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UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 20F

|o | REGISTRATION
  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
  1934
|- | --------------------------------------------------------------------------------------------------

OR

|x | ANNUAL
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------

| |  | For the fiscal year ended December 31, 2003
| |  | -------------------------------------------

OR

|o | TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------------

| |  | For the
  transition period from ___________________ to ___________________
| |  | ---------------------------------------------------------------------------
| |  |                                                                            
| |  | Commission
  file number 0-28724                                           

|ORCKIT COMMUNICATIONS LTD.                                                                                
|----------------------------------------------------------------------------------------------------------
|                                                                                                          
|(Exact name of Registrant as specified in its charter
  and translation of Registrants name into English)

|ISRAEL                                         
|-----------------------------------------------
|                                               
|(Jurisdiction of incorporation or organization)

|126 Yigal Allon Street, Tel Aviv 67443,
  Israel
|------------------------------------------------
|                                                
|(Address of principal executive offices)        

Securities registered or to be registered pursuant to Section 12(b) of
the Act.

|Title of
  each class |  | Name of each
  exchange on which registered
|--------------------- |  | -------------------------------------------
|None                  |  |                                            
|                      |  |                                            

Securities
registered or to be registered pursuant to Section 12(g) of the Act.

|Ordinary Shares, no par value
|-----------------------------
|                             
|(Title of Class)             

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.

|None            
|----------------
|                
|(Title of Class)

|Indicate
  the number of outstanding shares of each of the issuers classes of capital
  or common stock as of the close of the period covered by the annual report.                                                                                                                                                                                               |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------
|As
  of December 31, 2003, the Registrant had outstanding 4,334,980 Ordinary
  Shares, no par value.                                                                                                                                                                                                                                                               |           
|Indicate
  by check mark whether the Registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the Registrant was
  required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days. | Yesx
  Noo

|Indicate
  by check mark which financial statement item the Registrant has elected to
  follow. | Item 17oItem
  18x
|----------------------------------------------------------------------------------------------- | ------------------

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PART I

Unless the
context otherwise requires, Orckit, us, we and our refer to Orckit
Communications Ltd. and its subsidiaries.

ITEM
1.          IDENTITY OF
DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not
applicable

ITEM
2.          OFFER STATISTICS
AND EXPECTED TIMETABLE

Not
applicable

ITEM
3.          KEY INFORMATION

A.       SELECTED
FINANCIAL DATA

The
following selected consolidated financial data as of December 31, 2002 and 2003
and each of the years ended December 31, 2001, 2002 and 2003 are derived from
our audited consolidated financial statements set forth elsewhere in this
Annual Report, which have been prepared in accordance with generally accepted
accounting principles in the United States. 
The selected consolidated financial data for the years ended December
31, 1999 and 2000 and as of December 31, 1999, 2000 and 2001 are derived from
audited consolidated financial statements not appearing in this Annual
Report. The selected consolidated
financial data set forth below should be read in conjunction with Item 5.
Operating and Financial Review and Prospects and the consolidated financial
statements and the notes thereto and the other financial information appearing
elsewhere in this Annual Report.

On June 30,
2000, our business was formally divided into two separate companies: (i) Tikcro
Technologies Ltd. (formerly named Tioga Technologies Ltd.), an Israeli company,
to which we transferred substantially all of our former semiconductor business,
including the business of Silicon Value Ltd., and (ii) Orckit, which continues
to own and operate our existing telecom equipment and other businesses. As part of the spin-off, we transferred to
Tikcro substantially all the assets and liabilities constituting our
semiconductor business in exchange for Tikcro ordinary shares, and distributed
all of those Tikcro shares as a stock dividend to our shareholders on a share
for share basis. The results of Tikcro
are included in our financial statements through June 30, 2000.

All share
and share price information in this Annual Report has been adjusted to give
retroactive effect to (i) an adjustment allocating 44% of our share price to
each share of Orckit and 56% of our share price to each share of Tikcro for all
periods prior to our spin-off of Tikcro on June 30, 2000 and (ii) a
one-for-five reverse split of our ordinary shares that became effective as of
November 27, 2002.

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|                                                                      |  | 1999                                    |         | 2000 |   | 2001     |   | 2002 |         | 2003 |  
|--------------------------------------------------------------------- |  | --------------------------------------- | ------- | ---- | - | -------- | - | ---- | ------- | ---- | -
|                                                                      |  |                                         |         |      |   |          |   |      |         |      |  
|                                                                      |  | (in
  thousands, except per share data) |        
|Statement of Operations
  Data:                                       |  |                                         |        
|Revenues                                                              |  | $                                       | 88,864  |      | $ | 131,867  |   | $    | 141,647 |      | $
|Cost of revenues                                                      |  |                                         | 84,502  |      |   | 133,671  |   |      | 112,007 |      |  
|                                                                      |  |                                         |         |      |   |          |   |      |         |      |  
|Gross profit
  (loss)                                                 |  |                                         | 4,362   |      |   | (1,804   | ) |      | 29,640  |      |  
|Research and
  development
  expenses                                 |  |                                         | 18,195  |      |   | 31,970   |   |      | 22,429  |      |  
|Less grants                                                           |  |                                         | 2,409   |      |   | 1,110    |   |      | 3,344   |      |  
|Research and
  development
  expenses, net                            |  |                                         | 15,786  |      |   | 30,860   |   |      | 19,085  |      |  
|Selling,
  general and
  administrative expenses                      |  |                                         | 16,151  |      |   | 33,561   |   |      | 16,993  |      |  
|                                                                      |  |                                         |         |      |   |          |   |      |         |      |  
|Acquisition
  of research and
  development In-process                |  |                                         | -       |      |   | 28,976   |   |      | -       |      |  
|Amortization
  and impairment
  of goodwill                           |  |                                         | -       |      |   | 14,334   |   |      | 26,101  |      |  
|Operating
  loss                                                      |  |                                         | (27,575 | )    |   | (109,535 | ) |      | (32,539 | )    |  
|Financial
  income, net                                               |  |                                         | 2,653   |      |   | 1,975    |   |      | 33,395  |      |  
|Other income                                                          |  |                                         | -       |      |   | 906      |   |      | -       |      |  
|                                                                      |  |                                         |         |      |   |          |   |      |         |      |  
|Net income
  (loss)                                                   |  | $                                       | (24,922 | )    | $ | (106,654 | ) | $    | 856     |      | $
|Net income
  (loss) per share 
  basic                               |  | $                                       | (6.80   | )    | $ | (24.6    | ) | $    | 0.18    |      | $
|Net income
  (loss) per share 
  diluted                             |  | $                                       | (6.80   | )    | $ | (24.6    | ) | $    | 0.18    |      | $
|Weighted
  average number of
  ordinary shares outstanding-
  basic   |  |                                         | 3,668   |      |   | 4,332    |   |      | 4,632   |      |  
|Weighted
  average number of
  ordinary shares outstanding-
  diluted |  |                                         | 3,668   |      |   | 4,332    |   |      | 4,875   |      |  

3

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|                                                                                                            |  | Year Ended
  December 31, |        
|----------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------
|                                                                                                            |  |                           |        
|                                                                                                            |  | 1999                      |        
|                                                                                                            |  |                           |        
|                                                                                                            |  | (in
  thousands)          |        
|Balance Sheet Data:                                                                                         |  |                           |        
|Cash, cash
    equivalents ,
    bank deposits,
    marketable securities
    and long-term
    investments |  | $                         | 51,049 
|Working
  capital (1)                                                                                       |  |                           | 85,399 
|Total assets                                                                                                |  |                           | 127,169
|Convertible
  Subordinated
    Notes                                                                        |  |                           | -      
|Share
  capital and
    additional paid -in
    capital                                                     |  |                           | 138,023
|Shareholders
  equity                                                                                      |  | $                         | 91,547 

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(1)     Total current assets net of total
current liabilities

B.      CAPITALIZATION
AND INDEBTEDNESS

Not
applicable

C.      REASONS
FOR THE OFFER AND USE OF PROCEEDS

Not
applicable

D.      RISK
FACTORS

We
believe that the occurrence of any one or some combination of the following
factors could have a material adverse effect on our business, financial
condition and results of operations.

Risks relating to
our business and industry

We have a history of substantial losses and
might not become profitable on an operating basis.

Through
December 31, 2003, we had incurred aggregate net losses of approximately $259
million. Losses included a charge of approximately $90 million in 2000 as a
result of the spin-off of Tikcro and aggregate charges of $69 million in 2000
and 2001 for the amortization and impairment of goodwill and in process
research and development with respect to companies we acquired. Our operating
losses were offset by an aggregate of approximately $56 million of financial
income we recognized during the past three years, primarily from the early
retirement of our convertible subordinated notes. We incurred a significant portion of our operating losses during
the period through 2002 when our primary business was the sale of asymmetric
digital subscriber line, or ADSL, products. 
We no longer sell these products. Since 2001 we have invested
significant funds in technology projects, mainly for new telecom equipment
products addressing high transmission of data for the metropolitan and access areas, through our majority-owned
Corrigent and Spediant subsidiaries. As of December 31, 2003, we have not
generated any revenues from the sale of products being developed by these
subsidiaries. We may not be able to
achieve profitability. Even if we
achieve profitability, we may not be able to sustain it.

4

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We may not be able to generate revenues from
new products.

Our
revenues have declined significantly from $141.6 million in 2001 to $53.4
million in 2002 and $1.7 million in 2003 due to the winding down of our legacy
ADSL business. We do not expect to generate additional revenues from our legacy
ADSL products. In addition, our new
Corrigent and Spediant products are not expected to generate significant
revenues in 2004. Unless we are able to
develop and sell new and innovative products that are accepted in the
marketplace, it will be difficult for us to generate significant revenues. We cannot be sure that we will be able to do
this.

The slow down in capital expenditures by
telecommunications service providers has had and could continue to have a
material adverse effect on our results of operations.

The global
deterioration of the economy and economic uncertainty in the telecommunications
market resulted in a curtailment of capital investment by telecommunications
carriers and service providers beginning late in 2000 and continuing throughout
2002 and into 2003. There is still uncertainty with respect to the direction of
the economy and the telecommunications market. Many service providers have
failed and existing service providers have been reducing or delaying expenditures
on new equipment and applications. It is expected that capital investment by
wireline telecom carriers in 2004 will be similar to the levels in 2003. A flat
capital investment environment is likely to have negative effect on the demand
for new technologies and new types of equipment. This could have an adverse
affect on us as we attempt to sell the products being developed by Corrigent
and Spediant and, as a result, negatively affect our operating results.

We plan to continue to invest substantial capital
and other resources in the development and commercial launch of new telecom
equipment.

We continue
to fund Corrigent in the development of solutions capable of supporting high
bandwidth services in telecommunications networks located in metropolitan
areas, as well as Spediant in the development of solutions addressing the needs
of service providers for fiber-speed broadband services over copper wires.
Substantially all of our operating expenses in 2003 related to these efforts.
We expect to have a negative cash flow from operations for at least 2004 and
2005. The curtailment of capital
investment by telecommunications carriers and service providers could have a
material adverse effect on the commercial deployment of these technology
projects. Our financing of these
projects is expected to continue to reduce our cash balances.

We may need additional financing to continue
our growth.

To the
extent that we cannot fund our activities through our existing resources, we may
need to raise funds through public or private financing. We may be unable to obtain additional
financing on acceptable terms or at all and we may have to significantly
curtail our operations. To obtain funds
through arrangements with strategic partners or others, we may need to
relinquish rights to certain of our technologies or potential markets.

5

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Our future growth will depend upon the
acceptance of the technologies developed by Corrigent and Spediant and the
development of markets for their products.

The markets
for products by Corrigent are dependant on resilient packet ring, or RPR,
technology. The market for products
based on RPR technology may not fully develop, whether as a result of
competition, alternative technologies, such as Ethernet over fiber in the metro
area, changes in technology, product standards or otherwise. The markets for
products by Spediant are dependant on multi-copper wire and inverse
multiplexing technology. The market for products based on this technology may
not fully develop, whether as a result of competition, alternative
technologies, such as long-reach digital subscriber line technology, known as
DSL technology, in the access area, changes in technology, product standards or
otherwise. Our success depends on the acceptance of the products and
technologies of Corrigent and Spediant. We have no control over the development
of these target markets. Even if they
develop technologies that are accepted, each must develop relationships with
providers of telecommunications services in order to be successful.
Furthermore, competing technologies in the targeted areas may be utilized in
the majority of such target markets. This would leave Corrigent and Spediant
with a small market to address.

We may not be able to
keep pace with emerging industry standards for products we are developing. This
could make these products more costly or unacceptable to potential customers.

Industry-wide
standards for RPR products are expected to be adopted in 2004, but adoption may
be delayed and proposed standards may be changed. The adoption of standards different from those currently proposed
could result in us having to incur additional time and expense to have our
products comply with these standards. Industry standards for the bonding of
copper pair technology are in early stage of discussions and have not yet been
adopted. The failure to comply with evolving standards could limit acceptance
of our products. Since our products
will be integrated into networks consisting of elements manufactured by various
companies, they must comply with a number of current and future industry
standards and practices established by various international bodies and
industry forums. Standards may be adopted by various industry groups or may be
proprietary and nonetheless accepted broadly in the industry. It may take us a
significant amount of time to develop and design products incorporating these
new standards. We may also have to pay licensing fees to the developers of the
technologies that constitute newly adopted standards.

Because telephone
companies must obtain in-house and regulatory approvals before they can order
our products, expected sales of new products in development are likely to be
subject to delays, which may harm our business.

Before
telephone companies can purchase our products that are being developed, these
products must undergo a lengthy approval process. Evaluation can take several years. Accordingly, we are required
to submit enhanced versions of products in development for approval.

6

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The
following factors, among others, affect the length of the approval process:

| |  | the time required for telephone companies to determine and publish
  specifications;
| | - | ------------------------------------------------------------------------------------
| |   |                                                                                     
| |  | the complexity of the products involved;                                            
| |   |                                                                                     
| |  | the technological priorities and budgets of telephone companies; and                
| |   |                                                                                     
| |  | the regulatory requirements applicable to telephone companies.                      

Delays
in the product approval process could seriously harm our business and results
of operation.

Because of rapid
technological and other changes in the market for telecommunications products,
we must continually develop and market new products and product enhancements
while reducing production costs.

The market
for our products is characterized by:

| |  | rapid technological change;                        
| | - | ---------------------------------------------------
| |   |                                                    
| |  | frequent product introductions and enhancements;   
| |   |                                                    
| |  | evolving industry standards;                       
| |   |                                                    
| |  | changes in end-user requirements; and              
| |   |                                                    
| |  | changes in services offered by telephone companies.

Technologies
or standards applicable to our products could become obsolete or fail to gain
widespread, commercial acceptance, resulting in losses and inventory
write-offs. Rapid technological change and evolving technological standards are
resulting in shorter life cycles for our products. Shorter life cycles for our
products could cause decreases in product prices at the end of the product life
cycle, inventory write-offs and a lower rate of return on our research and
development expenditures. We may not be able to respond effectively to
technological changes or new product announcements by others or successfully
develop or market new products.

Our quarterly results
of operations have fluctuated significantly in the past and we expect these
fluctuations to continue if our products in development begin to generate
revenues.

The
following factors have affected our quarterly results of operations in the past
and are likely to affect our quarterly results of operations in the future if
we are able to sell commercial quantities of products currently in development:

| |  | size and
  timing of orders, including order deferrals and delayed shipments;
| | - | -----------------------------------------------------------------------------
| |   |                                                                              
| |  | launching of
  new product generations;                                      
| |   |                                                                              
| |  | length of
  approval processes or market testing;                            
| |   |                                                                              
| |  | technological
  changes in the telecommunications industry;                  

7

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| |  | accuracy of
  telephone company, distributor and original equipment manufacturer forecasts
  of their customers demands;
| | - | -------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                          
| |  | changes in
  our operating expenses;                                                                                     
| |   |                                                                                                                          
| |  | the timing
  of approval of government research and development grants;                                                  
| |   |                                                                                                                          
| |  | disruption
  in our sources of supply;                                                                                   
| |   |                                                                                                                          
| |  | funding
  required for the operations of Corrigent and Spediant; and                                                     
| |   |                                                                                                                          
| |  | general
  economic conditions.                                                                                           

Telephone
companies typically require prompt delivery of products. Sales are typically
booked and shipped in the same quarter pursuant to purchase orders. As a result, we expect that once sales of
our new products commence, we will be required to maintain or have available
sufficient finished goods inventory levels to satisfy anticipated demand on a
timely basis. This increases the risk
of inventory obsolescence and associated write-offs. A shift in demand could also result in inventory write-offs.

The market for the telecommunication products
being developed by us is intensely competitive. Because many of our competitors
have much greater resources than we have, it may be difficult for us to effect
commercial sales or to achieve operating profitability.

The market
for our products that are currently in development is intensely competitive,
and we expect competition to increase in the future. Many of our competitors and potential competitors are large and
established companies and have better name recognition and greater financial,
technical, manufacturing, marketing and personnel resources than we have.
Increased competition could adversely affect our future revenues and ability to
become profitable on an operating basis through pricing pressure, loss of
market share and other factors.

The
competitors are numerous and we expect competition to increase in the
future. Our principal competitors for
our products include Alcatel, Cisco Systems, Inc., ECI Telecom Ltd., Fujitsu,
Lucent Technologies Inc., Nortel Networks and Siemens AG.

Government regulation of telephone companies
could adversely affect the demand for our products.

FCC
regulatory policies affecting the availability of U.S. telephone companies
services, and other terms on which telephone companies conduct their business, may
impede our penetration of certain markets. 
Telephone companies in the markets in other countries in which we
operate are also subject to evolving governmental regulation or state
monopolies. Changes in laws or
regulations in the U.S. or elsewhere, could materially adversely affect our
ability, and the ability of our customers, to penetrate certain markets.

8

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Because a limited number of subcontractors
are expected to manufacture and assemble our products and supply components,
our business could suffer if we cannot retain or replace them.

We use
third-party subcontractors to assemble our products. We do not expect to enter
into multi-year agreements with assurances of supply with any of our suppliers
or subcontractors.

Our expected
reliance on third-party subcontractors involves several risks, including:

| |  | the potential absence of adequate capacity if we are able to sell a
  significant amount of our products;
| | - | ---------------------------------------------------------------------------------------------------------
| |   |                                                                                                          
| |  | the unavailability of, or interruption in access to, certain process
  technologies; and                 
| |   |                                                                                                          
| |  | reduced control over product quality, delivery, schedules,
  manufacturing yields and costs.             

We
obtain certain key semiconductor components used in our products from a number
of single source providers. Shortages of raw materials or production capacity
constraints at our subcontractors could negatively affect our ability to meet
product delivery obligations and result in increased costs for affected
products that we may not be able to recover. Use of subcontractors also
involves the risk of reduced control over product quality, delivery schedules
and manufacturing yields, as well as limited negotiating power to reduce costs.

A shortage
in the supply of key semiconductor and other components could affect our ability
to manufacture and deliver our products and result in lower revenues. We may be unable to find alternative sources
in a timely manner, if at all, if any of our suppliers were unwilling or unable
to provide us with key components. If we cannot obtain sufficient key
components as required, or develop alternative sources if and as required in
the future, product shipments may be delayed or reduced. This could adversely
affect our end-user relationships, business and results of operations.

We could incur substantial costs if customers
assert warranty claims or request product recalls.

We expect
to offer complex products that may contain errors, defects or failures when
introduced or as new versions are released. If we deliver products with defects,
errors or bugs or if we undergo a product recall as a result of errors or
failures, market acceptance of our products could be lost or delayed and we
could be the subject of substantial negative publicity. This could have a
material adverse effect on our business and results of operations. We have agreed to indemnify our customers in
some circumstances against liability from defects in the products previously
sold by us and expect to provide a similar indemnity in connection with sales
of products currently in development. In some cases our indemnity also covers
indirect damages. Product liability claims could seriously harm our business,
financial condition and results of operations.

9

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We are subject to
international business risks.

We
are marketing our products in development primarily in the United States, Asia
and Europe. Accordingly, we are subject to the risks inherent in international
business, including:

| |  | compliance with foreign laws and regulations;
| | - | ---------------------------------------------
| |   |                                              
| |  | import or currency control restrictions;     
| |   |                                              
| |  | tariffs and other trade barriers;            
| |   |                                              
| |  | local taxation;                              
| |   |                                              
| |  | transportation delays; and                   
| |   |                                              
| |  | seasonal reduction of business activities.   

These
factors, as well as different technical standards or product requirements for
our systems in different markets, may limit our ability to penetrate some
foreign markets.

We depend on a limited number of key
personnel who would be difficult to replace. 
If we lose the service of these individuals, our business will be
harmed.

Orckits
growth and success largely depends on the managerial and technical skills of
members of senior management. If any of them is unable or unwilling to continue
with us, our results of operations could be materially and adversely affected.

Our proprietary technology is difficult to
protect and unauthorized use of our proprietary technology by third parties may
impair our ability to compete effectively.

We may not
be able to prevent the misappropriation of our technology, and our competitors
may independently develop technologies that are substantially equivalent or
superior to ours. We have filed patent
applications covering certain of our technologies.To protect our unpatented
proprietary know-how, we rely on technical leadership, trade secrets and
confidentiality and non-disclosure agreements. 
These agreements and measures may not adequately protect our technology
and it may be possible for a third party to copy or otherwise obtain and use
our technology without authorization or to develop similar technology.

There is a risk that we may violate the
proprietary rights of others.

We
are subject to the risk of adverse claims and litigation alleging infringement
of the intellectual property rights of other companies. Many participants in
the telecommunications industry have an increasing number of patents and patent
applications and have frequently commenced litigation based on alleged
infringement. We indemnify our customers with respect to infringement of third
party proprietary rights by our products. 
In the past, we received notices from other parties regarding alleged
violations of their proprietary rights. 
Third parties may assert infringement claims in the future and these
claims may require us to enter into license arrangements or result in costly
litigation, regardless of the merits of these claims. Licensing may be
unavailable or may not be obtainable on commercially reasonable terms.

10

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We are subject to risks from our financial
investments.

We invest the majority of our cash on hand in a variety of financial
instruments, including different types of corporate and government bonds, and
other financial instruments. Some of these bonds and
instruments may be rated below investment grade or not rated. If the
obligor of any of the bonds or instruments we hold defaults or undergoes a
reorganization in bankruptcy, we may lose all or a portion of our
investment in such obligor.  This will harm our financial condition. 
For information on the types of our investments as of December 31, 2003, see
Item 11 - Quantitative and Qualitative Disclosures About Market Risk-Interest
Rate Risk Management.

