Committee since January 2018, and as a member of our Audit Committee since August 2011. Mr. Guzman is classified by the Board of Directors as an audit committee financial expert under applicable SEC rules. Mr. Guzman has held various senior positions at Motorola Inc. and Motorola Israel Ltd. since 1985, including VP of Motorola Inc. and Director of Motorola Israel Ltd. In addition, until July 2004, Mr. Guzman was the CFO of Motorola Israel Ltd. Prior to joining Motorola, Mr. Guzman worked for the Ministry of Finance, first as senior assistant and deputy to the Director of the Budget and then as Government-wide MIS and IT Commissioner. Mr. Guzman is a member of professional committees in the Israel Credit Insurance Company and the Israel Infrastructure Fund, and consultant and advisor to technology-based companies. Since 2017, Mr. Guzman serves as the Chairman of the board of directors of Tigbur. Mr. Guzman also serves since 2005 as a director in various entities, including serving as a director in Bank Leumi until October 2015. Mr. Guzman holds a B.A. degree in economics and an M.A. degree in business and public administration from the Hebrew University of Jerusalem. Mr. Guzman was a Research Fellow at Stanford University and Stanford Research Institute, California, USA, and completed Ph.D. studies at the Hebrew University of Jerusalem.

Yoav Z. Chelouche has served as a director since April 2016, as a member of the NominationCorporate Governance and Nominating Committee since January 2018, and as a chairman and member of our Audit Committee since May 2017. Mr. Chelouche is classified by the Board of Directors as an audit committee financial expert under applicable SEC rules. Mr. Chelouche serves as Managing Partner of Aviv Ventures since Aviv’s inception in 2001. Between 1995 and 2001, Mr. Chelouche served as President & CEO of Scitex Corp. Until 2015, Mr. Chelouche was co-chairman of Israel Advanced Technology Industries. Mr. Chelouche currently serves on the Board of Directors of the following publicly listed companies: Checkpoint Software Technologies, and the Tel-Aviv Stock Exchange.Exchange, Shufersal and Malam-Team. Mr. Chelouche is currentlyalso a board member ofin several private companies, including Aviv’s portfolio companies: MGVS, Briefcam, ScaleMPVessl Therapeutics and Optimal Test.ScaleMP. Mr. Chelouche also previously served as Chairman of several public companies. Mr. Chelouche holds a B.A. degree in economics and statistics from Tel AvivTel-Aviv University and an MBA degree from INSEAD, Fontainebleau, France.

Iris Avner has served as a director since June 2016 (until November 2016 as an external director, within the meaning of the Israeli Companies Law), and has served as a member of the Audit Committee since June 2016. Ms. Avner served as a member of the Compensation Committee from June 2016 until October 2019. Ms. Avner is classified by the Board of Directors as an audit committee financial expert under applicable SEC rules. Ms. Avner serves as Chief Executive Officer of Nika Holdings, Ltd. From 2008 to 2015, Ms. Avner served as Managing Partner of Mustang Mezzanine Fund, L.P. and served on Mustang’s board of directors from 2014 until 2015. From 1996 until 2008, Ms. Avner served as Chief Executive Officer of Mizrahi Tefahot Capital Markets Ltd. and from 1996 until 2005, served as Senior Credit Officer & Deputy CEO of Mizrahi Tefahot Bank. In addition, from 1997 until 2002, Ms. Avner served as Assistant Professor and external lecturer in the Executive MBA Program in Tel Aviv University. From 1988 until 1996, Ms. Avner held various positions at Israeli Discount Bank including Senior Credit Officer and Senior Economist. Ms. Avner has served as a member of the board of directors of Israel Discount Bank since March 2018 and Amir Marketing and Investments in Agriculture since May 2017. Ms. Avner has served as a member of the board of directors of Rotshtein Real Estate since August 2016 and served as a member of the board of directors of Brand Industries from August 2016 until August 2019.2016. Ms. Avner previously served on several boards and board committees in Israel and abroad, both as director and chairperson. Ms. Avner holds a B.A. degree in accounting and economics from the Hebrew University of Jerusalem and an MBA degree from Tel Aviv University.

