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# SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

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# FORM 20-F

(Mark One)

|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, 2004
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

# 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
0-28584

|CHECK
POINT SOFTWARE TECHNOLOGIES LTD.                
|------------------------------------------------------
|                                                      
|(Exact
name of Registrant as specified in its charter)

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

|3A
Jabotinsky Street, Ramat-Gan 52520, Israel
|---------------------------------------------
|                                             
|(Address
of principal executive offices)     

Securities registered or to be registered pursuant to Section 12(b) of the Act:    None

Securities registered or to be registered pursuant to Section 12(g) of the Act:    Ordinary
shares, NIS 0.01 nominal value

Securities for which there is a reporting obligation pursuant to Section 15(d) of
the Act:    None.

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: 248,217,798 ordinary
shares, NIS 0.01 nominal 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.

Yes      x                 No              o

Indicate
by check mark which financial statement item the registrant has elected to follow:

Item
17 o Item 18 x



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# TABLE OF CONTENTS

|PART
I
|------

|                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                 
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------
|Item 1.Item 2.Item 3.Item 4.Item 5.Item 6.Item 7.Item 8.Item 9.Item 10.Item 11.Item 12. | Identity of Directors, Senior Management and AdvisorsOffer Statistics and Expected TimetableKey InformationInformation on the CompanyOperating and Financial Review and ProspectsDirectors, Senior Management and EmployeesMajor Shareholders and Related Party TransactionsFinancial InformationThe Offer and ListingAdditional InformationQuantitative and Qualitative Disclosures about Market RiskDescription of Securities Other than Equity Securities | 3
3
4
11
22
32
38
38
39
40
51
52

|PART
II
|-------

|                                                                               |                                                                                                                                                                                                                                                                                                                                                                            |                           
|------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------
|Item 13. Item 14.Item 15.Item 16.Item 16A.Item 16B.Item 16C.Item 16D.Item 16E. | Defaults, Dividend Arrearages and DelinquenciesMaterial Modifications to the Rights of Security Holders and Use of ProceedsControls and ProceduresReservedAudit Committee Financial ExpertCode of EthicsPrincipal Accounting Fees and ServicesExemption for the Listing Standards for Audit CommitteePurchase of Equity Securities by the Issuer and Affiliated Purchasers | 53
53
53
53
53
53
54
54
55

|PART
III
|--------

|                         |                                                  |         
|------------------------ | ------------------------------------------------ | --------
|Item 17.Item 18.Item 19. | Financial StatementsFinancial StatementsExhibits | 56
56
56

2

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# PART I

|ITEM 1. |  | IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- |  | -----------------------------------------------------

Not
applicable.

|ITEM 2. |  | OFFER
STATISTICS AND EXPECTED TIMETABLE
|------- |  | ---------------------------------------

Not
applicable.

3

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|ITEM 3. |  | KEY
INFORMATION
|------- |  | ---------------

The
following selected consolidated statement of income data for the years ended December 31,
2002, 2003 and 2004, and the selected consolidated balance sheet data as of December 31,
2003 and 2004, have been derived from the audited consolidated financial statements of
Check Point Software Technologies Ltd. (together with its subsidiaries, the
Company or Check Point) set forth elsewhere in this Form 20-F.
These financial statements have been prepared in accordance with generally accepted
accounting principles in the United States (U.S. GAAP). The selected
consolidated statement of income data for the years ended December 31, 2000 and 2001 and
the selected consolidated balance sheet data as of December 31, 2000, 2001 and 2002 have
been derived from the Companys audited consolidated financial statements not
included in this Form 20-F and have also been prepared in accordance with U.S. GAAP. The
selected consolidated financial data set forth below should be read in conjunction with
and is qualified by reference to the Companys consolidated financial statements and
the related notes as well as Item 5  Operating and Financial Review and
Prospects included elsewhere in this Form 20-F.

On
June 29, 2000 the Companys Board of Directors approved a two-for-one stock split in
the form of a stock dividend effective July 14, 2000. On January 18, 2001, the
Companys Board of Directors approved a three-for-two stock split in the form of a
stock dividend effective February 1, 2001. All share and per share amounts herein reflect
adjustments resulting from these stock splits.

|                                              | Year Ended December 31,
|--------------------------------------------- | -----------------------
|
|
|
|
|Consolidated Statement of Income Data:        |                        
|Revenues                                      |                        
|                                              |                        
|Operating expenses:                           |                        
|Cost of revenues                              |                        
|Research and development                      |                        
|Selling and marketing                         |                        
|General and administrative                    |                        
|Acquisition related in-process R&D            |                        
|Stock-based compensation                      |                        
|                                              |                        
|Total operating expenses                      |                        
|                                              |                        
|Operating income                              |                        
|Financial income, net                         |                        
|                                              |                        
|Income before taxes on income                 |                        
|Taxes on income                               |                        
|                                              |                        
|Net Income                                    |                        
|                                              |                        
|Basic net earnings per share (2)              |                        
|Shares used in computing basic net earnings   |                        
|per share (2)                                 |                        
|Diluted net earnings per share (2)            |                        
|Shares used in computing diluted net earnings |                        
|per share (2)                                 |                        

(1)    
          Including the following significant pre-tax charges: acquisition related
          in-process R&D of $23.1 million, stock-based compensation of $4.6 million
          and amortization of intangible assets of $4.2 million.

(2)    
          See Note 2r of the Notes to the Consolidated Financial Statements for an
          explanation of the determination of the number of shares used in computing net
          earnings per share.

|                                 | December 31,
|-------------------------------- | ------------
|
|
|
|
|Consolidated Balance Sheet Data: |             
|Working capital                  |             
|Total assets                     |             
|Shareholders' equity             |             

4

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# RISK FACTORS

This
Form 20-F contains forward-looking statements that involve risks and uncertainties. The
statements contained in this Form 20-F that are not purely historical are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended (the Exchange Act), including, without limitation, statements
regarding the Companys expectations, beliefs, intentions, goals, plans, investments
or strategies regarding the future and any assumptions underlying any of the foregoing.
Forward-looking statements include, among others, statements in (i) Item 4
 Information on the Company regarding the Companys belief as to
increased acceptance of Internet technologies, expansion of connectivity services,
acceleration of the use of networks, increasing demands on enterprise security systems,
the impact of the Companys relationship with technology partners on its sales goals,
the contribution of the Companys Internet security products to the Companys
future revenue and the development of future products and (ii) Item 5
 Operating and Financial Review and Prospects regarding, among other things,
future amounts and sources of revenue, ongoing relationships with current and future
end-user customers and distributors, future costs and expenses, and adequacy of capital
resources. Forward-looking statements involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause the
Companys actual results to differ materially from such results discussed in these
statements. Many of these risks and uncertainties are described in the risk factors set
forth below in this section and elsewhere in this Form 20-F. All forward-looking
statements included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such forward-looking
statements.

# Risks Relating to Recent
Acquisition of Zone Labs

In
March 2004 the Company completed the acquisition of Zone Labs, Inc. (Zone
Labs). The acquisition of Zone Labs involved the integration of two companies that
had previously operated independently. The difficulties of combining the companies
operations included, and continue to be, but are not limited to: the necessity of
coordinating geographically separate organizations and integrating personnel with diverse
business backgrounds, potential difficulties in retaining employees and the associated
adverse effects on relationships with existing partners. The integration may interrupt the
activities of one or more of the combined companys businesses and may result in the
loss of key personnel. This could have an adverse effect on the business, results of
operations, financial condition or prospects of the Company.

# The Implementation of
SFAS No. 123(R) Would Negatively Affect the Companys Profitability

The
Financial Accounting Standards Board (FASB) has recently adopted an accounting
standard (SFAS No. 123(R)) that requires the fair value of all equity-based
awards granted to employees be recognized in the statement of operations as compensation
expense, beginning in the third quarter of 2005.

The
various methods for determining the fair value of stock options are based on, among other
things, the volatility of the underlying stock. The Companys stock price has
historically been volatile. The adoption of SFAS No. 123(R) will negatively affect the
Companys profitability and may adversely affect the Companys stock price. Such
adoption may also affect the Companys management discretion to continue to use stock
options as an incentive and retention tool, which could, in turn, hurt the Companys
ability to recruit employees and retain existing employees. See Notes 2s and 2v of the
Notes to the Consolidated Financial Statements for a description of SFAS No. 123(R) and
its possible effects on the Companys earnings and earnings per share.

# Competition

The
market for Internet security solutions is intensely competitive and the Company expects
competition to increase in the future. The Companys principal competitors include
Cisco Systems, Inc., Juniper Networks, McAfee, Inc., Microsoft Corporation, SonicWALL
Inc., Symantec Inc. and WatchGuard Technologies Inc.

Some
of the Companys current and potential competitors have longer operating histories,
greater name recognition, access to larger customer bases and significantly greater
financial, technical and marketing resources than the Companys. As a result, they
may be able to adapt more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the promotion and sale of their products
than the Company. In addition, consolidation in the Internet security market may affect
the Companys competitive position. There can be no assurance that the Company will
be able to compete successfully against current and future competitors. Increased
competition may result in price reductions, reduced gross margins and loss of market
share, any of which will materially adversely affect the Companys business,
operating results and financial condition.

5

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Vendors
of operating system software or networking hardware may enhance their products to include
functionality that is currently provided by the Companys products. The widespread
inclusion of the functionality of the Companys software as standard features of
operating system software or networking hardware could render the Companys products
obsolete and unmarketable, particularly if the quality of such functionality were
comparable to that of the Companys products. Furthermore, even if the Internet
security functionality provided as standard features by operating systems software or
networking hardware is more limited than that of the Companys solutions, there can
be no assurance that a significant number of customers would not elect to accept more
limited functionality in lieu of purchasing additional solutions. In the event of any of
the foregoing, the Companys business, operating results and financial condition will
be materially and adversely affected. See Item 4  Information on the
Company.

# Rapid Technological
Change

The
Internet security industry is characterized by rapid technological advances, changes in
customer requirements, frequent new product introductions and enhancements and evolving
industry standards in computer hardware and software technology. As a result, the Company
must continually change and improve its products in response to changes in operating
systems, application software, computer and communications hardware, networking software,
programming tools and computer language technology. The introduction of products embodying
new technologies and the emergence of new industry standards may render existing products
obsolete or unmarketable. In particular, the market for Internet and intranet applications
is rapidly evolving. The Companys future operating results will depend upon the
Companys ability to enhance its current products and to develop and introduce new
products on a timely basis that address the increasingly sophisticated needs of its
end-users and that keep pace with technological developments, new competitive product
offerings and emerging industry standards. While the Company has been successful in
developing and marketing new products or product enhancements that respond to
technological change and evolving industry standards, there can be no assurance that the
Company will continue to do so, or that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of these
products, or that any new products and product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company does not
respond adequately to the need to develop and introduce new products or enhancements of
existing products in a timely manner in response to changing market conditions or customer
requirements, the Companys business, operating results and financial condition will
be materially adversely affected. See Item 4  Information on the
Company.

# Potential Fluctuations
in Future Operating Results

The
quarterly operating results of the Company can vary significantly due to several factors,
including the occurrence of Internet security breaches or threats, regional or global
prevailing economic and political conditions, seasonal trends in customer purchasing, the
volume and timing of orders and the ability to fulfill orders, the level of product and
price competition, the Companys ability to develop new and enhanced products and
control costs, the mix of products sold, the mix of distribution channels through which
products are sold, the Companys ability to integrate the technology and operations
of acquired businesses with those of the Company, changes in customer capital spending
budgets, fluctuations in foreign currency exchange rates and general economic factors.

The
Companys sales are subject to seasonal fluctuations related to the slowdown in
spending activities for the quarter ending September 30 and the increased activity
related to the year-end purchasing cycles of many end-users of the Companys
products. The Company believes that it will continue to encounter quarter-to-quarter
seasonality.

The
Company operates with virtually no backlog and, therefore, the timing and volume of orders
within a given period and the ability to fulfill such orders determines the amount of
revenues within a given period. The Companys sales are principally derived through
indirect channels, which make revenues from such sales difficult to predict. Furthermore,
the Companys expense levels are based, in part, on expectations as to future
revenues. If revenue levels are below expectations, operating results are likely to be
adversely affected, since most of the Companys expenses are not variable. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as indications of
future performance. If the Companys operating results were below the expectations of
public market analysts and investors, the price of the Companys ordinary shares
would likely be materially adversely affected. See Item 5- Operating and Financial
Review and Prospects.

6

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# Potential Decline in
Operating Margins

The
Company may experience a decline in operating margins due to the following reasons:
increasing competition and pricing pressure; additional investments in the continuing
development and expansion of the Companys sales and marketing organization,
including the expansion of its field organization both in the United States and additional
countries in Europe, Asia, and Latin America and additional expansion of the research and
development organization. The amount and timing of the above-mentioned additional expenses
are likely to result in fluctuations in operating margins. In addition, if revenue levels
are below expectations, operating margins are likely to be adversely affected, since most
of the Companys expenses are not variable. See Item 5  Operating and
Financial Review and Prospects.

# Risks Associated With
Emerging Internet Security, Internet and Intranet Markets

The
markets for the Companys products are rapidly evolving. There can be no assurance
that the market for Internet security solutions will continue to expand. Continued growth
of this market will depend, in large part, upon the continued expansion of Internet usage
and the number of organizations adopting or expanding intranets, upon the ability of their
respective infrastructures to support an increasing number of users and services, and upon
the continued development of new and improved services for implementation across the
Internet, and between the Internet and intranets. If the necessary infrastructure or
complementary products and services are not developed in a timely manner and,
consequently, the enterprise security, Internet and intranet markets fail to grow or grow
more slowly than the Company currently anticipates, the Companys business, operating
results and financial condition will be materially adversely affected. See Item 4
 Information on the Company and Competition in this Item
3.

# Dependence upon Limited
Number of Key Distributors and Resellers; Product Concentration; Impact of New Product Introductions

In
2004, sales to the Companys five largest distributors and resellers accounted for
approximately 35% of the Companys revenues. The Company expects that it will
continue to be dependent upon a limited number of distributors and resellers for a
significant portion of its revenues. If anticipated orders from these distributors and
resellers fail to materialize, the Companys business, operating results and
financial condition will be materially adversely affected.

The
Company has derived most of its revenues, and expects to continue to derive the majority
of its revenues in the foreseeable future, from sales of its Internet security products,
packaged and marketed mostly under the VPN-1 brand, including related software
subscriptions, support, training and consulting. The Companys future financial
performance will depend in significant part on the successful development, introduction,
marketing and customer acceptance of new products and enhancements and new features for
its existing product lines. See Item 4  Information on the Company and
Item 5  Operating and Financial Review and Prospects.

# Dependence upon Key
Personnel

The
Companys future performance depends, in significant part, upon the continued service
of its key technical, sales and management personnel, including Gil Shwed, Marius Nacht
and Jerry Ungerman. The loss of the services of one or more of the Companys key
personnel could have a material adverse effect on the Companys business, operating
results and financial condition. The Companys future success also depends on its
continuing ability to attract and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is significant, and there can be no assurance
that the Company can retain its key technical, sales and managerial employees or that it
can attract, motivate or retain other highly qualified technical, sales and managerial
personnel in the future. If the Company cannot retain or is unable to hire such key
personnel, the Companys business, operating results and financial condition will be
materially adversely affected. See Item 4  Information on the
Company.

# Dependence on Third
Party Technology

The
Companys products incorporate certain technologies that are licensed by the Company
from others. There can be no assurance that the Company will be able to continue to
license such technologies or enter into new license agreements with respect to new
technologies that it may wish to license and incorporate in its products, either on
acceptable terms or at all. If the Company is unable to continue to license these
technologies or enter into new license agreements for new technologies, it will not be
able to incorporate such technologies into its products, thereby adversely affecting the
Companys ability to compete with competitors utilizing such technologies in their
products.

7

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# Risk of Litigation

The
Company is and has been a party to various lawsuits, including employment claims, and
other legal proceedings in the normal course of its business. In addition, the Company has
received a number of class action complaints, which were later consolidated by the court
into one action, alleging violations of the federal securities laws. See Item 8
 Financial Information. Legal proceedings can be expensive, lengthy and
disruptive to normal business operations, regardless of their merit. Moreover, the results
of complex legal proceedings are difficult to predict and an unfavorable resolution of a
lawsuit or proceeding could have a material adverse effect on the Companys business,
results of operations or financial condition.

# Principal Operations in
Israel

The
Company is incorporated under the laws of the State of Israel, and its principal offices
and research and development facilities are located in Israel. Although most of the
Companys sales are currently made to distributors and resellers outside Israel, the
Company is nonetheless directly influenced by the political, economic and military
conditions affecting Israel. Major hostilities involving Israel or the interruption or
curtailment of trade between Israel and its present trading partners could have a material
adverse effect on the Companys business, operating results and financial condition.
Furthermore, several countries restrict business with Israeli companies. In addition, many
of the Companys male officers and employees are subject to being called for military
reserve duty, and for active military duty under emergency circumstances. While the
Company has operated effectively under these requirements since its incorporation, the
Company cannot predict the full impact of such conditions on the Company in the future,
particularly if emergency circumstances occur. If many of the Companys employees are
called for active duty, the Companys operations in Israel and its business may be
adversely affected.

# International Operations

The
Company intends to continue to expand its international operations, which will require
significant management attention and financial resources. In order to continue to expand
worldwide, the Company needs to establish additional operations, hire additional personnel
and recruit additional distributors and resellers internationally. To the extent that the
Company is unable to do so effectively, the Companys growth is likely to be limited
and the Companys business, operating results and financial condition will be
materially adversely affected. In addition, as the Company expands its international
operations, a portion of revenues generated in international jurisdictions may be subject
to taxation by such jurisdictions at rates higher than those to which the Company is
subject in Israel. Most of the Companys worldwide sales are currently denominated in
U.S. dollars. An increase in the value of the U.S. dollar relative to foreign currencies
would make the Companys products more expensive and, therefore, potentially less
competitive in those markets. Additional risks inherent in the Companys worldwide
business activities generally include unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs of localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts receivable
payment cycles, difficulties in operations management, potentially adverse tax
consequences, including restrictions on the repatriation of earnings, and the burdens of
complying with a wide variety of foreign laws. There can be no assurance that such factors
will not have a material adverse effect on the Companys future international sales
and, consequently, the Companys business, operating results and financial condition.
See Item 4  Information on the Company and Item 5 
Operating and Financial Review and Prospects.