Risks relating to
our operations in Israel.

Potential political, economic or military
instability in Israel may adversely affect our results of operations.

Our
principal offices and many of our subcontractors and suppliers are located in
Israel. Accordingly, political, economic and military conditions in Israel
affect our operations. Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity, has led to
security and economic problems for Israel. 
Since October 2000, there has been a marked increase in hostilities
between Israel and the Palestinians, which has led to a crisis in the area and
adversely affected Israels relationship with several Arab countries. Any armed conflicts or political instability
in the region could negatively affect local business conditions and harm our
results of operations. We cannot
predict the effect on Orckit of the increase in the degree of violence by
Palestinians against Israel or the effect of military action elsewhere in the
Middle East. Furthermore, several
countries restrict doing business with Israel and Israeli companies, and
additional companies may restrict doing business with Israel and Israeli
companies as a result of the increase in hostilities. This may also seriously harm our operating results, financial
condition and the expansion of our business.

Our results of operations may be negatively
affected by the obligation of our personnel to perform military service.

Most of our
male employees in Israel are obligated to perform annual military reserve duty.
In addition, in the event of a military conflict or other attack on Israel,
including the ongoing conflict with the Palestinians, these persons could be
required to serve in the military for extended periods of time. The absence of a number of our officers and
employees for significant periods could disrupt our operations and harm our
business.

Because most of our revenues are generated in
non-Israeli currencies and a substantial portion of our expenses are incurred
in New Israeli Shekels, our results of operations may be adversely affected by
inflation and currency fluctuations.

Most of our
revenues are expected to be generated in U.S. dollars and other foreign
currencies, while the majority of our payroll expenses and a portion of our
other expenses are generated in New Israeli Shekels, or NIS. As a result, we are and could be further
exposed to risk that the rate of inflation in Israel may exceed the rate of
devaluation of the New Israel Shekel in relation to the dollar and other
foreign currencies or that the timing of such devaluation may lag behind
inflation in Israel. In that event, the dollar cost of our operations in Israel
would increase and our dollar-measured results of operations would be adversely
affected. For example, in 2003 the value of the U.S. dollar declined in
relation to the New Israeli Shekel by 7.6%, while the rate of deflation was
1.9%. As a result, our salary expenses, which are primarily linked to the New
Israeli Shekel, increased in U.S. dollar terms.

11

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---

We benefit from government grant programs
that have been reduced and may be unavailable to us in the future. Our
participation in these programs restricts our ability to freely transfer
manufacturing rights and technology out of Israel.

Since our
inception, we have relied on Israeli government grants for the financing of a
significant portion of our product development expenditures. We have applied to
Israels Office of the Chief Scientist for grants for our contemplated 2004
research and development projects. Due to a reduction of the 2004 budget of
Israels Office of the Chief Scientist, it is expected that the amounts of our
grants will be lower than in prior years. 
This would result in an increase in our research and development
expenses.

According
to Israeli law, any products developed with grants from the Office of the Chief
Scientist are required to be manufactured in Israel, unless we obtain prior
approval of a governmental committee. 
As a condition to obtaining this approval, we may be required to pay the
Office of the Chief Scientist up to 300% of the grants we received and to repay
these grants at an accelerated rate. In
addition, we are prohibited from transferring to third parties in Israel the
technology developed with these grants without the prior approval of a
governmental committee and we are prohibited from transferring such technology
to third parties outside Israel. See Item 5 - Operating and Financial
Review and Prospects - Liquidity and Capital Resources  Government and Other
Grants for additional information about these programs of the Office of the
Chief Scientist.

The tax benefits that we currently receive
require us to meet several conditions and may be terminated or reduced in the
future, which would increase our taxes.

We benefit
from certain government programs and tax benefits, particularly as a result of
the Approved Enterprise status of most of our existing facilities. If we fail to meet eligibility conditions in
the future, the tax benefits could be canceled and we may be required to refund
the tax benefits already received. The
applicable law regarding approved enterprise programs is scheduled to expire on
June 30, 2004. Accordingly, requests
for new programs or expansions that are not approved on or before June 30, 2004
will not confer any tax benefits, unless the term of the law will be extended. These tax benefits may not continue in the
future at their current levels or at any level. From time to time, we submit requests for expansion of our
approved enterprise programs or for new programs to be designated as approved
enterprises. These requests might not
be approved, particularly in light of difficult economic conditions in
Israel. The termination or reduction of
these tax benefits could seriously harm our financial condition and results of
operations.

It may be difficult to enforce a U.S.
judgment against us, our officers and directors and our Israeli auditors or to
assert U.S. securities law claims in Israel.

Service of
process upon our directors and officers and our Israeli auditors may be
difficult to effect in the United States because almost all these parties
reside outside the United States. Any
judgment obtained in the United States against such parties may be
unenforceable outside the United States.

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It is not
clear whether civil liabilities under the Securities Act and the Securities
Exchange Act can be enforced in Israel. 
However, subject to time limitations, Israeli courts may enforce a U.S.
judgment in a civil matter, if:

| |  | adequate service of process has been effected and the defendant has
  had a reasonable opportunity to be heard;                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                    
| |  | the judgment and its enforcement are not contrary to the law, public
  policy, security or sovereignty of the State of Israel;                                     
| |   |                                                                                                                                                                    
| |  | the judgment was rendered by a court of competent jurisdiction, in
  compliance with due process and the rules of private international law
  prevailing in Israel;
| |   |                                                                                                                                                                    
| |  | the judgment was not obtained by fraudulent means and does not
  conflict with any other valid judgment in the same matter between the same
  parties;             
| |   |                                                                                                                                                                    
| |  | no action between the same parties in the same matter is pending in any
  Israeli court at the time the lawsuit is instituted in a U.S. court; and                 
| |   |                                                                                                                                                                    
| |  | the U.S. courts are not prohibited from enforcing judgments of the
  Israeli courts.                                                                               

Foreign
money judgments enforced in Israel, are generally awarded in New Israeli
Shekels, based on the U.S. Dollar/NIS exchange rate in effect on the date of
payment. The NIS can be converted into
non-Israeli currency and transferred out of Israel. Pending collection, the amount of the NIS-denominated judgment is
linked to the Israeli CPI and accrues interest at the annual statutory rate set
by Israeli law. Judgment creditors bear
the risk of unfavorable exchange rates.

Provisions of Israeli law may delay, prevent
or make more difficult an acquisition of Orckit, which could depress our share
price.

The Israeli
Companies Law generally requires that a merger be approved by the board of
directors and a majority of the shares voting on the proposed merger. Unless a court rules otherwise, the merger
will not be deemed approved if a majority of the shares present that are held
by parties other than the other party to the merger (or by any person who holds
25% or more of the shares or the right to appoint 25% or more of the directors
of the other party) vote against the merger.  Upon the request of any creditor of a party to the proposed
merger, a court may delay or prevent the merger if it concludes that there is a
reasonable concern that, as a result of the merger, the surviving company will
be unable to satisfy its obligations. 
In addition, a merger may not be completed unless at least 70 days have
passed since the filing of the requisite merger proposal by each party with the
Israeli Registrar of Companies.

Also, in
certain circumstances an acquisition of shares in a public company must be made
by means of a tender offer if as a result of the acquisition the purchaser
would become a 25% or greater or 45% or greater shareholder of the company
(unless there is already a 25% or greater or a majority shareholder of the company,
respectively). If, as a result of an
acquisition, the acquirer would hold more than 90% of a companys shares, the
acquisition must be made by means of a tender offer for all of the shares.

13

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Additionally,
Israeli tax law treats some acquisitions, such as stock-for-stock exchanges
between an Israeli company and a foreign company, less favorably than U.S. tax
laws. For example, Israeli tax law may,
under certain circumstances, subject a shareholder who exchanges his ordinary
shares for shares in another corporation to taxation prior to the sale of the
shares received in such stock-for-stock swap.

The
described restrictions could prevent or make more difficult an acquisition of
Orckit, which could depress our share price.

Risks relating to
the Market for our Ordinary Shares

Holders of our ordinary shares who are United
States residents face income tax risks.

There
is a high likelihood that we would be deemed to have been a passive foreign
investment company, or PFIC, for 2001, 2002 and 2003. Our treatment as a PFIC could result in a reduction in the
after-tax return to the United States holders of our ordinary shares, thus
causing a reduction in the value of our shares, and could trigger the
application of certain United States tax reporting requirements. For U.S. federal income tax purposes, we are
treated as a PFIC for any taxable year in which either:

| |  | 75% or more of our gross income is passive income, or                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                          
| |  | at least 50% of the average value of all of our assets for the
  taxable year produce, or are held for the production of, passive income.

For
this purpose, passive income includes dividends, interest, royalties, rents,
annuities and the excess of gains over losses from the disposition of assets
which produce passive income. As a result of our relatively substantial cash
and investment assets and the decline in value of our ordinary shares, there is a high likelihood that we
would be deemed to have been a PFIC in 2001, 2002 and 2003 under the asset
test. We could also be deemed a PFIC in
2004. A separate determination must be
made each year as to whether we are a PFIC. 
As a result, our PFIC status may change.

Highly
complex rules apply to any U.S. holder of our ordinary shares if we are treated
as a PFIC for U.S. federal income tax purposes for any year during such U.S.
holders holding period. Accordingly,
U.S. holders are urged to consult their tax advisors regarding the application
of these tax rules.

United
States residents should carefully read Item 10.E Taxation  United States for
a more complete discussion of the U.S. federal income tax risks related to
owning and disposing of our ordinary shares and the consequences of PFIC
status.

We do not intend to pay cash dividends.

On June 30,
2000, we distributed a stock dividend on a share-for-share basis of all our
shares of Tikcro. We have never
declared or paid any cash dividends on our ordinary shares. We currently intend to retain future
earnings, if any, for funding growth. 
Accordingly, we do not expect to pay any cash dividends in the
foreseeable future.

14

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Two shareholders may be able to control
Orckit.

As of March
31, 2004, Eric Paneth and Izhak Tamir our largest shareholders, each beneficially
owns an aggregate of 751,771 ordinary shares representing 16.7% of our
outstanding ordinary shares, including (i) 18,750 ordinary shares issuable upon
the exercise of options that are currently vested or vest within the next 60
days and (ii) the right to purchase 140,000 shares from us, at any time or from
time to time in one or more purchases until February 27, 2005. The purchase price for the ordinary shares
under such right to purchase will be equal to the average closing price of our
ordinary shares on Nasdaq over the ten trading days immediately preceding the
purchase date, plus a premium of 10%. Both are executive officers and members
of our Board of Directors. Currently, Messrs. Paneth and Tamir are not party to
a shareholders agreement. However, if Messrs. Paneth and Tamir act together,
they may have the power to control the outcome of matters submitted for the
vote of shareholders, including the approval of significant change in control
transactions. The equity interest in Orckit of Mr. Paneth and Mr. Tamir may
make certain transactions more difficult and result in delaying or preventing a
change in control of Orckit unless approved by one or both of them.

Our shareholder bonus rights plan and the
conversion features of the Corrigent Option Plan may delay, prevent or make
more difficult a hostile acquisition of Orckit, which could depress our share
price.

In November
2001, we adopted a shareholder bonus rights plan pursuant to which share
purchase bonus rights were distributed to our shareholders. These rights generally will be exercisable
and transferable apart from our ordinary shares only if a person or group
acquires beneficial ownership of 15% or more of our ordinary shares, or
commences a tender or exchange offer upon consummation of which that person or
group would hold such a beneficial interest. 
Once these rights become exercisable and transferable, the holders of
rights, other than the person or group triggering their transferability, will
be generally entitled to purchase our ordinary shares at a discount from the
market price. The rights will expire on
December 31, 2011. While these rights
remain outstanding, they may make an acquisition of us more difficult and
result in delaying or preventing a change in control of Orckit. Subject to the approval of the Board of
Directors of each of Orckit and Corrigent, and based on the relative fair
market value of each of relevant companies, options granted by Corrigent may be
exercised to acquire shares of Orckit. This conversion could also delay or
prevent a change of control of Orckit.

Our stock price has fluctuated significantly
and could continue to fluctuate significantly.

The market
price for our ordinary shares, as well as the prices of shares of other
technology companies, has been volatile. 
The following factors may cause significant fluctuations in the market
price of our ordinary shares:

| |  | fluctuations in our quarterly revenues and earnings or those of our
  competitors;       
| | - | -----------------------------------------------------------------------------------------
| |   |                                                                                          
| |  | shortfalls in our operating results compared to levels forecast by
  securities analysts;
| |   |                                                                                          
| |  | announcements concerning us, our competitors or telephone companies;                     

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| |  | announcements of technological innovations;                                                        
| | - | ---------------------------------------------------------------------------------------------------
| |   |                                                                                                    
| |  | the introduction of new products;                                                                  
| |   |                                                                                                    
| |  | changes in product price policies involving us or our competitors;                                 
| |   |                                                                                                    
| |  | market conditions in the industry;                                                                 
| |   |                                                                                                    
| |  | the conditions of the securities markets, particularly in the
  technology and Israeli sectors; and
| |   |                                                                                                    
| |  | political, economic and other developments in the State of Israel and
  world-wide.                

In
addition, stock prices of many technology companies fluctuate significantly for
reasons that may be unrelated or disproportionate to operating results. The factors discussed above may depress or
cause volatility of our share price, regardless of our actual operating
results.

Our ordinary shares are listed for trading in
more than one market and this may result in price variations.

Our
ordinary shares are listed for trading on the Nasdaq Stock Market, or Nasdaq,
and on The Tel Aviv Stock Exchange, or TASE. Trading in our ordinary shares on
these markets is made in different currencies (U.S. dollars on Nasdaq and New
Israeli Shekels on TASE), and at different times (resulting from different time
zones, different trading days and different public holidays in the United
States and Israel). Actual trading volume on the TASE is insignificant and as
such is subject to volatility. The trading prices of our ordinary shares on
these two markets often differ, resulting from the factors described above, as
well as differences in exchange rates. Any decrease in the trading price of our
ordinary shares on one of these markets could cause a decrease in the trading
price of our ordinary shares on the other market.

ITEM
4.          INFORMATION ON
THE COMPANY

A.       HISTORY
AND DEVELOPMENT OF THE COMPANY

Our History

Orckit Communications Ltd. was incorporated in 1990 under the laws of
the State of Israel. Our principal executive offices are located at 126 Yigal
Allon Street, Tel Aviv 67443 Israel and our telephone number is (972-3)
6962121. Our agent in the United States, Puglisi & Associates, is located
at 850 Library Avenue, Suite 204 Newark, Delaware 19711.

Major Developments since January 1, 2003

We
continued to fund the development and marketing efforts of the technology and
products of Corrigent and Spediant, addressing the need for solutions capable
of supporting very high bandwidth services. Corrigent is in the process of
developing and commercializing telecommunication equipment supporting high
bandwidth services over fiber networks in telecommunications networks located
in metropolitan areas. Spediant is in the process of developing and
commercializing telecommunication equipment supporting high bandwidth services
over DSL lines in telecommunications networks located in access areas. Access areas include the first mile of the
network, up to the facilities of the end user. 
We intend to continue to fund the operations of Corrigent and Spediant
from our existing working capital. Substantially all of our operating expenses
in 2003 were related to these efforts.

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Corrigent Systems

Corrigent
is developing products and technology that address the need for
telecommunication transport solutions capable of supporting high bandwidth data
and voice services in metro networks. Corrigents target customers are
telecommunications service providers active in metropolitan areas, with a focus
on incumbent local exchange carriers. 
Corrigents solution is being designed to enable the provision and
management of data and voice transport services in an efficient manner that is
expected to reduce the costs of transport service providers. Supporting
fiber-optic infrastructures, Corrigents system is planned to include a range
of data and voice interfaces.

The
Corrigent solution is being designed to comply with telecommunications
standards and to support emerging telecommunications protocols. It is designed for efficient transport of
Internet protocol information, while providing the reliability necessary for
the transport of voice services. As of
December 31, 2003, Corrigent had 114 employees in the areas of product
planning, business development, marketing and sales, research and development,
system engineering and administration.
Corrigent has offices in Israel, the United States and Japan.

Corrigent
has granted, and reserved for grant, options under the Corrigent Stock Option
Plan and other employee plans, as applicable, to its employees, consultants,
officers and directors. In addition, in order to attract and retain highly
qualified personnel of Orckit, employees, officers and directors of Orckit were
reserved and granted shares and options to purchase shares of Corrigent. As of
December 31, 2003, Corrigent had granted, or reserved for future grant, options
and shares to the directors, employees and consultants of Corrigent and Orckit,
at a nominal price, representing approximately 30% of its share capital on a
fully diluted basis. These options generally
vest up to four years from the date of grant and, at the discretion of Orckit
and Corrigent, are convertible into Orckits ordinary shares. Orckits equity interest in Corrigent, which
represented approximately 70% of Corrigents shares on a fully diluted basis as
of December 31, 2003, may be further diluted by future share issuances by
Corrigent, if Corrigent should engage in a financing transaction to assist in
funding its operations.

Spediant Systems

Spediant is
developing products and technologies that address the needs of service
providers for fiber-speed broadband services over the existing copper wire
infrastructure. Spediants products are expected to primarily address the
growing demand for Ethernet-based services. Spediant products are being
designed to allow providers to increase their broadband services offerings and
customer bases, deliver greater bandwidth to small and medium enterprises, or
SMEs, and obviate the need for capital expenditures associated with deployment
of new fiber. As of December 31, 2003, Spediant had 37 employees in the areas
of product planning, research and development and marketing. Spediant has
offices in Israel and the United States.

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Spediant
has granted, and reserved for grant, options under the Spediant Stock Option
Plan and other employee plans, as applicable, to its employees, consultants,
officers and directors. In addition, in order to attract and retain highly
qualified personnel of Orckit, employees, officers and directors of Orckit were
reserved and granted options to purchase shares of Spediant. As of December 31,
2003, Spediant had granted, or reserved for future grant, options and shares to
the directors, employees and consultants of Spediant and Orckit, at a nominal
price, representing approximately 30% of its share capital on a fully diluted
basis. The options generally vest up to four years from the date of grant.
Orckits equity interest in Spediant, which represented approximately 70% of
Spediants shares on a fully diluted basis as of December 31, 2003, may be
further diluted by future share issuances by Spediant, if Spediant should
engage in a financing transaction to assist in funding its operations.

Principal Capital Expenditures

Our
principal capital expenditures to date have been the purchase of equipment and
other software tools used in our business. These purchases totaled $2.4 million
in 2001, $1.8 million in 2002 and $900,000 in 2003. We used internal resources to finance these capital expenditures.

B.       BUSINESS
OVERVIEW

General

The market
in which we operate targets the incumbent local telephone companies, such as
the U.S. Bell telephone companies and telecom carriers in Asia and Europe. We
predominantly target the emerging market for metro transport products with our
Corrigent CM-100 product line, which addresses the need for high data
transmissions. With our Spediant EML-8000 product line, we target established
and new telecom carriers for the delivery of data services over existing copper
wires.

Metro Transport Telecom Markets, Technology
and Products

The Metro Transport Market

The fiber
optic networks of many telephone companies in metropolitan areas are
experiencing a shift from carrying primarily voice traffic to carrying a
growing mix of data and voice traffic. Data traffic volumes carried over these
metropolitan area networks are surpassing voice traffic volumes. Data traffic
is forecasted for further growth over the coming years. This increase in data
relative to voice traffic is mainly a result of the rapid growth of the
Internet and local area networks.

Offerings
of high data services at rates of ten mega bits per second (Mbps) or higher
have reached many millions of subscribers in a number of Asian markets, including
Japan and Korea. These services are offered either over fiber connections or a
combination of fiber and fast access technologies, such as DSL, wireless or
cable networks. Recently, major U.S. telecom carriers have announced plans for
expansion of fiber rings in metro areas, promoting connectivity of fiber to the
premise (FTTP). Connecting subscribers with fiber will allow for significantly
higher speed services, mainly data and video services, and as a result, will
require an upgrade of metro telecom equipment with technologies that address
very high transmissions of data over fiber networks.

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Telephone
companies have typically managed their data transfer capacity needs through
their existing transport technologies. These technologies were originally
designed for transporting voice services. These traditional solutions, however,
are not designed to support expected future levels of data traffic. Traditional
networks are also inefficient when transporting data as they fail to utilize inherent
differences in the type of network support that is required for the
transmission of data traffic. Data traffic is generally less susceptible to
corruption resulting from minor time delays and less time-sensitive than voice
traffic. In addition, data traffic often exhibits a bursty nature, with
dynamically varying levels of utilization of communication channels, as opposed
to voice traffic which normally requires constant levels of channel
utilization.

A new set
of solutions is being developed to address the needs of carriers and service
providers to be able to support higher levels of data traffic within and
between metropolitan areas, commonly referred to as metro transport. These
solutions are attempting to take advantage of the characteristics of data
traffic without impairing the ability to support traditional voice
traffic. We expect that the metro
transport solution for the transmission of traditional voice and increased data
traffic will combine the efficient transport of data services based on Ethernet
protocol with high reliability voice services based on SONET/SDH protocol.

Major metro
transport technologies include the following voice and/or data protocols:

SONET
/ SDH. SONET
is the American National Standards Institute, or ANSI, standard for synchronous
voice transmission on optical media. The international equivalent of SONET is
synchronous digital hierarchy, or SDH. 
Together, these two voice protocols ensure standards to enable digital
networks to interconnect internationally and existing conventional transmission
systems to utilize fiber with the help of interfaces that connect network
end-users, called tributary attachments.

Ethernet. Ethernet is the most widely-installed local
area network, or LAN, technology. It is
often used in college dormitories and office buildings. The most commonly
installed Ethernet systems are called 10BASE-T and provide transmission speeds
up to 10 Mbps.

RPR. Resilient
packet ring, or RPR, is an emerging technology that is being designed to
integrate Ethernet data protocols for the efficient transmission of data with
traditional SONET voice protocols. An
industry working group has agreed on a draft standard for RPR. Corrigent has been instrumental in establishing
this draft standard, serving actively as a member of the industry work group
charged with defining the RPR protocol. However, uniform industry standards for
RPR have not yet been adopted and the estimated date for approval of an
industry standard has been delayed until mid 2004.

RPR is
being developed as an alternative to SONET transport for networks that support
high levels of data traffic, while allowing carriers to maintain traditional
SONET attributes, such as resiliency. Resiliency refers to the ability to
employ a back-up or alternate route in the event of a system or optical fiber
failure, as well as the fast restoration of service in the event of any other
failure. RPR is expected to allow carriers to conduct performance monitoring of
transmission rates, traffic volume, and failures and alarms, comparable to the
monitoring available with traditional SONET-based networks.