Mr. Jerry Neal, whoMichal Vakrat Wolkin has served as a director from July 2018since September 2020, and as a member of the Corporate Governance and Nominating Committee since November 2020. Ms. Wolkin serves as a partner at GFT Ventures, a global venture capital firm since 2020 and on the Advisory Board of RACAH Nano Tech Fund of the Hebrew University of Jerusalem since 2019. Ms. Wolkin served as Managing Director of Lear Innovation Ventures from January 2017 until 2020. During 2014-2016, Ms. Wolkin served as Head of 3M R&D and from 2012 until 2014, she served as Technical Chair of the Night Rover Challenge of NASA/CleanTech Open. Ms. Wolkin served as Director of Energy Storage Technologies in Better Place from 2008 until 2012, and from 2004 until 2008, she served as Member of Research Staff II at the Hardware system lab at Xerox PARC. Ms. Wolkin received her B.Sc. degree in Chemical Engineering from the Technion - Israel Institute of Technology in Israel in 1996 and Ph.D. degree in Applied Physics and Materials Science from the University of Rochester, NY in 2000. In 2003 until 2004, Ms. Wolkin did her Post-doctorate at the Electronics Materials Lab at Xerox PARC.

Avi Hasson has served as a director since September 2020, and as a member of the Audit Committee and Compensation Committee since November 2020. Mr. Hasson is classified by the Board of Directors as an audit committee financial expert under applicable SEC rules. Mr. Hasson is a partner at Emerge, a leading early stage venture capital firm. Mr. Hasson serves in several non-profit organizations, including as a director on the board of Sheba Medical Center at Tel Hashomer, SpaceIL and Israel Tech Challenge. From January 2011 until July 2017, Mr. Hasson served as the Chief Scientist in the Ministry of Economy and Industry and as Chairman of the Israel Innovation Authority. During 2000 until 2010, Mr. Hasson served as General Partner at Gemini Israel Funds, a top tier venture capital fund in Israel. Prior thereto, Mr. Hasson held executive positions in product management, marketing and business development various telecommunication technology companies, including ECI Telecom, ECtel and Tadiran systems. Mr. Hasson received his B.A. degree in Economics and Middle East studies from October 2019, ceased to serveTel-Aviv University in such positions as of April 18, 2020.1997 and M.BA. degree from Tel Aviv University in 2002.

We are not party to, and are not aware of, any arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any director or executive officer was selected as a director or member of senior management, as the case may be.

B. COMPENSATION

Under the Companies Law, a public company must have a compensation policy regarding the terms of engagement of office holders, as such term is defined in the Companies Law, to which we refer to as a compensation policy.Law. The compensation policy must be approved at least once every three years, first, by our board of directors, upon recommendation of our compensation committee, and second, by the shareholders by the Special Majority (as defined in Item 6C under “— Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions—Approval of Director and Officer Compensation—Compensation—Executive Officers other than the Chief Executive Officer”). Under special circumstances, the board of directors may approve the compensation policy despite the objection of the shareholders on the condition that the compensation committee and then the board of directors decide, on the basis of detailed grounds and after discussing again the compensation policy, that approval of the compensation policy, despite the objection of shareholders, is for the benefit of the company.

Our amended and restated Compensation Policycompensation policy for Executive Officersexecutive officers and Directors,directors, which was approved by our shareholders on June 29, 2017,September 17, 2020, serves as the basis for decisions concerning the financial terms of employment or engagement of our office holders (within the meaning of the Companies Law), including compensation, equity-based awards, indemnification and insurance, severance and other benefits. Our compensation policy is performance based and is designed to align our officers’ and directors’ interests with those of the Companyour company and its shareholders in order to enhance shareholder value. Our compensation policy allows us to provide incentives that reflect short-term, mid-term and long-term goals and performance, as well as motivate achievement of company targets, while providing compensation that is competitive in the global marketplace in which we recruit our senior management.

As an Israeli company with a significant global footprint, we aim to adopt compensation policies and procedures that match global companies of similar complexity, including semiconductor companies and other companies which compete with us for similar talent.