# Product Liability; Risk
of Product Defects

The
Companys sales agreements typically contain provisions designed to limit the
Companys exposure to potential product liability or related claims. In selling its
products, the Company relies primarily on shrink wrap licenses that are not
signed by the end-user, and, for this and other reasons, such licenses may be
unenforceable under the laws of certain jurisdictions. As a result, the limitation of the
liability provisions contained in the Companys agreements may not be effective. The
Companys products are used to manage Internet security, which may be critical to
organizations, and, as a result, the sale and support of products by the Company may
entail the risk of product liability and related claims. A product liability claim brought
against the Company could have a material adverse effect upon the Companys business,
operating results and financial condition. Software and hardware products, as complex as
those offered by the Company may contain undetected errors or failures when first
introduced or when new versions are released. In particular, the personal computer
hardware environment is characterized by a wide variety of non-standard configurations
that make pre-release testing for programming or compatibility errors very difficult and
time-consuming. Despite testing by the Company and by current and potential distributors,
there can be no assurance that errors will not be found in new products or releases after
commencement of commercial shipments. The occurrence of these errors could result in
adverse publicity, loss of or delay in market acceptance or claims by distributors against
the Company, any of which could have a material adverse effect upon the Companys
business, operating results and financial condition. See Item 4  Information
on the Company.

8

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# Dependence on
Proprietary Technology; Risks of Infringement

The
Company relies primarily on a combination of common law copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights as set forth below in the section entitled Proprietary
Rights in Item 4  Information on the Company. The Company has
certain patents in the United States and some other countries, as well as pending patent
applications. There can be no assurance that the Companys patent applications will
be issued either at all or within the scope of the claims sought by the Company.
Furthermore, there can be no assurance that any issued patent will not be challenged, and
if such challenges are brought, that such patents will not be invalidated. In addition,
there can be no assurance that others will not develop technologies that are similar or
superior to the Companys technology or design around any patents issued to the
Company. Despite the Companys efforts to protect its proprietary rights,
unauthorized parties may copy aspects of the Companys products or obtain and use
information that the Company regards as proprietary. Policing any of such unauthorized
uses of the Companys products is difficult, and although the Company is unable to
determine the extent to which piracy of its software products exists, software piracy can
be expected to be a persistent problem. In addition, the laws of some foreign countries do
not protect the Companys proprietary rights as fully as do the laws of the United
States or Israel. There can be no assurance that the Companys efforts to protect its
proprietary rights will be adequate or that the Companys competitors will not
independently develop similar technology.

# Approved Enterprise
Status

The
Company receives significant tax benefits in Israel, particularly as a result of the
Approved Enterprise status of the Companys facilities and programs. To be eligible
for tax benefits, the Company must meet certain conditions, relating principally to
adherence to the investment program filed with the Investment Center of the Israeli
Ministry of Industry, Trade and Labor and to periodic reporting obligations. Although the
Company believes that it will be able to meet such conditions in the future, if the
Company fails to meet such conditions it would be subject to corporate tax in Israel at
the regular statutory rate, and could be required to refund the tax benefits already
received, together with linkage adjustment to the Israeli consumer price index and
interest. In recent years, the Israeli government has reduced the benefits available under
these programs and Israeli governmental authorities have indicated that the government may
in the future reduce or eliminate the benefits of those programs. There can be no
assurance that new benefits will be available, or that existing benefits will be continued
in the future at their current level or at any level. A termination or reduction of
certain programs and tax benefits (particularly benefits available to the Company as a
result of the Approved Enterprise status of the Companys facilities and programs), a
requirement to refund the tax benefits already received or changes in legislation, could
have a material adverse effect on the Companys business, operating results and
financial condition. See Item 4  Information on the Company and
Israeli Taxation, Foreign Exchange Regulation and Investment Programs in
Item 10  Additional Information.

# Anti-Takeover Effects of
Israeli Laws

Under
the Israeli Companies Law, a merger is generally required to be approved by the
shareholders and Board of Directors of each of the merging companies. Shares held by a
party to the merger and certain of its affiliates are not counted toward the required
approval. If the share capital of the company that will not be the surviving company is
divided into different classes of shares, the approval of each class is also required.
Under the Companys Articles of Association, the required shareholder vote is a
supermajority of at least 75% of the shares voting in person or by proxy on the matter. A
merger may not be approved if the surviving company will not be able to satisfy its
obligations. At the request of a creditor, a court may block a merger on this ground. In
addition, a merger can be completed only after 30 days have passed from the
shareholders approval of each of the merging companies and all approvals have been
submitted to the Israeli Registrar of Companies and 50 days have passed from the time that
a proposal for approval of the merger was filed with the Registrar.

The
Israeli Companies Law provides that 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% shareholder of the company, unless there is already another 25% shareholder
of the company. Similarly, the Israeli Companies Law provides that 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 45% shareholder of the company, unless someone
else already holds 45% of the voting power of the company. These rules do not apply if the
acquisition is made by way of a merger.

9

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Regulations
promulgated under the Israeli Companies Law provide that these tender offer requirements
do not apply to companies whose shares are listed for trading outside of Israel if,
according to the law in the country in which the shares are traded, including the rules
and regulations of the stock exchange on which the shares are traded, either:

| | n | There
is a limitation on acquisition of any level of control of the company; or
| | - | -------------------------------------------------------------------------------

| | n | The
acquisition of any level of control requires the purchaser to do so by means of a tender
offer to the public.
| | - | -----------------------------------------------------------------------------------------------------------------

The
Israeli Companies Law provides specific rules and procedures for the acquisition of shares
held by minority shareholders, if the majority shareholder holds more than 90% of the
outstanding shares. Israeli tax law treats specified acquisitions, including a
stock-for-stock swap between an Israeli company and a foreign company, less favorably than
does U.S. tax law.

These
laws may have the effect of delaying or deterring a change in control of the Company,
thereby limiting the opportunity for shareholders to receive a premium for their shares
and possibly affecting the price that some investors are willing to pay for the
Companys securities.

# Provisions Affecting a
Potential Change of Control; Potential Rights of Unissued Preferred Shares

The
Companys Articles of Association provide that the Companys Board of Directors
has the authority to issue up to 5,000,000 preferred shares and to determine the price,
rights (including voting rights), preferences, privileges and restrictions of such
preferred shares, without any vote or actions by the Companys shareholders. If this
provision withstands judicial scrutiny under the Israeli Companies Law, the rights and
preferences of such preferred shares could include a preference over the ordinary shares
on the distribution of the Companys assets upon a liquidation or sale of the
Company, preferential dividends, redemption rights, and the right to elect one or more
directors and other voting rights. The rights of the holders of the ordinary shares will
be subject to, and may be adversely affected by, the rights of the holders of any
preferred shares that may be issued in the future. The Company has no current plans to
issue preferred shares. The issuance of preferred shares, while providing desirable
flexibility in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a majority of the
outstanding voting shares of the Company. Furthermore, certain provisions of the
Companys Articles of Association could delay or make more difficult a merger, tender
offer or proxy contest involving the Company. These provisions stipulate that the Company
cannot engage in a business combination with an interested shareholder (defined generally
as the beneficial owner of 15% of the outstanding shares and its affiliates) for a period
of three years following the date that such shareholder became an interested shareholder,
unless certain conditions are met. These provisions may have the effect of delaying or
deterring a change in control of the Company, thereby limiting the opportunity for
shareholders to receive a premium for their shares and possibly affecting the price that
some investors are willing to pay for the Companys securities.

# Concentration of Share
Ownership

As
of February 28, 2005, the directors and executive officers of the Company beneficially
owned approximately 24% of the outstanding ordinary shares of the Company. The percentage
of ownership is calculated based on the number of ordinary shares owned, directly or
indirectly, and the number of options immediately exercisable or that are exercisable
within 60 days from February 28, 2005. As a result, these shareholders are able to
exercise significant influence over all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a change in
control of the Company. See Item 7  Major Shareholders and Related Party
Transactions.

# Indemnification of
Directors and Officers

The
Company has agreements with its directors and senior officers which provide, subject to
Israeli law, for the Company to indemnify each such director and senior officer for any of
the following obligations or expenses incurred in connection with the acts or omissions of
such person in his or her capacity as a director or officer of the Company:

| | n | monetary
 liability  imposed upon him or her in favor of a third party by a judgment,  including a
settlement  or               an arbitral award confirmed by the court, and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | reasonable
litigation expenses, including attorney fees, incurred by such a director or officer or
imposed on him or her by a court, in a proceeding brought against him or her by or on
behalf of the Company or by a third party, or in a criminal action in which he or she was
acquitted, or in a criminal action which does not require criminal intent in which he or
she was convicted.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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# Exchange Controls and
Other Limitations Affecting Security Holders

In
1998, the Israeli currency control regulations were liberalized significantly, and there
are currently no control restrictions on remittances of dividends on securities of Israeli
companies (provided that Israeli income tax has been paid or withheld thereon) or on the
proceeds from the sale of Israeli securities. Legislation remains in effect, however,
pursuant to which currency controls can be imposed by administrative action at any time.

Neither
the Memorandum and Articles of Association of the Company nor the laws of Israel restricts
in any way the ownership or voting of ordinary shares by non-residents of Israel, except
with respect to citizens of those countries, which are in a state of war with Israel.

|ITEM 4. |  | INFORMATION
ON THE COMPANY
|------- |  | --------------------------

# General

Check
Point develops markets and supports Internet security solutions for enterprise and
high-end networks, service providers, small and medium businesses and consumers. The
Company delivers solutions that enable secure, reliable and manageable communications over
Internet Protocol (IP) networks including the Internet, intranets and
extranets. The technology of Check Point aims to provide intelligent security solutions
that protect business communications and resources for corporate networks and
applications, remote employees, branch offices and partner extranets, in three distinct
areas: perimeter, Web and internal networks. The Company also provides endpoint security
solutions that protect personal computers from hackers, spyware and data theft. The
capabilities of Check Point products can be extended with the Companys Open Platform
for Security (OPSEC) framework, enabling integration with leading hardware
appliances and third-party security software applications.

Check
Point was incorporated in 1993. Its registered office and principal place of business is
3A Jabotinsky Street, Ramat-Gan 52520, Israel. The telephone number is 972-3-753-4555. The
Companys website is www.checkpoint.com. The contents of the Companys
website are not incorporated by reference into this Form 20-F. This Form 20-F can be
obtained upon request from the Companys investor relations department, 800 Bridge
Parkway, Redwood City, California 94065 (telephone no. 650-628-2000).

# Industry Background

Information,
and the ability to access and distribute it, is a key strategic asset in todays
competitive business environment. This need to effectively use and communicate information
as well as work more collaboratively has led to the extensive deployment of network-based
communications systems (connectivity). Increased connectivity is in turn expanding the
need for technology to safeguard and manage the access to information available over these
increasingly global networks.

Increase
in connectivity

The network
computing market has undergone three major transitions over the past decade which has
contributed to the increase in global connectivity. The first of these transitions was the
migration of corporate computing environments from centralized mainframe systems to
dispersed client/server environments. The ability to access and share information through
client/server technology has expanded the need for connectivity beyond workgroup Local
Area Networks (LANs) to enterprise-wide networks spanning multiple LANs and
Wide Area Networks (WANs). The second major transition has been the widespread adoption of
the Internet for communications. Internet-based business applications have rapidly
expanded beyond e-mail to a broad range of business applications and services including
electronic publishing, direct to customer transactions, supply chain automation, product
marketing, advertising and customer support. The emergence of increased reliance on the
Internet for business communications and transactions increases the need for and
associated challenges in providing secure access to information and applications. Finally,
companies of all sizes in most industries are embracing and supporting increased
connectivity for mobile and remote employees. This includes connectivity to corporate data
and application resources, as well as general Internet access. Remote users are
increasingly able to receive more and better information from a growing spectrum of
devices, including laptops, personal digital assistants, and cell phones. The expansion of
network access to mobile workers is driving demand to secure all devices with Internet
access, as well as those connecting to the corporate network. These transitions and the
need for secure, managed communications, have led to the broad acceptance of Virtual
Private Networks (VPNs) through the use of the public Internet infrastructure
and associated protocols and applications, sharing information and utilizing services both
within the enterprise and with business partners and customers are now widely adopted. As
a result, businesses are able to share internal information and to run enterprise
applications across geographically dispersed facilities as well as enable customers,
suppliers and other business partners to inexpensively link into their enterprise
information systems. As Internet protocols and infrastructure gain increasingly widespread
acceptance for global communication, new wide-area connectivity services continue to
emerge at a rapid rate, such as database access, transaction-processing services, voice
over IP services and video teleconferencing services. This expansion of services and
applications is further accelerating the use of networks as global communication systems.

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The
need for security

The
growth of Internet connectivity among organizations of all sizes has increased the risk
that an organizations Information Technology (IT) resources can be
attacked via the Internet. Firms have recognized this risk and are deploying security
solutions in an effort to protect organizational confidential information from
unauthorized access.

The
primary means of controlling access to organizational networks and protecting against
attacks is the deployment of Internet firewalls. Firewalls are typically deployed at the
demarcation of an organizations LAN and the Internet, and are used to strictly
control traffic into and out of the organizational network. Firewall technology is
currently undergoing an evolution, enabling it to detect and defeat highly sophisticated
network and application-level attacks that are increasingly prevalent on the Internet
today. Increasing numbers of organizations are deploying an additional layer of security
by applying endpoint security. Endpoint security includes personal firewall, security and
policy enforcement features specifically designed for internal and remote personal
computing devices.

In
addition to protecting an organizations IT assets from attack, organizations take
steps to guard sensitive organizational information traversing untrusted networks, such as
the Internet. Securing organizational information on the Internet is critical as more
organizations are utilizing the Internet as their corporate network backbone to link
company offices and employees. Putting sensitive information on the Internet without
adequate security exposes confidential data to the public. To mitigate this risk, an
increasing number of organizations are deploying VPNs to encrypt and authenticate their
Internet-bound traffic. Leveraging standards-based VPN technology enables organizations to
connect offices and remote employees via the Internet, while maintaining the privacy and
integrity of communications.

Frequently,
firewalls and VPNs are provided in an integrated manner or as a single product.
Integrating firewall and VPN functionality delivers greater security for all traffic and
eases the management burden on the security and network administrators.

IT
security administrators within organizations have long focused on securing the network
perimeter. With the rise of costly worms and other attacks introduced from within the
internal network through mobile and wireless devices, organizations have realized the
importance of securing their internal networks. But while many of the same principles used
to construct and operate perimeter security solutions also apply to internal networks,
internal networks are much more complex and have unique security requirements.

# Technology

Check
Points Internet security solutions include various technologies that enable its
customers to define their network and application security policies, enforce these
policies across their networks, collect and correlate information, monitor the security
and traffic flow and analyze and update configurations to reflect changes in the Internet
security policies. The Companys products are packaged and marketed under different
names and address security tasks in various environments at a variety of price points.

Stateful
Inspection technologies

Check
Points VPN-1 product offerings are based upon the Companys patented Stateful
Inspection technology that enables the screening of all communications attempting to pass
through a gateway in a secure but efficient manner. By extracting and maintaining
extensive state information from all relevant communication layers, the system
can verify data for full compliance with the security and traffic policy and make
intelligent security and traffic prioritization decisions. By extracting and analyzing
data in place without making a copy, Stateful Inspection results in virtually no
performance degradation, enabling VPN-1, Connectra and InterSpect scale effectively with
increasing network bandwidth. In addition, Check Points proprietary implementation
of Stateful Inspection in a virtual machine enables it to be adapted to new
protocols and applications and has proved to be adaptable to many security threats. The
Companys implementation also provides upgradeability and enables the Companys
products to be ported to a wide range of platforms. Furthermore, because Check
Points products reside at network access points, which are the critical convergence
points for network security and traffic management, the Company is able to apply this same
architectural foundation and inspect traffic only once for both critical network decisions
and traffic management, resulting in increased network performance.

12

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Security
and network traffic enforcement technologies (based on Stateful Inspection)

Check
Points enforcement points are typically installed at the network perimeter as
security gateways, on critical servers, on client platforms, as well as internally, to
segment the corporate network. These varying enforcement points implement different
patented technologies including the Companys INSPECT engine. The INSPECT engine
scans all incoming and outgoing internet traffic against a customizable security policy.
The INSPECT engine can be further enhanced by partners or customers by using the INSPECT
programming language.

Network
traffic can be dropped when the security policy has been violated, encrypt to create a
secured VPN, prioritize for Quality of Service (QoS) purposes or sent for
further analysis to perform specific security functions such as authentication, URL
filtering or content inspection using Anti-Virus. Many of these security technologies are
provided by third party vendors and are integrated with the various Check Point
solutions through the OPSEC framework. In addition, technologies like Check Points
SecureXL allow third party accelerators and platforms to create Check Point based
appliances and other solutions such as acceleration cards that further accelerate the
performance of security and network operations.

Application
Intelligence

Check
Points Application Intelligence is a set of advanced capabilities, integrated into
the VPN-1, InterSpect, Connectra and Integrity product offerings, which detect and prevent
application-level attacks. Some of the most serious threats in todays Internet
environment originate from attacks that attempt to exploit application vulnerabilities.
Since application-level attacks tend to be sophisticated in nature, effective defenses
must be equally sophisticated and intelligent.

Security
Management Architecture (SMART)

Check
Points products are based on its Security Management Architecture
(SMART), which allows configuration and management of security policies from a
single, centralized administrative workstation. Security policies can be defined and
deployed for a single security gateway protecting a small business, for multiple gateways
in an enterprise network environment, or for multiple security domains allowing a service
provider to deliver security to a large number of customers, or subscribers. An
object-oriented architecture allows for the efficient storage and specification of
security policy elements (such as computers, users, networks and network devices, network
services and security rules). Powerful management tools, such as object managers, audit
and network activity logs, monitoring tools and policy editors are based on this unifying
architecture. The Companys products contain extensive monitoring and reporting
capabilities designed to maximize interoperability and improve the manageability of the
system.