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Multiprotocol
Label Switching. 
Multiprotocol label switching, or MPLS, is a standards-approved
technology for speeding up network traffic flow and making it easier to manage.
MPLS involves setting up a specific path for a given sequence of packets,
identified by a label put in each packet, thus saving the time needed for a
router to look up the address to the next node to forward the packet to. MPLS
is called multiprotocol
because it works with the Internet Protocol, or IP, Asynchronous Transport
Mode, or ATM, and frame relay network protocols. In addition to moving traffic
faster overall, MPLS makes it easy to manage a network for quality of service,
or QoS. For these reasons, MPLS is expected to be adopted as networks begin to
carry more and different mixtures of traffic.

RPRs Advantages
over Existing Data and Voice Transport Protocols

We believe that RPR is a more efficient voice and data transport
protocol than traditional SONET rings that have been retrofitted to handle data
traffic for the following reasons:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Usage of a
  single fiber ring and spatial reuse capabilities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                               
| | SONET
  utilizes only one ring of optical fibers. A second ring is available in case
  of a failure in the first ring, but is otherwise not used. This creates unutilized capacity in SONET,
  as half of the network capacity is idle during normal operations. RPR enables the use of this redundant
  bandwidth under normal operating conditions, while maintaining the redundancy
  capabilities. In addition, RPR supports spatial reuse, which allows the
  re-use of the same ring bandwidth over different spans of the ring.                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Statistical
  multiplexing qualities                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                               
| | With SONET,
  data transmitted from one specific network element, or node, to another may
  be sent only using bandwidth that has been dedicated for that transmission.
  RPR increases bandwidth efficiency by allowing data transmissions to be
  broken up into packets and inserted in bandwidth that might have otherwise
  been dedicated (but not used) for a separate transmission. This process is called statistical
  multiplexing. When less than all
  network users are actively transmitting or receiving data at the same time,
  it results in a more efficient utilization of the total available bandwidth
  on a network.

Corrigents Metro Transport Product and RPR Technology

Corrigents
metropolitan area product is designed as a cost-effective optical transport
solution that can handle not only the growing demand for data services by
telephone company customers and small to medium size businesses, but also
support the full range of traditional voice services, in compliance with SONET
technical specifications. Corrigents product is being designed to provide the
benefits of both Ethernet and SONET protocols. 
It is also being designed to avoid integrating costly protocol-dependant
routing and switching functionalities that are generally required in adopting
SONET platforms to cover data traffic, as well as the costs of adopting
Ethernet platforms to handle voice traffic.

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Corrigents
CM-100 product utilizes SONET, RPR, and MPLS technologies to effectively
support a range of SONET services, Ethernet, Time Division Multiplexer, or TDM,
services which are commonly used for voice transmissions, and other data
services. This product is being designed to interoperate with both legacy SONET
and emerging MPLS core devices. The product is expected to support 2.5 Gigabits
per second, or Gbps, and 10 Gbps ring speeds, and interface with:

| |  | 10
  megabits/100 megabits Ethernet;        
| | - | --------------------------------------------
| |   |                                             
| |  | 1 Gigabit
  Ethernet; and                   
| |   |                                             
| |  | a range of
  TDM SONET interfaces including:
| |   |                                             
| |   |                                             
| |   |                                             
| |   |                                             
| |   |                                             
| |   |                                             

Corrigents
CM-100 product is designed to deliver both Ethernet and TDM/Sonet based
services over a packet-based network. These services are carried over MPLS
tunnels over an RPR ring in a packetized form that is expected to enable both
bandwidth efficiency and lower cost architecture. The CM-100 allows legacy data
services, such as frame relay, asynchronous transfer mode, or ATM, and packet
over SONET, to be carried in their native form allowing a reduction in the
bandwidth used to provide these services. MPLS is used to provide both
end-to-end automatic provisioning capabilities and isolation between
different users services, thus providing a preferred method of traffic
engineering. MPLS also aids end-to-end interoperability between the transport
systems of different vendors.

The CM-100
product has been available for testing since late 2002 and we expect to begin
making sales of this product in 2004. This product has been selected for
commercial deployment by a telecom provider in Asia targeting  Ethernet-based services. Also, Corrigent has signed a
distribution agreement with Netmarks Inc. that targets the Japanese market and
will seek to address the demand for high capacity transport equipment by
telecom carriers and service providers.

DSL Markets, Technology and Products

Industry Background

Growth in
the use of the Internet and personal computers has created substantial data
traffic over telephone networks from a wide variety of associated services. At
the same time, the difficult environment in the telecommunications industry and
a depressed world economy have resulted in a reduction in capital expenditure
plans. Telephone service initially consisted of analog transmission over copper
wire. The commercial introduction of DSL technologies added higher speed
transmission over copper wire. Digital transmission over fiber optic or coaxial
cable permits greater data capacity and increased reliability and quality at a
lower cost than analog transmission. Telephone companies recognize that it is
extremely expensive to install fiber optic or coaxial cable in the local loop,
the first mile of copper telephone wire between the central office and the
consumer. Consequently, the local loop remains primarily twisted copper
telephone wire. Without an alternative solution, this twisted copper telephone
wire restricts the ability of telephone companies to increase the speed and
diversity of their service offerings to small business and residential users.

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DSL Markets

Telephone
companies worldwide have recognized that digital subscriber line technology is
one of the technologies that may answer the existing need to allow fast data
transmission in the first mile of the telecom network, up to the facilities
of the end user. Accordingly, they are
increasingly using DSL technologies to provide digital transmission over the
local loop. DSL technologies enable
telephone companies to maintain their competitive position by offering
high-speed Internet access and enhanced services to customers over the local
loop. DSL systems that offer services
directly to the telephone companies customers premises generally use a
passive plain old telephone service, commonly known as POTS, splitter on each
DSL line, which can be installed both at the central office and at the
customers premises. The POTS splitter
separates the analog telephone channel from the digital data channel that is
transmitted over the same twisted copper telephone wire. By isolating the telephone signal from the
digital signal, the home telephone line is not affected by the digital
transmission. Telephone service is
unaffected if the DSL system should fail for any reason.

Spediant Products and Technology

Spediants
EML-8000 is an access solution being designed to enable telecom carriers to
deploy fiber-speed broadband services over traditional copper wires. It is
designed to address the growing demand for Ethernet-based services at faster
data rates and over longer distances than provided by current DSL solutions. This product line is expected to allow
providers to increase their broadband service offerings and customer bases,
deliver greater bandwidth to small and medium enterprises, or SMEs, and
decrease the need for capital expenditures to deploy new fiber. Spediants
solution is being designed to provide an answer to growing bandwidth
requirements of SMEs for Ethernet services on one end and the desire of
carriers to utilize the existing copper infrastructure with attractive services
on the other end.

Spediants
solution is based on Multi Loop DSL, or MLDSL, technology. Rather than treating
each copper pair individually, MLDSL treats multiple copper pairs as a logical
bundle, making intelligent decisions regarding bandwidth allocation and
reactions during changing link conditions. This helps to eliminate mutual
interference in the copper binder. EML-8000 is built on standardized technology
by binding multiple copper pairs and inversely multiplexing data across them
for greater reach and bandwidth. Inverse multiplexing is implemented in such a
way that mission-critical data traffic is transparently transported with low
latency.

Spediants
EML-8000 is designed to deliver 10 Mbps at a distance of 12,000 feet from the
central office. The cost of installing fiber to serve SMEs is significant for
service providers. By binding several copper wiring pairs in the existing
infrastructure, the EML-8000 is intended to satisfy the bandwidth needs of SMEs
while increasing revenue opportunities for service providers.

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Sales, Marketing and Service

Sales
and Marketing. 
Our marketing efforts are directed at telephone companies. Marketing
efforts may also be made pursuant to original equipment manufacturers,
strategic alliances and other distribution arrangements. We believe that the participation by our
subsidiaries in technology committees involved in the establishment of industry
standards is a strong marketing tool. As of December 31, 2003, overall
marketing and sales efforts were conducted by approximately 16 employees
located in Israel, the United States and Japan.

The
following is a summary of revenues by geographic area for the last three years:

|                  |  | Year ended
  December 31 |        
|----------------- |  | ------------------------ | -------
|                  |  |                          |        
|                  |  | 2001                     |        
|                  |  |                          |        
|                  |  | (In
  thousands)         |        
|                  |  |                          |        
|Israel            |  | $                        | 2,268  
|United
  States   |  |                          | 111,336
|Europe            |  |                          | 23,319 
|Other
  countries |  |                          | 4,724  
|                  |  |                          |        
|                  |  | $                        | 141,647
|                  |  |                          |        

Substantially
all our revenues for 2001 through 2003 were generated from our FastInternet DSL
product line. We no longer sell these products.

Telco
Approval Process. 
Telephone companies are significantly larger than us and consequently
are able to exert a high degree of influence over us. Prior to selling our
products to telephone companies, we are required to undergo lengthy approval
processes. Evaluation can last for over
one year for enhanced products or products based on newer technologies.

The length
of the approval process is affected by a number of factors, including the
complexity of the product involved, technological and budgetary priorities of
the telephone companies and regulatory issues affecting telephone companies. A
telephone company will usually conduct technical trials after completing a
laboratory evaluation that tests a new products function and performance
against industry standards. After completion of technical trials, field trials
simulate operations to evaluate performance and to assess ease of installation
and operation. In subsequent market trials, a telephone company will attempt to
determine the content requirements, the estimated number of subscribers and
optimized pricing for the service. During this stage, telephone companies
establish procedures, train employees to install and maintain the new product
and obtain feedback on the product from their customers and operations
personnel. Throughout the approval process, we commit senior technical and
marketing personnel to participate in technology, field and market trials and
to actively support the evaluation efforts.

Commercial
deployment of a new product usually involves substantially greater numbers of
systems and locations than the marketing trial stage. In the first phase of
commercial deployment, a telephone company installs the equipment in selected
locations for certain applications. This phase is followed by general
deployment which involves greater numbers of systems and locations. Telephone
companies typically select a number of suppliers for general deployment to
ensure that their needs can be met. Subsequent orders, if any, are placed under a
single or multi-year supply agreement.

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Following
selection for commercial deployment, the introduction of successive generations
of products or upgraded software versions is vital to our business, because it
enhances functionality and reduces costs. Our growth substantially depends on
commercial acceptance of advanced products and technology by telephone
companies, as well as our ability to develop new technologies and sell new
products.

Telco
Services and Support. We offer repair services as part
of our warranty services and technical support services for our products. We do
not offer installation services. We expect that our local partner or
distributor will provide first level of service and support. More extensive
repair and technical support is offered at our headquarters in Israel pursuant
to warranty obligations. We also offer telephone support during working hours
and provide product training to our carrier customers on a case-by-case basis.

The
majority of our products shipped to date are subject to a three-year warranty
period and our new products offer similar warranty protection. Our warranty
generally covers defects in materials or workmanship and failure to meet
published specifications, but excludes damages caused by improper use and all
other express or implied warranties. In the event that there are material
deficiencies or defects in the design or manufacture of our products, the
affected products could be subject to recall. Exposure to indirect damages
arising from failures covered by warranty could be significant. We have
received claims for compensation from certain of our customers due to warranty related
matters. We believe that our potential liability in connection with these
claims is not material.

Customers
and End-users. 
We expect to depend on purchases by telephone companies for our product
revenues. We have previously sold our products either directly to telephone
companies or through original equipment manufacturers, distributors or
strategic partners from whom telephone companies then purchase our
products.

Manufacturing

We use
subcontractors for component sourcing, inventory warehousing, board assembly,
testing and shipment. These contracting and manufacturing arrangements have
enabled us in the past to produce reliable, high quality products at
competitive prices and to achieve on-time delivery of our products. We expect
to continue to utilize third parties to manufacture, assemble and test our new
products.

Telephone
company orders are short-term and may involve short delivery time frames. We
expect that the manufacture of products will be mainly against purchase orders,
although in the first stages of market penetration we are likely to order
products based on sales forecasts only. We and our
manufacturers perform final quality control and extensive testing prior to
shipping. Product quality and
reliability are of prime concern in all phases of the manufacturing process.
Our facilities are subject to the ISO9001 certification process. This
certification is required in order to sell to many of the telephone companies.

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In
procuring components, we and our subcontractors rely on a number of suppliers
of semiconductor solutions that are the sole source for certain of the
components. We expect to use a
single-source manufacturing contractor.

Competition

We compete
on the basis of technological capability, price, customer service, product
features, adherence to standards, quality, reliability, availability and
technical support. With respect to products under development, initial
competition is expected to be based primarily on technological capability and
the ability to develop a product that can be manufactured and sold with a cost
structure that will allow for mass deployment to customers of telephone
companies. Many of our competitors and potential competitors have greater
financial, technological, manufacturing, marketing and personnel resources than
we have and have entered into strategic alliances to assist them in
commercialization of their products.

Our
competitors in our targeted markets of metro and access telecom equipment are
numerous and we expect competition to increase in the future. Our principal
competitors for our products include Alcatel, Cisco Systems, Inc., ECI Telecom
Ltd., Fujitsu, Lucent Technologies Inc., Nortel Networks and Siemens AG.

Intellectual Property Rights

We regard
our technology as proprietary. We have obtained several patents and have filed
a number of patent applications covering certain key areas of our technologies.
In general, we have relied on a combination of technical leadership, trade
secret, copyright and trademark law and nondisclosure agreements to protect our
unpatented proprietary know-how. Our proprietary technology incorporates
algorithms, software, system design and hardware design that we believe is not
easily copied. We believe that, because of the rapid pace of technological
change in the telecommunications industry, patent and copyright protection are
less significant to our competitive position than factors such as the
knowledge, ability and experience of our personnel, new product development,
market recognition and ongoing product maintenance and support.

Legal Proceedings

We are not
a party to any material pending legal proceedings, nor is any of our property
the subject of any other material pending legal proceedings.

C.       ORGANIZATIONAL
STRUCTURE

List of Significant Subsidiaries

Corrigent
Systems Inc., a subsidiary, is a Delaware corporation. As of December 31, 2003,
Orckit owned approximately 70% of the shares of Corrigent Systems on a
fully-diluted basis, including shares reserved for grant.

Spediant
Systems Ltd., a subsidiary, is an Israeli corporation. As of December 31, 2003,
Orckit owned approximately 70% of the shares of Spediant Systems on a
fully-diluted basis, including shares reserved for grant.

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D.       PROPERTY,
PLANTS AND EQUIPMENT

Our principal offices and production facilities in Tel Aviv occupy
approximately 50,000 square feet of rental space rented through a series of
leases. Our leases expire in the years 2004-2006. We have an option to
terminate these lease agreements with six months prior written notice. We also
maintain offices in San Jose, California and Tokyo, Japan. We believe that
these facilities are adequate for our current needs and that suitable
additional or substitute space will be available when needed.

ITEM
5.          OPERATING AND
FINANCIAL REVIEW AND PROSPECTS

Statements
in this Annual Report concerning our business outlook or future economic performance;
anticipated revenues, expenses or other financial items; introductions and
advancements in development of products, and plans and objectives related
thereto; and statements concerning assumptions made or expectations as to any
future events, conditions, performance or other matters, are forward-looking
statements as that term is defined under the United States Federal Securities
Laws. Forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual results
to differ materially from those stated in such statements. Factors that could cause or contribute to
such differences include, but are not limited to, those set forth under Risk
Factors in this Annual Report as well as those discussed elsewhere in this
Annual Report and in our other filings with the Securities and Exchange
Commission.

A. OPERATING RESULTS

Our
operating and financial review and prospects should be read in conjunction with
our financial statements, accompanying notes thereto and other financial
information appearing elsewhere in this Annual Report.

Overview

Orckit was
founded in 1990. We are an Israeli corporation engaged in the design,
development, manufacture and marketing of telecom equipment that enables
transmission of broadband services. The substantial majority of our historical
revenues were derived from the sale of systems and customer premises modems
based on DSL technology. We have terminated the sale of these products and do
not expect to generate additional revenues from them. Going forward, we expect
to generate revenues from the sales of new products developed by our
majority-owned Corrigent and Spediant subsidiaries, although we do not expect
to generate significant revenues in 2004.

The end-user
base for our products was comprised primarily of large telephone companies, and
was concentrated among several telcos in each year. We expect that such
concentration will continue as we commence selling our new product lines.

Our
products undergo lengthy approval and procurement processes prior to their sale
due to the quality specifications of our end-users and the regulated
environment in which they operate. Accordingly, we are making significant
expenditures in product and market development prior to actually commencing
sales of new products. In addition, frequently we are required to make
significant expenditures to tailor our products to specific end-user needs
during the initial commercialization phase. We expect to continue to depend on
a limited number of end-users to generate a significant percentage of total
product revenues. Our product sales to end-users are expected to fluctuate
significantly from quarter to quarter and year to year.

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We intend
to continue to evaluate new technologies and related product opportunities and
engage in extensive research and development activities related to new
technologies. Accordingly, we expect to
continue to make significant expenditures for research and development.

Substantially
all of our operating expenses in 2003 related to research and development
expenses, selling, general and administrative expenses and capital expenditures
for the operations and support of Corrigent and Spediant.

Our ability
to generate income from operations will primarily depend on our sales volume
and the level of our operating expenses. Until significant revenues are
generated from the products of Corrigent and Spediant, we expect to continue to
incur significant operating losses and to use a significant amount of cash to
fund our operations. We expect to start
generating revenues from our new product initiatives in 2004 but to continue to
have losses at least through 2005.

Critical Accounting Policies and Estimates

We prepare
our consolidated financial statements in conformity with accounting principles
generally accepted in the United States. These accounting principles require
management to make certain estimates, judgments and assumptions based upon the
information available at the time they are made, historical experience and
various other factors believed to be reasonable under the circumstances. These
estimates, judgments and assumptions can affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods presented. Management
evaluates its estimates and judgments on an on-going basis. Some of those
judgments can be subjective and complex, and consequently actual results may
differ from those estimates.

The Company
is also subject to risks and uncertainties that may cause actual results to
differ from estimates and assumptions, such as changes in the economic
environment, competition, foreign exchange, taxation and governmental
programs. Certain of these risks,
uncertainties and assumptions are discussed in Item 3.D - Risk Factors. To facilitate the understanding
of our business activities, described below are certain accounting policies
that are relatively more important to the portrayal of our financial condition
and results of operations and that require managements subjective judgments.
We base our judgments on past experience and various other assumptions that are
believed to be reasonable under the circumstances. Please refer to Note 1 to
our consolidated financial statements included in
this Annual Report for a summary of all of our significant accounting policies.

Revenue Recognition

Revenues
from sales of products are recognized when title passes to the customer,
provided that appropriate signed documentation of the arrangement, such as a
contract, purchase order or letter of agreement, has been received, the fee is
fixed or determinable and collectibility is reasonably assured.

Prior to
the sale of a new product, we deliver products for trial and evaluation by our
customers. Evaluation can take several months for complex products or
products based on new technologies. We do not recognize sales revenues from
delivery of a new product to customers for evaluation.

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Provision for servicing products under
warranty

The
majority of our products shipped to date are subject to up to a three-year
warranty period. We have agreed to indemnify our customers in some circumstances
against liability from defects in our products. In some cases our indemnity
also covers indirect damages. The Company provides an estimate for warranty
expense at the time revenues from the related sales are recognized. The annual
provision is calculated as a percentage of the sales, based on historical
experience and is established based on our estimate of the amounts necessary to
settle product-related matters existing as of the balance sheet date.

The amount
of our estimated warranty liability may change if the costs incurred due to
product failures increase in the future. In the event of any future problems
with our products, we may need to increase the amount of our reserves.

Employee stock option plans

In January
2003, we adopted the Orckit Communications Ltd. 2003 Subsidiary Employee Share
Incentive Plan. Pursuant to the 2003 Plan, we issued, for no consideration,
600,000 of our ordinary shares to employees of our subsidiaries, excluding
directors. The shares were deposited with
a trustee and vested after a period of three years. According to the 2003 Plan,
the shares issued were subject to exchange at any time by us, in our
discretion, for options to purchase shares of the applicable
subsidiary.

In 2003, 60,000
shares issued under this plan were forfeited and 540,000 shares were exchanged
for options to purchase shares of subsidiaries. The accounting treatment
applied in respect of the plan is variable accounting until the exchange
occurred. Accordingly, compensation in respect of the grant of the shares was
measured according to the share price of Orckit and updated to reflect the
changes in the share price through the date of the exchange. Aggregate
compensation expense in connection with the grant was approximately $3.8
million, which is to be amortized over the vesting period of the shares
granted. In 2003, approximately $1.3
million of this expense was amortized. Upon the exchange, the plan became a
fixed plan and the compensation was fixed according to the share price of
Orckit on that date. At the date of exchange, the intrinsic value of options to
purchase shares of subsidiaries that employees received was zero.

In
addition, the board of directors of each of the subsidiaries, Corrigent Systems
and Spediant Systems, approved an employee share option plan. Each of Corrigent
Systems and Spediant Systems has granted, and reserved for grant, shares and
options under its respective plans to its employees, officers and directors and
to personnel of Orckit, including employees, officers and directors of Orckit.
As determined by the respective stock option committee, the exercise price of
options granted is zero which, in managements opinion, represents the value of
the shares on the date of grant. Accordingly, no compensation cost was included
in our financial statements in respect of such grants.

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Results of Operations

The
following table sets forth certain items from Orckits consolidated statement
of operations as a percentage of total revenues for the periods indicated:

|                                               |  | 2001 |       | 2002 |  | 2003  |  
|---------------------------------------------- |  | ---- | ----- | ---- |  | ----- | -
|                                               |  |      |       |      |  |       |  
|Revenues                                       |  |      | 100   | %    |  | 100   | %
|Cost of
  revenues                             |  |      | 79.1  |      |  | 61.7  |  
|                                               |  |      |       |      |  |       |  
|Gross profit
  (loss)                          |  |      | 20.9  |      |  | 38.3  |  
|Research and
  development expenses, net       |  |      | 13.5  |      |  | 36.1  |  
|Selling,
  general and administrative expenses |  |      | 12.0  |      |  | 27.5  |  
|Amortization
  and impairment of goodwill      |  |      | 18.4  |      |  |      |  
|                                               |  |      |       |      |  |       |  
|Loss from
  operations                         |  |      | (23.0 | )    |  | (25.3 | )
|Financial
  income, net                        |  |      | 23.6  |      |  | 33.0  |  
|                                               |  |      |       |      |  |       |  
|Net income
  (loss)                            |  |      | 0.6   | %    |  | 7.6   | %
|                                               |  |      |       |      |  |       |  

Revenues. Orckits revenues have historically
consisted primarily of DSL-based product and related service sales. During 2003, our revenues were minimal as we
transitioned our business from our legacy DSL products to the development of
our new Corrigent and Spediant products. 
Revenues decreased to $1.7 million in 2003 from $141.6 million in 2001
and $53.4 million in 2002. Product
revenues in 2001 and 2002 resulted primarily from sales of DSLAM and DSL-based
modem products. The decline in our revenues in 2002 was primarily a result of
the selection of competing products by our customers, as well as the slowdown
in capital expenditures in the telecommunications industry. We do not expect to
generate additional revenues from the sale of our legacy DSL products. We do
not expect to generate significant revenues in 2004 from the sale of our new
products.