Under the Companies Law, a company’s compensation policy must be determined and later reevaluated according to certain factors, including: the advancement of the company’s objectives, business plan and long-term strategy; the creation of appropriate incentives for office holders, while considering, among other things, the company’s risk management policy; the size and the nature of the company’s operations; and with respect to variable compensation, the contribution of the office holder towards the achievement of the company’s long-term goals and the maximization of its profits, all with a long-term objective and according to the position of the office holder. The compensation policy must furthermore consider the following additional factors:

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the education, skills, expertise and achievements of the relevant office holder;

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the role and responsibilities of the office holder, and prior compensation arrangements with the office holder;

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the ratio of the cost of the offered terms of employment of an office holder to the cost of compensation of the other employees of the company (including any employees employed through manpower companies), specifically to the cost of the average and median salaries of such employees and the impact of the disparities between them upon work relationships in the company;

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with respect to variable compensation, the possibility of reducing variable compensation at the discretion of the board of directors, and the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and

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with respect to severance compensation, the period of employment or service of the office holder, the terms of his or her compensation during such period, the company’s performance during such period, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.

In addition, under the Companies Law, the compensation policy must also include the following features: (i) with respect to variable components of the compensation of the chief executive officer, or any officer who is not subordinate to the chief executive officer - determining the variable compensation components on long term performance and measurable criteria;metrics; however, an immaterial portion of the variable components of the compensation of the chief executive officer, orin the amount of up to three monthly salaries per annum, can be discretion based awards (i.e., not based on measurable metrics), taking into account the contribution of the chief executive officer to the company. This requirement applies also to any officerother office holder (within the meaning of the Companies Law) who is not subordinate to the chief executive officer, can be discretion based awards, if such amount is not higher than three monthly salaries per annum, taking into account the contribution of the officer to the company;any; (ii) the ratio of variable components and fixed components and a cap on variable components at the time of their payment, except that the cap for equity-based compensation is determined at the time of grant; (iii) the conditions under which an office holder would be required to return compensation paid, in the event that it is later revealed that such amounts were paid on the basis of data that was inaccurate and was required to be restated in the company’s financial statements; (iv) the minimum holding or vesting periods for equity-based variable components of compensation, while taking into consideration long term incentives; and (v) maximum limits on grants or benefits paid upon termination.

Compensation under our compensation policy may include: base salary; benefits and perquisites, performance-based cash bonuses and other bonuses (such as special bonuses for substantial achievements and sign-on bonuses); equity-based compensation; and retirement, termination and other arrangements. Our compensation policy aims to optimize the mix of fixed compensation and variable compensation in order to, among other things, appropriately incentivize office holders to meet our goals while considering our management of business risks, and sets maximum ratios between the two types of compensation elements.

All compensation arrangements of officers and directors are required to be approved in the manner prescribed by applicable law (see details in Exhibit 2.1 to this annual report).

For the year ended December 31, 2019,2020, we paid to all our directors and senior management described in Item 6A above,who served during the period, as a group, an aggregate of $7.1$7.3 million in salaries, fees, payments upon termination and bonuses (excluding employer cost and equity-based compensation, which are detailed below). The total employer cost for personal vehicles, relocation related expenses, amounts set aside or accrued to provide for insurance, severance, retirement, vacation and similar benefits or expenses for such persons was approximately $2.4$2.0 million for the year ended December 31, 2019.2020.

The following is a summary of the compensation paid or granted to our five most highly compensated officers and/or directors for the year ended December 31, 20192020 (collectively referred to herein as the “Covered Officers”). The Covered Officers consist of the individuals listed in A, D, B, D, IC and H in the table set forth in Item 6A above. All amounts reported reflect the cost to the Company as recognized in our financial statements for the year ended December 31, 2019.2020.