SecurePlatform

SecurePlatform
enables easy deployment of Check Points products on a variety of open systems.
SecurePlatform bundles certain Check Point products with a hardened and optimized version
of the Linux operating system, with a set of tools in order to ease setup and network
configuration. SecurePlatform allows improved cost/performance and reduced total cost of
ownership for security servers.

SecureXL

Check
Points SecureXL is a software interface that enables Check Point to leverage
technologies from multiple silicon, appliance and computer system partners to accelerate
the performance of Firewall-1 and VPN-1 gateways by off-loading simple, though
computationally intensive, functions to third-party packet processors. Using SecureXL
different hardware appliance vendors can accelerate the performance of Secured by
Check Point appliances and provide greater value to their customers that are
benefiting from wire-speed advanced security.

13

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Open
Platform for Security (OPSEC)

The
OPSEC framework provides a single platform that manages various aspects of Internet
security through an open, extensible management framework. Various third-party security
applications plug into the OPSEC framework through published application programming
interfaces, such as the Content Vectoring Protocol which integrates virus scanning
software and other content inspection programs, URL Filtering Protocol which integrates
URL list services, and Suspicious Activity Monitoring Protocol which integrates suspicious
activity monitoring programs. The OPSEC framework also supports industry-standard
protocols such as RADIUS, IPSec, and SNMP. Once integrated into the OPSEC framework, all
applications can be set-up and managed from a central point, utilizing a single policy
editor.

SmartDefense

Check
Points SmartDefense is a proactive solution which utilizes Stateful Inspection and
Application Intelligence technologies to actively protect organizations against network
and application level attacks by using intelligent security technology, which blocks
attacks by type and class. SmartDefense provides a centralized console for real-time
information on attacks, as well as attack detection, blocking, logging, auditing and
alerting. Check Point offers a real time update subscription service to SmartDefense
users, allowing security administrators to mitigate new vulnerabilities in a simple and
convenient way. Check Point provides up to date security for its customers using
SmartDefense Updates service, a supplementary service based on SmartDefense capabilities,
which provides both advisories and additional attack mitigation capabilities.

Malicious
Code Protector

Check
Points Malicious Code Protector is a patent pending technology, providing
breakthrough protection capabilities against different types of buffer overflow attacks
that are targeted to provide attackers remote access to a victims system. The
Malicious Code Protector is designed to provide extreme defense without the use of
signatures, thus creating critical protection from zero day type attacks.

Cooperative
Enforcement

The
patented Cooperative Enforcement technology enables integration with network gateway
products, from VPNs and switches to Web applications and wireless access points, in order
to ensure that every endpoint is compliant with the designated security policy before it
is allowed access to network resources.

TrueVector
Technology

TrueVector
technology is a patented, flexible and efficient software platform for enabling
high-performance, scalable and robust Internet security.  TrueVector monitors
all applications running on the protected computer and applies various network
security policies to individual applications and processes. Depending on
the policy, TrueVector may explicitly allow certain applications, or individual
application modules, to communicate over a specific set of network protocols,
ports, and destinations, denying all other communications. It also may be configured
to make the protected computer invisible to external attackers. TrueVector is capable
of enforcing centrally created and managed security policies, standalone
security policies, and combinations of these.

Total
Access Protection

Total
Access Protection (TAP) endpoint security initiative provides a security
policy enforcement framework for heterogeneous networks to provide all network-connected
personal computers with unified endpoint security.

14

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# Products

Check
Points products are packaged in different ways and address various customer needs
and deployment scenarios. Most products operate on a broad range of hardware platforms,
running primarily on the following operating systems: Nokia IPSO, Microsoft Windows, Sun
Solaris and Linux. Check Point offers a broad and integrated range of policy-based
solutions for perimeter, internal and Web security:

Perimeter
Security

Perimeter
solutions are used to control access between a customers internal network or
computers and an external network such as the Internet. Check Point historically has
focused mainly on VPN-1 and FireWall-1 which are the main building blocks for perimeter
security. In June 2003, the Company introduced a new version of its flagship product named
NG with Application Intelligence which integrates both network and
application-level capabilities to deliver comprehensive attack protection and network
security. The following products are marketed primarily as perimeter security products:

Enterprise
products:

| | VPN-1
Pro
| | ---------

| | Check
Points VPN-1 Pro family of products integrates access control, authentication, and
encryption to guarantee the security of network connections, the authenticity of local and
remote users, and the privacy and integrity of data communications. It also includes
FireWall-1 for effective security and efficient administration, using Check Points
Stateful Inspection and Application Intelligence technologies. VPN-1 Pro is offered in
multiple packages, depending on the size of the network protected. Some packages include
the SmartCenter/SmartCenter Pro management software and some include only the security
gateway software.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | VPN-1
SecureClient & VPN-1 SecureRemote
| | ---------------------------------------

| | VPN-1
SecureClient and VPN-1 SecureRemote are virtual private network endpoints which provide
secure connectivity from laptops and other mobile devices, work seamlessly with Check
Points VPN-1 products and enable the set up of secure remote access as part of an
overall security policy, including access control, user authentication and logging. VPN-1
SecuRemote licenses are included with the VPN-1 gateway products at no cost.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | VPN-1
SecureClient also includes personal firewall capabilities, secure configuration
verification and streamlined software distribution and management, and is licensed by the
number of users.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | VPN-1
Edge
| | ----------

| | VPN-1
Edge appliances provide secure connectivity for remote sites such as branch and retail
sites. Integrating VPN-1/FireWall-1 technology, high availability and networking features,
VPN-1 Edge appliances are managed centrally through SMART, enabling the efficient setup of
thousands of gateways.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Security
management solutions
| | -----------------------------

| | Check
Points management solutions using SMART enable organizations of different sizes to
define, deploy and enforce security policies consistently across multiple enforcement
points. The management solutions for enterprises include the following product offerings:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SmartCenter
| | -----------

| | SmartCenter
is Check Points comprehensive management product, comprised of an intuitive
Dashboard that enables administrators to centrally define VPN-1, FireWall-1
and QoS policies of a network, and a management server that stores and disperses these
different elements of the security policy. This product provides administrators with
enhanced understanding of distributed security deployments, and is combined with automatic
policy distribution to deliver greater control, improved security and enhanced ease of
use. It also includes the elements to collect, record and manage the network and security
events as well as the SmartView Tracker to view and analyze those events.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SmartCenter
Pro
| | ---------------

| | SmartCenter
Pro is an extension of the SmartCenter management products that bundles an additional set
of management tools to provide a unique enterprise security management product. Included
in SmartCenter Pro is the SmartLSM large scale management tool, SmartUpdate for
distributed software version management and updates, SmartMap topological network view,
Management Server High Availability, SmartDirectory for integration with LDAP directories
and the SmartView Monitor for graphical reporting and analysis.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SmartView
| | ---------

| | The
SmartView set of tools provides capabilities for viewing, searching and analyzing network
and security events recorded by the Companys products and enables real-time viewing
of network and security traffic graphs using various criteria.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Eventia
family
| | --------------

| | Check
Point Eventia Analyzer is a comprehensive security event management solution that provides
centralized, real-time correlation of log data for Check Point perimeter, internal and Web
security gateways; as well as third party security devices, network devices and
applications.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Products
for medium businesses, small businesses and consumers:

| | Check
Point Express
| | -------------------

| | Check
Point Express is a perimeter security product designed for mid-sized companies with up to
500 users, single or multiple sites. It provides access control, network and application
level protection, remote access and site-to-site VPN capabilities, along with an intuitive
management interface based on SMART.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Safe@Office
| | -----------

| | Check
Points Safe@Office product line is designed for deployments with up to 100 users. It
is based on the Stateful Inspection technology found in VPN-1, and delivers VPN-1 and
FireWall-1 like capabilities to small businesses, consumers, and the Managed Service
Providers (MSPs). Safe@Office products can be managed individually using a Web
browser and centrally managed via an MSP using the Security Management Portal
(SMP).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ZoneAlarm
Security Suite
| | ------------------------

| | ZoneAlarm
Security Suite is a complete Internet security suite that protects personal computers
based on the Windows operating system. ZoneAlarm provides integrated firewall, antivirus,
ID and privacy protection, Email security, content and communication protection, as well
as anti-phishing protection and spam blocking capabilities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Subsets
of the ZoneAlarm Security Suite such as ZoneAlarm Pro and IMSecure Pro, are also
available. Subsets of these products are offered free of charge for personal and
non-profit use.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Products
for service providers, data centers and large enterprises:

| | VPN-1/FireWall-1
VSX
| | --------------------

| | VPN-1/FireWall-1
VSX is a high-speed, multi-policy security product designed for VLAN-enabled corporate
networks, data centers and service provider Point of Presence (POPs). It uses the same,
patented Stateful Inspection technology used in the VPN-1 Pro. By aggregating up to 250
individual security domains on a single platform, VPN-1/ FireWall-1 VSX minimizes hardware
investment. VPN-1/FireWall-1 VSX can be run on multiple gigabit platforms to deliver the
required performance in high-bandwidth environments. It is managed using Check
Points SmartCenter products and Provider-1, delivering a unified management
architecture that service providers and enterprises can use to manage all their other
Check Point enforcement points centrally.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Provider-1
| | ----------

| | Provider-1
is a security management product designed to meet the unique challenges of service
providers and large enterprises and is available in two editions designated for these two
segments. Provider-1 consolidates customer security policies into a centralized policy
management architecture that scales to support thousands of customers while minimizing
investment in hardware and labor. For large enterprises, Provider-1 simplifies a complex
security policy by segmenting it into more manageable sub-policies to match geographic,
functional, or other logical groupings.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Security
Management Portal (SMP)
| | --------------------------------

| | The
SMP is a management product for service providers that deliver outsourced Internet
security to small businesses. The SMP enables service providers to create flexible service
categories and to centrally manage tens of thousands of subscribers that are using
Safe@Office Products.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Product
for wireless carriers:

| | FireWall-1
GX
| | -------------

| | FireWall-1
GX provides security to GPRS- (2.5G) and UMTS- (3G) enabled wireless networks. FireWall-1
GX protects these wireless infrastructures from the threats of untrusted networks. With
FireWall-1 GX, wireless network operators can offer seamless roaming to their data
customers without exposing their network to potential security threats.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Internal
Security
| | -----------------

| | Historically,
IT security organizations have focused on protecting the perimeter of their networks.
However, many of todays security threats are introduced within the boundaries of the
organizational internal network.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | InterSpect
| | ----------

| | Check
Points InterSpect products were introduced in January 2004. They are sold as a Check
Point appliance including the hardware and software. InterSpect internal security gateways
segment the internal network into multiple security zones, controlling traffic
flow between those zones. InterSpect blocks the spread of certain attacks and worms,
isolates computers that generate suspicious activity from communicating with other network
segments and allows segmentation of traffic to different security zones.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Integrity
| | ---------

| | Check
Points Integrity products enable enterprises to enforce and control security policy
on desktops across the organization from a centralized management console, regardless of
whether users are accessing the network remotely or from inside the enterprise network.
Integrity reduces exposures to vulnerabilities by protecting individual endpoints and thus
enabling deeper level of security enforcement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Web
Security
| | ------------

| | Companies
are increasingly dependent on Web and Internet systems to run their businesses. As usage
and dependence of Web-based systems increases, companies are focusing on specialized
protection for Web servers and applications, and have a concentrated need to provide
secure, unified access to these systems.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Connectra
| | ---------

| | Check
Points Connectra is a complete Web Security Gateway that provides both SSL VPN
remote access and integrated Web Security in a single, unified security solution.
Connectra includes Application Intelligence, Web Intelligence, and SSL Network Extender as
well as a one-year subscription to SmartDefense Service for real-time security updates.
The SSL Network Extender is also offered as an add-on to the VPN-1 Pro.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Web
Intelligence
| | ----------------

| | Check
Points Web Intelligence provides bifurcation between Web applications to protect Web
servers from a variety of application level attacks targeting these designated servers.
Using SmartCenter it provides powerful security solutions Web Intelligence against
the most sophisticated attacks such as SQL Injection and, Cross Site Scription (XSS) and
many others, through a very simple interface that is fully integrated with SMART.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Sales and Marketing

Check
Points sales and marketing efforts are focused on expanding the installed base and
increasing penetration levels of end-user customers worldwide by leveraging multiple
channels of distribution (also referred to as channel partners), including distributors,
resellers and value added resellers (VARs), system integrators and MSPs.
Substantially all of the Companys products are sold to end-user customers through
resellers and distributors worldwide. Products for the consumer market are primarily sold
through the Companys Web site and through certain retail stores. The Company expects
that it will continue to be dependent upon a limited number of distributors and resellers
for a significant portion of its revenues. In 2004, sales to the Companys five
largest distributors and resellers represented approximately 35% of the Companys
revenues. The Companys agreements with its channel partners are generally
non-exclusive.

The
Company promotes its products in various ways, including its website, seminars and trade
shows, print-media, on-line advertising and time limited software evaluations.

The
Company has relationships with server and workstation vendors and appliance manufacturers,
such as Nokia Corporation, International Business Machines Corporation (IBM).,
Hewlett-Packard Co., Dell Inc., Sun Microsystems Inc., Siemens AG, Crossbeam Systems Inc.,
Nortel Networks Corp, and other suppliers of enterprise network hardware products. The
Company believes that strategic relationships can significantly contribute to the
achievement of its sales and marketing goals by integrating complementary technologies.
Additionally, these hardware partners provide primary support and training to their
customers thereby enabling Check Point to concentrate its support efforts on high-level
technical assistance for its partners.

The
Company has derived substantially all of its revenues, and expects to continue to derive
the vast majority of its revenues in the foreseeable future, from sales of its Internet
security products, packaged and marketed mostly under the VPN-1 product family (which
includes the FireWall-1 functionality), including related software subscriptions, support
and technical services and training programs. For information concerning the
Companys sales to geographic areas, see Item 5  Operating and Financial
Review and Prospects.

The
Companys OPSEC framework is focused on delivering integration and interoperability
with complimentary products and developing marketing relationships with partners to
promote best-of-breed security frameworks. OPSECs wide range of
integration interfaces addresses all areas of a complete Internet security architecture.
Products that carry the OPSEC Certified and Secured by Check Point
seals have been tested to enable integration and interoperability. OPSEC partners
(currently over 350) include appliance manufacturers like Nokia Corporation, Sun
Microsystems, Inc. and Nortel Networks Corp. and application developers like Computer
Associates International, Inc., Trend Micro, Inc., RSA Security, Inc. and VeriSign, Inc.
In addition, the Company maintains marketing relationships with other companies to promote
integrated products.

18

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The
Company conducts a number of marketing programs to support the sale and distribution of
its products. These programs are designed to inform existing and potential partners and
end-user customers about the capabilities and benefits of the Companys products.

# Customer Service and
Support

The
Company operates a worldwide technical services organization, providing a wide range of
technical, customer, educational and professional services.

The
Companys channel partners generally provide the installation, training, maintenance
and support for their customers, with Check Point providing the high-level technical
backup support. Alternatively customers may elect to receive support directly from Check
Point. As part of Check Points direct market participation, the Company employs
technical consultants and systems engineers who work closely with its field and channel
partners to assist with the pre-sales configuration, use and application support.

At
the end of 2003 the Company has transitioned its subscription and support programs from
being based on single products into more comprehensive offerings that cover the
customers entire installed base. These programs offer lower cost to the customer and
greater account coverage. In 2004 most subscription and support contracts were based on
the new method.

The
Companys technical assistance centers in the United States and Israel offer
worldwide 24-hour, 7-day per week service. There are additional locations supporting the
call centers, as well as a call center operated by a third party.

# Research and Product
Development

The
Company believes that its future success will depend upon its ability to enhance its
existing products and develop and introduce new products that address the increasingly
sophisticated needs of end-users. The Company works closely with existing and potential
customers, distribution channels and major resellers, which provide significant feedback
for product development and innovation. The Companys new product development efforts
are focused on enhancements to its current family of products and new products for
perimeter, internal and Web security and management. Although the Company expects to
develop its new products internally, it may, based upon timing and cost considerations,
acquire or license certain technologies or products from third parties.

Research
and development expenses for 2002, 2003 and 2004 were $28.7 million, $29.3 million and
$43.2 million, respectively. At December 31, 2004, the Company had 439 employees
dedicated to research and development activities and quality assurance, mostly located in
Israel. As of February 28, 2005 the Company had 465 such employees.

# Competition

See
Risk Factors  Competition in Item 3  Key Information.

# Proprietary Rights

The Company
relies primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary rights.
The Company seeks to protect its software, documentation and other written materials under
trade secret and copyright laws, which afford only limited protection. The Company
generally enters into confidentiality agreements with employees, consultants, customers
and potential customers and limits access to, and distribution of, its proprietary
information.

The
Company has 18 patents pending, four U.S. patents and additional pending applications
worldwide. There can be no assurance that the Companys efforts to protect its
proprietary rights will be adequate or that the Companys competitors will not
independently develop similar technology.

19

---

---



# Organizational Structure

The
Company is organized under the laws of the State of Israel. Except as set forth in the
footnotes below, the Company wholly owns, directly or indirectly, the subsidiaries
specified below:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NAME OF SUBSIDIARY
Check Point Software Technologies, Inc. 
Check Point Software Technologies (Canada) Inc. 
Check Point Software Technologies (Japan) Ltd. 
Check Point Software Technologies (Singapore) PTE Ltd. 
Check Point Software Technologies (Netherlands) B.V. 
Israel Check Point Software Technologies Ltd. China (1) 
Check Point Holding (Singapore) PTE Ltd. 
Check Point Holding (Singapore) PTE Ltd. - US Branch (2)
Check Point Software Technologies Cayman Islands 
Zone Labs LLC (3) 
Zone Labs GmbH (4) 
Zone Labs Ltd. (5) 
Zone Labs PTE. Ltd. (5) 
SofaWare Technologies Ltd. (6) | COUNTRY OF INCORPORATION
United States of America (Delaware)
Canada
Japan
Singapore
Netherlands
China
Singapore
United States of America (New York)
Cayman Islands
United States of America (California)
Germany
United Kingdom
Singapore
Israel

---

(1)
          Branch of Check Point Software Technologies Ltd.