Gross
Profit (Loss). 
Cost of revenues consists primarily of raw materials, subcontracting
costs and costs for integration, assembly and testing of finished
products. Gross profit was $935,000
(55.6% of revenues) in 2003 compared to $20.5 million (38.3% of revenues) in
2002 and $29.6 million (20.9% of revenues) in 2001. The improvement of gross
profit was primarily due to a decrease in the cost of components and assembly
for products sold. Gross profit on our
legacy DSL products is not necessarily indicative of gross margins that we may
generate if we are able to make sales of our new products.

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Operating
Expenses

|                                         |  | Year ended
  December 31,
  ($ in millions) |      | a% Change
  2002 vs. 2001 |  | % Change2003 vs. 2002 | 
|---------------------------------------- |  | ------------------------------------------- | ---- | ------------------------- |  | --------------------- | 
|                                         |  |                                             |      |                           | 
|                                         |  | 2001                                        |      | 2002                      |  | 2003                  | 
|                                         |  |                                             |      |                           |  |                       | 
|Research and development,
  net          |  |                                             | 19.1 |                           |  | 19.3                  | 
|Selling, general and
     administrative |  |                                             | 17.0 |                           |  | 14.7                  | 
|Total
  operating expenses               |  |                                             | 36.1 |                           |  | 34.0                  | 

Research
and Development Expenses, net. Research and development expenditures
consist primarily of materials, depreciation and salaries and related costs for
engineering and technical personnel and subcontracting costs associated with
developing new products and for other technology projects. Our costs for research
and development are expensed as incurred. Grants from the government of Israel
for research and development are offset against our gross research and
development expenditures. Research
grants were $3.3 million in 2001, $3.0 million in 2002 and $5.8 million in
2003. Research and development expenses decreased in 2003 compared to
2002, mainly due to an increase in research grants, as well as a decrease in
the consumption of research and development materials and the use of
sub-contractors. We anticipate we will incur a similar level of research and
development expenditures in 2004, although we expect that the amount of
government research grants we receive in 2004 will be less than in 2003, due to
a reduction of the 2004 budget of Israels Office of the Chief Scientist.

Selling,
General and Administrative Expenses. Selling, general
and administrative expenses consist primarily of costs relating to promotion,
trade shows, compensation costs for non-technical personnel, warranty
provisions and other general corporate expenses. Our selling, general and
administrative expenses decreased in 2002 and again in 2003 due to the
reduction of our marketing and sales activities. We expect that marketing and
sales expenses will increase in 2004 and as we increase our marketing and sales
efforts in connection with the expected initial commercial sales of the
products being developed by Corrigent and Spediant.

Amortization
of goodwill. 
In 2000, due to the acquisition of E.D.S.L., we recorded the amount of
$33 million as goodwill and other intangible assets, which was calculated based
on the excess of the cost of the acquisition over the fair value of net assets
on the acquisition date that was not attributed to in-process research and
development. The goodwill was to be amortized on the straight-line basis over a
period of three years. In 2000, an amount of $6.9 million related to E.D.S.L
was amortized. In 2001, E.D.S.L. halted its operations due to the extreme
reduction in capital expenditures of carriers in the markets it targeted. As a result, in 2001 we wrote off the $23.4
million that represented all outstanding unamortized goodwill in connection
with our acquisition of E.D.S.L. and all of the goodwill on our balance sheet.

Financial
Income, net. 
Financial income consists primarily of interest on short term and long
term investments and on bank deposits and of gain on early retirement of our
convertible subordinated notes. Financial expense consists primarily of
interest payments in respect of convertible subordinated notes and amortization
of convertible subordinated notes issuance costs. In 2002, we recognized
interest income of $2.9 from a long-term loan we granted to Tikcro. Of this
amount, $1.9 million was for interest accrued in previous years.

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Due to our
adoption of FAS 145, effective January 1, 2002, we reclassified to financial
income gains from the early retirement of our convertible subordinated notes
that were previously recorded as an extraordinary gain. During 2003, we retired
$21.9 million principal amount of our convertible subordinated notes, resulting
in a gain of $3.1 million. During 2002, we retired $28.2 million principal
amount of our convertible subordinated notes, resulting in a gain of $13.2
million. During 2001, we retired $53.6 million principal amount of convertible
subordinated notes, resulting in a gain of $34.1 million. As of December 31,
2003, the total principal amount of convertible subordinated notes outstanding
was $16.2 million. On April 1, 2004, we completed the redemption of the
remaining outstanding convertible subordinated notes at face value.

Financial
income, net was $33.4 million in 2001, $17.6 million in 2002 and $5.1 million
in 2003. These fluctuations primarily reflect the principal amount of notes
retired in the respective years and the prices at which they were retired.

Impact of Inflation, Devaluation and
Fluctuation of Currencies on Results of Operations, Liabilities and Assets

A
devaluation of the new Israeli shekel in relation to the U.S. dollar would have
the effect of decreasing the dollar value of assets in New Israeli Shekels of
Orckit, to the extent the underlying value is New Israeli Shekel-based. Such a devaluation also would have the
effect of reducing the U.S. dollar amount of any liabilities of Orckit, which
are payable in New Israeli Shekels (unless such payables are linked to the U.S.
dollar).

Most of our
sales are denominated in dollars and our expenses in New Israeli Shekels exceed
our revenues received in New Israeli Shekels. Our expenses in new Israeli
shekels are principally payroll. The
results of operations of Orckit are adversely affected by increases in the rate
of inflation in Israel when such increases are not offset by a corresponding
devaluation of the new Israeli shekel against the U.S. dollar. For example, in 2003 the value of the U.S.
dollar declined in relation to the New Israeli Shekels by 7.6%, while the rate
of deflation was 1.9%. As a result, our salary expenses, which are primarily linked
to the New Israeli Shekel, increased in U.S. dollar terms.

We are
presently engaged in hedging transactions, mainly forward exchange contracts,
intended to manage risks relating to foreign currency exchange rate
fluctuations. We may, continue to enter
into foreign currency derivatives, mainly forward exchange contracts, in order
to protect our cash flows in respect of existing assets.

The
following table presents information about the rate of inflation in Israel, the
rate of devaluation of the NIS against the U.S. dollar, and the rate of
inflation of Israel adjusted for the devaluation:

|Years
  Ended
  December 31, |  | Israeli
  Inflation
  Rate |      | Israeli
  Devaluation
  Rate |  | Israel
  Inflation
  Adjusted for
  Devaluation |     
|---------------------------- |  | -------------------------- | ---- | ---------------------------- |  | ----------------------------------------------- | ----
|                             |  |                            |      |                              |  |                                                 |     
|                             |  |                            |      |                              |  |                                                 |     
|1999                         |  |                            | 1.3  |                              |  |                                                 | (0.2
|2000                         |  |                            | 0.0  |                              |  |                                                 | (2.7
|2001                         |  |                            | 1.4  |                              |  |                                                 | 9.3 
|2002                         |  |                            | 6.5  |                              |  |                                                 | 7.3 
|2003                         |  |                            | (1.9 | )                            |  |                                                 | (7.6
|                             |  |                            |      |                              |  |                                                 |     

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B. LIQUIDITY AND CAPITAL RESOURCES

Orckit has
financed its operations primarily through sales of equity, issuance of
convertible notes and the receipt of grants to fund research and development,
as well as from bank loan proceeds.

Our working
capital (total current assets net of total current liabilities) decreased from
$103.9 million as of December 31, 2001 to $55.2 million as of December 31, 2002
and further decreased to $34.6 million in 2003. The decrease in our working
capital has occurred primarily as a result of using our cash to fund our
operating losses and to repurchase our convertible subordinated notes, as well
as because of our decision to invest funds in long-term marketable securities,
which are not included in working capital. In 2002, the decrease in working
capital also resulted from downsizing steps taken by us, along with the move
toward outsourcing of our manufacturing processes, which resulted in a decrease
in our inventories.

We had
cash, cash equivalents, long-term marketable securities and bank deposits of
$79.5 million as of December 31, 2003 compared to $116.6 million as of December
31, 2002. The majority of this amount
was held in securities denominated in U.S. dollars.

We
anticipate that our operating expenses will be a material use of our working
capital resources for the foreseeable future. In addition, we used
approximately $16.2 million in cash in April 2004 to redeem the remaining
outstanding convertible subordinated notes. 
We believe that we have sufficient working capital to meet our
anticipated capital requirements for 2004 and 2005. If we do not have available
sufficient cash to finance our operations, we may be required to obtain equity
or debt financing. We cannot be certain that we will be able to obtain
additional financing on acceptable terms or at all.

Net Cash Provided by/Used in Operating Activities

In 2003, we
used $16.1 million of cash in operating activities, primarily as a result of
our net loss, decreases in payables and non-cash gain from the early retirement
of our convertible subordinated notes, offset in part by depreciation and
impairment of property and equipment, amortization of deferred compensation
related to employee stock option grants and trading marketable securities. In 2002, we generated $6.7 million of cash
from operating activities primarily as a result of decreases in inventories and
receivables and depreciation and amortization, offset in part by the non-cash
gain from the early retirement of our convertible subordinated notes and a
decrease in payables. In 2001, we used $2.0 million of cash in operating
activities primarily as a result of the non-cash gain from the early retirement
of our convertible subordinated notes and a decrease in payables offset in part
by a decreases in inventories and receivables.

Net Cash Provided by/Used in Investing Activities

Our
principal investing activity relating to our operations has been the purchase
of equipment and other fixed assets used in our business. These purchases
totaled $2.4 million in 2001, $1.8 million in 2002 and $900,000 in 2003. Our
capital expenditures in 2003 were primarily for the procurement of
telecommunications equipment and related software tools. In 2003, our investing
activities also included the receipt of $26.3 million of marketable securities,
the receipt of $7.0 million from Tikcro in repayment of our loan to Tikcro and
the receipt of $10.3 million from bank deposits. In 2002, our investing
activities also included the purchase of $35.6 million of marketable securities
and the receipt of $13.0 million from Tikcro in partial repayment of our loan
to Tikcro.

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Convertible Subordinated Notes

In March,
2000, we raised net proceeds of approximately $120.5 million in a private
placement of $125 million aggregate principal amount of 5.75% convertible
subordinated notes due on April 1, 2005. 
From 2000 to 2003, we repurchased an aggregate of $108.8 million
principal amount of our convertible subordinated notes for an aggregate of
$52.1 million. As a result, as of December 31, 2003, the total principal amount
of our convertible subordinated notes outstanding was $16.2 million. On April
1, 2004, we completed the redemption of the remaining outstanding notes at face
value. The repurchases of convertible
subordinated notes constituted our primary use of cash in financing activities
in 2001, 2002 and 2003.

On March
30, 2004, we borrowed $16.0 million from a bank in order to finance the early
redemption of our convertible subordinated notes. This borrowing bears interest
at a rate between 2.08% and 2.17% until the maturity of this loan by July 2005.
We intend to repay this loan from the proceeds of our long term marketable
securities.

Loan to Tikcro

As part of
the spin-off of Tikcro, we loaned $20 million to Tikcro at an interest rate of
approximately 6% per annum. The loan was required to be repaid by March 1,
2005. In 2001, we agreed to defer interest on this loan in an aggregate amount
of $1.9 million. In 2002, Tikcro repaid
$13.0 million of the principal of this loan from the proceeds of a transaction
it entered into with STMicroelectronics. In May 2003, Tikcro announced the
closing of the sale of its remaining operating assets to STMicroelectronics.
Promptly thereafter, Tikcro repaid the remaining amounts outstanding under this
loan.

Repurchases of our Ordinary Shares

During
2003, we repurchased for $5.6 million in cash approximately 882,000 of our
ordinary shares, of which 616,590 shares were repurchased from Clal Electronics
Industries Ltd. in a private transaction. 
See Item 7.B  Related Party Transactions. The other shares
repurchased were bought in the open market. 
No additional repurchases are currently authorized.

Government and Other Grants

The
Government of Israel encourages research and development projects through the
Office of Chief Scientist of the Israeli Ministry of Industry and Trade,
pursuant to the Law for the Encouragement of Industrial Research and
Development, 1984, commonly referred to as the R&D Law. Under the R&D Law, a research and
development plan that meets specified criteria is eligible for a grant of up to
50% of certain approved research and development expenditures. The plan must be
approved by the Office of the Chief Scientist.

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Since our
inception, we have relied on grants from the Office of the Chief Scientist for
the financing of a portion of our product development expenditures. During the
three years ended December 31, 2003, we recorded research and development
grants in an aggregate amount of approximately $12.1 million. As of December
31, 2003, total contingent liabilities to the Office of the Chief Scientist
were approximately $12.0 million. We
expect that the Office of the Chief Scientist will approve our applications for
grants also for 2004, though at lower amounts than in the past.

Under the
terms of the grants we received from the Office of Chief Scientist, we are
obligated to pay royalties of 3% during the first three years following
commencement of royalty payments, and 4% to 5% thereafter. Royalties are
payable up to 100% of the amount of such grants, linked to the U.S. Dollar,
plus annual interest at LIBOR. The payment of royalties is on all revenues
received in connection with the sale of the products developed pursuant to the
funded plans, including revenues licensed ancillary services. These terms are applicable to our Office of
Chief Scientist grants that have been approved since January 1, 2000.

The R&D
Law generally requires that the product developed under a program be
manufactured in Israel. However, upon the approval of the Chief Scientist, some
of the manufacturing volume may be performed outside of Israel, provided that
the grant recipient pays royalties at an increased rate, which may be
substantial, and the aggregate repayment amount is increased to 120%, 150% or
300% of the grant, depending on the portion of the total manufacturing volume
that is performed outside of Israel. Effective April 1, 2003, the R&D Law
also allows for the approval of grants in cases in which the applicant declares
that part of the manufacturing will be performed outside of Israel or by
non-Israeli residents and the research committee is convinced that doing so is
essential for the execution of the program. 
This declaration will be a significant factor in the determination of
the Office of Chief Scientist whether to approve a program and the amount and
other terms of benefits to be granted. 
For example, the increased royalty rate and repayment amount will be
required in such cases.

The R&D
Law also provides that know-how developed under an approved research and
development program may not be transferred to third parties in Israel without
the approval of the research committee. 
Such approval is not required for the export of any products resulting
from such research or development. The R&D Law further provides that the
know-how developed under an approved research and development program may not
be transferred to any third parties outside Israel.

The R&D
Law imposes reporting requirements with respect to certain changes in the
ownership of a grant recipient. The law
requires the grant recipient and its controlling shareholders and interested
parties to notify the Office of the Chief Scientist of any change in control of
the recipient or a change in the holdings of the means of control of the
recipient that results in a non-Israeli becoming an interested party directly
in the recipient and requires the new interested party to undertake to the
Office of the Chief Scientist to comply with the R&D Law. In addition, the rules of the Office of the
Chief Scientist may require prior approval of the Office of the Chief Scientist
or additional information or representations in respect of certain of such
events. For this purpose, control is defined as the ability to direct the
activities of a company other than any ability arising solely from serving as
an officer or director of the company. 
A person is presumed to have control if such person holds 50% or more of
the means of control of a company. 
Means of control refers to voting rights or the right to appoint
directors or the chief executive officer. 
An interested party of a company includes a holder of 5% or more of
its outstanding share capital or voting rights, its chief executive officer and
directors, someone who has the right to appoint its chief executive officer or
at least one director, and a company with respect to which any of the foregoing
interested parties owns 25% or more of the outstanding share capital or voting
rights or has the right to appoint 25% or more of the directors. Accordingly, any non-Israeli who acquires 5%
or more of our ordinary shares will be required to notify the Office of the
Chief Scientist that it has become an interested party and to sign an
undertaking to comply with the R&D Law.

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Effective Corporate Tax Rates in Israel

Under the
Law for Encouragement of Capital Investments, 1959, known as the Investments
Law, by virtue of the approved enterprise status granted to some of our
investment programs, we are entitled to various tax benefits. The period of tax
benefits is seven years, commencing in the first year in which we earn taxable
income from the approved enterprise, subject to certain limitations. Under this law, the taxable income of Orckit
derived from an investment program designated as an Approved Enterprise is
fully exempt from corporate tax for a period of two years, after which the
income from these enterprises is taxable at the rate of up to 25% for the remainder
of the period of tax benefits five years.

After the
applicable benefit period expires, income generated from these Approved
Enterprise programs (including income generated from the grant of a usage right
with respect to know-how developed by the Approved Enterprise, income generated
from royalties and income derived from a service which is auxiliary to such
usage right or royalties, provided that such income is generated within the
Approved Enterprises ordinary course of business) will be subject to tax at the full
corporate tax rate, currently 36%. We
may apply for additional programs or for an extension of our existing programs;
however, there can be no assurance that our application will be approved or
that we will receive future benefits. The Investments Law is scheduled to
expire on June 30, 2004. Accordingly, requests for new programs or expansions
that are not approved on or before June 30, 2004 will not confer any tax
benefits, unless the term of the Investments Law is extended. Part of our income has been generated
through our Approved Enterprises. 
Should a company that has elected the alternative package distribute
to its shareholders a cash dividend from tax-exempt income attributable to it,
it would incur a tax liability on the amount distributed at the rate (10% to
25%) which would have been applicable had the company not elected the alternate
package and it will have to withhold tax at the rate of 15% with respect to the
dividend distributed. Orckits taxes outside of Israel, mainly in the United
States, are dependent on our operations in each jurisdiction as well as
relevant laws and treaties. See Item
18 Financial Statements. Under Israeli tax law, at December 31, 2003, we had accumulated
losses for tax purposes amounting to approximately $130 million. These losses are available indefinitely to
offset future taxable business income. As of December 31, 2003, our carry
forward capital losses for tax purposes were $40 million.

Reform of the Israeli
Tax Regime

In 2002,
the Israeli government approved an amendment to the Income Tax Ordinance. The tax reform, effective as of January 1,
2003, reforms certain parts of the Israeli tax system, including, among others,
the reduction of the tax rate levied on capital gains (other than gains from
the sale of listed securities) derived on or after January 1, 2003, to a
general rate of 25% for both individuals and corporations. See Item 10 below Additional Information  Taxation 
Israel - Tax Reform for a
discussion of the main aspects of the tax reform.

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Dividend Policy

On June 30,
2000, we distributed a stock dividend on a share-for-share basis of all our
shares of Tikcro. We have never
declared or paid cash dividends on our capital stock. In the foreseeable future, we intend to use any future earnings
for the operation and expansion of our business. Accordingly, we do not
anticipate paying any cash dividends. Payment of future dividends, if any, will
be at the discretion of our board of directors and the audit committee thereof
and will depend on various factors, such as our statutory retained earnings,
financial condition, operating results and current and anticipated cash needs.

If we
declare cash dividends, we will pay those dividends in new Israeli
shekels. Current Israeli law permits
holders of our ordinary shares who are non-residents of Israel and who acquired
their shares with a non-Israeli currency to repatriate all distributions on
these shares in that non-Israeli currency.

Inventory

Inventory
consists primarily of raw materials for the assembly of our products. Our
inventory as of December 31, 2003 and 2002 was $100,000. There was no change in
the amount of our inventory in the years 2002 and 2003 because production units
were reduced. As we prepare for commercial selection and increase of product
sales, we expect that inventory levels will increase.

C. 
RESEARCH AND DEVELOPMENT

We focus
our research and development efforts on developing new products that address
the need for solutions capable of supporting very high bandwidth services in
telecommunications networks in metropolitan areas and products that enable
fiber-speed broadband services over copper, mainly targeting business users. We
obtain extensive product development input from potential users and through
participation in industry organizations and standards-setting bodies, such as
the American National Standards Institute and the European Telecommunications
Standards Institute.

As of
December 31, 2003, our research and development staff consisted of 118
employees, most of whom are located in Israel and hold engineering or other
advanced technical degrees. Our gross research and development expenses were
approximately $22.4 million in 2001, $22.3 million in 2002 and $20.8 million in
2003. These expenses were offset by grants from the Office of the Chief
Scientist of the Ministry of Industry and Trade of the Government of Israel of
approximately $3.3 million in 2001, $3.0 million in 2002 and $5.8 million in
2003.

We expect
that we will continue to commit substantial resources to research and
development in the future. Our research and development staff consisted of 113
employees as of December 31, 2001, 103 employees as of December 31, 2002 and
118 employees as of December 31, 2003. 
As of December 31, 2003, the majority of our research and development
employees were employed by Corrigent. The number of research and development
employees was similar in the years 2001 through 2003 since we maintained
similar research and development efforts, focusing on Corrigents and
Spediants product lines. We believe that a continued commitment to research
and development is required to maintain our technical excellence and launch new
innovative products in the metro transport and access markets. We expect that
our research and development expenses will increase if our applications for
Office of Chief Scientist grants are not approved or partially approved, or if
we elect not to receive these grants.

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D. TREND INFORMATION

The
deterioration beginning in late 2000 of economies around the world was followed
by a significant decline in capital expenditures of telecom carriers from 2001
throughout 2002. Capital investment expenditures of wireline telecom carriers
were flat in 2003 compared with 2002. 
There is still uncertainty with respect to the direction of the economy
in our target markets and the telecommunications market. It is expected that
capital investment of wireline telecom carriers in 2004 will be similar to the
levels of 2003. In response to this
trend, we have reduced the number of our employees and have focused our
attention and resources on developing and marketing Corrigents and Spediants
products. We will need to complete the development and further enhance these
new products and attract new customers if we are to generate revenues.

E. OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements as such term is
defined in Item 5E of Form 20-F.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The
following table of our material contractual obligations as of December 31, 2003
summarizes the aggregate effect that these obligations are expected to have on
our cash flows in the periods indicated

|                                                                           | Payment due by period  ($ in thousands)
|-------------------------------------------------------------------------- | ---------------------------------------
|
|Long-Term Debt Obligations                                                 | 16,238                                 
|Operating Lease Obligations                                                | 290                                    
|Purchase Obligations                                                       | 700                                    
|Other Long-Term Liabilities Reflected on our Balance Sheet under U.S. GAAP | 12,421                                 
|Total                                                                      | 29,649                                 

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 | This amount reflects the
  balance of our Convertible Subordinated Notes as of December 31, 2003. These
  notes were redeemed in full on March 31, 2004. On March 30, 2004, we incurred
  a bank loan in the principal amount of $16.0 million to finance the early
  redemption of the notes.                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|2 | Our premises leases allow
  for early termination upon six months prior notice. Accordingly, this amount
  reflects lease payments for the applicable notice period. For total projected
  annual rent payments, see note 6b to our financial statements for the year
  ended December 31, 2003. The amount
  is presented in the 1-3 years column since this is the average life period of
  our lease obligations.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|3 | This amount reflects the
  trade payables, accrued expenses and other payables presented in our balance
  sheet.                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|4 | This amount reflects our
  accrued severance pay liability. The time of its payment, in whole or in
  part, cannot be predicted and as such this amount is presented in the more
  than 5 years column. Out of this amount, $2.7 million have been previously
  funded by our contributions to employee plans.                                                                                                       

In
addition, as of December 31, 2003, our contingent liability to the Office
of the Chief Scientist in respect of grants received was approximately $12.0
million. This liability is required to be
repaid only as royalties based on revenues derived from products whose
development was funded with these grants.

ITEM
6.          DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES

A.       DIRECTORS
AND SENIOR MANAGEMENT

The
following table sets forth certain information with respect to Orckits
directors and executive officers.

|Name            |  | Age |  | Position                                                        
|--------------- |  | --- |  | ----------------------------------------------------------------
|                |  |     |  |                                                                 
|Eric Paneth     |  | 54  |  | Chairman of
  the Board and Chief Executive Officer             
|Izhak Tamir     |  | 51  |  | President
  and Director                                        
|Ehud Rokach     |  | 40  |  | Chief
  Executive Officer of Corrigent Systems                  
|Aviv Boim       |  | 37  |  | Chief
  Financial Officer                                       
|Eran Tamir      |  | 47  |  | Vice
  President Operations                                     
|Yoav
  Wechsler |  | 49  |  | Vice
  President, Research and Development of Corrigent Systems 
|Leon
  Bruckman |  | 46  |  | Vice President,
  Chief System Architecture of Corrigent Systems
|Eli Magal       |  | 38  |  | Vice
  President, Research and Development of access products   
|Haim
  Volinsky |  | 48  |  | Vice
  President, Sales and Marketing of access products        
|Yair Shamir     |  | 58  |  | Outside
  Director                                              
|Miri Gelbman    |  | 52  |  | Outside
  Director                                              
|Moshe Nir       |  | 54  |  | Outside
  Director                                              
|Jed M. Arkin    |  | 40  |  | Director                                                        
|Moti Motil      |  | 51  |  | Director                                                        

The
business experience of each of our directors and executive officers is as
follows:

Mr.
Paneth has been Chairman of the Board of Directors and
Chief Executive Officer of Orckit since its founding in 1990. From 1975 until 1983, Mr. Paneth was a
senior engineer in the Israeli Government, and from 1985 to 1990, was a
technical department head in the Israeli Government. From 1983 until 1985, he was employed by Linkabit Inc., in San
Diego, California. Mr. Paneth holds an
advanced engineering degree from the Israel Institute of Technology, commonly
known as the Technion. Since January
2000, Mr. Paneth has been a director of Tikcro Technologies Ltd.

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Mr.
I. Tamir has been President and a Director of Orckit
since its founding in 1990. From 1987
until 1989, Mr. Tamir was employed by Comstream Inc., in San Diego,
California. From 1985 until 1987, he
was vice president of A.T. Communication Channels Ltd., a subsidiary of
Bezeq. From 1978 to 1985, he was a
senior engineer in the Israeli Government. 
Mr. Tamir holds an engineering degree from the Technion and an M.B.A.
from Tel Aviv University. Since January 2000, Mr. Tamir has been chairman of
the board of directors of Tikcro Technologies Ltd.

Mr.
Rokach joined Orckit in 1992 and has served as Chief
Operating Officer of Orckit since February 2000 and as Chief Executive Officer
of Corrigent Systems since October 2000. 
From 1998 to 2000, Mr. Rokach served as Vice PresidentNetwork Access
Systems. From 1992 to 1998, Mr. Rokach
held several research and development and other positions with Orckit. From 1987 to 1992, he was a senior engineer
with the Israeli Government. Mr. Rokach
holds an engineering degree from the Technion.

Mr.
Boim joined Orckit as Chief Financial Officer in
February 1998. From August 1996 until
February 1998, he was an associate of BT Alex. Brown Incorporated, an
investment banking firm. From August
1993 until August 1996, Mr. Boim was a vice president of Giza Ltd., Tel Aviv,
an investment banking firm. Mr. Boim
holds a B.A. and an M.A. in economics and management from Tel Aviv University
and a L.L.B. from Tel Aviv University Law School.

Mr.
E. Tamir joined Orckit as Vice President Operations in
April 2000. From 1996 until 2000, Mr. E
Tamir who was one of founders of Wizcom Technologies Ltd., served as vice
president operations of Wizcom. From
1990 until 1996, Mr. E Tamir served as director of worldwide logistics of
Indigo Ltd. From 1985 to 1990, Mr. E
Tamir served as director of acquisitions of Scitex Corporation Ltd. Mr. E Tamir holds a BsCEE in machine
engineering from Tel Aviv University and is a business economics graduate of
the Israeli Institute for Management.

Mr.
Wechsler joined Orckit in October 2000 as Vice
President of research and development of Corrigent Systems. From August 1999 to
July 2000, he served as research and development director at One Path Networks.
From September 1997 to August 1999, Mr. Wechsler held engineering management
positions at ADC Teledata. Mr. Wechsler holds a B.Sc. and an M.Sc. in
Electrical Engineering from the Technion.

Mr.
Bruckman joined Orckit in 1999 and has served as
Vice President of system engineering since November 1999 and as Vice President
and Chief System Architect of Corrigent Systems since September 2000. From
April 1996 to October 1999, Mr. Bruckman was Vice President of research and
development and system engineering at HyNEX, which was acquired by Cisco. From
August 1982 to March 1996, Mr. Bruckman held several positions with the access
division of Tadiran Telecommunications, of which the last position was director
of research and development. Mr. Bruckman holds a B.Sc. in Electrical
Engineering from the Technion Institute and an MBA from Bar-Ilan University,
Israel.

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Mr.
Magal joined Orckit in 1995 and held various
engineering management positions until becoming Vice President of research and
development of access products in 2001. Mr. Magal holds a B.S. in Electrical
Engineering from the Technion and an M.B.A. from Tel Aviv University.

Mr. Volinsky joined Orckit in November 2001
and has served as Vice President sales and marketing of access products. From September 2000 until October 2001, Mr.
Volinsky served as a marketing director at Cisco Systems. From 1997 until 2000,
Mr. Volinsky served as a Co-General manager and VP of marketing and sales at
HyNEX, which was acquired by Cisco. Mr. Volinsky holds a B.Sc. degree from
Tel-Aviv University in electrical and electronics engineering.

Mr.
Shamir has been a Director of Orckit since October
1995. Mr. Shamir serves as the Chairman
of the Board and Chief Executive Officer of VCON Telecommunications Ltd., an
Israeli technology company listed on Le Nouveau Marche in France. Prior to being appointed Chairman of the
Board in 2001, Mr. Shamir served as President and as one of VCONs directors
since 1997 and as its Chief Executive Officer since 1998. Since April 2000, Mr. Shamir has also served
as chairman of Catalyst Investment L.P., an Israeli venture capital firm. From July 1995 through February 1997, Mr.
Shamir served as the Executive Vice President of The Challenge Fund LLP, the
general partner of the Challenge Fund-Etgar, L.P. From December 1993 to July 1995, he served as the Chief Executive
Officer of Elite Food Industries Ltd. 
Mr. Shamir served as Executive Vice President and general manager of
Israel operations of Scitex Corporation Ltd. from February 1988 through
December 1994. Mr. Shamir is a director
of Mercury Interactive Corp., DSP Group Corporation and Poalim Capital
Markets. Mr. Shamir holds a B.Sc. in
Electrical Engineering from the Technion and has served on the board of
governors of the Technion since 1993.

Ms.
Gelbman has served since 1999 as founder and General
Manager of Milgal Ltd., an Israeli privately-owned appliance distribution and
service company. From 1984 to 1998, she was employed by IBM Israel in various
positions. Her last role with IBM was as Manager of Quality and Customer
Relationship Management (CRM).

Mr.
Nir has served since 1990 as Founder and CEO of
privately-held Business Directions Ltd., a distributor of analytic management
software. From 1985 to 1990, he served as manager of the economics and control
department and member of the Executive Board of Elite Industries Ltd., a
publicly traded food manufacturer in Israel. From 1974 to 1985, he held senior
financial and control positions with Tempo Breweries and Soft Drinks Ltd.,
Tadiran Electronics Industries Ltd. and Clal Israel Ltd. He holds a BA in
economics from Tel Aviv University, and an MBA and Post Graduate Diploma in
Computer and Information Sciences from the Recanati School of Management, Tel
Aviv University

Mr.
Motil has served since 1996 as Vice President Finance
and an associate of Palmot Ltd., an investment company based in Israel. From
1991 until 1996, he served as Chief Financial Officer of the Israeli subsidiary
of Jan-Bell Marketing Inc., a retail company. 
Mr. Motil holds a B.A degree in economics and accounting from Tel-Aviv
University and he is a C.P.A.

Mr.
Arkin has served as Chairman of PeerPressure, Inc., a
company that provides peer-to-peer content protection systems, since January
2000 and as Chairman of Madah Com Communications Ltd., a spread-spectrum
communications company, since January 2000.  From 1999 to 2001, he served
as General Manager of merchant banking for Oscar Gruss & Son, a New
York-based investment bank.  From 1995 to 1998, Mr. Arkin served as Vice
President of The Challenge Fund, an Israeli venture capital firm. He holds a
B.A. from St. Johns College in Annapolis, Maryland, an M.B.A. from Harvard Business
School and a J.D. from Harvard Law School.

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There are
no family relationships between any of our directors or executive
officers. There are no arrangements or
understandings between any of our directors or executive officers and any other
person pursuant to which our directors or executive officers were selected.

B.       COMPENSATION

The
aggregate direct remuneration paid by Orckit to all persons as a group (14
persons) who served in the capacity of director or executive officer in 2003
was approximately $ 2.1 million, which includes $ 380,000 of pension, retirement or similar benefits, expenses reimbursed
(including professional and other business association dues and expenses) and
other fringe benefits. In 2003, we
granted to this group options to purchase an aggregate of 100,000 ordinary
shares under the Orckit Israeli Share Incentive Plan. These options have vesting periods of four years and an exercise
price of $3.30 per share, which represented the market price of our ordinary
shares on the date of grant.

C.       BOARD
PRACTICES

Nasdaq Requirements

Under the
listing requirements of the Nasdaq Stock Market, we are required to have an
audit committee, all of whose members are independent as defined in Nasdaqs
rules. Five out of the seven members of
our board of directors, namely, Messrs. Shamir, Arkin, Gelbman, Nir and Motil,
are independent directors under the Nasdaq requirements. Messrs. Shamir,
Gelbman, Nir and Motil are the sole members of our audit committee.

Israeli Companies Law

We are also
subject to the provisions of the Israeli Companies Law, 5759-1999, and
regulations adopted thereunder.

Board of Directors

According
to the Companies Law and our articles of association, the oversight of the
management of our business is vested in our board of directors. The board of directors may exercise all
powers and may take all actions that are not specifically granted to our
shareholders. As part of its powers, our board of directors may cause us to
borrow or secure payment of any sum or sums of money for our purposes, at times
and upon terms and conditions as it thinks fit, including the grant of security
interests in all or any part of our property. 
Our board of directors may consist of between three and seven directors
and currently consists of seven directors.

Our
directors are elected at annual meetings of shareholders by a vote of the
holders of at least 66-2/3% of the ordinary shares voting thereon. Directors generally hold office until the
next annual meeting of shareholders. 
Our annual meeting of shareholders is required to be held at least once
during every calendar year and not more than fifteen months after the last
preceding meeting. The board of directors generally may temporarily fill
vacancies in the board. Directors may
be removed earlier from office by a resolution passed at a general meeting of
shareholders by a vote of the holders of at least 75% of the ordinary shares
voting thereon.

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A
resolution proposed at any meeting of the board of directors is deemed adopted
if approved by a majority of the directors present and voting on the matter.

Outside Directors

Qualifications
of Outside Directors

Under the
Israeli Companies Law, companies incorporated under the laws of Israel whose
shares are listed for trading on a stock exchange or have been offered to the
public in or outside of Israel are required to appoint at least two outside
directors. Pursuant to our articles of
association, we may appoint up to three outside directors. The Companies Law provides that a person may
not be appointed as an outside director if the person or the persons relative,
partner, employer or any entity under the persons control has, as of the date
of the persons appointment to serve as an outside director, or had, during the
two years preceding that date, any affiliation with:

| |                               | the company;                                                                                                                                                    
| | ------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                |                                                                                                                                                                 
| |                               | any entity controlling the company; or                                                                                                                          
| |                                |                                                                                                                                                                 
| |                               | any entity controlled by the company or by its controlling entity.                                                                                              
| |                                |                                                                                                                                                                 
| | The term affiliation includes:
| |                               
| |                               | an employment relationship;                                                                                                                                     
| |                                |                                                                                                                                                                 
| |                               | a business or professional relationship maintained on a regular
  basis;                                                                                        
| |                                |                                                                                                                                                                 
| |                               | control; and                                                                                                                                                    
| |                                |                                                                                                                                                                 
| |                               | service as an office holder, excluding service as an office holder
  during the three-month period in which the company first offers its shares to
  the public.

The
Companies Law defines the term office holder of a company to include a
director, the chief executive officer and any officer of the company who
reports directly to the chief executive officer.

No person
can serve as an outside director if the persons position or other business
creates, or may create, a conflict of interest with the persons
responsibilities as an outside director or may otherwise interfere with the
persons ability to serve as an outside director.

Until two
years from termination of office, a company may not engage an outside director
to serve as an office holder and cannot employ or receive services from that
person, either directly or indirectly, including through a corporation
controlled by that person.

42

---

---

Election of Outside Directors

Outside
directors are elected at meetings of shareholders by a vote of the holders of
at least 66-2/3% of the ordinary shares voting thereon, provided that either:

| |  | at least one third of the shares of non-controlling shareholders
  voted at the meeting vote in favor of the outside directors election; or                                                     
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                  
| |  | the total number of shares of non-controlling shareholders that voted
  against the election of the outside director does not exceed one percent of
  the aggregate voting rights in the company.

The initial
term of an outside director is three years and may be extended for an
additional three years. Outside directors
may be removed from office only by a vote of the holders of at least 66-2/3% of
the ordinary shares voting thereon, or by a court, and only if the outside
directors cease to meet the statutory qualifications for their appointment or
if they violate their duty of loyalty to the company. Each committee of a companys board of directors that exercises a
power of the board of directors is required to include at least one outside
director, except for the audit committee, which is required to include all the
outside directors. Our outside
directors are: Mr. Shamir, who was re-elected to a second three-year term in
2003, and Ms. Gelbman and Mr. Nir, who were elected in 2002.

Committees

Subject to
the provisions of the Companies Law, our board of directors may delegate its
powers to committees consisting of board members. Our board has formed an audit
committee and an option committee.

Audit Committee

Israeli Companies
Law Requirements

Under the
Israeli Companies Law, our board of directors is required to appoint an audit
committee, comprised of at least three directors, including all of the outside
directors, but excluding:

| |  | the chairman
  of our board of directors;                                       
| | - | --------------------------------------------------------------------------------
| |   |                                                                                 
| |  | a
  controlling shareholder or a relative of a controlling shareholder; and     
| |   |                                                                                 
| |  | any director
  employed by us or who provides services to us on a regular basis.

The role of
the audit committee is to identify flaws in the management of our business,
including in consultation with the internal auditor and our independent
accountants, to suggest remedial measures 
and to approve specified related party transactions. Our audit committee consists of Mr. Yair
Shamir, Mr. Moshe Nir, Ms. Miri Gelbman and Mr. Moti Motil.

Nasdaq Requirements

We have
adopted an audit committee charter as required by the Nasdaq rules. Our audit
committee assists the board of directors in fulfilling its responsibility for
oversight of the quality and integrity of our accounting, auditing and
financial reporting practices and financial statements and the independence
qualifications and performance of our independent auditors. The audit committee
also has the authority and responsibility to oversee our independent auditors,
to recommend for shareholder approval the appointment and, where appropriate,
replacement of our independent auditors and to pre-approve audit fees and all
permitted non-audit services and fees.

43

---

---

Approval of Related
Party Transactions

Under the
Companies Law and the rules of Nasdaq, the approval of the audit committee is
required to effect specified related-party transactions. Under the Companies Law, the audit committee
may not approve an action or a transaction with related parties or with its
office holders unless at the time of approval at least two outside directors
are serving as members of the audit committee and at least one of whom was
present at the meeting in which any approval was granted.

Option Committee

Our Option
Committee administrates our share option plan and is empowered, among other
things, to recommend to our Board of Directors option grants, optionees, dates
of grant and the exercise price of options. Messrs. Eric Paneth, Izhak Tamir
and Yair Shamir are currently the members of our option committee.

Internal Auditor

Under the
Companies Law, our board of directors is required to appoint an internal
auditor proposed by the audit committee. 
The role of the internal auditor is to examine, among other things,
whether our actions comply with the law and orderly business procedure. The internal auditor may not be an
interested party, an office holder, or a relative of any of the foregoing, nor
may the internal auditor be our independent accountant or its representative.

The
Companies Law defines the term interested party to include a person who:

| |  | holds 5% or more of our outstanding share capital or voting rights;        
| | - | ---------------------------------------------------------------------------
| |   |                                                                            
| |  | has the right to appoint one or more directors or the general
  manager; or
| |   |                                                                            
| |  | who serves as a director or as the general manager.                        

Approval of
Specified Related Party Transactions Under Israeli Law

Fiduciary Duties of Office Holders

The Israeli
Companies Law imposes a duty of care and a duty of loyalty on all office
holders of a company. The duty of care
requires an office holder to act with the level of care with which a reasonable
office holder in the same position would have acted under the same
circumstances. The duty of care
includes a duty to use reasonable means to obtain:

44

---

---

| |                                                             |                                                                                                                                                                       
| | ----------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                            | information on the advisability of a given action brought for his
  approval or performed by him by virtue of his position; and                                       
| |                                                             |                                                                                                                                                                       
| |                                                            | all other important information pertaining to these actions.                                                                                                          
| |                                                             |                                                                                                                                                                       
| | The duty of loyalty of an office holder includes a duty to:
| |                                                             |                                                                                                                                                                       
| |                                                            | refrain from any conflict of interest between the performance of his
  duties for the company and the performance of his other duties or his
  personal affairs;      
| |                                                             |                                                                                                                                                                       
| |                                                            | refrain from any activity that is competitive with the company;                                                                                                       
| |                                                             |                                                                                                                                                                       
| |                                                            | refrain from exploiting any business opportunity of the company to
  receive a personal gain for himself or others; and                                               
| |                                                             |                                                                                                                                                                       
| |                                                            | disclose to the company any information or documents relating to a
  companys affairs which the office holder has received due to his position as
  an office holder.

Disclosure of Personal Interest of an Office
Holder

The Israeli
Companies Law requires that an office holder of a company disclose to the
company any personal interest that he may have and all related material
information known to him, in connection with any existing or proposed
transaction by the company. The
disclosure is required to be made promptly and in any event no later than the
board of directors meeting in which the transaction is first discussed. If the transaction is an extraordinary
transaction, the office holder must also disclose any personal interest held
by:

| |                                                                            | the office holders spouse, siblings, parents, grandparents,
  descendants, spouses descendants and the spouses of any of these people; or                                                     
| | --------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                             |                                                                                                                                                                                                 
| |                                                                            | any corporation in which the office holder is a 5% or greater
  shareholder, director or general manager or in which he has the right to
  appoint at least one director or the general manager.
| |                                                                             |                                                                                                                                                                                                 
| | Under Israeli law, an extraordinary transaction is a transaction that
  is:
| |                                                                            
| |                                                                            | not in the ordinary course of business;                                                                                                                                                         
| |                                                                             |                                                                                                                                                                                                 
| |                                                                            | not on market terms; or                                                                                                                                                                         
| |                                                                             |                                                                                                                                                                                                 
| |                                                                            | likely to have a material impact of the companys profitability,
  assets or liabilities.                                                                                                       

Once
an office holder complies with the above disclosure requirement, the board of
directors may approve a transaction between the company and an office holder,
or a third party in which an office holder has a personal interest. A transaction that is adverse to the
companys interest may not be approved.

45

---

---

If the
transaction is an extraordinary transaction, approval of both the audit
committee and the board of directors is required, in that order. Under specific circumstances, shareholder
approval may also be required. A
director who has a personal interest in a proposed extraordinary transaction
which is considered at a meeting of the board of directors or the audit
committee may not be present at this meeting or vote on this matter, unless a
majority of the members of the board of directors or the audit committee, as
the case may be, has a personal interest in the matter.  If a majority of members of the board of
directors have a personal interest therein, shareholder approval is also
required.

Disclosure of Personal Interests of a
Controlling Shareholder

Under the
Israeli Companies Law, the disclosure requirements which apply to an office
holder also apply to a controlling shareholder of a public company.  A controlling shareholder is a shareholder
who has the ability to direct the activities of a company, including a
shareholder that owns 25% or more of the voting rights if no other shareholder
owns more than 50% of the voting rights, but excluding a shareholder whose
power derives solely from his or her position on the board of directors or any
other position with the company. 
Extraordinary transactions with a controlling shareholder or with a
third party in which a controlling shareholder has a personal interest, and the
terms of engagement of a controlling shareholder as an office holder or
employee, require the approval of the audit committee, the board of directors
and the shareholders of the company, in that order.  The shareholder approval must be by a majority of the shares
voted on the matter, provided that either:

| | at least one-third of the shares of shareholders who have no personal
  interest in the transaction and who vote on the matter vote in favor thereof;
  or                        
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                   
| | the shareholders who have no personal interest in the transaction who
  vote against the transaction do not represent more than one percent of the
  voting rights in the company.