The base salary of our executive officers is individually determined according to past performance, educational background, country of residence, professional experience, qualifications, specializations, role, business responsibilities, achievements of the officer and prior salary and compensation arrangements, as well as comparative peer group analyses. Base salary (gross) paid to the Covered Officers A, D, B, D, IC and H for the year ended December 31, 2019,2020, amounted to $0.78$0.73 million, $0.33$0.38 million, $0.31$0.32 million, $0.23$0.29 million and $0.39$0.29 million, respectively. Executive officers are entitled to social and other benefits in accordance with applicable law, our policies and common practice. The cost of social and other benefits awarded to the Covered Officers A, D, B, D, IC and H for the year ended December 31, 2019,2020, amounted to $0.17 million, $0.18$0.11 million, $0.17 million, $0.08$0.16 million and $0.09$0.06 million, respectively. In addition, relocation and related reimbursement expenses awarded to Covered OfficerOfficers A and H for the year ended December 31, 2019,2020, amounted to $0.28 million. Covered Officer I, who served as the Chief Executive Officer of TPSCo in Japan from 2014 to 2019, was entitled to reimbursement expenses in relation to his relocation to Japan,million and the Company also made payments to him and for his benefit, including to certain Japanese and other governmental agencies, compensating him for added costs resulting from his relocation. Such relocation related payments, including cost accrual to the Company in respect to Covered Officer I, for the year ended December 31, 2019, amounted to $0.53 million.$0.27 million, respectively. No relocation related payments or accruals were made to any of Covered Officers B, C and D and H.during the year ended December 31, 2020.

Our policy is to award annual cash bonuses to executive officers, subject to the attainment of pre-determined annual measurable objectives, which are set in the first quarter of each year, and personal performance evaluation. In accordance with our compensation policy, the pre-defined annual bonus plans include measurable componentsmetrics and the weight (in percentage terms) of each measuremetric as a portion of the annual criteria,measurable metrics, as well as a minimum threshold for achievement of corporate measurable metrics below which no portion of the pre-determined corporate measurable metrics component of the annual bonus will be awarded, and a portion of the annual bonus is based on performance valuation, in accordance with our compensation policy and subject to applicable law. The cash bonus gross amounts paid by the Company to the Covered Officers A, D, B, D, IC and H for the year ended December 31, 2019,2020, amounted to $0.66$0.99 million, $0.21$0.32 million, $0.19$0.29 million, $0.14$0.27 million and $0.14$0.22 million, respectively.

Equity based compensation for directors and officers is intended to be in the form of restricted stock units (“RSUs”), performance-based stock units (“PSUs), options and/or other equity forms, in accordance with our equity-based compensation policies and programs in place from time to time and in accordance with our compensation policy. Equity-based compensation may be granted as an annual grant and/or from time to time and is individually determined. Generally, equity-awards shall not begin to vest before the end of the first year from the date of grant. We calculate the fair market value of equity-based compensation for officers and directors at the time of grant according to the Black-Scholes model, binomial model or any other best practice or commonly accepted equity-based compensation valuation model, when such award is duly approved in accordance with applicable law, and amortize such value over the applicable vesting schedule. Total value of equity based compensation to the Covered Officers A, D, B, D, IC and H recorded for the year ended December 31, 20192020 (calculated based on the total amortization cost recorded in the Company’s statement of operations for the year ended December 31, 20192020 with respect to all equity-based grants to the Covered Officers), amounted to $3.54$3.45 million, $0.81$0.88 million, $0.73$0.88 million, $0.34$0.77 million and $0.56$0.45 million, respectively.

Under our compensation policy, we may grant our executive officers certain termination and retirement payments, including a change of control bonus, subject to the termination of employment of such officer upon a change of control and subject to receipt of applicable corporate approvals as required by law. In accordance with our compensation policy and the employment terms of our chief executive officer, upon termination of his employment, including upon a change of control, our chief executive officer wouldmay be eligible for a payment of twelve monthly base salaries, without benefits, and in the event of termination of his employment upon a change of control, he wouldmay also be entitled to acceleration of all unvested equity. In addition, under our compensation policy, upon a change of control, all other executive officers may be entitled to a payment in the amount of up to nine months’ base salary and acceleration of all unvested equity, and the chairman of the board of directors and other directors may be entitled to acceleration of all unvested equity. No such payment or accrual was made or earned in 2019.year ended December 31, 2020.