(2)
          Branch of Check Point Holding (Singapore) PTE Ltd.

(3)
          Wholly owned by Check Point Software Technologies, Inc.

(4)
          Wholly owned by Check Point Software Technologies, Inc. Currently in the process
          of merger into the respective Check Point subsidiary in the relevant
          jurisdiction.

(5)
          Wholly owned by Zone Labs LLC. Currently in the process of merger into the
          respective Check Point subsidiary in the relevant jurisdiction.

(6)
          Check Point had provided convertible loans to SofaWare Technologies
          Ltd (SofaWare), which were converted into 65% of the
          equity of SofaWare on June 29, 2004 (without giving effect to the
          exercise of any outstanding options or warrants to purchase equity
          securities of SofaWare). Check Point beneficially owns 74% of the equity of
          SofaWare (based on the shares of SofaWare currently held by Check Point, and
          assuming the exercise by Check Point of all of its warrants to acquire shares of
          SofaWare).  Accordingly, Check Point consolidates the results of
          SofaWares operations into Check Points financial statements.

20

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Check Point Software  Technologies  (Netherlands)  B.V. acts as a holding company and wholly owns the following  principal
operating subsidiaries specified below:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NAME OF SUBSIDIARY
Check Point Software Technologies (Australia) PTY Ltd. 
Check Point Software Technologies SARL 
Check Point Software Technologies B.V. 
Check Point Software Technologies (Italia) Srl (1) 
Check Point Software Technologies (Switzerland) A.G. 
Check Point Software Technologies Norway A.S. 
Check Point Software Technologies (Spain) S.A. 
Check Point Software Technologies Mexico S.A. de C.V. 
Check Point Software Technologies (Brazil) LTDA 
Check Point Software Technologies (UK) Ltd. 
Check Point Software Technologies GmbH 
C.P.S.T. Sweden A.B. 
Check Point Software Technologies (Denmark) ApS 
Check Point Software Technologies (Poland) Sp.z.o.o. 
Check Point Software Technologies (Czech Republic) s.r.o.
Check Point Software Technologies (Hong Kong) Ltd. 
Check Point Software Technologies (Korea) Ltd. 
Check Point Software Technologies (Finland) Oy 
Check Point Yazilim Teknolojileri Pazarlama A.S. (2) 
Check Point Software Technologies (Belgium) S.A. 
Check Point Software Technologies (Austria) GmbH 
Check Point Software Technologies (India) Private Limited
Check Point Software Technologies (Russia) OOO 
Check Point Software Technologies (Belarus) LLC | COUNTRY OF INCORPORATION
Australia
France
Netherlands
Italy
Switzerland
Norway
Spain
Mexico
Brazil
United Kingdom
Germany
Sweden
Denmark
Poland
Czech Republic
Hong Kong
S. Korea
Finland
Turkey
Belgium
Austria
India
Russia
Belarus

---

(1)
          97% owned by Check Point Software Technologies (Netherlands) B.V. and 3% owned
          by Check Point Software Technologies Ltd.

(2)
          96% owned by Check Point Software Technologies (Netherlands) B.V., 1% owned by
          Check Point Software Technologies Ltd. and 3% owned in trust by the directors of
          Check Point Yazilim Teknolojileri Pazarlama A.S. on behalf of Check Point
          Software Technologies (Netherlands) B.V.

# Plants, Property and
Equipment

The
Companys headquarters and research and development facilities are located in
Ramat-Gan, Israel, near Tel-Aviv, where the Company leases approximately 106,000 square
feet of office space. These facilities have leases that expire between 2005 and 2007, or
2011 if renewal options are exercised. The Company also leases approximately a total of
170,000 square feet of office space in the United States. Of that, approximately 48,000
square feet is in Redwood City, California, approximately 70,000 square feet is in San
Francisco, California and approximately 31,000 square feet is in Dallas, Texas. These
facilities are leased for periods of up to five years. In addition, the Company leases
regional office space in the United States, Canada, Europe and Asia.

21

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|ITEM 5. |  | OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|------- |  | --------------------------------------------

The
following discussion and analysis is based on and should be read in conjunction with the
Companys consolidated financial statements, including the related notes, contained
in Item 18  Financial Statements.

# Overview

Check
Point develops, markets and supports Internet security solutions for enterprise and
high-end networks, service providers, small and medium businesses and consumers. The
Company delivers solutions that enable secure, reliable and manageable communications over
Internet Protocol networks, including the Internet, intranets and extranets. The
technology of Check Point aims to provide intelligent security solutions that protect
business communications and resources for corporate networks and applications, remote
employees, branch offices and partner extranets, in three distinct areas: perimeter, Web
and internal networks. The Company also provides endpoint security solutions that protect
personal computers from hackers, spyware and data theft. The capabilities of Check Point
products can be extended with the OPSEC framework, enabling integration with leading
hardware appliances and third-party security software applications.

The
Companys business is subject to the effects of general global economic conditions
and in particular, market conditions in the IT industry and Internet security industry.
During the past few years these economic and market conditions have reduced the high
growth that the industry had previously experienced. As a result, the market value,
financial results and capital spending levels of many of the Companys customers have
been materially adversely affected. Notwithstanding recent improvement, if general
economic and industry conditions fail to improve or deteriorate, demand for the
Companys products could be adversely affected, as could the financial health of the
Companys suppliers and distributors, and the Companys financial results may be
adversely affected.

The
Company has derived most of its revenues, and expects to continue to derive the vast
majority of its revenues in the foreseeable future, from sales of its Internet security
products, packaged and marketed mostly under the VPN-1 product family, including related
software subscriptions, support, training and consulting.

During
2002, 2003 and 2004 approximately 13% of the Companys revenues derived from a single
distributor.

On
March 26, 2004, the Company completed the purchase of 100% of the share capital of Zone
Labs Inc. The Company paid $114.5 million in cash, $92.2 million in ordinary shares and
$50.4 million in options assumed. The acquisition was accounted for as a purchase and,
accordingly, the purchase price for the acquisition was allocated to the assets acquired
and liabilities assumed based on their respective fair values. Zone Labs results of
operations are included in Check Point consolidated statement of income from the date of
acquisition.

The
following table sets forth, for the periods indicated, the percentage of total
consolidated revenues derived from sales into each of the regions identified in the table:

|                               | Year Ended December 31,
|------------------------------ | -----------------------
|
|
|
|
|
|Americas                       | 43%                    
|Europe, Middle East and Africa | 41%                    
|Japan                          | 9%                     
|Asia Pacific                   | 7%                     

For
information with respect to the impact of foreign currency fluctuations, see Item 11,
Quantitative and Qualitative Disclosures about Market RiskForeign Currency
Risk.

22

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---



# Critical Accounting
Policies and Estimates

The
Companys consolidated financial statements are prepared in accordance with U.S.
GAAP. These accounting principles require management to make certain estimates, judgments
and assumptions based upon information available at the time that they are made,
historical experience and various other factors that are believed to be reasonable under
the circumstances. These estimates, judgments and assumptions can affect the reported
amounts of assets and liabilities as of the date of the financial statements, as well as
the reported amounts of revenues and expenses during the periods presented.

In
many cases, the accounting treatment of a particular transaction is specifically dictated
by U.S. GAAP and does not require managements judgment in its application. There are
also areas in which managements judgment in selecting among available alternatives
would not produce a materially different result. The Companys management has
reviewed these critical accounting policies and related disclosures with the Audit
Committee. See Note 2 to the Companys Consolidated Financial Statements, which
contain additional information regarding the Companys accounting policies and other
disclosures required by U.S. GAAP.

Management
believes the critical accounting policies which affect managements more significant
judgments and estimates used in the preparation of the Companys consolidated
financial statements and which are the most critical to aid in fully understanding and
evaluating the Companys reported financial results include the following:

| | n | Revenue
recognition
| | - | -------------------

| | n | Allowance
for doubtful accounts and sales returns
| | - | -------------------------------------------------

| | n | Marketable
securities
| | - | ---------------------

| | n | Legal
contingencies
| | - | -------------------

| | n | Income
taxes and valuation allowance
| | - | ------------------------------------

| | n | Goodwill
and other intangible assets
| | - | ------------------------------------

Revenue
recognition

The
Company derives its revenues from three primary sources: (1) new software licenses (2)
software subscriptions and (3) services revenues, which include support, training and
consulting. The basis for new software license revenue recognition is substantially
governed by the provisions of Statement of Position No. 97-2, Software Revenue
Recognition, issued by the American Institute of Certified Public Accountants
(SOP 97-2).

According to SOP 97-2, the Company recognizes revenue when: (1) persuasive evidence of an
arrangement for the license of software exists; (2) the products are delivered or services
are performed; (3) the price is deemed fixed or determinable and free of contingencies or
significant uncertainties; and (4) collection is probable.

Management
considers arrangements regarding certain channel partners with payment terms extending
beyond the Companys customary payment terms not to be fixed or determinable. If the
fee is considered not to be fixed or determinable, revenue is deferred and recognized when
payments become due from the channel partners, or are actually collected, provided that
all other revenue recognition criteria have been met.

Software
subscription and support revenues included in multiple-element arrangements are deferred
and either recognized on a straight-line basis over the term of the software subscription
and support agreement or when services are performed. Revenues earned on software
arrangements involving multiple-elements are allocated to each element based on the
relative fair value of the element. The Vendor Specific Objective Evidence
(VSOE) of fair value of the undelivered elements (software subscription,
support, training and consulting) is generally determined based on the price charged for
the undelivered element when sold separately or renewed.

Allowance
for doubtful accounts and sales returns

The
Company maintains an allowance for doubtful accounts for estimated losses, which may
result from the inability of its channel partners to make required payments. Management
exercises judgment as to its ability to collect outstanding receivables. Allowances for
doubtful accounts are made based upon a specific review of all significant outstanding
invoices. For those invoices not specifically reviewed, allowances for doubtful accounts
are made based upon the age of the receivable. In determining the allowance, the Company
analyzes its historical collection experience and current economic trends. If the
historical data used to calculate the allowances for doubtful accounts do not reflect the
future ability to collect outstanding receivables, additional allowances for doubtful
accounts may be needed and the future results of operations could be materially affected.

23

---

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The
Company also records a provision for estimated sales returns in the same period as the
related revenues are recorded. This estimate is based on historical sales returns,
analysis of credit memo data and other factors. If the historical data used to calculate
these estimates do not properly reflect future returns, additional provision for sales
returns may be required, and revenues in that period could be adversely affected.

Marketable
securities

Marketable
securities consist of held-to-maturity securities, which are debt securities in which the
Company has invested with the intention of holding until the maturity dates of the
securities. If it is determined, based on valuations, that a decline in the fair value of
any of the investments is other than temporary, an impairment loss is recorded and
included in the consolidated statements of income as financial expenses.

Legal
contingencies

The
Company is and has been a party to various lawsuits, including employment claims, and
other legal proceedings in the normal course of its business. In addition, the Company has
received a number of class action complaints, which were later consolidated by the court
into one action, alleging violations of the federal securities laws. In determining
whether provisions should be recorded for pending litigation claims, the Company assesses
the allegations made and the likelihood that it will successfully defend itself. When the
Companys management believes that it is probable that it will not prevail in a
particular matter, it then estimates the amount of the provision based in part on advice
of legal counsel.

Income
taxes and valuation allowance

The
Company operates within multiple taxing jurisdictions and is subject to audits in these
jurisdictions. These audits can involve complex issues, which may require an extended
period of time to resolve. In managements opinion, adequate provisions for income
taxes have been made for all years. Although management believes that its estimates are
reasonable, no assurance can be given that the final tax outcome of these issues will not
be different than those, which are reflected in the Companys historical income tax
provisions.

Deferred
taxes are determined utilizing the asset and liability method based on the estimated
future tax effects of differences between the financial accounting and tax bases of assets
and liabilities under the applicable tax laws. Valuation allowances are provided if based
upon the weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. Taxes, which would apply in the event of
disposal of investments in subsidiaries, have not been taken into account in computing
deferred taxes, as it is Check Points intention to hold these investments, rather
than realize them.

Goodwill
and other intangible assets

The Company
applies SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
requires that goodwill and intangible assets with an indefinite life be tested for
impairment at least annually rather than amortized. Goodwill and intangible assets with an
indefinite life are tested for impairment by comparing the fair value of the reporting
unit or the asset with its carrying value. Fair value is generally determined using
discounted cash flows, market multiples and market capitalization. Significant estimates
used in the fair value methodologies include estimates of future cash flows, future
short-term and long-term growth rates, weighted average cost of capital and estimates of
market multiples of the reportable unit. Other factors considered are the brand awareness
and the market position of the acquired products and assumptions about the period of time
the brand will continue to be used in the combined companies product portfolio. If
these estimates or their related assumptions change in the future, the Company may be
required to record impairment charges for its goodwill and intangible assets with an
indefinite life.

The
Company selected December 31st as the date on which it will perform its annual
impairment tests for goodwill and intangible assets with an indefinite life. As of
December 31, 2004, no impairment charges were required. The Company allocated the purchase
price of Zone Labs to the tangible and intangible assets acquired and liabilities assumed,
based on their estimated fair values. As described above, such valuations require
management to make significant estimates and assumptions, especially with respect to
intangible assets.

If
the Company does not appropriately allocate these components or incorrectly estimates the
useful lives of these components, the computation of depreciation and amortization expense
may not appropriately reflect the actual impact of these costs over future periods, which
will affect net income.

24

---

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# Results of Operations

The
following table presents, for the periods indicated, information concerning the
Companys results of operations:

|                                   | Year Ended December 31,
|---------------------------------- | -----------------------
|
|
|
|
|Revenues:                          |                        
|Products and licenses              |                        
|Software subscriptions             |                        
|Support, training and consulting   |                        
|                                   |                        
|Total revenues                     |                        
|                                   |                        
|Operating expenses:                |                        
|Cost of revenues                   |                        
|Research and development           |                        
|Selling and marketing              |                        
|General and administrative         |                        
|Acquisition related in-process R&D |                        
|Stock-based compensation           |                        
|                                   |                        
|Total operating expenses           |                        
|                                   |                        
|                                   |                        
|Operating income                   |                        
|Financial income, net              |                        
|                                   |                        
|                                   |                        
|Income before taxes on income      |                        
|Taxes on income                    |                        
|                                   |                        
|Net income                         |                        
|                                   |                        

(1)
          Including the following significant pre-tax charges: acquisition related
          in-process R&D of $23.1 million, stock-based compensation of $4.6 million
          and amortization of intangible assets of $4.2 million.

25

---

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The
following table presents, for the periods indicated, information concerning the
Companys results of operations as a percentage of the Companys revenues:

|                                   | Year Ended December 31,
|---------------------------------- | -----------------------
|
|
|
|
|Revenues:                          |                        
|Products and licenses              |                        
|Software subscriptions             |                        
|Support, training and consulting   |                        
|                                   |                        
|Total revenues                     |                        
|                                   |                        
|Operating expenses:                |                        
|Cost of revenues                   |                        
|Research and development           |                        
|Selling and marketing              |                        
|General and administrative         |                        
|Acquisition related in-process R&D |                        
|Stock-based compensation           |                        
|                                   |                        
|Total operating expenses           |                        
|                                   |                        
|                                   |                        
|Operating income                   |                        
|Financial income, net              |                        
|                                   |                        
|                                   |                        
|Income before taxes on income      |                        
|Taxes on income                    |                        
|                                   |                        
|Net income                         |                        
|                                   |                        

Revenues

The
Companys revenues are derived from the sale of products and licenses and related
software subscriptions, support, training and consulting. The Companys revenues were
$427.0 million, $432.6 million and $515.4 million in 2002, 2003 and 2004, respectively. In
2003, the Company experienced a gradual shift of revenues from products and licenses to
software subscription, while total revenue remained at the same level. The increase in
software subscription revenues is attributed mainly to the introduction of a new
subscription and support program in early 2003 and the increase of the Companys
installed base. The increase in revenues in 2004 was attributable both to organic growth
and to the acquisition of Zone Labs. The organic growth was evident both in the
Companys core products and in various emerging products which were introduced during
the year. Management anticipates that revenues in 2005 will increase mainly due to
internal growth. However, there can be no assurance that revenues will grow in 2005 due to
several factors, any of which could have a material adverse affect on revenues, including
the uncertainty of the global economic conditions, the market acceptance of new products
and the level of products and price competition.

Cost
of revenues

The
Companys cost of revenues is comprised of the cost of post-sale customer support,
training and consulting, cost of freight, software and hardware production, manuals,
packaging and license fees. Cost of revenues was $20.7 million, $18.9 million and $23.6
million (excluded amortization of intangible assets related to the Zone Labs acquisition
in the amount of $4.2 million) for 2002, 2003 and 2004, respectively. The acquired
intangible assets are amortized on a straight-line basis over their useful lives which
best represents the distribution of their economic value. In 2003, cost of revenues
decreased due to improvement of operational efficiencies. In 2004, the increase in cost of
revenues was mainly attributable to the inclusion of Zone Labs operations starting
in the second quarter of 2004 and to the increase in sales of hardware based products.
Management anticipates that cost of revenues will increase in 2005 in line with an
expected growth in revenues derived from products incorporating hardware.

26

---

---



Research
and development

Research
and development expenses consist primarily of salaries and other related expenses for
research and development personnel, as well as the cost of facilities and depreciation of
capital equipment. Research and development expenses were $28.7 million,
$29.3 million and $43.2 million in 2002, 2003 and 2004, respectively, representing
7%, 7% and 8% of revenues, respectively. The increase in 2003 related mainly to the
increase in the number of research and development personnel employed by the Company. In
2004, the significant increase was mainly attributable to the increase in the number of
research and development employees, resulting from the acquisition of Zone Labs.
Management anticipates that research and development expenses in 2005 will increase due to
additional recruiting of employees and expected increase in payroll and related expense.