For
information concerning the direct and indirect personal interests of our office
holders and principal shareholders in specified transactions with us, see Item
7A of this Annual Report.

D.      EMPLOYEES

The numbers
and breakdowns of our employees as of the end of the past three years are set
forth in the following table:

|                                              |  | As of
  December 31, |    
|--------------------------------------------- |  | -------------------- | ---
|                                              |  |                      |    
|                                              |  | 2001                 |    
|                                              |  |                      |    
|Numbers of
  employees by geographic location |  |                      |    
|Israel                                        |  |                      | 210
|United
  States                               |  |                      | 6  
|Elsewhere                                     |  |                      | 0  
|                                              |  |                      |    
|Total
  workforce                             |  |                      | 216
|                                              |  |                      |    

46

---

---

|                                               |  | As of
  December 31, |    
|---------------------------------------------- |  | -------------------- | ---
|                                               |  |                      |    
|                                               |  | 2001                 |    
|                                               |  |                      |    
|Numbers of
  employees by category of activity |  |                      |    
|MIS,
  finance and administration              |  |                      | 43 
|Research
  and development                     |  |                      | 113
|Manufacturing,
  testing and quality assurance |  |                      | 39 
|Sales
  and marketing                          |  |                      | 21 
|                                               |  |                      |    
|Total
  workforce                              |  |                      | 216
|                                               |  |                      |    

We had
fewer employees as of December 31, 2002 than in December 31, 2001 as a result
of reduction of the number of employees in operations, R&D and sales and
marketing due to the deterioration of economies around the world and decrease
in revenues from our legacy DSL business. On December 31, 2003 the number of
employees was similar to December 31, 2002 as there was no substantial change
in the scope of research and development, marketing and accompanying activities.

We believe
that we have been able to attract talented engineering and other technical
personnel. None of our employees is represented by a labor union and we have
not experienced a work stoppage.  We
believe that our relationship with our employees is good and that our future
success will depend on a continuing ability to hire, assimilate and retain
qualified employees.

Certain
provisions of the collective bargaining agreements between the Histadrut
(General Federation of Labor in Israel) and the Coordination Bureau of Economic
Organizations, including the Industrialists Associations, are applicable to our
employees by order of the Israeli Ministry of Labor and Welfare.  These provisions principally concern cost of
living increases, recreation pay and other conditions of employment.

Israeli
labor laws and regulations are applicable to all of our employees in
Israel.  The laws principally concern
matters such as paid annual vacation, paid sick days, the length of the workday,
payment for overtime, insurance for work-related accidents, severance pay and
other conditions of employment.  Israeli
law generally requires severance pay, which may be funded, in whole or in part,
by Managers Insurance described below, in certain circumstances, including the
retirement or death of an employee or termination of employment without cause,
as defined under Israeli law.  The
payments thereto amount to approximately 8.3% of wages.  Furthermore, Israeli employees are required
to pay predetermined sums to the National Insurance Institute.  The payments to the National Insurance
Institute are approximately 16% of wages of which the employee contributes
approximately 66% and the employer contributes approximately 34%.

A general
practice followed by Orckit, although not legally required, is the contribution
of funds on behalf of most of its employees to a fund known as Managers
Insurance.  This fund provides employees
with a lump sum payment upon retirement or with payments on account of
severance pay, if legally entitled, upon termination of employment.  Each employee who agrees to participate in
the Managers Insurance plan contributes an amount equal to 5% of such
employees base salary and the employer contributes approximately 15% of such
salary, which 15% includes the 8.3% for severance pay.

47

---

---

E.       SHARE
OWNERSHIP

As of March
31, 2004, Messrs. Eric Paneth and Izhak Tamir, each, directly or through a
wholly owned company, beneficially owns 751,771 ordinary shares, or 16.7% of
our ordinary shares, including (i) options to purchase 18,750 of our ordinary
shares at no exercise price per share and (ii) the right to purchase 140,000
shares from us, at any time or from time to time in one or more purchases,
until February 2005.  The purchase price
for the ordinary shares under such right to purchase will be equal to the
average closing price of our ordinary shares on Nasdaq over the ten trading
days immediately preceding the purchase date, plus a premium of 10%.  Except for Messrs. Paneth and Tamir, none of
our executive officers or directors beneficially owns 1% or more of our
outstanding ordinary shares.

At December
31, 2003, outstanding options to purchase a total of 674,639 ordinary shares
were granted by us pursuant to our share incentive plan, of which options to
purchase a total of 336,703 ordinary shares were held by our directors and
officers (14 persons) as a group.  Our
share incentive plan is administered by an option committee of our board of
directors, which is empowered, among other things, to recommend to our board of
directors the optionees, dates of grant and the exercise price of options.  Unless otherwise decided by our board of
directors or the option committee, options granted under the share incentive
plan are non-assignable except by the laws of descent.  The outstanding options are exercisable at
purchase prices which range from $0 to $60 per share, vest mainly over up to
periods of five years, and have expiration dates which range from 2004 to 2012.

In January
2003, our board of directors adopted the Orckit Communications Ltd. 2003
Subsidiary Employee Share Incentive Plan. Shares issued pursuant to this plan
are issued to employees and consultants of our majority-owned subsidiaries for
no consideration and are subject to reverse vesting. Unvested shares issued
pursuant to this plan may be reacquired by us under certain circumstances or
may be exchanged for shares or options of the applicable subsidiary under
certain circumstances at the election of Orckit or the employees. Our directors
are not entitled to participate in this plan. During 2003, 60,000 shares were
forfeited and 540,000 shares were exchanged for options to purchase shares of
subsidiaries.

Subject to
the approval of the Board of Directors of Orckit, Corrigent and Spediant, as
the case may be, and based on the relative fair market value of each of the
relevant companies, options granted by Corrigent and Spediant may be exercised
for securities of Orckit. Each of Corrigent and Spediant has granted or
reserved options representing approximately 30% of its fully diluted equity.
See Item 4.A for further information with respect to the Corrigent and Spediant
Stock Option Plan.

ITEM
7.          MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS

A.       MAJOR
SHAREHOLDERS

To our
knowledge, (A) we are not directly or indirectly owned or controlled (i) by
another corporation or (ii) by any foreign government and (B) there are no
arrangements, the operation of which may at a subsequent date result in a
change in control of Orckit.

48

---

---

As of March
31, 2004, each of Eric Paneth and Izhak Tamir beneficially owns 16.7% of our
ordinary shares and collectively beneficially own approximately 32.2% of our
ordinary shares. Accordingly, Messrs. Paneth and Tamir, if they voted together,
may have the power to control the outcome of matters submitted to a vote of our
shareholders, including the approval of significant change of control
transactions.

The
following table sets forth, as of March 31, 2004, the number of our ordinary
shares, which constitute our only voting securities, beneficially owned by (i)
all shareholders known to us to own more than 5% of our outstanding ordinary
shares, and (ii) all of our directors and executive officers as a group. The
voting rights of all major shareholders are the same. As of March 31, 2004,
4,348,386 of our ordinary shares were outstanding.

|Identity of Person or Group                                    |  | Amount Owned |           | Percent of Class | 
|-------------------------------------------------------------- |  | ------------ | --------- | ---------------- | 
|                                                               |  |              |           |                  | 
|Eric Paneth (1)                                                |  |              | 751,771   |                  | 
|Izhak Tamir (2)                                                |  |              | 751,771   |                  | 
|Hermes
  Investment Management, Ltd.(3)                        |  |              | 278,000   |                  | 
|All
  directors and executive officers as a group (14 persons) |  |              | 1,598,370 | (4)              | 

---

|(1)(2) | Includes, in
  the case of each of Messrs. Tamir and Paneth: (i) 18,750 ordinary shares
  issuable upon the exercise of options that are currently vested or vest
  within the next 60 days and (ii) the right to purchase 140,000 shares from
  us, at any time or from time to time in one or more purchases until February
  2005.  Under such right to purchase,
  the purchase price for the ordinary shares will be equal to the average
  closing price of our ordinary shares on Nasdaq over the ten trading days immediately
  preceding the purchase date, plus a premium of 10%. As discussed in Item 6.E,
  securities held by Messrs. Tamir and Paneth of Corrigent may be exercised for
  shares of Orckit under certain circumstances.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(3)    | Information
  is derived from a Schedule 13G, dated November 26, 2003, of BT Pension
  Scheme, Royal Mail Pension Plan and Hermes Investment Management, Ltd. filed
  with the Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(4)    | Includes
  132,328 ordinary shares which may be purchased pursuant to options exercisable
  within sixty days following March 31, 2004. 
  As discussed in Item 6.E, securities of Corrigent and Spediant held by
  directors and executive officers of Orckit may be exercised for shares of
  Orckit.                                                                                                                                                                                                                                                                                                                                                                                                                                              

As of March
31, 2004, there were 35 holders of record of our ordinary shares in the United
States who collectively held approximately 70%of our outstanding ordinary
shares.  The number of record holders in
the United States is not representative of the number of beneficial holders nor
is it representative of where such beneficial holders are resident since many
of these ordinary shares were held of record by brokers or other nominees.

In January
2003, we repurchased from Clal Electronics Industries Ltd. 616,590 of our
ordinary shares and $12.5 million principal amount of our convertible
subordinated notes.  Prior thereto, Clal
and its affiliates beneficially owned approximately 12.0% of our ordinary
shares.  Immediately following this
transaction, we believe that Clal and its affiliates beneficially own less than
1% of our ordinary shares.

49

---

---

B.       RELATED
PARTY TRANSACTIONS

Founding Agreements for Corrigent Systems and
Spediant Systems

In
connection with the founding of Corrigent Systems and Spediant Systems, we
entered into founding agreements with these subsidiaries established to
undertake our new technology projects. Pursuant to these founding agreements,
Orckit contributed and transferred to each subsidiary a team of employees and
applicable assets and liabilities related to early stage initiation and
development in the business area of each of the technology projects which were
conducted prior to such founding. Under the founding agreements, the
subsidiaries assumed all employment-related obligations, accrued benefits and severance pay of our
employees who have become employees of the subsidiaries.In 2003, Orckit continued to fund
Corrigent and Spediant. Certain of our directors, officers and employees have
previously been granted securities in Corrigent and Spediant with a nominal
exercise price.

Loan Agreement

As part of
the plan of separation relating to the spin-off of Tikcro, we loaned to
Tikcro  $20 million.  This loan bore interest at a rate of
approximately 6% per annum and was required to be repaid by March 1, 2005. In
February 2002, Tikcro announced that it had entered into a set of agreements
with ST Microelectronics, pursuant to which it was to receive certain
funding.  In 2002, we were repaid $13.0
million of the principal of this loan and accrued interest due in the amount of
$2.9 million.  In May 2003, Tikcro
announced the closing of an asset purchase agreement pursuant to which ST
Microelectronics acquired all of Tikcros assets. After the closing of that
transaction, Tikcro paid us the remaining amount outstanding under the loan.

Clal Electronics
Industries Ltd.

In January
2003, we retired $12.5 million principal amount of our convertible subordinated
notes and repurchased 616,590 of our ordinary shares held by Clal for aggregate
consideration of $14.7 million.

Tikcro Management
Agreement

Following
the sale of Tikcros business to STMicroelectronics in April 2003, we agreed to
provide Tikcro administrative services. For the services rendered in 2003,
Tikcro paid us $50,000.

Siliquent
Technologies

In October
2001, one of our technology projects, Siliquent Technologies, a provider of
technology for the storage network applications industry, raised $10.0 million
in equity financing from third parties. Certain of our directors, officers and
employees had previously been granted securities in Siliquent with a nominal
exercise price. In 2003 we participated in follow on investment rounds in
Siliquent and increased our investment by $1.4 million. Orckits ownership interest
in Siliquent is immaterial. 
          We believe that any transactions involving
affiliated parties were on terms no less favorable to us than could be obtained
with non-affiliated parties.

50

---

---

C.      INTERESTS
OF EXPERTS AND COUNSEL

Not
applicable

ITEM
8.          FINANCIAL
INFORMATION

See Item
18.

ITEM
9.          THE OFFER AND
LISTING

A.       OFFER
AND LISTING DETAILS

Our
ordinary shares are quoted on the Nasdaq Stock Market and The Tel Aviv Stock
Exchange under the symbol ORCT.  The
following table sets forth, for the periods indicated, the high and low sales
prices of our ordinary shares as reported on the Nasdaq Stock Market.  The price per share of our ordinary shares
has been retroactively adjusted to reflect the one-for-five reverse share split
effective as of November 27, 2002 and the spin-off of Tikcro on June 30, 2000,
based on the ratio of our share price to Tikcros share price on that
date.  This ratio allocated 44% of the
price to Orckit and 56% to Tikcro.

|Calendar Year |  | Price Per
  Share |       
|------------- |  | ----------------- | ------
|              |  |                   |       
|              |  | High              |       
|              |  |                   |       
|              |  |                   |       
|2003          |  | $                 | 23.60 
|2002          |  | $                 | 21.60 
|2001          |  | $                 | 21.25 
|2000          |  | $                 | 203.95
|1999          |  | $                 | 85.55 

51

---

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|Calendar Period  |  | Price Per
  Share |      
|---------------- |  | ----------------- | -----
|                 |  |                   |      
|                 |  | High              |      
|                 |  |                   |      
|2004             |  |                   |      
|First  Quarter   |  | $                 | 23.00
|2003             |  |                   |      
|First
  Quarter  |  | $                 | 7.10 
|Second
  Quarter |  | $                 | 10.04
|Third
  Quarter  |  | $                 | 9.25 
|Fourth
  Quarter |  | $                 | 23.60
|2002             |  |                   |      
|First
  Quarter  |  | $                 | 21.60
|Second
  Quarter |  | $                 | 10.25
|Third
  Quarter  |  | $                 | 5.80 
|Fourth
  Quarter |  | $                 | 4.70 

|Calendar Month |  | Price Per
  Share |      
|-------------- |  | ----------------- | -----
|               |  |                   |      
|               |  | High              |      
|               |  |                   |      
|2004           |  |                   |      
|March          |  | $                 | 16.71
|February       |  | $                 | 18.99
|January        |  | $                 | 23.00
|2003           |  |                   |      
|December       |  | $                 | 20.69
|November       |  | $                 | 23.60
|October        |  | $                 | 15.15

52

---

---

The following
table sets forth, for the periods indicated, the high and low sales prices of
our ordinary shares as reported on the Tel Aviv Stock Exchange.

|Calendar Year |  | Price Per
  Share |      
|------------- |  | ----------------- | -----
|              |  |                   |      
|              |  | High              |      
|              |  |                   |      
|              |  |                   |      
|2003          |  | $                 | 23.38

|Calendar Period  |  | Price Per Share |      
|---------------- |  | --------------- | -----
|                 |  |                 |      
|                 |  | High            |      
|                 |  |                 |      
|2004             |  |                 |      
|First
  Quarter  |  | $               | 23.64
|                 |  |                 |      
|2003             |  |                 |      
|First
  Quarter  |  | $               | 7.14 
|Second
  Quarter |  | $               | 10.58
|Third
  Quarter  |  | $               | 9.25 
|Fourth
  Quarter |  | $               | 23.38

|Calendar
  Month |  | Price Per Share |      
|---------------- |  | --------------- | -----
|                 |  |                 |      
|                 |  | High            |      
|                 |  |                 |      
|2004             |  |                 |      
|March            |  | $               | 16.67
|February         |  | $               | 18.78
|January          |  | $               | 23.64
|2003             |  |                 |      
|December         |  | $               | 20.86
|November         |  | $               | 23.96
|October          |  | $               | 14.98

The share
prices as presented above in US dollars were originally denominated in New
Israeli Shekels and were converted to US dollars using the average exchange
rate between the US dollar and the New Israeli Shekels for the presented
period.

53

---

---

The trading
of our shares on the TASE in 2002 was insignificant and accordingly, we do not
believe sales price information with respect to the limited trading of our
ordinary shares on TASE in 2002 is meaningful.

B.       PLAN
OF DISTRIBUTION

Not
applicable

C.       MARKETS

Our
ordinary shares are quoted on the Nasdaq Stock Market under the symbol
ORCT.

D.       SELLING SHAREHOLDERS

Not
applicable

E.       DILUTION

Not
applicable

F.       EXPENSES OF THE ISSUE

Not
applicable

ITEM 10.          ADDITIONAL
INFORMATION

A.       SHARE CAPITAL

Not
applicable

B.       MEMORANDUM
AND ARTICLES OF ASSOCIATIONS

Objects and Purposes

We were
first registered under Israeli law on January 22, 1990 as a private company,
and, on July 22, 1996, became a public company.  Our registration number with the Israeli registrar of companies
is 52-004287-0.  Our object is to
engage, directly or indirectly, in any lawful undertaking or business
whatsoever, including, without limitation, as stipulated in our memorandum of
association, which was filed with the Israeli registrar of companies.

Transfer of Shares and Notices

Fully paid
ordinary shares may be freely transferred pursuant to our articles of
association unless the transfer is restricted or prohibited by another
instrument.  Unless otherwise prescribed
by law, we will provide at least 21 calendar days prior notice of any general
shareholders meeting.

Dividend and Liquidation Rights

Dividends
on our ordinary shares may be paid only out of profits and other surplus, as
defined in the Companies Law, as of our most recent financial statements or as
accrued over a period of two years, whichever is higher. Our board of
directors, with the approval of our audit committee, is authorized to declare
dividends, provided that there is no reasonable concern that the dividend will
prevent us from satisfying our existing and foreseeable obligations as they
become due.  In the event of our
liquidation, after satisfaction of liabilities to creditors, our assets will be
distributed to the holders of ordinary shares in proportion to their respective
holdings.  These dividend and
liquidation rights may be affected by the grant of preferential dividends or
distribution rights to the holders of a class of shares with preferential
rights that may be authorized in the future.

54

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Voting, Shareholders Meetings and
Resolutions

Holders of
ordinary shares have one vote for each ordinary share held on all matters
submitted to a vote of shareholders. Under the Companies Law and our articles
of association, most resolutions of our shareholders require approval by a
simple majority of the ordinary shares voting thereon.  Amendments to our articles of association
and the election of directors require approval of 66-2/3% of our ordinary shares
voting thereon, and liquidation and the removal of directors (other than
outside directors) require approval of 75% of our ordinary shares voting
thereon.

These
voting rights may be affected by the grant of any special voting rights to the
holders of a class of shares with preferential rights that may be authorized in
the future.

We have two
types of general shareholders meetings: the annual general meetings and
extraordinary general meetings. Directors are elected only at annual general
meeting.  These meetings may be held
either in Israel or in any other place the board of directors determines. An
annual general meeting must be held in each calendar year, but not more than 15
months after the last annual general meeting. 
Our board of directors may convene an extraordinary meeting, from time
to time, at its discretion and is required to do so upon the request of
shareholders holding at least 5% of our ordinary shares.

The quorum
required for a meeting of shareholders consists of at least two shareholders
present in person or by proxy who hold or represent between them at least 25%
of the outstanding voting shares, unless otherwise required by applicable
rules.  Nasdaq generally requires a
quorum of 33-1/3%, but we have received an exemption from that requirement
based on the generally accepted business practice for companies in Israel to
have a quorum requirement of 25%. A meeting adjourned for lack of a quorum
generally is adjourned to the same day in the following week at the same time
and place or any time and place as the chairman may designate with the consent
of a majority of the voting power represented at the meeting and voting on the
matter adjourned.  At such reconvened
meeting the required quorum consists of any two members present in person or by
proxy, unless otherwise required by applicable rules. Pursuant to the
requirements of Nasdaq, unless we obtain a further exemption from Nasdaq, the
quorum required for any such adjourned meetings will be 25%.

Duties of Shareholders

Under the
Companies Law, each and every shareholder has a duty to act in good faith in
exercising his rights and fulfilling his obligations towards Orckit and other
shareholders and to refrain from abusing his power in Orckit, such as in voting
in the general meeting of shareholders on the following matters:

| | any amendment to the articles of association;
|- | ---------------------------------------------

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| | an increase of our authorized share capital;                                      
|- | ----------------------------------------------------------------------------------
|  |                                                                                   
| | a merger; or                                                                      
|  |                                                                                   
| | approval of certain actions and transactions which require
  shareholder approval.

In
addition, each and every shareholder has the general duty to refrain from
depriving other shareholders of their rights.

Furthermore,
any controlling shareholder, any shareholder who knows that it possesses the
power to determine the outcome of a shareholder vote and any shareholder that,
pursuant to the provisions of the articles of association, has the power to
appoint or to prevent the appointment of an office holder in Orckit or any
other power toward Orckit is under a duty to act in fairness towards
Orckit.  The Companies Law does not
describe the substance of this duty of fairness.  These various shareholder duties may restrict the ability of a
shareholder to act in what the shareholder perceives to be its own best
interests.

Anti-Takeover Provisions; Mergers and
Acquisitions

The Israeli
Companies Law includes provisions that allow a merger transaction and requires
that each company that is a party to a merger have the transaction approved by
its board of directors and a vote of the majority of its shares, at a
shareholders meeting called on at least 21 days prior notice.  For purposes of the shareholder vote, unless
a court rules otherwise, the statutory merger will not be deemed approved if a
majority of the shares present that are held by parties other than the other
party to the merger, or by any person who holds 25% or more of the shares or
the right to appoint 25% or more of the directors of the other party, vote
against the merger.  Upon the request of
a creditor of either party of the proposed merger, the court may delay or
prevent the merger if it concludes that there exists a reasonable concern that
as a result of the merger, the surviving company will be unable to satisfy the
obligations of any of the parties to the merger.  In addition, a merger may not be completed unless at least 70
days have passed from the time that the requisite proposal for the merger has
been filed by each party with the Israeli Registrar of Companies.

The
Companies Law also provides that an acquisition of shares of a public company
must be made by means of a tender offer if as a result of the acquisition the
purchaser would become a 25% or greater shareholder of the company and there is
no existing 25% or greater shareholder in the company.  An acquisition of shares of a public company
must be made by means of a tender offer if as a result of the acquisition the
purchaser would become a 45% or greater shareholder of the company and there is
no existing majority shareholder in the company.  These requirements do not apply if the acquisition is made in a
private placement.  If following any
acquisition of shares, the acquiror will hold 90% or more of the companys
shares, the acquisition may not be made other than through a tender offer to
acquire all of the shares of such class. 
If more than 95% of the outstanding shares are tendered in the tender
offer, all the shares that the acquiror offered to purchase will be transferred
to it.  However, the remaining minority
shareholders may seek to alter the consideration by court order.