At our 20192020 annual general meeting held on June 25 2019,September 17, 2020, our shareholders approved an equity grant to our Chief Executive Officerchief executive officer in the value of $3.9$5.1 million, 50%40% of which is time-vestedtime-based vesting RSUs and 50%60% of which is performance-based RSUs,PSUs, both vesting over a three-yearthree year period. The performance based RSUs were setWith respect to be earned by the CEO in proportionPSUs, one third shall vest each year over a three year period from the date of grant subject to the attainment by the Company of twocertain defined financial corporate performance metrics of net profit and cash from operations for 2019,the year ended December 31, 2020, weighted equally. Actual net profit for 20192020 was $90.0$82.3 million and cash from operations for 20192020 was $291.3$276.6 million. Since ourthese 2020 actual financial results were lower than these 2019exceeded the defined financial performance metrics for the Chief Executive Officer earned a proportional portionvesting of the performance-based RSUs.PSUs, the chief executive officer shall be entitled to all of the PSUs, subject to the time vesting described above. For further details, see our proxy statement for the 20192020 annual general meeting of shareholders, filed with the SEC on Form 6-K on May 16, 2019.August 3, 2020.

Following the approval of our shareholders at the 20192020 annual general meeting and consistent with our compensation policy, we pay each of our directors (other than our chief executive officer who also serves as a director, whose compensation is detailed above, and the chairman of our Boardboard of Directors)directors, whose compensation is detailed below): (i) an annual fee of approximately $40,000;$52,500; and (ii) per meeting feesa committee membership fee of approximately $1,000,up to $6,000 annually and an additional fee of up to $3,000 annually for each committee chairperson; as well as reimbursement for reasonable travel and other expenses in accordance with our policies. In addition, the board of directors may compensate directors for special activities that are performed under special circumstances, in the amount of up to $2,000 per meeting. With regards to the chairman of our board of directors, our shareholders approved the payment to the Chairman of our Board of Directors of an annual cash fee of $300,000 (paid in monthly installments) and the award of time-vestedtime-based vesting RSUs in athe value of $300,000, which vest in three equal installments on each of the three anniversaries of the date of grant. If the service of the chairman of our board of directors is terminated for any reason other than for cause, including by way of resignation, prior to the third anniversary from the date of grant, all his unvested RSUs shall be accelerated. Furthermore, our shareholders approved the award to each of our directors (other than our chief executive officer and the chairman of our Boardboard of Directors,directors, whose compensation is detailed above) time-vestedof time vested RSUs in athe value of $75,000,$100,000, which vest over a two-year period, with 50% vesting at the end of each of the two anniversaries of the date of grant. In the event any such director’s service is terminated for any reason other than for cause, including by way of resignation, prior to the second anniversary of the date of grant, (i) if such director has served on the board of directors for five years or more, all his/her unvested RSUs shall be accelerated; and (ii) if such director has served on the board of directors for less than five years, 50% of all his/her unvested RSUs shall be accelerated.

We have entered into exemption and indemnification agreements with each of our officers and directors, pursuant to which, subject to the limitations set forth in the Companies Law, the Israeli Securities Law, 1968 and our articles of association, they will be exempt from liability for breaches of the duty of care and we agreed to indemnify them for certain costs, expenses and liabilities with respect to events specified in such agreements. In addition, our officers and directors are currently covered by a directors’ and officers’ liability insurance policy.

Equity Incentive Plans

In 2013, the Company adopted a share incentive plan for its directors, officers, employees and its subsidiaries’ employees (the “2013 Plan”). In accordance with our compensation policy, the aggregate amount of outstanding equity-based compensation awarded by the Company at any time shall not exceed 10% of the fully-diluted share capital of the Company, as calculated at the time of grant (which fully-diluted share capital will be calculated pro-forma after taking into account the proposed grants and shares underlying all outstanding equity-based awards).

As of December 31, 2019,2020, approximately 1.171.21 million options, RSUs and RSUsPSUs outstanding under the 2013 Plan were awarded to our directors and senior management, detailed in Item 6A, of which approximately 0.49 million were awarded to our chief executive officer and approximately 0.03 million were awarded to the chairman of our Boardboard of Directors.directors.