Selling
and marketing

Selling
and marketing expenses consist primarily of salaries, commissions, advertising, trade
shows, travel and other related expenses. Selling and marketing expenses were $104.6
million, $111.0 million and $132.8 million in 2002, 2003 and 2004, respectively,
representing 24%, 26% and 26% of revenues, respectively. In 2003, the increase resulted
mostly from higher compensation related expenses and the effect of the strong position of
the Euro against the U.S. Dollar. In 2004, the selling and marketing expenses increased
mainly due to the inclusion of Zone Labs operations, the increase in compensation
expenses  in line with the increase of revenues, increase in marketing activities
and the continued strengthening of the Euro. Management anticipates that selling and
marketing expenses in 2005 will increase due to increased marketing activities and an
expected increase in payroll and related expense.

General
and administrative

General
and administrative expenses consist primarily of salaries and headcount related expenses,
professional fees, insurance costs and other. General and administrative expenses were
$18.0 million, $17.6 million and $23.7 million in 2002, 2003 and 2004, respectively,
representing 4%, 4% and 5% of revenues, respectively. The increase in 2004 compared to
2002 and 2003 was mainly due to the inclusion of Zone Labs operations and market
increase in insurance costs. Management anticipates that in 2005, general and
administrative expenses will increase due to additional recruiting of employees and
expected increase in payroll and related expense.

In-process
research and development

At
the acquisition date of Zone Labs, the Company recorded a $23.1 million charge for
acquired in-process research and development (IPR&D) in conjunction with
projects which qualified as not yet having reached technological feasibility and have no
alternative future use. The value of IPR&D was determined using the discounted cash
flow approach. The expected future cash flow attributable to IPR&D was discounted at
25%. At the time of the acquisition of Zone Labs, it was estimated that these IPR&D
projects were 32% complete and would be completed over the next 3 years.

Deferred
stock-based compensation

In
conjunction with the acquisition of Zone Labs, the Company recorded deferred stock-based
compensation in the amount of $16.6 million, which represents the intrinsic value of
approximately $2.8 million options to purchase the Companys ordinary shares that the
Company issued in exchange for Zone Labs unvested stock options. This amount is included
in the total fair value of Zone Labs options assumed of $50.4 million. Deferred
stock-based compensation is recognized over the remaining vesting period of the related
options on a straight-line basis. During the year ended December 31, 2004, stock-based
compensation associated with these options amounted to $4.6 million. Management
anticipates that in 2005, stock-based compensation expenses will increase due to adoption
of SFAS No. 123(R).

Operating
margin

The
Company may experience future decline in operating margins from historical levels due to
the following reasons: increasing competition and pricing pressure; additional investments
in the further development and expansion of the Companys selling and marketing
organization; additional expansion of the research and development organization; adoption
of SFAS No. 123(R) and the expected growth in revenues derived from products incorporating
hardware. The amount and timing of the above-mentioned additional expenses are likely to
result in fluctuations in operating margins.

27

---

---



Financial
income, net

Financial
income, net consists primarily of interest earned on cash equivalents and marketable
securities. Financial income, net was $49.3 million, $43.5 million, and $44.8 million in
2002, 2003 and 2004, respectively. The decrease in 2003 was due to continuous decrease in
interest rates during 2003, despite the increase in total cash and investments. Interest
income is heavily dependent on prevailing U.S. interest rates. Financial income has
slightly increased in 2004. This increase is a result of rising interest rates despite the
decrease in the Companys average cash levels in 2004 attributable to the Zone Labs
acquisition and the share repurchase programs executed in 2004.

Taxes
on income

The
Companys effective tax rate was 16.2%, 18.5% and 18.6% in 2002, 2003 and 2004,
respectively. These relatively low tax rates were mainly achieved as a result of the
Approved Enterprise status granted to the production facilities in Israel. The Company
expects that its effective tax rate in 2005 will not increase significantly compared to
its 2004 effective tax rate.

Under
the provisions of the Israeli law, the Company has elected the alternative package of tax
benefits relating to its production facilities, which grant tax exemptions and reduced tax
rates. Accordingly, income derived from its Approved Enterprises is generally entitled to
a tax-exemption period of two years and a reduced corporate tax rate of 10% to 25% for an
additional period of five to eight years, based on the percentage of foreign investment in
the Company. The tax benefits granted are scheduled to expire gradually from 2005 through
2013. The period of tax benefits, for each capital investment plan, is limited to the
earlier of twelve years from completion of the investment under the approved plan or
fourteen years from receipt of approval.

Out
of the Companys retained earnings of $1,515 million as of December 31, 2004,
approximately $568 million were tax-exempt. If such retained tax-exempt income is
distributed in a manner other than upon the complete liquidation of the Company, it would
be taxed at the reduced corporate tax rate applicable to such profits (10% to 25%) and an
income tax liability of up to approximately $ 142 million would be incurred. The
Company currently intends to reinvest the amount of its tax-exempt income and not to
distribute such income as a dividend. Accordingly, no deferred income taxes have been
provided with respect to this income. Distribution of other earnings derived from the
Companys status as an Approved Enterprise which were previously taxed at reduced tax
rates, would not result in additional tax to the Company.

If
the Company fails to meet the requirements of an Approved Enterprise in the future, the
Company could be subject to the regularly statutory Israeli corporate tax rate and could
be required to refund tax benefits already received plus linkage adjustment to the Israeli
consumer price index and interest. New legislation to replace the law prescribing the
benefits is currently pending final approval of the Israeli Parliament. The proposed new
legislation imposes additional eligibility criteria for Approved Enterprise benefits. The
proposed new legislation would also offer additional forms of alternative benefits. The
Companys management does not believe that the new legislation, if adopted in
accordance with the current proposal, would have a material effect on the Company in 2005.

See
Israeli Taxation, Foreign Exchange Regulation and Investment Programs in
Item 10  Additional Information.

28

---

---



# Quarterly Results of
Operations

The
following table sets forth certain unaudited consolidated statements of income data for
each of the quarters in 2003 and 2004, as well as the percentage of the Companys
revenues represented by each item. The unaudited consolidated financial statements have
been prepared on the same basis as the audited consolidated financial statements contained
herein and include all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of such information, when read in
conjunction with the Companys consolidated financial statements and notes thereto
appearing elsewhere in this annual report.

|                                | Year Ended December 31, 2003 | Year Ended December 31, 2004
|------------------------------- | ---------------------------- | ----------------------------
|
|
|
|
|Revenues                        |                              |                             
|                                |                              |                             
|Operating expenses:             |                              |                             
|Cost of revenues                |                              |                             
|Research and development        |                              |                             
|Selling and marketing           |                              |                             
|General and administrative      |                              |                             
|Acquisition related in-process  |                              |                             
|R&D                             |                              |                             
|Stock-based compensation        |                              |                             
|                                |                              |                             
|Total operating expenses        |                              |                             
|                                |                              |                             
|Operating income                |                              |                             
|Financial income, net           |                              |                             
|                                |                              |                             
|Income before taxes on income . |                              |                             
|Taxes on income                 |                              |                             
|                                |                              |                             
|Net Income                      |                              |                             
|                                |                              |                             
|                                |                              |                             
|Basic net earnings per share    |                              |                             
|Shares used in computing basic  |                              |                             
|net earnings per share          |                              |                             
|Diluted net earnings per share  |                              |                             
|Shares used in computing        |                              |                             
|diluted net earnings per share  |                              |                             

(1)
          Including pre-tax charge of acquisition related IPR&D of $23.1 million.

(2)
          Including pre-tax charges of amortization of intangible assets and deferred
          stock-based compensation of $3.1 million.

(3)
          Including pre-tax charges of amortization of intangible assets and deferred
          stock-based compensation of $2.9 million.

(4)
          Including pre-tax charges of amortization of intangible assets and deferred
          stock-based compensation of $2.8 million.

29

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As
a Percentage of Revenues:

|                                   | Year Ended December 31, 2003 | Year Ended December 31, 2004
|---------------------------------- | ---------------------------- | ----------------------------
|
|
|
|
|Revenues                           |                              |                             
|                                   |                              |                             
|Operating expenses:                |                              |                             
|Cost of revenues                   |                              |                             
|Research and development           |                              |                             
|Selling and marketing              |                              |                             
|General and administrative         |                              |                             
|Acquisition related in-process R&D |                              |                             
|Amortization of deferred           |                              |                             
|stock-based  compensation          |                              |                             
|                                   |                              |                             
|Total operating expenses           |                              |                             
|                                   |                              |                             
|Operating income                   |                              |                             
|Financial income, net              |                              |                             
|                                   |                              |                             
|Income before taxes on income .    |                              |                             
|Taxes on income                    |                              |                             
|                                   |                              |                             
|Net Income                         |                              |                             
|                                   |                              |                             

The Companys future
revenues and operating results are uncertain and may fluctuate from quarter to quarter and
from year to year due to a combination of factors, including the timing of new product
releases and acceptance of new products, the demand for the Companys products, the
volume and timing of orders and the ability to fulfill orders, the level of product and
price competition, the expansion of the Companys selling and marketing
organizations, the Companys ability to develop new and enhanced products and control
costs, the Companys ability to attract and retain key technical, sales and
managerial employees, the mix of distribution channels through which products are sold,
the mix of products and services sold, the growth in the acceptance of and activity on the
Internet and World Wide Web, the growth of intranets, seasonal trends in customer
purchasing, customer capital spending budgets, foreign currency exchange rates and general
economic factors and potential acquisitions. The Companys revenues are subject to
seasonal fluctuations related to the slowdown in spending activities in Europe for the
quarter ending September 30 and the increased activity related to the year-end
purchasing cycles of many end-users of the Companys products. The Company believes
that it will continue to encounter quarter-to-quarter seasonality.

The
Companys expense levels are based, in part, on expectations as to future revenues.
If revenue levels are below expectations, operating results are likely to be adversely
affected, since most of the Companys expenses are not variable. As a result, the
Company believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is likely that in some future quarter the
Companys operating results may be below the expectations of public market analysts
and investors. In such event, the price of the Companys ordinary shares would likely
be materially adversely affected.

# Recently Issued
Accounting Standards

On
December 16, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), which
is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123). SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends FASB statement No. 95
Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However, SFAS No. 123 permits, but does not
require, share-based payments to employees to be recognized based on their fair values,
while SFAS No. 123(R) requires all share-based payments to employees to be recognized
based on their fair values. Pro forma disclosure is no longer an alternative.

SFAS
No. 123(R) must be adopted no later than July 1, 2005. The Company expects to adopt this
statement on July 1, 2005. The Company plans to adopt SFAS No. 123(R) using the modified
prospective method.

30

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The
adoption of SFAS No. 123(R)s fair value method will have a significant impact on the
Companys results of operations, although it will have no impact on the
companys overall financial position. The impact of adoption of SFAS No.  123(R) cannot be predicted at this time because it will depend on levels of
          share-based payments granted in the future. However, had the Company
          adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated
the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings
per share in Note 2s of the Notes to the Consolidated Financial Statements.

# Liquidity and Capital
Resources

The
Company has financed its operations through cash generated from operations. Cash and cash
equivalents and short-term investments were $954.2 million and long-term interest bearing
investments were $623.1 million, totaling $ 1,577.3 million as of December 31, 2004,
as compared with cash and cash equivalents and short-term investments of $1,136.3 million
and long-term interest bearing investments of $466.4 million totaling $1,602.7 million as
of December 31, 2003. At the end of 2002, the Company established a wholly owned
subsidiary in Singapore in order to manage its financial assets. This subsidiary currently
holds the majority of the Companys investments. The Company generated net cash from
operations of $283.9 million, $290.9 million and $302.0 million in 2002, 2003 and 2004,
respectively. Net cash from operations for 2002 and 2003 consisted primarily of net
income, increases in deferred revenues, employees and payroll accruals, accrued expenses
and other liabilities, tax benefits related to exercise of stock options and depreciation
and amortization. Net cash from operations for 2004 consisted primarily of net income,
plus increases in deferred revenue, employees and payroll accruals, depreciation and
amortization of marketable securities, IPR&D, intangible assets and deferred stock
based compensation related to the acquisition of Zone Labs offset by decreases in accrued
expenses and other liabilities and increases in trade receivables.

Net
cash used in investing activities was $73.3 million, $425.9 million and $261.5 million in
2002, 2003 and 2004, respectively. In 2002 and 2003 net cash used in investing activities
consists primarily of investing in marketable securities and bank deposits of varying
maturities offset by proceeds from marketable securities and bank deposits. Excess cash is
invested depending on projected cash needs for operations, capital purchases and other
business purposes. In 2004, net cash used in investing activities included, in addition to
the above, net cash paid in conjunction with the acquisition of Zone Labs of $ 95.3
million. The Companys capital expenditures amounted to approximately $4.6 million,
$3.0 million, and $4.5 million in 2002, 2003 and 2004, respectively. Currently, the
Companys capital expenditures consist primarily of computer equipment and software
for the Companys research and development and technical service organization efforts
as well as increasing infrastructure to enable operation expansion. The Company does not
anticipate any change to this policy in the foreseeable future. As of December 31,
2004, the Company had no material commitments for capital expenditures.

Net
cash provided by (used in) financing activities was approximately $14.7 million,
$17.7 million and $(210.1) million in 2002, 2003 and 2004, respectively. Net cash from
financing activities in 2002 and 2003 was primarily as a result of proceeds derived from
exercise of stock options. In 2004, net cash used in financing activities was attributed
primarily to the purchase of treasury shares. In October 2003, the Company announced that
its Board of Directors has authorized the repurchase of up to $200 million of its
outstanding ordinary shares in the open market or through privately negotiated
transactions. In October 2004, after the Company has completed the repurchase of its
ordinary shares in the amount of $200 million under the repurchase program, the Company
announced that its Board of Directors has authorized an additional repurchase of up to
$200 million of its outstanding ordinary shares in the open market or through privately
negotiated transactions. Under the repurchase programs, share purchases may be made from
time to time depending on market conditions, share price, trading volume and other factors
and will be funded from available working capital. The repurchase programs have no time
limit and may be suspended from time to time or discontinued. Under the above programs,
the Company purchased during 2004 a total of 12 million shares at a total cost of $245
million at an average price of $20.4.

The
Companys principal sources of liquidity consist of its current assets and long-term
investments (which aggregated $1,577.3 million as of December 31, 2004), its cash flow
from operations and its financial income, net. The Company believes that these sources of
liquidity will be sufficient to satisfy the Companys capital requirements for the
foreseeable future.

# Off-Balance Sheet
Arrangements

The
Company is not a party to any material off-balance sheet arrangements. In addition, the
Company has no unconsolidated special purpose financing or partnership entities that are
likely to create material contingent obligations.

31

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# Disclosure of
Contractual Obligations

As
of December 31, 2004 the Company does not have material  contractual  obligations  and
commercial  commitments except  for  leases  of its  facilities.  The  lease  commitments
 due  within  one year  amount  to $6.4  million.  Lease commitments due between one to
five years amount to $4.2 million (see also Note 7a to the financial statements).

|                            | Payments due by period
|--------------------------- | ----------------------
|
|
|
|
|Operating Lease Obligations |                       
|                            |                       
|Total                       |                       
|                            |                       

|ITEM 6. |  | DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|------- |  | ------------------------------------------

The
directors and executive officers of the Company as of December 31, 2004 were as follows:

|Name                     | Position                                            
|------------------------ | ----------------------------------------------------
|
|
|
|
|Gil Shwed                | Chief Executive Officer and Chairman of the Board   
|Marius Nacht             | Senior Vice President and Vice Chairman of the Board
|Jerry Ungerman           | Vice Chairman of the Board                          
|Eyal Desheh              | Chief Financial Officer                             
|Irwin Federman (1)(2)(3) | Director                                            
|David Rubner  (2)        | Director                                            
|Ray Rothrock (1)(2)(3)   | Director                                            
|Tal Shavit               | Director                                            

---

| | (1) | Member
of Compensation Committee
| | --- | --------------------------------

| | (2) | Member
of Audit Committee
| | --- | -------------------------

| | (3) | Outside
Director, see Outside and Independent Directors below in           this Item
6.
| | --- | -----------------------------------------------------------------------------------------

Gil
Shwed, a co-founder of the Company, is Chairman of the Board of the Company, a position he
has held since 1998, and is also the Companys Chief Executive Officer and a Director
of the Company, both positions he has held since the Companys inception in 1993. Mr.
Shwed also served as President of the Company from its inception until 2001. Mr. Shwed has
received numerous prestigious accolades for his individual achievements and industry
contributions, including an honorary Doctor of Science from Technion, Israel Institute of
Technology, the World Economic Forums Global Leader for Tomorrow for his commitment
to public affairs and leadership in areas beyond immediate professional interests, and the
Academy of Achievements Golden Plate Award for his innovative contribution to
business and technology.

Marius
Nacht, a co-founder of the Company, has served as the Companys Vice Chairman of the
Board since 2001 and has also been the Companys Senior Vice President since 1999.
Mr. Nacht has served as a director of the Company since its inception in 1993. Nacht
earned a B.S. Cum Laude in Physics and Mathematics from the Hebrew University of
Jerusalem, through an elite project of the Israeli Air Force in 1983 and an M.S. in
Electrical Engineering and Communication Systems from Tel Aviv University in 1987.

Jerry
Ungerman was appointed Vice Chairman of the Board in 2005 and he is responsible for
leading the Companys partner and customer relations. He served as President of the
Company from 2001 until 2005 and as Executive Vice President of the Company from 1998
until 2000. Prior to joining the Company, Mr. Ungerman accumulated more than 30 years of
high-tech sales, marketing and management experience at Hitachi Data Systems (HDS). He
began his career with IBM after earning a bachelors degree in business
administration from the University of Minnesota.

32

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Eyal
Desheh has been Chief Financial Officer of the Company since 2000. As chief financial
officer, he is responsible for all Worldwide financial management including investor
relations, financial and risk management, planning, reporting, legal and operations. From
1996 until 2000 he was Chief Financial Officer for Scitex Corporation Ltd., a world leader
in digital imaging solutions for graphics communications, where he managed all major
finance functions. Before joining Scitex, he served in numerous financial management and
business development roles including Vice President for business development and strategy
at Bezeq, The Israeli Telecommunications Corp. Ltd., Deputy Chief Financial Officer of
Teva Pharmaceuticals Ltd., President of H.L. Financial Services Ltd. and Vice President of
Bank Hapoalim New York. Mr. Desheh earned a bachelors degree in Economics and MBA in
Finance, both from the Hebrew University of Jerusalem.