Israeli tax
law also treats stock-for-stock acquisitions between an Israeli company and a
foreign company less favorably than does U.S. tax law.  For example, Israeli tax law may, under
certain circumstances, subject a shareholder who exchanges his ordinary shares
for shares of another corporation to taxation prior to the sale of the shares
received in such stock-for-stock swap.

56

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Our
articles of association provide that our board of directors may, at any time in
its sole discretion, adopt protective measures to prevent or delay a coercive
takeover of Orckit, including, without limitation, the adoption of a
shareholder rights plan.  In November
2001, our board of directors adopted a shareholder bonus rights plan pursuant
to which share purchase bonus rights were distributed on December 6, 2001 at
the rate of one right for each of our ordinary shares held by shareholders of
record as of the close of business on that date.

The rights
plan is intended to help ensure that all of our shareholders are able to
realize the long-term value of their investment in Orckit in the event of a
potential takeover which does not reflect the full value of Orckit and is
otherwise not in the best interests of Orckit and its shareholders.  The rights plan is also intended to deter
unfair or coercive takeover tactics.

Each right
initially will entitle shareholders to buy one-half of one of our ordinary
shares for $65.00.  The rights generally
will be exercisable and transferable apart from our ordinary shares only if a
person or group becomes an acquiring person by acquiring beneficial ownership
of 15% or more of our ordinary shares, subject to certain exceptions set forth
in the rights plan, or commences a tender or exchange offer upon consummation
of which such person or group would become an acquiring person.  Subject to certain conditions described in
the rights plan, once the rights become exercisable, the holders of rights,
other than the acquiring person, will be entitled to purchase ordinary shares
at a discount from the market price.

The rights
will expire on December 31, 2011 and are generally redeemable by our board of
directors, at $0.01 per right, at any time until the tenth business day
following public disclosure that a person or group has become an acquiring
person.

Our
articles of association also provide that as long as any of our securities are
publicly traded on a United States market or exchange, all proxy solicitations
by persons other than our board of directors must be undertaken pursuant to the
United States proxy rules, regardless of whether those proxy rules are legally
applicable to us.  These provisions of
our articles of association could discourage potential acquisition proposals
and could delay or prevent a change in control of Orckit.

Modification of Class Rights

Our
articles of association provide that the rights attached to any class (unless otherwise
provided by the terms of that class), such as voting, rights to dividends and
the like, may be varied by a shareholders resolution, subject to the sanction
of a resolution passed by a majority of the holders of the shares of that class
at a separate class meeting.

Indemnification, Exculpation and Insurance of
Office Holders

Exculpation of
Office Holders

Under the
Companies Law, an Israeli company may not exempt an office holder from
liability for breach of his duty of loyalty, but may exempt in advance an
office holder from liability to the company, in whole or in part, for a breach
of his duty of care provided the articles of association of the company allow
it to do so.  Our articles of association
allow us to exempt our office holders to the fullest extent permitted by law.

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Insurance of Office
Holders

Our
articles of association provide that, subject to the provisions of the
Companies Law, we may enter into an insurance contract which would provide
coverage for any monetary liability incurred by any of our office holders, with
respect to an act performed in the capacity of an office holder for:

| | a breach of his duty of care to us or to another person;                                                                                                                            
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                     
| | a breach of his duty of loyalty to us, provided that the office
  holder acted in good faith and had reasonable cause to assume that his act
  would not prejudice our interests; or
|  |                                                                                                                                                                                     
| | a financial liability imposed upon him in favor of another person.                                                                                                                  

We obtained
liability insurance covering our officers and directors.

Indemnification of
Office Holders

Our
articles of association provide that we may indemnify an office holder against
the following obligations and expenses imposed on the office holder with
respect to an act performed in the capacity of an office holder:

| | a financial obligation imposed on him in favor of another person by a
  court judgment, including a settlement judgment or an arbitrators award
  approved by the court; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                              
| | reasonable litigation expenses, including attorneys fees, incurred
  by the office holder or which the office holder was ordered to pay by a court
  in connection with:    
|  |                                                                                                                                                                              
|  |                                                                                                                                                                             
|  |                                                                                                                                                                              
|  |                                                                                                                                                                             
|  |                                                                                                                                                                              
|  |                                                                                                                                                                             

Our
articles of association also include provisions:

| | authorizing us to undertake in advance to indemnify an office holder
  as described above, provided that the undertaking is limited to those types
  of events which our board of directors deems to be anticipated when the
  undertaking is given and to an amount determined by our board of directors to
  be reasonable under the circumstances; and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                          
| | authorizing us to retroactively indemnify an officer or director.                                                                                                                                                                                                                                                                                        

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Limitations
on Exculpation, Insurance and Indemnification

The
Israeli Companies Law provides that a company may not exculpate or indemnify an
office holder, or enter into an insurance contract which would provide coverage
for any monetary liability incurred as a result of any of the following:

| | a breach by the office holder of his duty of loyalty unless, with
  respect to insurance coverage, the office holder acted in good faith and had
  a reasonable basis to believe that the act would not prejudice the company;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                               
| | a breach by the office holder of his duty of care if the breach was
  committed intentionally or recklessly;                                                                                                                  
|  |                                                                                                                                                                                                                               
| | any act or omission committed with the intent to derive an illegal
  personal benefit; or                                                                                                                                     
|  |                                                                                                                                                                                                                               
| | any fine imposed on the office holder.                                                                                                                                                                                        

In
addition, under the Companies Law, exculpation of, indemnification of, and
procurement of insurance coverage for our office holders must be approved by
our audit committee and our board of directors and, if the beneficiary is a
director, by our shareholders.

Our
articles of association also provide that, subject to the provisions of
applicable law, we may procure insurance for or indemnify any person who is not
an office holder, including without limitation, any of our employees, agents,
consultants or contractors.

C.       MATERIAL
CONTRACTS

None

D.       EXCHANGE
CONTROLS

There are
currently no Israeli currency control restrictions on payments of dividends or
other distributions with respect to our ordinary shares or the proceeds from the
sale of the shares, except for the obligation of Israeli residents to file
reports with the Bank of Israel regarding certain transactions.  However, legislation remains in effect
pursuant to which currency controls can be imposed by administrative action at
any time.

The
ownership or voting of our ordinary shares by non-residents of Israel, except
with respect to citizens of countries which are in a state of war with Israel,
is not restricted in any way by our memorandum of association or articles of
association or by the laws of the State of Israel.

E.       TAXATION

The
following is a general summary only and should not be considered as income tax
advice or relied upon for tax planning purposes.

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United
States

The
following summary describes the material U.S. federal income tax consequences to
U.S. Holders (as defined below) arising from the purchase, ownership and
disposition of our ordinary shares. This summary is based on current provisions of the
Internal Revenue Code of 1986, as amended (the Code), the final, temporary and
proposed U.S. Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, possibly with retroactive
effect. This summary is addressed only to holders that are U.S. citizens, individuals
resident in the United States for U.S. federal income tax purposes, domestic U.S.
corporations, estates the income of which is subject to U.S. federal income tax regardless
of the source of their income and any trust if either:

| |  | a
U.S. court is able to exercise  primary  supervision over the  administration  of the
trust               and one or more U.S.  persons  have the  authority  to control all
the  substantial               decisions of the trust, or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
trust has a valid election in effect under  applicable  U.S.  Treasury  regulations to be
              treated as a U.S. person (collectively, "U.S. Holders").
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

This
summary does not consider all aspects of U.S. federal income taxation that may be relevant
to particular U.S. Holders by reason of their particular circumstances, including
potential application of the alternative minimum tax, or any aspect of state, local or
non-U.S. federal tax laws. In addition, this summary is directed only to U.S. Holders that
hold ordinary shares as capital assets and does not address the considerations that may be
applicable to particular classes of U.S. Holders, including financial institutions,
insurance companies, broker-dealers, tax-exempt organizations, holders whose functional
currency is not the U.S. Dollar, holders of ordinary shares as part of a
straddle, hedge or conversion transaction, holders,
directly, indirectly or through attribution, of 10% or more of our outstanding ordinary
shares and persons who own ordinary shares through a partnership or other pass-through
entity.

Each
U.S. Holder should consult with his, her or its own tax advisor as to the particular tax
consequences to him, her or it of the purchase, ownership and sale of ordinary shares,
including the effects of applicable state, local, foreign or other tax laws and possible
changes in the tax laws.

Sale
or Exchange of Ordinary Shares

Subject
to the discussion below under Passive Foreign Investment Company Status, a
U.S. Holders sale or exchange of ordinary shares generally will result in the
recognition by such U.S. Holder of capital gain or loss in an amount equal to the
difference between the U.S. Dollar value of the amount realized and the U.S. Holders
tax basis in the ordinary shares sold. This gain or loss will be long-term capital gain or
loss if the ordinary shares sold have been held for more than one year at the time of the
sale or exchange. If the U.S. Holders holding period on the date of the sale or
exchange is one year or less, such gain or loss will be a short-term capital gain or loss.
See IsraelCapital Gains Tax for a discussion of taxation by Israel
of capital gains realized on sales of capital assets. Any capital loss realized upon the
sale, exchange or other disposition of ordinary shares generally is deductible only
against capital gains and not against ordinary income, except that in the case of
non-corporate U.S. Holders, a capital loss is deductible to the extent of capital gains
plus ordinary income up to $3,000. In general, any capital gain recognized by a U.S.
Holder upon the sale or exchange of ordinary shares will be treated as U.S.-source income
for U.S. foreign tax credit purposes. Under the tax treaty between the United States and
Israel, gain derived from the sale, exchange or other disposition of ordinary shares by a
U.S. Holder who is a resident of the United States for purposes of the treaty and who
sells the ordinary shares within Israel may be treated as foreign-source income for U.S.
foreign tax credit purposes.

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A
U.S. Holders tax basis in his, her or its ordinary shares generally will be the
purchase price paid therefor by such U.S. Holder. The holding period of each ordinary
share owned by a U.S. Holder will commence on the day following the date of the U.S.
Holders purchase of such ordinary share and will include the day on which the
ordinary share is sold by such U.S. Holder.

In
the case of a U.S. Holder who uses the cash basis method of accounting and who receives
NIS in connection with the sale or other taxable disposition of ordinary shares, the
amount realized will be based on the spot rate (as defined below under the
heading Treatment of Distributions) as determined on the settlement date of
such sale or other taxable disposition. If such U.S. Holder subsequently converts NIS into
U.S. Dollars at a conversion rate other than the spot rate in effect on the settlement
date, he, she or it would have a foreign currency exchange gain or loss treated as
ordinary income or loss for U.S. federal income tax purposes. A U.S. Holder who uses the
accrual method of accounting may elect the same treatment required of cash method
taxpayers with respect to a sale or other taxable disposition of ordinary shares, provided
that the election is applied consistently from year to year. Such election may not be
changed without the consent of the U.S. Internal Revenue Service. If an accrual method
U.S. Holder does not elect to be treated as a cash method taxpayer (pursuant to the
Treasury regulations applicable to foreign currency transactions), such U.S. Holder may be
deemed to have realized an immediate foreign currency gain or loss for U.S. federal income
tax purposes in the event of any difference between the U.S. Dollar value of the NIS on
the date of sale or other taxable disposition and the settlement date. Any such currency
gain or loss would be treated as ordinary income or loss and would be subject to tax in
addition to any gain or loss recognized by such U.S. Holder on the sale or other taxable
disposition of ordinary shares.

Treatment
of Distributions

For
U.S. federal income tax purposes, the gross amount of any distributions (other than a
distribution in liquidation or a distribution in redemption of stock that is treated as an
exchange), including the amount of any Israeli taxes withheld therefrom, paid to a U.S.
Holder with respect to his, her or its ordinary shares, generally will be treated as a
dividend to the extent that the distribution does not exceed such U.S. Holders share
of our current or accumulated earnings and profits, as determined based on U.S. federal
tax principles. Such dividends will not be eligible for the dividends received deduction
allowed to U.S. corporations under Section 243 of the Code. The amount of any distribution
that exceeds such U.S. Holders share of our current and accumulated earnings and
profits will be treated first as a non-taxable return of the U.S. Holders tax basis
in his, her or its ordinary shares to the extent thereof and then as gain from the sale of
ordinary shares. The maximum U.S. federal income tax
rate on certain dividends paid to individuals through 2008 recently was reduced to 15%.
This reduced rate generally will not apply, however, to dividends paid by us if we are
treated as a passive foreign investment company in the year the dividends are paid or in
the prior year. See the discussion below under the heading Passive Foreign
Investment Company Status. U.S. Holders are urged to consult their own tax advisors
regarding the U.S. federal income tax rate that will be applicable to their receipt of any
dividends paid with respect to our ordinary shares.

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Dividends
paid in NIS must be included in income in a U.S. Dollar amount based on the spot
rate of exchange in effect on the date the distribution is includable in the U.S.
Holders income, regardless of whether the payment is in fact converted into U.S.
Dollars. The spot rate generally refers to a rate that reflects a fair market
rate of exchange available to the public for currency under a spot contract in
a free market and involving representative amounts. A spot contract is a
contract to buy or sell a currency no more than two business days following the date of
the execution of the contract. If a spot rate cannot be demonstrated, the U.S. Internal
Revenue Service has the authority to determine the spot rate. U.S. Holders will have a tax
basis in the NIS for U.S. federal income tax purposes equal to such U.S. Dollar amount.
Any subsequent gain or loss on NIS arising from exchange rate fluctuations during the
period from the date a U.S. Holder includes the dividend in income to the date such U.S.
Holder converts the payment to U.S. Dollars will be taxable as ordinary income or loss and
will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.

Dividends
with respect to our ordinary shares will constitute portfolio income for
purposes of the limitation on the use of passive activity losses, and thus generally may
not be offset by passive activity losses, and also generally will be treated as
investment income for purposes of the limitation on the deduction of
investment interest expense Dividends with respect to ordinary shares also generally will
be classified as foreign source passive income for purposes of computing the
foreign tax credit limitation. Foreign income taxes exceeding the credit limitation for
the year of payment or accrual may be carried back for two taxable years and forward for
five taxable years in order to reduce U.S. federal income taxes, subject to the credit
limitation applicable in each of those years. Subject to certain conditions and
limitations, any Israeli withholding tax imposed on such dividends generally will be
eligible for credit against the recipient U.S. Holders U.S. federal income tax
liability or, at the U.S. Holders election, may be claimed as a deduction against
income in determining such tax liability. The calculation of allowable foreign tax credits
and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability of
deductions for foreign taxes paid involve the application of complex rules that depend on
a U.S. Holders particular circumstances. Accordingly, U.S. Holders should consult
their own tax advisors regarding their eligibility for foreign tax credits or deductions.

Passive
Foreign Investment Company Status

Generally,
a foreign corporation is treated as a passive foreign investment company
(PFIC) for U.S. federal income tax purposes for any tax year if, in such tax
year, either (i) 75% or more of its gross income, including its pro rata share of the
gross income of any company in which it owns 25% or more of the shares by value, is
passive in nature (the Income Test), or (ii) the average percentage of its
assets during such tax year, including its pro rata share of the assets of any company in
which it owns 25% or more of the shares by value, which produce, or are held for the
production of, passive income (determined by averaging the percentage of the fair market
value of its total assets which are passive assets as of the end of each quarter of such
year) is 50% or more (the Asset Test). While we do not believe that we were a
PFIC for any tax year prior to 2001, it is likely that we would be deemed to have been a
PFIC for 2001, 2002 and 2003.

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There
is no definitive method prescribed in the Code, U.S. Treasury Regulations or
administrative or judicial interpretations thereof for determining the value of a foreign
corporations assets for purposes of the Asset Test. The legislative history of the
U.S. Taxpayer Relief Act of 1997 (the 1997 Act), however, indicates that for
purposes of the Asset Test, the total value of a publicly-traded foreign
corporations assets generally will be treated as equal to the sum of the aggregate
value of its outstanding stock plus its liabilities. It is unclear under current
interpretations of the 1997 Act whether other valuation methods could be employed to
determine the value of our assets. Under the approach set forth in the legislative history
to the 1997 Act, we would be deemed to have been a PFIC for 2001, 2002 and 2003,
principally because (a) a significant portion of our assets continued to consist of cash,
cash equivalents and short- and long-term investments from the remaining proceeds of our
offerings, and (b) the public market value of our ordinary shares was lower in 2001, 2002
and 2003 than in previous years.

If
we are treated as a PFIC for U.S. federal income tax purposes for any year during a U.S.
Holders holding period of ordinary shares and the U.S. Holder does not make a QEF
Election or a mark-to-market  election (both as described below):

| |  | Excess
distributions by us to a U.S. Holder would be taxed in a special way. Excess
distributions with respect to any U.S. Holder are amounts received by such U.S.
Holder with respect to our ordinary shares in any tax year that exceed 125% of the
average distributions received by such U.S. Holder from us during the shorter of (i) the
three previous years, or (ii) such U.S. Holders holding period of our ordinary
shares before the then-current tax year. Excess distributions must be allocated ratably
to each day that a U.S. Holder has held our ordinary shares. Thus, a U.S. Holder must
report amounts allocated to the current tax year as ordinary income for that year, pay
tax on amounts allocated to each prior tax year in which we were a PFIC at the highest
rate on ordinary income in effect for such prior year and pay an interest charge at the
rate applicable to deficiencies for income tax.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
entire amount of any gain realized by a U.S. Holder upon the sale or other disposition of
our ordinary shares also would be treated as an excess distribution subject
to tax as described above.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
tax basis in ordinary shares acquired from a decedent who was a U.S. Holder would not
receive a step-up to fair market value as of the date of the decedents death, but
would instead be equal to the decedents basis, if lower.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although
we generally will be treated as a PFIC as to any U.S. Holder if we are a PFIC for any year
during the U.S. Holders holding period, if we cease to satisfy the requirements for
PFIC classification, the U.S. Holder may avoid the consequences of PFIC classification for
subsequent years if he elects to recognize gain based on the unrealized appreciation in
the ordinary shares through the close of the tax year in which we cease to be a PFIC.

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A
U.S. Holder who beneficially owns shares of a PFIC must file Form 8621 (Return by a
Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with the
U.S. Internal Revenue Service for each tax year in which he, she or it holds shares in a
PFIC. This form describes any distributions received with respect to these shares and any
gain realized upon the disposition of these shares.

For
any tax year in which we are treated as a PFIC, a U.S. Holder may elect to treat his, her
or its ordinary shares as an interest in a qualified electing fund (a QEF
Election), in which case the U.S. Holder would be required to include in income
currently his, her or its proportionate share of our earnings and profits in years in
which we are a PFIC regardless of whether distributions of our earnings and profits are
actually made to the U.S. Holder. Any gain subsequently recognized by the U.S. Holder upon
the sale of his, her or its ordinary shares, however, generally would be taxed as capital
gain and the denial of the basis step-up at death described above would not apply.

A
U.S. Holder may make a QEF Election with respect to a PFIC for any tax year of the U.S.
Holder. A QEF Election is effective for the tax year in which the election is made and all
subsequent tax years of the U.S. Holder. Procedures exist for both retroactive elections
and the filing of protective statements. A U.S. Holder making the QEF Election must make
the election on or before the due date, as extended, for the filing of the U.S.
Holders income tax return for the first tax year to which the election will apply.
We will provide to each U.S. Holder, upon request, the tax information required to make a
QEF Election and to make subsequent annual filings.

As
an alternative to a QEF Election, a U.S. Holder generally may elect to mark his ordinary
shares to market annually, recognizing ordinary income or loss (subject to certain
limitations) equal to the difference, as of the close of the tax year, between the fair
market value of his, her or its ordinary shares and the adjusted tax basis of such shares.
Losses would be allowed only to the extent of net mark-to-market gain accrued under the
election. If a mark-to-market election with respect to ordinary shares is in effect on the
date of a U.S. Holders death, the normally available step-up in tax basis to fair
market value will not be available. Rather, the tax basis of the ordinary shares in the
hands of a U.S. Holder who acquired them from a decedent will be the lesser of the
decedents tax basis or the fair market value of the ordinary shares. Once made, a
mark-to-market election generally continues unless revoked with the consent of the U.S.
Internal Revenue Service.

The
implementation of many aspects of the Codes PFIC rules requires the issuance of
regulations which in many instances have yet to be promulgated and which may have
retroactive effect. We cannot be sure that any of these regulations will be promulgated
or, if so, what form they will take or what effect they will have on the foregoing
discussion.

Accordingly,
and due to the complexity of the PFIC rules, U.S. Holders should consult their own tax
advisors regarding our status as a PFIC for 2003 and any prior and subsequent years the
eligibility, manner and advisability of making a QEF Election or a mark-to-market
election, and the effect of these elections on the calculation of the amount of foreign
tax credit that may be available to a U.S. Holder.

64

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# Information Reporting
and Backup Withholding

Any
dividends paid on the ordinary shares to U.S. Holders may be subject to U.S. federal tax
information reporting requirements and the U.S. backup withholding tax (currently 30%
through 2003, but scheduled for reduction to 29% for 2004-2005 and 28% for 2006 and later
years). In addition, the proceeds of a U.S. Holders sale of ordinary shares may be
subject to tax information reporting and the U.S. backup withholding tax. Backup
withholding will not apply if the U.S. Holder (i) is a corporation or other exempt
recipient, or (ii) the U.S. Holder provides a U.S. taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise complies with
any applicable backup withholding requirements. Any amounts withheld under the U.S. backup
withholding tax rules will be allowed as a refund or a credit against the U.S.
Holders U.S. federal income tax, provided the required information is furnished to
the U.S. Internal Revenue Service.

Israel

The
following discussion, which represents a summary of certain Israeli tax laws affecting our
shareholders, including U.S. and other non-Israeli shareholders, is for general
information only and is not intended to substitute for careful or specific tax planning.
To the extent that the discussion is based on legislation yet to be judicially or
administratively interpreted, there can be no assurance that the views expressed herein
will accord with any such interpretation in the future by the tax authorities or by the
courts. This discussion is not intended, and should not be construed, as legal or
professional tax advice, and does not cover all possible tax considerations. Accordingly,
each investor should consult his or her own tax advisor as to the particular tax
consequences of an investment in the ordinary shares including the effects of applicable
Israeli or foreign or other tax laws and possible changes in the tax laws.

Tax
Reform

On
January 1, 2003,  the Law for Amendment of the Income Tax Ordinance  (Amendment  No.
132), 5762-2002, as amended, known as the tax reform, came into effect.