In June 2019,September 2020, pursuant to the approval of our shareholders at the 20192020 annual general meeting, we granted the following equity awards to the chief executive officer, Chairmanchairman of the board of directors and other directors under the 2013 Plan: (i) 128,797 time-vested108,620 time-based vesting RSUs and 128,798 performance-based RSUs162,931 PSUs to the chief executive officer, , as detailed above, for a total compensation value of approximately $3.9$5.1 million; (ii) 19,815 time-vested15,915 time-based vesting RSUs to the chairman of the board of directors, as detailed above, for a total compensation value of approximately $0.3 million; and (iii) 4,953 time-vested5,305 time-based vesting RSUs to eachnine directors who served on the board of our eight directors at the time of such shareholder meeting (excluding the Chairmanchairman and the chief executive officer), as detailed above, for a total compensation value of approximately $0.6$0.9 million.

In addition, in 2019,during 2020, we granted an aggregate of approximately 0.180.12 million time-based RSUs and approximately 0.18 million performance-based RSUsPSUs to our senior management described in Item 6A (excluding the chief executive officer) under the 2013 Plan, vesting over a three-yearthree year period, for a total compensation value of approximately $6.3$7.0 million.

Our compensation policy includes minimum shareholding guidelines pursuant to which: (i) the chief executive officer is required to own ordinary shares in a minimum value that equals at least three times his annual base salary, commencing May 2024; and (ii) the directors and other executive officers are required to own ordinary shares in a minimum value that equals at least 50% of their respective annual fee or annual base salary, as applicable, commencing July 2025. The chief executive officer, other officers and directors have been provided five years from the date our board of directors approved their respective minimum shareholding guideline to accumulate such minimum holdings until such specified dates, and during such period they must retain at least 20% of the vested time-based RSUs that may be granted to them from the date the respective guideline was approved by the board of directors and until the respective minimum holding is met.

For further information concerning our employee equity plans and outstanding employee equity, see Note 15B to the consolidated financial statements included in this annual report.

C. BOARD PRACTICES

Board of Directors

Our Articles of Association provide that the Board of Directors shall consist of at least five and no more than 11 members. Our Board of Directors is currently comprised of tennine directors. Our directors are elected by the general meeting of our shareholders by the vote of a majority of the ordinary shares present, in person or by proxy, and voting at that meeting. Generally, our directors hold office until their successors are elected at the next annual general meeting of shareholders (or until any of their earlier resignation or removal in accordance with the Companies Law). In addition, our Articles of Association allow our board of directors to appoint directors (other than the external directors) to fill vacancies on our board of directors, until the next annual general meeting of shareholders.

Alternate Directors

Our Articles of Association provide that any director may, subject to the approval of the Board of Directors, appoint another person to serve as an alternate director, and may cancel such appointment, by delivering written notice to the alternate director and to the Company. Any person who is qualified to serve as a director, and who is not already serving as a director or an alternate director, may act as an alternate director, and the same person may not act as the alternate for more than one director at a time. An alternate director has the same rights and responsibilities as a director, and the appointment of an alternate director does not relieve the appointing director from his/her responsibilities as a director. The term of appointment of an alternate director may be for one meeting of the Board of Directors or for a specified period or until notice is given of the cancellation of the appointment or until the director who appointed the alternate ceases to serve as a director of the Company.

External Directors

The Companies Law requires Israeli companies with shares that have been offered to the public in or outside of Israel to appoint no less than two external directors. However, pursuant to the Companies Regulations (Relief for Companies Whose Shares are Registered for Trading Outside of Israel) – 2000 (the “Relief Regulations”), an Israeli public company may elect to exempt itself from the requirement to appoint external directors if it meets all of the following conditions:

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The company’s shares are listed on certain foreign stock exchanges listed in the Relief Regulations, which include the NASDAQ Global Select Market;

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The company does not have a controlling shareholder; and

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The company complies with the requirements of the securities laws and stock exchange regulations in the foreign jurisdiction where its shares are listed relating to the appointment of independent directors and composition of audit and compensation committees as applicable to companies that are incorporated under the laws of such foreign jurisdiction.