Irwin
Federman has served as a director of the Company since 1995. Mr. Federman has been a
General Partner of U.S. Venture Partners, a venture capital firm, since 1990. Mr. Federman
is a director of Centillium Communications, Inc., Nuance Communications, Inc., SanDisk
Corp., and a number of private companies. Mr. Federman received a B.S. in Economics from
Brooklyn College.

Ray
Rothrock has served as a director of the Company since 1995. Mr. Rothrock has been a
member of Venrock Associates, a venture capital firm, since 1988 and a General Partner of
Venrock Associates since 1995. Mr. Rothrock is also a director of a number of private
companies. Mr. Rothrock received a B.S. in engineering from Texas A&M University, an
M.S. from the Massachusetts Institute of Technology and an M.B.A. from the Harvard
Business School.

David
Rubner has served as a director of the Company since 1999. Mr. Rubner is Chairman and
Chief Executive Officer of Rubner Technology Ventures Ltd., a venture capital firm, and is
a general partner in Hyperion Israel Advisors Ltd., a venture capital firm. Prior to
starting this company, Mr. Rubner served as President and Chief Executive Officer of ECI
Telecommunications Ltd. Prior to this appointment, he held various management positions in
ECI Telecom. Mr. Rubner holds a B.S. degree in engineering from Queen Mary College,
University of London, and an M.S. degree from Carnegie Mellon University and he was a
recipient of the Industry Prize in 1995. Mr. Rubner serves on the boards of directors of
Koor Industries, Lipman Transaction Solutions Ltd. and Elbit Imaging Ltd., and is a member
of the Board of Trustees of Bar-Ilan University and Shaare Zedek hospital.

Dr.
          Tal Shavit has served as a director of the Company since 2002. Dr. Shavit is an
          organizational consultant specializing in international collaboration between
          Israeli and American companies, consulting in the management of cultural
          differences in order to forge effective collaboration. Her focus is on
          consultation to R&D upgrade in both Israeli companies and in American
          companies with Israeli-based R&D centers. Her work with leading management
          teams includes a defining of organizational culture as the engine of the
          companys activities. She consults to companies undergoing structural
          change and a redefining of management roles in order to meet market changes.

Except
for Gil Shwed and Marius Nacht, as of December 31, 2004, none of the directors or
executive officers of the Company owned more than one percent of the outstanding ordinary
shares. For information as to the share ownership of Gil Shwed and Marius Nacht, see
Item 7  Major Shareholders and Related Party Transactions.

The
term of each director will expire at the annual general meeting of shareholders to be held
in 2005, except for Ray Rothrock and Irwin Federman, whose terms will expire at the annual
general meeting of shareholders to be held in 2006.

# Board Composition

The
Companys Articles of Association provide for a Board consisting of not less than six
nor more than twelve members. Each director (other than an outside director, as explained
below) is elected to serve until the next annual general meeting of shareholders and until
his or her successor has been elected. Each officer is elected by and serves at the
discretion of the Board of Directors. Each of the Companys officers and directors,
other than non-employee directors, devotes substantially all of his or her business time
to the affairs of the Company. There are no family relationships among any of the
directors, officers or key employees of the Company.

The
Articles of Association of the Company provide that any director may, by written notice to
the Company, appoint another person to serve as an alternate director and may cancel such
appointment. Any person eligible to serve as a director, other than a person who is
already a director or an alternate director, may act as an alternate director. The term of
appointment of an alternate director may be for one meeting of the Board or for a
specified period or until notice is given of the cancellation of the appointment. To the
Companys knowledge, no director currently intends to appoint any other person as an
alternate director.

33

---

---



The
Companys Articles of Association provide that the Board of Directors may delegate
all of its powers to committees of the Board of Directors, as it deems appropriate,
subject to the provisions of Israeli law. The Board of Directors has appointed an Audit
Committee and a Compensation Committee.

# Outside and Independent
Directors

Outside
directors

In
accordance with the Israeli Companies Law and the relevant regulations, the Company must
have two outside directors. The outside directors must meet certain statutory requirements
of independence. The term of office of an outside director is three years and may be
extended for one additional three-year term. An outside director can be removed from
office only under very limited circumstances. Both of the outside directors must serve on
the Companys statutory audit committee, and at least one outside director must serve
on each committee of the Board of Directors. The Company has appointed Irwin Federman and
Ray Rothrock as its outside directors under the Israeli Companies Law.

Independent
directors

Under
the rules promulgated by the Securities and Exchange Commission (the SEC) and
under the NASDAQ National Market regulations applicable to foreign private issuers such as
the Company, on or before July 31, 2005, the Company is required to have at least three
independent directors as that term is defined under the applicable NASDAQ
National Market regulations. The current directors of the Company determined to be
independent under the applicable NASDAQ National Market regulations are Irwin Federman,
Ray Rothrock and David Rubner.

# Audit Committee

The
Israeli Companies Law requires public companies to establish an audit committee. Under the
Israeli Companies Law, an audit committee must consist of at least three directors, two of
which must be outside directors. The Chairman of the Board of Directors, any director
employed by or otherwise providing services to the Company, and a controlling shareholder
or any relative of a controlling shareholder may not be members of the audit committee.
The audit committee may not approve an action or a transaction with a controlling
shareholder, or with an office holder, unless at the time of approval two outside
directors are serving as members of the audit committee and at least one of the outside
directors was present at the meeting in which the approval was granted. In addition, under
the rules promulgated by the SEC and under the NASDAQ National Market regulations
applicable to foreign private issuers such as the Company, on or before July 31, 2005, the
audit committee must consist solely of independent directors as that term is
defined under the applicable NASDAQ National Market regulations. Currently, the audit
committee consists of three members: Irwin Federman, Ray Rothrock and David Rubner. The
Companys audit committee composition satisfies both the Israeli Companies Law and
the SEC and NASDAQ National Market requirements. The audit committees
responsibilities include identifying irregularities in the management of the
Companys business and approving related party transactions as required by the
Israeli Companies Law. In addition, the audit committee reviews all subjects of an
accounting or financial nature (including closing of the financial statements, relevance
of accounting methods and review of internal audit procedures and plans) and issues
opinions on the renewal or appointment of auditors. For more information regarding the
audit committees policies and procedures for the appointment of outside auditors,
see Item 16C-Principal Accounting Fees and Services. In 2003 the Audit
Committee has adopted an Audit Committee Charter as required by the NASD.

# Compensation Committee

The
Companys Compensation Committee reviews and, as required, approves policies under
which compensation is awarded to the Companys executive officers and key managers
and oversees the administration of the Companys executive compensation programs,
including the Companys stock option plans. The current members of this committee are
Irwin Federman and Ray Rothrock. In 2004 the Compensation Committee has adopted a
Compensation Committee Charter.

# Compensation of
Directors and Officers

The
aggregate accrued compensation of all persons as a group who served in the capacity of
director or executive officer during the years ended December 31, 2003 and 2004 was
approximately $3.3 and $3.2 million, respectively. This does not include amounts expended
by the Company for business travel, professional and business association dues and
expenses reimbursed to officers. Except for severance payments mandated by Israeli law for
all employees employed in Israel, the Company does not have any agreements with those
directors who are also officers of the Company providing for benefits upon termination of
employment. The Companys directors who are officers will not receive compensation
for serving as directors in 2005; the Companys directors who are not officers will
receive compensation for serving as directors in 2005. From time to time, the Company
grants options under its stock option plans (described below) to its executive officers
and directors. As of February 28, 2005, the Companys executive officers and
directors held options to purchase an aggregate of 13,126,996 shares under the
Companys stock option plans. The exercise prices of these options range between
$2.65 and $79.79, and their expiration dates range between October 2005 and July 2011.
Other than as set forth in the share ownership table under Item 7  Major
Shareholders and Related Party Transactions, none of the Companys directors
and officers holds more than 1% of the outstanding shares of the Company.

34

---

---



# Stock Options

Number
of shares reserved for future grants

Effective
as of January 2000, the Companys Board of Directors approved a plan for automatic
annual increases in the number of shares authorized for issuance under the Companys
stock option plans in an aggregate amount equal to five percent (5%) of the then
outstanding ordinary shares. The total annual increase is allocated 40% to the
Companys 1996 Israel Stock Option Plan (the 1996 Israel Plan) and 60% to
the Companys 1996 United States Stock Option Plan (the 1996 U.S. Plan),
unless the Board of Directors determines a different allocation.

On
May 6, 2004, the Companys Board of Directors reviewed the appropriateness of the
number of ordinary shares reserved for issuance under the Companys stock option
plans. The review concluded that the number of shares reserved for issuance under the
Companys stock option plans exceeds the number of shares necessary for the expected
net grants to employees, consultants and service providers in the foreseeable future. The
Companys Board of Directors therefore determined to reduce the number of shares
reserved for future grants under the Companys stock option plans by an aggregate of
60,000,000 ordinary shares.

As
of February 28, 2005, the aggregate number of shares reserved for future grants under the
Companys stock option plans was 54,001,156 ordinary shares.

Israel
stock option plan

The
1996 Israel Plan was adopted by the Board of Directors on April 12, 1996 and subsequently
restated, most recently in May 2004. The 1996 Israel Plan authorizes the issuance of up to
76,433,142 ordinary shares. As of February 28, 2005, 15,203,696 ordinary shares had been
issued under the 1996 Israel Plan, options to purchase 23,219,264 ordinary shares
were outstanding (including options incorporated from previous grants to employees in
Israel prior to the adoption of the 1996 Israel Plan) and 38,010,182 ordinary shares
remained available for future grants. The options exercise prices range between $2.65 and
$86.54. The 1996 Israel Plan is administered by the Board of Directors. The
1996 Israel Plan provides that options granted thereunder have a maximum exercise
period of seven years from the date of grant. Options granted under the 1996 Israel Plan
are generally exercisable over five years. Options which expire or terminate prior to
exercise, are available for future issuance.

The
Board of Directors has broad discretion, subject to certain limitations, to determine the
persons entitled to receive options, the terms and conditions on which options are granted
and the number of shares subject to each grant Options under the 1996 Israel Plan are
issued to Israeli employees, directors, consultants, advisers and service providers of the
Company. In addition, options are issued under subsidiary plans of the 1996 Israel Plan.
The subsidiary plans are tailored for various jurisdictions worldwide, except for the
United States, to employees of the Companys subsidiaries. In accordance with the
terms and conditions imposed by Section 102 of the Israel Income Tax Ordinance,
optionees that receive options under the 1996 Israel Plan are afforded certain tax
benefits, excluding optionees who previously received options that were incorporated upon
the adoption of the 1996 Israel Plan, and further excluding controlling shareholders
of the Company or optionees who are not employees or directors of the Company. The Company
has elected the benefits available pursuant to the capital gains alternative
under the Income Tax Ordinance. There are various conditions that must be met in order to
qualify for these benefits, including registration of the options in the name of a trustee
for each of the employees who is granted options Each option, and any ordinary shares
acquired upon the exercise of the option, must be held by the trustee for a period
commencing on the date of grant and ending no earlier than 24 months after the end of the
tax year in which the option was granted and deposited in trust with the trustee. The 1996
Israel Plan terminates by its terms on April 11, 2006.

35

---

---



United
States stock option plan

The
1996 U.S. Plan was adopted by the Board of Directors on April 12, 1996 and was approved by
the shareholders as the successor to the Companys 1995 Stock Option Plan (the
1995 Plan). The 1996 U.S. Plan was restated, most recently in May 2004. The
1996 U.S. Plan authorizes the issuance of up to 60,278,415 ordinary shares. As of February
28, 2005, 37,359,271 ordinary shares have been issued under the 1996 U.S. Plan, options to
purchase 6,928,169 ordinary shares were outstanding (including options incorporated from
the 1995 Plan) and options to purchase 15,990,974 ordinary shares remained available for
future grant. The option exercise prices range between $2.65 and $86.54. Ordinary shares
subject to outstanding options, including options granted under the 1995 Plan, which
expire or terminate prior to exercise, would be available for future issuance under the
1996 U.S. Plan. Options granted under the 1996 U.S. Plan are generally exercisable over
four years.

Under
the 1996 U.S. Plan, employees (including officers) and independent consultants may, at the
discretion of the plan administrator, be granted options to purchase ordinary shares at an
exercise price not less than 85% of the fair market value of such shares on the grant date
(the Company does not intend to issue options at an exercise price of less than fair
market value). Non-employee members of the Board of Directors will be eligible solely for
automatic option grants under the 1996 U.S. Plan.

The
Compensation Committee of the Board administers the 1996 U.S. Plan. The Compensation
Committee has complete discretion to determine which eligible individuals are to receive
option grants, the number of shares subject to each such grant, the status of any granted
option as either an incentive option or a non-statutory option under U.S. Federal tax
laws, the vesting schedule to be in effect for each option grant and the maximum term for
which each granted option is to remain outstanding. In no event, however, may any one
participant in the 1996 U.S. Plan acquire ordinary shares under the 1996 U.S. Plan in
excess of 3,000,000 shares, exclusive of any option grants received prior to January 1,
1996.

The
exercise price for options granted under the 1996 U.S. Plan may be paid in cash. Options
may also be exercised on a cashless basis through the same-day sale of the purchased
shares. The Compensation Committee may also permit the optionee to pay the exercise price
through a promissory note payable in installments. The amount financed may include any
U.S. Federal or state income and employment taxes incurred by reason of the option
exercise.

The
Compensation Committee may cancel outstanding options under the 1996 U.S. Plan, in return
for the grant of new options with an exercise price per share based upon the fair market
value of ordinary shares on the new grant date.

In
the event the Company is acquired by merger, consolidation or asset sale, the ordinary
shares subject to each option outstanding at the time under the 1996 U.S. Plan will
terminate to the extent not assumed by the acquiring entity. The Compensation Committee
also has discretion to provide for the acceleration of one or more outstanding options
under the 1996 U.S. Plan and the vesting of shares subject to outstanding options upon the
occurrence of certain hostile tender offers.

The
Board may amend or modify the 1996 U.S. Plan at any time. The 1996 U.S. Plan terminates by
its terms on April 11, 2006.

Stock
option grants to board members

Under
the Board of Directors Option Grant Program, each non-employee director who is first
elected or appointed to the Board of Directors shall automatically be granted an option to
purchase up to 50,000 ordinary shares on the date of such initial election or appointment,
vesting over a four-year period. In addition, on the date of each annual general meeting
of shareholders, each non-employee director who is to continue to serve as a non-employee
director after such annual meeting shall be granted an option to purchase up to an
additional 25,000 ordinary shares, vesting in equal monthly installments over a one-year
period, provided that the director has served as a non-employee director for at least six
months prior to the date of such annual meeting. The exact number of ordinary shares
covered by the options to be granted to each non-employee director is determined by the
other directors in office immediately prior to the date of the annual meeting. All options
granted at an exercise price equal to 100% of the closing price of the ordinary shares on
the NASDAQ Stock Market on the date of grant. The options have a maximum term of seven
years, subject to earlier termination following the optionees cessation of Board
service. The Board of Directors Option Grant Program was restated, most recently in the
annual meeting of the Companys shareholders held on June 30, 2004.

36

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Zone
Labs 1998 stock option plan

In
connection with its acquisition of Zone Labs in March 2004, the Company assumed all of the
outstanding Zone Labs stock options under the Zone Labs 1998 Stock Option Plan (the
Zone Labs Plan), which were converted into options to purchase approximately
2.8 million shares of the Companys ordinary shares. The Zone Labs Plan authorizes
the issuance of up to 2,818,615 ordinary shares. As of February 28, 2005, 1,930,161
ordinary shares had been issued under the Zone Labs Plan and options to purchase 728,339
ordinary shares were outstanding. The options exercise prices range between $1.66 and
$6.08. No further stock options can be granted under the Zone Labs Plan. The stock options
generally have terms of between five and ten years and generally vest over a four-year
period.

# Employee Stock Purchase
Plan

On
November 24, 1996, the Company adopted an Employee Stock Purchase Plan (the Purchase
Plan), which was ratified by the Companys shareholders. Under the Purchase
Plan, 6,000,000 ordinary shares were authorized for issuance. As of February 28, 2005,
1,601,362 ordinary shares have been issued under the Purchase Plan. The Purchase Plan,
which is intended to qualify under Section 423 of the U.S. Internal Revenue Code, is
implemented by six-month offerings with purchases occurring at six-month intervals in
January and July. The Compensation Committee of the Board of Directors administers the
Purchase Plan. Employees of the Company and some of its subsidiaries are eligible to
participate if they are employed full time. The Purchase Plan permits eligible employees
to purchase ordinary shares through payroll deductions, which may not exceed 15% of an
employees compensation, nor more than 1,250 shares per participant on any purchase
date. The price of the ordinary shares purchased under the Purchase Plan will be 85% of
the lower of the fair market value of the ordinary shares at the beginning of the
six-month offering period or on the semi-annual purchase date. Employees may terminate
their participation in the Purchase Plan at any time during the offering period, and
participation ends automatically on termination of employment with the Company. Each
outstanding purchase right will be exercised immediately prior to a merger or
consolidation of the Company. The Board may amend or terminate the Purchase Plan
immediately after the close of any purchase date. However, the Board may not, without
shareholder approval, materially increase the number of ordinary shares available for
issuance, alter the purchase price formula so as to reduce the purchase price payable for
ordinary shares, or materially modify the eligibility requirements for participation or
the benefits available to participants. The Purchase Plan terminates by its terms on July
31, 2006.

# Change of Control
Arrangements

The
Compensation Committee of the Board of Directors, as administrator of the 1996 U.S. Plan,
has the authority to provide for accelerated vesting of the ordinary shares subject to
outstanding options held by the executive officers in connection with certain changes in
control of the Company or the subsequent termination of the officers employment
following the change in control event.