The
tax reform, aimed at broadening the categories of taxable income and reducing the tax
rates imposed on employment income, introduced the following measures, among other things:

| |  | Reduction
of the tax rate levied on capital gains (other than gains deriving from the sale of
listed securities) derived after January 1, 2003 to a general rate of 25% for both
individuals and corporations. Regarding assets acquired prior to January 1, 2003, the
reduced tax rate will apply to a proportionate part of the gain, in accordance with the
holding periods of the asset, before or after January 1, 2003, on a linear basis. In
addition, the tax reform enables the carry forward of capital losses without any time
restriction;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Imposition
of Israeli tax on all income of Israeli residents, individuals and corporations,
regardless of the territorial source of income, including income derived from passive
sources such as interest, dividends and royalties;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Introduction
of controlled foreign corporation (CFC) rules into the Israeli tax structure. Generally,
under such rules, an Israeli resident who holds, directly or indirectly, 10% or more of
the rights in a foreign corporation whose shares are not publicly traded (or which has
offered less than 30% of its shares or any rights to its shares to the public), in which
more than 50% of the rights are held directly or indirectly by Israeli residents, and a
majority of whose income in a tax year is considered passive income, will be liable for
tax on the portion of such income attributed to his holdings in such corporation, as if
such income were distributed to him as a dividend;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

65

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| |  | Imposition
of capital gains tax on capital gains realized as of January 1, 2003 by individuals
resident in Israel from the sale of shares of publicly traded companies on the Tel Aviv
Stock Exchange and from the sale of shares of publicly traded Israeli companies on
certain other stock exchanges (such gain was previously exempt from capital gains tax in
Israel in certain cases). For information with respect to the applicability of Israeli
capital gains taxes on the sale of ordinary shares, see Capital Gains Taxbelow;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Effectuation
 of a new regime for the  taxation  of shares and options  issued to  employees,
              officers and directors; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| |  | Introduction
of tax at a rate of 25% on dividends paid by one Israeli company to another (which are
generally not subject to tax), if the source of such dividends is income that was derived
outside of Israel.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital
Gains Tax

Israeli
law generally imposes a capital gains tax on the sale of any capital assets by residents
of Israel, as defined for Israeli tax purposes, and on the sale of assets located in
Israel, including shares in Israeli companies, by both residents and non-residents of
Israel, unless a specific exemption is available or unless a tax treaty between Israel and
the shareholders country of residence provides otherwise. The law distinguishes
between the inflationary surplus and the real gain. The inflationary surplus is a portion
of the total capital gain which is equivalent to the increase of the relevant assets
purchase price attributable to the increase in the Israeli consumer price index, or in
certain circumstances, a foreign currency exchange rate, between the date of purchase and
the date of sale. The real gain is the excess of the total capital gain over the
inflationary surplus.

Pursuant
to the tax reform, generally, capital gains tax is imposed on Israeli residents at a rate
of 15% on real gains derived on or after January 1, 2003 from the sale of shares in:
(i) companies publicly traded on the Tel Aviv Stock Exchange (TASE); or
(ii) Israeli companies publicly traded on Nasdaq or a recognized stock exchange or
regulated market in a country that has a treaty for the prevention of double taxation with
Israel; or (iii) companies traded on both the TASE and Nasdaq or a recognized stock
exchange or a regulated market outside of Israel (such as Orckit). This tax rate is
contingent upon the shareholder not claiming a deduction for financing expenses in
connection with such shares (in which case the capital gain will be taxed at a rate of
25%), and does not apply to: (i) the sale of shares to a relative (as defined in the tax
reform); (ii) the sale of shares by dealers in securities who will be taxed at a rate
of 36% for corporations and at a marginal tax rate of up to 50% for individuals; (iii) the
sale of shares by shareholders that report in accordance with the Income Tax Law
(Inflationary Adjustments), 5745-1985, referred to as the Inflationary Adjustments Law,
who will be taxed at a rate of 36% for corporation and at a marginal tax rate of up to 50%
for individuals; or (iv) the sale of shares by shareholders who acquired their shares
prior to the issuers initial public offering (that are subject to a different tax
arrangement). The tax basis of shares acquired prior to January 1, 2003 will be determined
in accordance with the average closing share price in the three trading days preceding
January 1, 2003. However, a request may be made to the tax authorities to consider the
actual adjusted cost of the shares as the tax basis if it is higher than such average
price.

66

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Non-Israeli
residents are exempt from Israeli capital gains tax on any gains derived from the sale of
shares publicly traded on the TASE, provided such gains are not derived from a permanent
establishment of such shareholders in Israel, and are exempt from Israeli capital gains
tax on any gains derived from the sale of shares of Israeli companies publicly traded on
Nasdaq or a recognized stock exchange or a regulated market outside of Israel, provided
that such capital gains are not derived from a permanent establishment in Israel and that
such shareholders did not acquire their shares prior to the issuers initial public
offering. However, non-Israeli corporations will not be entitled to such exemption if an
Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli
corporation, or (ii) is the beneficiary of or is entitled to 25% or more of the revenues
or profits of such non-Israeli corporation, whether directly or indirectly.

In
December 2003, regulations promulgated pursuant to the Tax Reform were amended so that, in
certain circumstances, capital gains derived from the sale and subsequent (same day)
repurchase of shares traded on the TASE or shares of Israeli companies publicly traded on
a recognized stock exchange or regulated market in a country that has a treaty for the
prevention of double taxation with Israel, may be taxed at a rate equal to the withholding
tax rate applicable to revenues derived from such sale. In accordance with an announcement
published by the Israeli Income Tax Commission, the withholding tax rate applicable to the
sale of such shares until the end of 2003 tax year, which was equal at such time to 1% of
the revenues generated in their sale, was determined as the final tax rate applicable to
such sale. The amended regulations also determined that the day of such sale and
repurchase shall be considered the new date of purchase of such shares. The foregoing was
not applicable to: (i) dealers in securities; (ii) shareholders that report in accordance
with the Inflationary Adjustments Law; (iii) shareholders who acquired their shares prior
to the issuers initial public offering; (iv) in some cases, shareholders that
received their shares within the framework of an employer-employee relationship; or (v)
shareholders claiming a deduction for financing expenses in connection with such shares.
The regulations further provided that with respect to shares of Israeli companies traded
on a stock exchange outside of Israel, the market price determined at the close of the
trading day preceding the day of the sale and repurchase of such shares, will constitute
the new tax basis for any future sale of such shares.

In
some instances where our shareholders may be liable to Israeli tax on the sale of their
ordinary shares, the payment of the consideration may be subject to the withholding of
Israeli tax at the source.

Pursuant
to a treaty between the governments of the United States and Israel, known as the
U.S.-Israel Tax Treaty, the sale, exchange or disposition of shares by a person who holds
the ordinary shares as a capital asset and who qualifies as a resident of the United
States within the meaning of the treaty and who is entitled to claim the benefits afforded
to a resident by the treaty will generally not be subject to Israeli capital gains tax.
This exemption does not apply if the person holds, directly or indirectly, shares
representing 10% or more of our voting power during any part of the 12-month period
preceding the applicable sale, exchange or disposition, subject to specified conditions.
However, under the treaty, the person would be permitted to claim a credit for the capital
gains tax paid in Israel against the U.S. federal income tax imposed with respect to the
applicable sale, exchange or disposition, subject to the limitations in U.S. laws
applicable to foreign tax credits. The treaty does not relate to U.S state or local taxes.

67

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Tax
on Dividends

Non-residents
of Israel are subject to income tax on income accrued or derived from sources in Israel.
These sources of income include passive income such as dividends, royalties and interest,
as well as non-passive income from services rendered in Israel. On distributions of
dividends other than bonus shares, or stock dividends, we would be required to withhold
income tax at the rate of up to 25%, unless a different rate is provided in a treaty
between Israel and the shareholders country of residence. If the income out of which
the dividend is being paid is attributable to an Approved Enterprise, the rate is 15%.
Under the U.S.-Israel tax treaty, if the income out of which the dividend is being paid is
not attributable to an Approved Enterprise, then income tax with respect to shareholders
that are U.S. corporations holding at least 10% of our voting power is required to be
withheld at the rate of 12.5%. For more information on Approved Enterprises, please refer
to Item 5B of this Annual Report.

|F. | DIVIDENDS
AND PAYING AGENTS
|-- | ---------------------------

| | Not
applicable
| | --------------

|G. | STATEMENT
BY EXPERTS
|-- | --------------------

| | Not
applicable.
| | ---------------

|H. | DOCUMENTS
ON DISPLAY
|-- | --------------------

We
are subject to the informational requirements of the Securities Exchange Act of 1934, as
amended, applicable to foreign private issuers and fulfill the obligations with respect to
such requirements by filing reports with the Securities and Exchange Commission, or
SEC.  You may read and copy any document we file, including any exhibits, with the
SEC without charge at the SECs public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549.  Copies of such material may be obtained by mail from the
Public Reference Branch of the SEC at such address, at prescribed rates.  Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room. 
Certain of our SEC filings are also available to the public at the SECs website at
http://www.sec.gov.

As
a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing
the furnishing and content of proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act.  In addition, we are not
required under the Exchange Act to file periodic reports and financial statements with the
SEC as frequently or as promptly as United States companies whose securities are
registered under the Exchange Act.

|I. | SUBSIDIARY
INFORMATION
|-- | ----------------------

| | Not
applicable
| | --------------

68

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|ITEM 11. | QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

General

We
are exposed to market risk, including movements in interest rates and foreign currency
exchange rates. Our primary market risk exposure occurs because we generate most of our
revenues in U.S. dollars but incur a majority of our salaries and related expenses and
part of our other expenses in new Israeli shekels.

From
time to time, in managements discretion, we engage in hedging or other transactions
intended to manage risks relating to foreign currency exchange rates. As of March 31,
2004, we owned forward transaction assets. We may in the future undertake hedging or other
similar transactions or invest in market risk sensitive instruments when our management
determines that it is necessary to offset these risks.

Our
interest rate and foreign exchange exposures are monitored by tracking actual and
projected commitments.

# Exchange Rate Risk
Management

Our
functional currency and that of our subsidiaries is the U.S. dollar.

From
time to time, we assess our exposure to exchange rate risks and endeavor to limit this
exposure through natural hedging, or by attempting to maintain a similar level of assets
and liabilities in any given currency.

The
table below presents our balance sheet exposure as of December 31, 2003 at fair value
related to market risk sensitive instruments, mainly short term receivables and payables
in currencies other than U.S. dollars. Substantially all of such balance is in New Israeli
Shekels. The information is presented in U.S. dollars (in millions), which is our
reporting currency.

Please
see also the explanatory notes below the table.

|       | New IsraeliShekels | Total
|------ | ------------------ | -----
|Israel | (3.5)              | (3.5)
|       |                    |      
|Total  | (3.5)              | (3.5)

Explanatory
notes:

1)       
          Total balance sheet exposure relating to market risk sensitive instruments is
          the sum of the absolute figures (excess of liabilities over assets in the amount
          of $3.5million). A devaluation of 5% of the U.S. dollar compared to the NIS
          would cause an increase in expenses of approximately $175,000.

69

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2)       
          The data presented in the table reflects the exposure after taking into account
          the effect of the natural hedging.

Interest
Rate Risk Management

As
of December 31, 2003, we had $10.0 million of cash and cash equivalents, $273,000 of
short-term bank deposits, $20.5 million of trading securities, $10.1 million of short term
marketable securities, $6.3 million of long term deposits and $31.2 million of long-term
marketable securities. Our trading and marketable securities mature as follows: $20.3
million in 2004, and $41.4 million over a period from 2004 to 2007. Due to the relatively
short-term maturities of the Companys cash, deposits and securities portfolio, an
immediate 10% change in the current interest rates (for example, from 5.0% to 5.5%) is not
expected to have a material effect on its near-term financial condition or results of
operations.

|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

| | Not
applicable
| | --------------

PART
II

|ITEM 13. | DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

| | Not
applicable
| | --------------

|ITEM 14. | MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------

For a
discussion of our shareholder bonus rights plan, please refer to Item 10.B of this Annual
Report. In connection with the grants in 2003 to Eric Paneth, our Chief Executive Officer
and a director, and Izhak Tamir, our President and a director, of the share purchase
rights described in Item 6E, this plan was amended to provide that the beneficial
ownership of our ordinary shares held by Mr. Paneth or Mr. Tamir will not trigger the
rights under this plan.

At
our annual general shareholders meeting held in February 2003, our shareholders approved
the following amendments to our article of association:

| |  | the
vote  required to amend our articles of  association  was changed from a simple  majority
              to 66-2/3% of our outstanding ordinary shares voting on the matter;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the vote required to (i) elect a director was changed from a simple majority to 66-2/3% of
our outstanding ordinary shares voting on the matter and (ii) remove a director was
changed from a simple majority to 75% of our outstanding ordinary shares voting on the
matter. Also it was clarified that directors may be elected by shareholders only at an
annual general meeting and that each director (except outside directors) will serve until
the next annual general meeting at which one or more directors are elected following his
election;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

70

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| |  | the
number of outside directors (as defined in the Companies Law) was limited to
three. The Companies Law requires at least two outside directors, and we currently have
three. This amendment will not limit the number of independent directors (as
defined in the rules of Nasdaq) that we may have;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
maximum size of our board of directors was changed from 15 to seven directors and the
minimum number of continuing directors that are entitled to act as the board of directors
in the event of vacancies was changed from a majority of the board of directors to three
directors; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
requirement that any dividends be approved by our audit committee in addition to our
board of directors was added, or if we do not have an audit committee for any reason, by
a majority of the outside directors (as defined in the Companies Law) then on
the board of directors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 15. | CONTROLS
AND PROCEDURES
|-------- | -----------------------

We
performed an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of December 31, 2003. The evaluation was performed with the
participation of our senior management and under the supervision and with the
participation of our chief executive officer and chief financial officer. Based on this
evaluation, our principal executive officer and principal financial officer have concluded
that our disclosure controls and procedures are effective to alert them on a timely basis
to material information required to be included in our periodic reports with the
Securities and Exchange Commission.

In
addition, there were no changes in our internal control over financial reporting that
occurred during 2003 that have materially affected, or that are reasonably likely to
materially affect, our internal control over financial reporting.

|Item 16A. | Audit
Committee Financial Expert
|--------- | --------------------------------

Our
board of directors has determined that Mr. Motil qualifies as an audit committee
financial expert as defined in Item 16A of Form 20-F.

|Item 16B. | Code
of Ethics
|--------- | --------------

On
March 30, 2004, our board of directors adopted our Code of Ethics, a code that applies to
all of our officers, directors and employees. We will provide our Code of Ethics free of
charge to any person who requests a copy of it. Such requests may be sent to our offices
in 126 Yigal Alon Street, Tel Aviv, Israel, attention: Controller.

|Item 16C. | Principal
Accountant Fees and Services
|--------- | --------------------------------------

In
the annual meeting held in February 2003, our shareholders re-appointed Kesselman &
Kesselman, a member of PricewaterhouseCoopers International Limited, to serve as our
independent auditors. These accountants billed the following fees to us for professional
services in each of the last two fiscal years:

71

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|                   | Year Ended December 31,
|------------------ | -----------------------
|
|
|
|Audit Fees         |                        
|Audit-Related Fees |                        
|Tax Fees           |                        
|All Other Fees     |                        
|                   |                        
|Total              |                        

Audit
Fees are the aggregate fees billed for the audit of our annual financial statements.
This category also includes services that generally the independent accountant provides,
such as statutory audits including audits required by the Office of the Chief Scientist
and other Israeli government institutes, consents and assistance with and review of
documents filed with the SEC. Audit-Related Fees are the aggregate fees billed
for assurance and related services that are reasonably related to the performance of the
audit and are not reported under Audit Fees. These fees include mainly accounting
consultations regarding the accounting treatment of matters that occur in the regular
course of business, implications of new accounting pronouncements and other accounting
issues that occur from time to time. Tax Fees are the aggregate fees billed
for professional services rendered for tax compliance, tax advice, other than in
connection with the audit. Tax compliance involves preparation of original and amended tax
returns, tax planning and tax advice.

Our
Audit Committee has adopted a pre-approval policy for the engagement of our independent
accountant to perform certain audit and non-audit services. Pursuant to this policy, which
is designed to assure that such engagements do not impair the independence of our
auditors, the audit committee pre-approves annually a catalog of specific audit and
non-audit services in the categories of Audit Service, Audit-Related Service, Tax Services
and other services that may be performed by our independent accountants, and the maximum
pre-approved fees that may be paid as compensation for each pre-approved service in those
categories. Any proposed services exceeding the maximum pre-approved fees require specific
approval by the Audit Committee.

The
Audit Committee may delegate its pre-approval authority to one or more of its members,
subject to ratification by the entire Audit Committee.

Requests
or applications to provide services that require specific approval by the Audit Committee
are submitted to the Audit Committee by an executive officer of the Company, together with
detailed back-up documentation and a statement as to whether, in the requesting executive
officers view, the provision of such services by the outside auditor would impair
its independence.

|ITEM 17. | FINANCIAL
STATEMENTS
|-------- | --------------------

| | See
Item 18.
| | ------------

72

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|ITEM 18. | FINANCIAL
STATEMENTS
|-------- | --------------------

| | Attached. See
Item 19(a).
| | -------------------------

|ITEM 19. | EXHIBITS
|-------- | --------

|(a) | The
following consolidated financial statements and related auditors          report
are filed as part of this Annual Report:
|--- | ------------------------------------------------------------------------------------------------------------------------------

|                                                              
|--------------------------------------------------------------
|
|
|
|Table of Contents to 2003 Consolidated Financial Statements   
|Report of Independent Auditors                                
|                                                              
|Consolidated Financial Statements:                            
|Balance Sheets at December 31, 2002 and 2003                  
|Statements of Operations for the Years Ended                  
|December 31, 2001, 2002 and 2003                              
|Statements of Changes in Shareholders' Equity for the         
|Years Ended December 31, 2001, 2002 and 2003                  
|Statements of Cash Flows for the Years Ended                  
|December 31, 2001, 2002 and 2003                              
|Notes to Financial Statements                                 
|Report of independent auditors on financial statement schedule
|Schedule - valuation and qualifying accounts                  

|(b) | Exhibits:
|--- | ---------

| | The
following exhibits are filed as part of this Annual Report:
| | ---------------------------------------------------------------

73

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|ExhibitNo. |  | Exhibit
|---------- |  | -------

|1.17 |  | Memorandum of Association, as amended.
|----- |  | --------------------------------------

|1.27 |  | Fourth
Amended and Restated Articles of Association.
|---- |  | ----------------------------------------------------

|1.34 |  | Bonus
Rights Agreement, dated as of November 20, 2001, between Orckit Communications Ltd. and
                American Stock Transfer & Trust Company, as Rights Agent.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1.41 |  | Amendment
No. 1, dated as of February 5, 2003, to Bonus Rights Plan, dated as of November 20, 2001,
                between Orckit Communications Ltd. and American Stock Transfer & Trust
Company, as Rights Agent.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.16 |  | Indenture,
dated as of March 13, 2000, between Orckit Communications Ltd. and State Street Bank and Trust
Company.
|---- |  | ------------------------------------------------------------------------------------------------------------------

|2.26 |  | 5.75%
Convertible Subordinated Notes of Orckit Communications Ltd. due April 1, 2005.
|---- |  | -------------------------------------------------------------------------------------

|4.12 |  | Orckit
Israeli Share Incentive Plan, as amended (2000).
|---- |  | -------------------------------------------------------

|4.53 |  | Lease
Agreement, dated September 28, 1999, between Orckit Communications Ltd. and Gush 7093
Helka                 162 Ltd., private company # 51-058315-6.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.65 |  | Corrigent
Stock Option Plan (2001).
|---- |  | -----------------------------------

|4.7* |  | Spediant
Stock Option Plan
|---- |  | --------------------------

|4.8* |  | Promissory
Note dated March 30, 2004 made by Orckit Communications Ltd. to HSBC Bank USA
|---- |  | ----------------------------------------------------------------------------------------

|4.107 |  | Orckit
Communications Ltd. 2003 Subsidiary Employee Share Incentive Plan.
|----- |  | -------------------------------------------------------------------------

|8.1* |  | Subsidiaries
of Orckit Communications Ltd.
|---- |  | ------------------------------------------

|12.1* |  | Certification
of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to
§ 302 of the Sarbanes-Oxley Act
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------

|12.2* |  | Certification
of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to
§ 302 of the Sarbanes-Oxley Act
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------

|13.1* |  | Certification
of Principal Executive Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------

74

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|13.2* |  | Certification
of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of
the Sarbanes-Oxley Act
|----- |  | -----------------------------------------------------------------------------------------------------------------------------

|14.1* |  | Consent
of Kesselman & Kesselman, independent auditors of Orckit Communications Ltd.
|----- |  | ------------------------------------------------------------------------------------

---

| | Translated
 in full or summary  version;  the original  language  version is on file          with
Orckit Communications Ltd. and is available upon request.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|1 | Incorporated
by reference to Orckit Communications Ltd.s Registration Statement(File No.
000-28724) on Form 8-A/A.
|- | -------------------------------------------------------------------------------------------------------------------

|2 | Incorporated
by reference to Orckit Communications Ltd.s Registration Statement(File No.
333-12178) on Form S-8.
|- | -----------------------------------------------------------------------------------------------------------------

|3 | Incorporated
by reference to Orckit Communications Ltd.s Annual Report on Form 20-F for the
fiscal year ended December 31, 2000.
|- | ---------------------------------------------------------------------------------------------------------------------------------

|4 | Incorporated
by reference to Orckit Communications Ltd.s Registration Statement(File No.
000-28724) on Form 8-A.
|- | -----------------------------------------------------------------------------------------------------------------

|5 | Incorporated
by reference to Orckit Communications Ltd.s Annual Report on Form 20-F for the
fiscal year ended December 31, 2001.
|- | ---------------------------------------------------------------------------------------------------------------------------------

|6 | Incorporated
by reference to Amendment No. 1 to Orckit Communications Ltd.s Annual Report on
Form 20-F/A for the fiscal year ended December 31, 1999.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|7 | Incorporated
by reference to Orckit Communications Ltd.s Annual Report on Form 20-F for the
fiscal year ended December 31, 2002.
|- | ---------------------------------------------------------------------------------------------------------------------------------

|* | Filed
herewith.
|- | ---------------

75

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# SIGNATURES

The
Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and has duly caused and authorized the undersigned to sign this annual report on its
behalf.

| |  | ORCKIT COMMUNICATIONS LTD.BY: /S/ Izhak Tamir
Izhak TamirPresidentApril 21, 2004
| |  | ----------------------------------------------------------------------------------------------

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