Pursuant to the Relief Regulations, Israeli public companies that meet the above conditions may opt to comply with the applicable rules in the foreign jurisdiction governing the appointment of independent directors and composition of audit and compensation committees as applicable to domestic issuers in the foreign jurisdiction (which with respect to the Company are the Nasdaq Listing Rules and the rules under the Securities Exchange Act of 1934 (the “Exchange Act”)) instead of complying with the Companies Law provisions relating to (i) the appointment of external directors; (ii) certain limitations on the employment or service of an outside director or his or her spouse, children or other relatives, following the cessation of the service as an outside director, by or for the company, its controlling shareholder or an entity controlled by the controlling shareholder; (iii) the composition, meetings and quorum of the audit committee; and (iv) the composition and meetings of the compensation committee. If a company has elected to avail itself from the requirement to appoint external directors and at the time a director is appointed all members of the board of directors are of the same gender, a director of the other gender must be appointed.

Following analysis of our qualification to rely on the exemption, in September 2016, our Board of Directors determined to adopt the exemption, effective as of November 1, 2016. If in the future we were to have a controlling shareholder, we would again be required to comply with the requirements relating to external directors and the composition of the audit committee and compensation committee under Israeli law.

Director Independence

In accordance with exemptions from the Israeli law requirements to have external directors serving on our Board of Directors, we comply with the director independence requirements and the audit committee and the compensation committee composition requirements under U.S. laws (including applicable Nasdaq Capital Market rules) applicable to U.S. domestic issuers. In addition, the composition of our corporate governance and nominating committee complies with the requirements of the Nasdaq Capital Market rules applicable to U.S. domestic issuers. Under the Nasdaq Listing Rules, a majority of the board of directors must be comprised of independent directors (as defined in the Nasdaq Listing Rules). Our board of directors has made a determination of independence under the Nasdaq Listing Rules with respect to all directors, other than Mr. Ellwanger, our Chief Executive Officer, and Mr. Amir Elstein, the Chairman of our board of directors.Officer.

Audit Committee

Our audit committee currently consists of Mr. Yoav Z. Chelouche, Mr. Ilan Flato, Mr. Rami GuzmanAvi Hasson and Mrs. Iris Avner. Mr. Yoav Z. Chelouche serves as the audit committee chairman.

Composition requirements

The Companies Law requires public companies to appoint an audit committee; however, following the Company’s determination to follow the relief provided under the Relief Regulations, as described above, the composition of our audit committee is governed by the rules set forth in the Nasdaq Listing Rules and the Exchange Act.

Under the Nasdaq corporate governance rules,Listing Rules, we are required to maintain an audit committee consisting of at least three independent directors (within the meaning of the Exchange Act and Nasdaq Listing Rules), each of whom must meet certain requirements for financial literacy and one of whom has accounting or related financial management expertise, and none of whom has participated in the preparation of our or any of our subsidiaries financial statements at any time during the prior three years.

The Board of Directors has determined that all of the members of the audit committee meet the independence and financial knowledge requirements for audit committee service of the Nasdaq Listing Rules and the Exchange Act, as well as the Nasdaq Listing Rules requirement regarding financial sophistication. In addition, our Board of Directors has determined that each member of our audit committee is an audit committee financial expert pursuant to the applicable SEC rules.

Audit Committee role

Our board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent with the Companies Law, the SEC rules and the Nasdaq Listing Rules, which include:

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retaining and terminating our independent auditors, subject to the ratification of the board of directors, and in the case of retention, to that of the shareholders, as applicable in accordance with the Companies Law;

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pre-approving of audit and non-audit services and related fees and terms, to be provided by the independent auditors;

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overseeing the accounting and financial reporting processes of our company and audits of our financial statements, the effectiveness of our internal control over financial reporting and making such reports as may be required of an audit committee under the rules and regulations promulgated under the Exchange Act;

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reviewing with management and our independent auditor our annual and quarterly financial statements prior to publication or filing (or submission, as the case may be);

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recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement fees and terms, in accordance with the Companies Law as well as approving the yearly or multi-year plan proposed by the internal auditor, and review the results and findings of internal audits;

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overviewing Company risk assessment and reviewing regulatory compliance;

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determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest) and whether any such transaction is extraordinary or material under Companies Law;

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determining whether a competitive process must be implemented for the approval of certain transactions with controlling shareholders or its relative or in which a controlling shareholder has a personal interest (whether or not the transaction is an extraordinary transaction), under the supervision of the audit committee or other party determined by the audit committee and in accordance with standards to be determined by the audit committee, or whether a different process determined by the audit committee should be implemented for the approval of such transactions;

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determining the process for the approval of certain transactions with controlling shareholders or in which a controlling shareholder has a personal interest that the audit committee has determined are not extraordinary transactions but are not immaterial transactions; and

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responsible for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees.