Employees

As
of December 31, 2004, the Company had 1,344 employees, of whom 439 were engaged in
research, development, and quality assurance, 568 were engaged in marketing, sales
and business development, 124 were engaged in customer support, and 213 were engaged in
Information systems, administration and finance. From time to time, the Company also
engages a limited number of consultants, subcontractors and temporary help.  As of
December 31, 2004, the Company had 88 people of the above-mentioned nature.

As
of December 31, 2004, the Company employed 538 people in Israel, 612 people in the United
States and 194 people in the rest of the world. The Companys relations with its
employees in Israel are governed by Israeli labor laws. These laws differ in material
respects from U.S. labor laws and, in some cases, impose material obligations on the
Company (such as severance pay and mandatory cost of living increases). The Company
believes that it has sufficient provisions in respect of these obligations. The Company is
subject to the labor laws and regulations of other jurisdictions in the world where it has
employees.

37

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|ITEM 7. |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- |  | -------------------------------------------------

The
following table sets forth certain information regarding ownership of the Companys
ordinary shares as of December 31, 2004 for each person who is known by the Company to own
beneficially more than five percent of the Companys outstanding ordinary shares:

|Name of Five Percent Shareholders | Amount Beneficially Owned | Percentage of Class (3)
|--------------------------------- | ------------------------- | -----------------------
|
|
|
|
|Gil Shwed                         |                           |                        
|Marius Nacht                      |                           |                        
|Franklin Resources, Inc.          |                           |                        

---

| | (1) | The amount includes ordinary shares owned by each of the above, directly or
               indirectly and options immediately exercisable or that are exercisable
               within 60 days from December 31, 2004. The exercise price of some of these
               options is greater than the current Check Points share market price.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Based on information contained in Schedule 13F filed with the Securities and
               Exchange Commission.
| | --- | ----------------------------------------------------------------------------------------------------------------

| | (3) | As
to each shareholder, the percentage is calculated                using the amount
beneficially owned by such shareholder (as determined in                accordance with
footnote (1)) divided by the number of total outstanding                ordinary shares
and the shares issuable pursuant to the exercise of options                exercisable
within 60 days from December 31, 2004, if any, held by such                shareholder.
Ordinary shares subject to options that are immediately exercisable                or
exercisable within 60 days of December 31, 2004 are deemed outstanding for
               computing the ownership percentage of the shareholder holding such
options, but                are not deemed outstanding for computing the ownership of any
other shareholder.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

According
to the Companys transfer agent, as of March 31, 2005 there were 293 holders of
record of the Companys ordinary shares residing in the United States, holding
204,019,216 ordinary shares, or 83% of the aggregate number of ordinary shares
outstanding.

The
Company is not directly or indirectly controlled by another corporation or by any foreign
government. The Companys major shareholders do not have different voting rights with
respect to their shares.

|ITEM 8. |  | FINANCIAL INFORMATION
|------- |  | ---------------------

# Consolidated Financial
Statements

The
Companys Consolidated Financial Statements included in this Annual Report on Form
20-F beginning on page F-1 are hereby incorporated into this Annual Report by reference.

# Dividend Policy

Out
of the Companys retained earnings of $1,515 million as of December 31, 2004,
approximately $568 million were tax-exempt. Tax-exempt income, attributable to the
Companys status as an Approved Enterprise under Israeli tax law, can be distributed
to shareholders without subjecting the Company to taxes only upon the complete liquidation
of the Company. Tax will be levied if the Company decides to distribute such income in the
future. Currently, the Company intends to reinvest the amount of its tax-exempt income.

# Legal Proceedings

Beginning
on August 29, 2003, Check Point received a number of class action complaints filed in the
United States District Court for the Southern District of New York by holders of Check
Point ordinary shares, alleging violations of Section 10(b) of the Exchange Act, Rule
10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. On November 20, 2003,
the court consolidated all of the complaints into one action and appointed a lead
plaintiff. On January 14, 2004, the lead plaintiff filed a Consolidated Amended Complaint,
purporting to represent a putative class of all purchasers of ordinary shares between July
10, 2001 and April 4, 2002. The complaint generally alleges that Check Point and certain
of its senior officers made misrepresentations and omissions regarding, among other
things, Check Points sales, revenue, and future prospects. Check Point retained
counsels and filed a motion to dismiss the complaint pursuant to Rule 12(b)(6) and Rule
9(b) of the Federal Rules of Civil Procedure and Section 21D(b)(3) of the Exchange Act. On
March 7, 2005 Check Points motion to dismiss was granted by the District Court. The
issued Order permits the plaintiffs to file an amended complaint to cure the defects in
the dismissed complaint by April 22, 2005. Further analysis cannot be provided until the
submission of an amended complaint. Check Point continues to dispute the allegations of
wrongdoing and intends to defend the matter vigorously. Check Point maintains applicable
insurance as well as a financial reserve in its financial statements as of December 31,
2004.

39

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On
November 16, 2004, Etay Bogner, a shareholder of SofaWare, filed a motion in the Tel-Aviv
District Court asking that the court authorize him to conduct a shareholders derivative
suit against the Company on behalf of SofaWare in the amount of NIS 22.7 million
($5.1 million), not including linkage and interest. The suit relates to discounts, sales
commissions and royalties that the plaintiff alleges the Company owes to SofaWare, with
respect to products that were sold by or through the Company. The matter is at a
preliminary stage and the Companys management is therefore unable to estimate its
effect on the Companys financial results.

On
December 14, 2004, Adi Ruppin, a shareholder and director of SofaWare, filed an initiating
motion in the Tel-Aviv District Court against the Company. The motion alleges that the
Company is oppressing the plaintiff, who is a minority shareholder of SofaWare. Therefore,
the plaintiff is asking the court to compel the Company to purchase the plaintiffs
shares in SofaWare, based upon a valuation to be determined by an independent expert. The
plaintiff is also seeking disclosure of information and documents relating to the business
plans of the Company and SofaWare, and to the inter-company balances between the two
companies. The matter is at a preliminary stage and the Companys management is
therefore unable to estimate its effect on the Companys financial results.

|ITEM 9. |  | THE OFFER AND LISTING
|------- |  | ---------------------

The
Companys ordinary shares are traded publicly on the NASDAQ National Market under the
symbol CHKP.

The
following table lists the high and low prices for the ordinary shares for the periods
indicated as reported by the NASDAQ National Market:

|                       | High | Low
|---------------------- | ---- | ---
|
|
|
|
|2000                   |      |    
|2001                   |      |    
|2002                   |      |    
|2003                   |      |    
|2004                   |      |    
|2003                   |      |    
|First Quarter          |      |    
|Second Quarter         |      |    
|Third Quarter          |      |    
|Forth Quarter          |      |    
|                       |      |    
|2004                   |      |    
|First Quarter          |      |    
|Second Quarter         |      |    
|Third Quarter          |      |    
|Forth Quarter          |      |    
|                       |      |    
|Most recent six months |      |    
|October 2004           |      |    
|November 2004          |      |    
|December 2004          |      |    
|January 2005           |      |    
|February 2005          |      |    
|March 2005             |      |    

On
March 31, 2005, the last reported sale price of the Companys ordinary shares on the
NASDAQ National Market was $21.72 per share.

39

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|ITEM 10. |  | ADDITIONAL INFORMATION
|-------- |  | ----------------------

The
objectives and purposes of the Company are to engage in any lawful activity everywhere in
the world. In connection therewith, Check Point develops, markets and supports Internet
security solutions for enterprise and high-end networks, service providers, small
businesses and consumers. The Company delivers solutions that enable secure, reliable and
manageable communications over Internet Protocol networks including the Internet,
intranets and extranets.

# Articles of Association

The
following is a summary of the material provisions of the Companys Articles of
Association and related provisions of Israeli corporate law. This summary is qualified in
its entirety by reference to the complete text of the Articles of Association; see
Item 4  Information on the Company  General and Item 19
 Exhibits.

Description
of shares

The
Companys authorized share capital consists of 500,000,000 ordinary shares, NIS 0.01
nominal value, 5,000,000 preferred shares, NIS 0.01 nominal value, and 10 deferred shares,
NIS 1 nominal value. The deferred shares are not entitled to any rights other than the
right to receive their nominal value upon liquidation of the Company.

Description
of ordinary shares

All
issued and outstanding ordinary shares are validly issued, fully paid and non-assessable.
The ordinary shares do not have pre-emptive rights. Neither the Memorandum of Association
and the Articles of Association of the Company nor the laws of Israel restrict in any way
the ownership or voting of ordinary shares by non-residents of Israel, except with respect
to subjects of counties, which are in a state of war with Israel.

Dividend
and liquidation rights

Subject
to the rights of the holders of shares with preferential or other special rights which may
be authorized in the future, holders of ordinary shares are entitled to receive dividends
out of assets legally available therefore and, in the event of the winding up of the
Company, to share ratably in all assets remaining after payment of liabilities, subject to
applicable law.

Voting,
shareholder meetings and resolutions

Holders
of ordinary shares have one vote for each ordinary share held on all matters submitted to
a vote of shareholders. Such 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.

An
annual general meeting is to be held once every calendar year at such time (within a
period of not more than 15 months after the last preceding annual general meeting) and at
such place, either within or outside of Israel, as may be determined by the Board of
Directors. The quorum required for a general meeting of shareholders consists of at least
two shareholders present in person or by proxy and holding more than 50% of the voting
power of the Company. A meeting adjourned for lack of quorum shall be adjourned to the
same day in the next week at the same time and place, or to such time and place as the
chairman of the Board may determine with the consent of the holders of a majority of the
voting power represented at the meeting in person or by proxy and voting on the question
of adjournment. If at such adjourned meeting a quorum is not present within one half hour
from the time appointed for holding the meeting, any two shareholders present in person or
by proxy will constitute a quorum, regardless of the number of shares represented.

An
ordinary resolution (such as resolution for the election of directors and the appointment
of auditors) shall be deemed adopted if approved by the holders of a majority of the
voting power represented at the meeting, in person or by proxy, and voting thereon. A
special or extraordinary resolution (such as a resolution amending the Memorandum of
Association or Articles of Association or approval of a winding-up of the Company or a
merger involving the Company) shall be deemed adopted if approved by the holders of not
less than 75% of the voting power represented at the meeting, in person or by proxy, and
voting thereon.

40

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The
Israeli Companies Law requires that the shareholders approve certain transactions, actions
and arrangements. Such transactions, actions and arrangements include:

| | n | arrangements
with a director as to the terms of office or compensation;
| | - | -----------------------------------------------------------------------

| | n | certain
extraordinary transactions (as defined in the Israeli Companies Law); and
| | - | ---------------------------------------------------------------------------------

| | n | any
action or extraordinary transaction involving a director or officer in which a majority
of the Board or the statutory audit committee has a personal interest.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

See
Approval of Certain Transactions; Obligations of Directors, Officers and
Shareholders below in this Item 10.

Transfer
of shares and notices

Fully
paid ordinary shares are issued in registered form and, subject to applicable securities
laws, may be transferred freely. Each shareholder of record is entitled to receive at
least 21 days prior notice of shareholder meetings. For purposes of determining the
shareholders entitled to notice and to vote at such meeting, the Board of Directors may
fix the record date which shall be not more than forty nor less than four days prior to
the date of the meeting.

Election
of directors

The
ordinary shares do not have cumulative voting rights in the election of directors. Thus,
the holders of ordinary shares conferring more than 50% of the voting power have the power
to elect all the directors, to the exclusion of the remaining shareholders.

Transfer
agent and registrar

American
Stock Transfer & Trust Company is the Transfer Agent and Registrar for the ordinary
shares.

Description
of preferred shares

The
Company has 5,000,000 preferred shares authorized. The Companys Articles of
Association provide that the Board of Directors has the authority to issue the preferred
shares in one or more series and to fix the rights, preferences, privileges and
restrictions of such shares, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series, without further vote or action by the
shareholders. If this provision withstands judicial scrutiny under the Israeli Companies
Law, the issuance of preferred shares may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the shareholders.
For example, the Board of Directors could issue preferred shares with voting and
conversion rights, which may adversely affect the voting power of the holders of ordinary
shares, including the loss of voting control to others. The Company currently has no plans
to issue any preferred shares.

Provisions
affecting a potential change of control

The
Companys Articles of Association provide that the Company may not engage in any
business combination with an interested shareholder for a period of three years following
the date that such shareholder became an interested shareholder, unless:

| | n | prior
to such date, the Board of Directors approved either the business combination or the
transaction that resulted in the shareholders becoming an interested shareholder;
or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | upon
consummation of the transaction that resulted in the shareholders becoming an
interested shareholder, the interested shareholder owned at least 75% of the voting
shares of the Company outstanding at the time the transaction commenced.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A
business combination includes:

| | n | any
merger or consolidation involving the Company and the interested shareholder;
| | - | ---------------------------------------------------------------------------------

| | n | any
sale,  transfer,  pledge or other  disposition  of 10% or more of the assets of the
Company in a  transaction          involving the interested shareholder;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

41

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| | n | subject
to certain  exceptions,  any  transaction  that results in the issuance or transfer by
the Company of any          shares of the Company to the interested shareholder;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | any
transaction involving the Company that has an effect of increasing the proportionate
share of the shares of any class or series of the Company beneficially owned by the
interested shareholder; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | the receipt by the interested shareholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the Company.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
general, the Articles of Association define an interested shareholder as any entity or
person beneficially owning 15% or more of the outstanding voting shares of the Company and
any entity or person affiliated with, controlling or controlled by such entity or person.

Approval
of certain transactions; Obligations of directors, officers and shareholders

The
Israeli Companies Law codifies the fiduciary duties that office holders, including
directors and executive officers, owe to a company. An office holders fiduciary
duties consist of a duty of care and a duty of loyalty. The duty of care generally
requires an office holder to act with the level of care, which a reasonable office holder
in the same position would have acted under the same circumstances. The duty of loyalty
includes avoiding any conflict of interest between the office holders position in
the company and such persons personal affairs, avoiding any competition with the
company, avoiding exploiting any corporate opportunity of the company in order to receive
personal advantage for such person or others, and revealing to the company any information
or documents relating to the companys affairs which the office holder has received
due to his or her position as an office holder. Each person listed in the table that
appears at the beginning of Item 6  Directors, Senior Management and
Employees is an office holder of the Company.

Under
the Israeli Companies Law, generally all arrangements as to compensation of office holders
who are not directors require approval of the Board of Directors unless the Articles of
Association provide otherwise. Arrangements regarding the compensation of directors also
require audit committee and shareholder approval. The Israeli Companies Law requires that
an office holder promptly disclose any personal interest that he or she may have and all
related material information known to him or her, in connection with any existing or
proposed transaction with the company. In addition, the office holder must also generally
disclose any personal interest held by the office holders specified relatives, or by
any corporation in which the office holder or the office holders relative is a five
percent or greater shareholder, director or general manager or in which he or she has the
right to appoint at least one director or the general manager.

In
the case of a transaction that is not an extraordinary transaction, after the office
holder complies with the above disclosure requirements, only Board of Directors
approval is required unless the Articles of Association of the company provide otherwise.
Such approval must determine that the transaction is not adverse to the companys
interest. If the transaction is an extraordinary transaction, then in addition to any
approval required by the Articles of Association, it also must be approved by the audit
committee and by the board of directors and, under specified circumstances, by a meeting
of the shareholders. An Israeli company whose shares are publicly traded shall not be
entitled to approve such a transaction unless, at the time the approval was granted, two
members of the audit committee were outside directors and at least one of them was present
at the meeting at which the audit committee decided to grant the approval. An
extraordinary transaction is a transaction not in the ordinary course of business, a
transaction that is not on market terms, or a transaction that is likely to have a
material impact on the companys profitability, assets or liabilities. An office
holder who has a personal interest in a matter that is considered at a meeting of the
board of directors or the audit committee generally may not be present at this meeting or
vote on this matter.

The
Israeli Companies Law applies the same disclosure requirements to a controlling
shareholder of a public company, which includes a shareholder that holds 25% or more of
the voting rights if no other shareholder owns more than 50% of the voting rights in the
company. Extraordinary transactions with a controlling shareholder or in which a
controlling shareholder has a personal interest, and the terms of compensation of a
controlling shareholder who is an office holder or employee, require the approval of the
audit committee, the board of directors and the shareholders of the company. Shareholders
approval must either include at least one-third of the votes of disinterested shareholders
who are present, in person or by proxy, at the meeting or, alternatively, the total
shareholdings of the disinterested shareholders who vote against the transaction must not
represent more than one percent of the voting rights in the company.

42

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Under
the Israeli Companies Law, a shareholder has a duty to act in good faith toward the
company and other shareholders and refrain from abusing his or her power in the company,
including, among other things, voting in the general meeting of shareholders on the
following matters:

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

| | n | an
increase of the company's authorized share capital;
| | - | ------------------------------------------------------

| | n | a
merger; or
| | - | ------------

| | n | approval
of interested party transactions that require shareholder approval.
| | - | ----------------------------------------------------------------------------

In
addition, any controlling shareholder, any shareholder who can determine the outcome of a
shareholder vote and any shareholder who, under the companys articles of
association, can appoint or prevent the appointment of an office holder, is under a duty
to act with fairness towards the company. A recent amendment to the Israeli Companies Law
provides that a breach of the duty of fairness will be governed by the laws governing
breach of contract. The Israeli Companies Law does not describe the substance of this
duty.

Indemnification
of directors and officers; Limitations on liability

Israeli
law permits a company to insure an office holder in respect of liabilities incurred by him
or her as a result of an act or omission in the capacity of an office holder for:

| | n | a
breach of the office holder's duty of care to the company or to another person;
| | - | ---------------------------------------------------------------------------------

| | n | a
breach of the office holders fiduciary duty to the company, provided that he or she
acted in good faith and had reasonable cause to believe that the act would not prejudice
the company; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | a
financial liability imposed upon the office holder in favor of another person.
| | - | --------------------------------------------------------------------------------

Moreover,
a company can indemnify an office holder for any of the following obligations or expenses
incurred in connection with the acts or omissions of such person in his or her capacity as
an office holder:

| | n | monetary
 liability  imposed upon him or her in favor of a third party by a judgment,  including a
settlement or          an arbitral award confirmed by the court; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | reasonable
litigation expenses, including attorneys fees, actually incurred by the office
holder or imposed upon him or her by a court, in a proceeding brought against him or her
by or on behalf of the company or by a third party, or in a criminal action in which he
or she was acquitted, or in a criminal action which does not require criminal intent in
which he or she was convicted.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Furthermore,
a company can, with a limited exception, exculpate an office holder in advance, in whole
or in part, from liability for damages sustained by a breach of duty of care to the
company.