Compensation Committee

Our compensation committee is comprised of Mr. Rami Guzman,Ilan Flato, Mr. Ilan FlatoAvi Hasson and Mrs. Dana Gross. Mr. Rami GuzmanMrs. Dana Gross serves as the compensation committee chairman.chairperson.

Composition requirements

The Companies Law requires public companies to appoint a compensation committee; however, following the Company’s determination to adopt the relief provided under the Relief Regulations, as described above, the composition of our compensation committee is governed by the rules set forth in the Nasdaq Listing Rules and the Exchange Act.

Under the Nasdaq Listing Rules, we are required to maintain a compensation committee consisting of at least two directors, each of whom is an independent director within the meaning of the Nasdaq Listing Rules.

The Board of Directors has determined that all of the members of the compensation committee meet the independence requirements for compensation committee service of the Nasdaq Listing Rules and the Exchange Act.

Compensation Committee role

Our board of directors adopted a compensation committee charter, which sets forth the responsibilities of the compensation committee consistent with the Nasdaq Listing Rules and the requirements for compensation committees under the Companies Law, including the following:

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recommending to the Board of Directors for its approval (i) a compensation policy for officers and directors, (ii) once every three years, whether to extend the compensation policy, subject to receipt of the required corporate approvals approval (either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); and (iii) periodic updates to the compensation policy. In addition, the compensation committee is required to periodically review the implementation of the compensation policy;

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approving transactions relating to the terms of office and employment of office holders (within the meaning of the Companies Law), which require the approval of the compensation committee pursuant to the Companies Law; and

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reviewing and approving equity grants to non-executive employees under our equity-based incentive plans.

NominationCorporate Governance and Nominating Committee

Our nominationcorporate governance and nominating committee is comprised of Mr. Kalman Kaufman, Mrs. Dana Gross, Mr. Rami GuzmanMs. Michal Vakrat Wolkin and Yoav Z. Chelouche. Mr. Kalman Kaufman serves as the nominationcorporate governance and nominating committee chairman.

Our board of directors has adopted a nominationcorporate governance and nominating committee charter setting forth the responsibilities of the nominationcorporate governance and nominating committee, which include:

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overseeing and assisting our board of directors in reviewing and recommending nominees for election as directors;

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assessing the performance of the members of our board of directors;

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reviewing and recommending to our board of directors the structure and members of committees of the board; and

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assisting our board of directors in carrying out its responsibilities related to chief executive officer succession planning.planning;

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reviewing and overseeing our corporate governance practices and communication plans for shareholder meetings and to promote effective communication for shareholder meetings; and

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overseeing our commitment to Environmental, Social and Governance (ESG) matters and advising our board of directors on such matters.

Internal Auditor

Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor, who is recommended by the audit committee. The role of the internal auditor is to examine, among other matters, whether the company’s actions comply with the law and orderly business procedure. Under the Companies Law, the internal auditor may be an employee of the company but not an office holder (within the meaning of the Companies Law) or an interested party (i.e., a person who holds more than 5% of the Company’s outstanding shares or voting rights or who has the power to appoint a director or the general manager of the company) or a relative of an office holder or interested party, and may not be the company’s independent auditor or its representative. Joseph GinossarGabriel David, an employee of Fahn Kanne, an affiliate of Grant Thornton International,our company, serves as our internal auditor.

Director Service Contracts

Other than under the employment agreement with Mr. Russell Ellwanger, our Chief Executive Officer and a director, as detailed in “Item 6. Directors, Senior Management and Employees—B. Compensation,” we do not have written agreements with any director providing for benefits upon the termination of his or her services with our Company.

D. EMPLOYEES

The following table sets forth for the last three fiscal years, the number of our employees engaged in the specified activities.