The
Companys Articles of Association allow for insurance, exculpation and
indemnification of office holders to the fullest extent permitted by law. The Company has
entered into indemnification, insurance and exculpation agreements with its directors and
senior officers, following shareholder approval of these agreements. The Company has
directors and officers liability insurance covering the officers and directors
of the Company and its subsidiaries for certain claims.

Borrowing
power: amendment of rights of ordinary shares

The
Companys Articles of Association grant broad powers to the Board of Directors to
authorize the Company to borrow funds, repay borrowings, make guarantees and grant
security interests in borrowings. The rights and provisions of the ordinary shares may be
cancelled, added to, restricted, amended or otherwise altered with a vote of the holders
of at least 75% of the outstanding ordinary shares voting at a duly convened
shareholders meeting.

43

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# NASDAQ National Market
Corporate Governance Rules

In
accordance with Rule 4350(a)(1) of the Rules of Corporate Governance of the NASDAQ Stock
Market, Inc., the Company has received an exemption from the requirement to distribute an
annual report to its shareholders prior to the Companys annual general meeting of
shareholders.  The basis for the exemption is the fact that the generally accepted
business practice in Israel, where the Company is incorporated, is not to distribute
an annual report to shareholders.  The Company posts its Annual Report on Form
20-F on its Website (www.checkpoint.com) promptly following the filing of the
Annual Report on Form 20-F with the Securities and Exchange Commission.

# Israeli Taxation,
Foreign Exchange Regulation and Investment Programs

The
following is a summary of the material Israeli tax consequences, Israeli foreign exchange
regulations and certain Israeli government programs affecting the Company.

To
the extent that the discussion is based on new tax or other legislation that has not been
subject to judicial or administrative interpretation, there can be no assurance that the
views expressed in the discussion will be accepted by the tax or other authorities in
question. The discussion is not intended, and should not be construed, as legal or
professional tax advice and is not exhaustive of all possible tax considerations.

Tax
reform

On
January 1, 2003, the Law for Amendment of the Income Tax Ordinance (amendment No.132),
2002, commonly referred to as the Tax Reform, came into effect, following its enactment by
the Israeli Parliament on July 24, 2002. On December 17, 2002, the Israeli Parliament
approved a number of amendments to the Tax Reform, which came into effect on January 1,
2003. Other regulations and decrees relating to the Tax Reform were executed as well.

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

| | n | 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | 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;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | 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, in which more
than 50% of rights are held directly or indirectly by Israeli residents, which has
undistributed profits 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 or her
holdings in such corporation, as if such income were distributed to him or her as a
dividend;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | Imposition
of capital gains tax on capital gains realized by individuals as of January 1, 2003, from
the sale of shares of publicly traded companies (which was previously exempt from capital
gains tax in Israel). For information with respect to the applicability of Israeli
capital gains taxes on the sale of ordinary shares, see Capital Gains Tax
Applicable to Shareholders below;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | Introduction
of a new regime for the taxation of shares and options issued to employees and officers
(including directors).
| | - | ---------------------------------------------------------------------------------------------------------------------------

Statutory
corporate tax rate

Israeli
companies are subject to corporate tax on their taxable income. The applicable rate is 35%
in 2004, 34% in 2005, 32% in 2006 and 30% in 2007 and thereafter. However in the
Companys case, the rate is currently effectively reduced, as described below.

44

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Tax
benefits under the Law for the Encouragement of Capital Investments, 1959

The
Companys facilities have been granted Approved Enterprise status pursuant to the Law
for the Encouragement of Capital Investments, 1959, commonly referred to as the Investment
Law, which provides certain tax and financial benefits to investment programs that have
been granted such status.

The
Investment Law provides that a proposed capital investment in eligible facilities may,
upon application to the Investment Center of the Ministry of Industry, Trade and Labor of
the State of Israel, be designated as an Approved Enterprise. Each certificate of approval
for an Approved Enterprise relates to a specific investment program delineated both by its
financial scope, including its capital sources, and by its physical characteristics, such
as the equipment to be purchased and utilized pursuant to the program. The tax benefits
under the Investment Law are not available for income derived from products manufactured
outside of Israel.

A
company owning an Approved Enterprise may elect to receive either governmental grants or
an alternative package of tax benefits. Under the alternative package a companys
undistributed income derived from an Approved Enterprise will be exempt from corporate tax
for a period of two to ten years (depending on the geographic location of the Approved
Enterprise within Israel). The exemption commences in the first year of taxable income,
and taxed at a reduced corporate tax of 10% to 25% for the following five to eight years,
depending on the extent of foreign investment in the company. The benefits period is
limited to 12 years from completion of the investment under the approved plan or 14 years
from the date of approval, whichever is earlier. A Foreign Investors Company
(FIC), as defined in the Investment Law, may enjoy benefits for an extended
period of up to ten years. A FIC is a company which more than 25% of its shareholders are
non-Israeli residents.

The
tax benefits derived from any certificate of approval relate only to taxable income
attributable to the specific Approved Enterprise. If a company has more than one approval
or only a portion of its capital investments are approved, its effective tax rate is the
result of a weighted combination of the applicable rates.

Distribution
of earnings derived from Approved Enterprise which were previously taxed at reduced tax
rates, would not result in additional tax consequences to the Company. However, if
retained tax-exempt income is distributed in a manner other than upon the complete
liquidation of the Company, the Company would be taxed at the reduced corporate tax rate
applicable to such profits (between 10%-25%). The Company is not obliged to distribute
exempt retained profits under the alternative package of benefits, and may generally
decide from which source of income to declare dividends. The Company currently intends to
reinvest the amount of its tax-exempt income and not to distribute such income as a
dividend. Dividends from Approved Enterprises are generally taxed at a rate of 15% (which
is withheld and paid by the Company paying the dividend) if such dividend is distributed
during the benefits period or within 12 years thereafter. The 12-year limitation does not
apply to an FIC.

The
Companys production facilities have been granted the status of Approved Enterprises.
Income arising from the Companys Approved Enterprise facilities is tax-free under
the alternative package of benefits described above and entitled to reduced tax rates
based on the level of foreign ownership for specified periods. The Company has derived,
and expects to continue to derive, a substantial portion of its operating income from its
Approved Enterprise facilities. The tax benefits attributable to the Companys
current Approved Enterprises are scheduled to expire gradually from 2005 to 2013.

The
Investment Center bases its decision as to whether to approve or reject an application for
designation as an Approved Enterprise, on the criteria set forth in the Investment Law and
regulations, the then prevailing policy of the Investment Center, and the specific
objectives and financial criteria of the applicant. Accordingly, there can be no assurance
that any such application will be approved. In addition, the benefits available to an
Approved Enterprise are conditional upon the fulfillment of conditions stipulated in the
Investment Law and related regulations and the criteria set forth in the specific
certificate of approval. In the event that a company does not meet these conditions, it
would be required to refund a portion of the benefits already received, plus a linkage
adjustment to the Israeli consumer price index and interest.

New
legislation to replace the Investment Law is currently pending final approval of the
Israeli Parliament. The proposed new legislation imposes additional eligibility criteria
for Approved Enterprise benefits. The proposed new legislation would also offer additional
forms of alternative benefits. The Companys management does not believe that the new
legislation, if adopted in accordance with the current proposal, would have a material
effect on the Company in 2005.

45

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Tax
benefits under the Law for the Encouragement of Industry (Taxation), 1969

According
to the Law for the Encouragement of Industry (Taxation), 1969, commonly referred to as the
Industry Encouragement Law, an Industrial Company is a company resident in Israel, that at
least 90% of its income in any tax year (determined in Israeli currency, exclusive of
income from certain government loans, capital gains, interest and dividends), is derived
from an Industrial Enterprise owned by it. An Industrial Enterprise is defined as an
enterprise whose major activity in a given tax year is industrial production activity. The
Company believes it currently qualifies as an Industrial Company within the definition of
the Industry Encouragement Law. Under the Industry Encouragement Law, Industrial Companies
are entitled to the following preferred corporate tax benefits:

| | n | Deduction
of purchases of know-how and patents over an eight-year period for tax purposes;
| | - | ------------------------------------------------------------------------------------------

| | n | Right
to elect,  under specified  conditions,  to file a consolidated tax return with related
Israeli  Industrial          Companies; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | n | Accelerated
depreciation rates on equipment and buildings.
| | - | ----------------------------------------------------------

Eligibility
for the benefits under the Industry Encouragement Law is not subject to receipt of prior
approval from any governmental authority. The Israeli tax authorities may determine that
the Company does not qualify as an Industrial Company, which would entail the loss of the
benefits that relate to this status. In addition, no assurance can be given that the
Company will continue to qualify as an Industrial Company, in which case the benefits
described above will not be available in the future.

Special
provisions relating to measurement of taxable income

Until
December 31, 2001, the Company measured its taxable income in accordance with the Income
Tax Law (Inflationary Adjustments), 1985, commonly referred to as the Inflationary
Adjustments Law, which represents an attempt to overcome the problems presented to a
traditional tax system by an economy undergoing rapid inflation. The Inflationary
Adjustments Law is highly complex. Since January 1, 2002, the Company elected to measure
its taxable income based on the changes in the exchange rate of the U.S. dollar rather
than on the basis of inflation.

Stamp
tax

Under
Israels Stamp Tax on Documents Law, certain documents are subject to stamp tax.
Recently promulgated regulations provide for a gradual phase-out of the stamp tax by 2008.
In 2004, however, the tax authorities began an enforcement campaign involving
extensive audits of companies compliance with the stamp tax obligation with respect
to all agreements which had been signed since June 2003. The Company has recently received
from the tax authorities a request to list all agreements signed since June 2003.

The
Company has received legal advice that there are a variety of defenses relating to its
obligation to pay stamp tax or to the amount to be paid. The Companys management
believes that the applicable provision in its financial statements as of December 31,
2004, is adequate to cover probable costs arising from this law.

Capital
gains tax applicable to shareholders

Israeli
law generally imposes a capital gains tax on the sale of capital assets located in Israel,
including shares in Israeli resident companies, by both residents and non-residents of
Israel, unless a specific exemption is available or unless a treaty between Israel and the
country of the non-resident provides otherwise. Regulations promulgated under the Israeli
Income Tax Ordinance provided for an exemption from Israeli capital gains tax for gains
accrued before January 1, 2003 and derived from the sale of shares of an Industrial
Company, as defined by the Industry Encouragement Law, that are traded on specified
non-Israeli markets, including The NASDAQ National Market, provided that the sellers
purchased their shares either in the companys initial public offering or in public
market transactions thereafter. This partial exemption does not apply to shareholders who
are in the business of trading securities, or to shareholders that are Israeli resident
companies subject to the Inflationary Adjustments Law. The Company believes that it is
currently an Industrial Company, as defined by the Industry Encouragement Law. The status
of a company as an Industrial Company may be reviewed by the tax authorities from time to
time. There can be no assurance that the Israeli tax authorities will not deny the
Companys status as an Industrial Company, possibly with retroactive effect.

46

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On
January 1, 2003, the Tax Reform came into effect thus imposing capital gains tax at a rate
of 15% on gains derived on or after January 1, 2003 from the sale of shares in Israeli
companies publicly traded on a recognized stock exchange outside of Israel. This tax rate
does not apply to:

| | n | dealers
in securities;
| | - | ----------------------

| | n | shareholders
that report in accordance with the Inflationary Adjustments Law; or
| | - | --------------------------------------------------------------------------------

| | n | shareholders
who acquired their shares prior to an initial public offering.
| | - | ---------------------------------------------------------------------------

The
tax basis of shares acquired prior to January 1, 2003 will be determined as the higher
between the original price paid for the share and the average closing share price in the
three trading days preceding January 1, 2003. Non-Israeli residents shall be exempt from
Israeli capital gains tax on any gains derived from the sale of shares publicly traded on
the NASDAQ National Market, provided such shareholders did not acquire their shares prior
to an initial public offering and do not have a permanent establishment in Israel. In any
event, the provisions of the Tax Reform shall not affect the exemption from capital gains
tax for gains accrued before January 1, 2003, as described in the previous paragraph.

In
addition, pursuant to the Convention Between the Government of the United States of
America and the Government of Israel with respect to Taxes on Income, as amended, commonly
referred to as the United States-Israel Tax Treaty, the sale, exchange or disposition of
ordinary shares by a person who qualifies as a resident of the United States within the
meaning of the United States-Israel Tax Treaty and who is entitled to claim the benefits
afforded to such person by the United States-Israel Tax Treaty (a Treaty United
States Resident) generally will not be subject to the Israeli capital gains tax
unless such Treaty United States Resident holds, directly or indirectly, shares
representing 10% or more of the companys voting power during any part of the
twelve-month period preceding such sale, exchange or disposition, subject to certain
conditions. A sale, exchange or disposition of ordinary shares by a Treaty United States
Resident who holds, directly or indirectly, shares representing 10% or more of the
companys voting power at any time during such preceding twelve-month period would be
subject to such Israeli tax, to the extent applicable; however, under the United
States-Israel Tax Treaty, such Treaty United States Resident would be permitted to claim a
credit for such taxes against the United States federal income tax imposed with respect to
such sale, exchange or disposition, subject to the limitations in United States laws
applicable to foreign tax credits. The United States-Israel Tax Treaty does not relate to
United States state or local taxes.

Taxation
of non-resident shareholders

Non-residents
of Israel are subject to Israeli income tax on income accrued or derived from sources in
Israel, including passive income such as dividends, royalties and interest. On
distributions of dividends, other than bonus shares and stock dividends, income tax at the
rate of 25% is withheld at the source, unless a different rate is provided in a treaty
between Israel and the shareholders country of residence. If the dividends are
distributed out of Approved Enterprise earnings, the applicable tax rate would be 15%.
Under the United States- Israel Tax Treaty, the maximum tax on dividends paid to a holder
of ordinary shares who is a Treaty United States Resident will be 25%, however the tax
rate is reduced to12.5% for dividends not generated by an Approved Enterprise to a
corporation which holds 10% or more of the companys voting power during a certain
period preceding the distribution of the dividend. Dividends derived from an Approved
Enterprise will still be subject to 15% tax withholding.

Foreign
exchange regulations

Dividends,
if any, paid to the holders of the ordinary shares, and any amounts payable upon
dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of
the ordinary shares to an Israeli resident, may be paid in non-Israeli currency or, if
paid in Israeli currency, may be converted into freely repatriable U.S. dollars at the
rate of exchange prevailing at the time of conversion, however, Israeli income tax is
required to have been paid or withheld on these amounts. In addition, the statutory
framework for the potential imposition of exchange controls has not been eliminated, and
may be restored at any time by administrative action.

47

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# United States Federal
Income Taxes

The
following summary sets forth the material United States federal income tax consequences
applicable to the following persons who purchase, hold or dispose of the ordinary shares
(U.S. Shareholders); (i) citizens or residents (as defined for U.S.
federal income tax purposes) of the United States; (ii) corporations or other
entities taxable as corporations created or organized in or under the laws of the United
States or any state thereof; (iii) estates, the income of which is subject to United
States federal income taxation regardless of its source; and (iv) trusts, if (a) a U.S.
court is able to exercise primary supervision over its administration and (b) one or more
U.S. persons have the authority to control all of its substantial decisions. This
discussion is based on the provisions of the Internal Revenue Code of 1986, as amended
(the Code), United States Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as in effect as of the date of
this Annual Report on Form 20-F. This discussion generally considers only U.S.
Shareholders that will hold the ordinary shares as capital assets and does not consider
(a) all aspects of U.S. federal income taxation that may be relevant to particular
U.S. Shareholders by reason of their particular circumstances (including potential
application of the alternative minimum tax), (b) U.S. Shareholders subject to special
treatment under the U.S. federal income tax laws, such as financial institutions,
insurance companies, broker-dealers, tax-exempt organizations and foreign individuals or
entities, (c) U.S. Shareholders owning directly or by attribution 10% or more of the
companys outstanding voting shares, (d) U.S. Shareholders who hold the ordinary
shares as part of a hedging, straddle or conversion transaction, (e) U.S. Shareholders who
acquire their ordinary shares in a compensatory transaction, (f) U.S. Shareholders whose
functional currency is not the U.S. dollar, or (g) any aspect of state, local or
non-United States tax law.

The
following summary does not address the impact of an investors individual tax
circumstances. Accordingly, each investor should consult his or her own tax advisor as to
the particular tax consequences to him or her of an investment in the ordinary shares,
including the effects of applicable state, local or non-United States tax laws and
possible changes in the tax laws.

Dividends
paid on the ordinary shares

A
U.S. Shareholder generally will be required to include in gross income the amount of any
distributions paid in respect of the ordinary shares (including the amount of any Israeli
taxes withheld therefrom) to the extent that such distributions are paid out of the
companys current or accumulated earnings and profits as determined for U.S. federal
income tax purposes. For tax years beginning after December 31, 2002 and before January 1,
2009, a maximum U.S. federal income tax rate of 15% (rather than the higher rates of tax
generally applicable to items of ordinary income) will apply to qualified dividend
income received by an individual (as well as certain trusts and estates) provided
certain holding period requirements are met. Qualified dividend income generally includes
dividends paid by a U.S. corporation or a qualified foreign corporation. A
non-U.S. corporation (other than a foreign personal holding corporation, foreign
investment company, or passive foreign investment company) generally will be considered to
be a qualified foreign corporation if (i) the shares of the non-U.S. corporation are
readily tradable on an established securities market in the United States, or (ii) the
non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income tax
treaty determined to be satisfactory to the United States Department of the Treasury. The
United States Department of the Treasury and the Internal Revenue Service have determined
that the United States-Israel Tax Treaty is satisfactory for this purpose. In addition,
the United States Department of the Treasury and the Internal Revenue Service have
determined that ordinary shares are considered readily tradable on an established
securities market if such shares are listed on an established securities market in the
United States such as the NASDAQ National Market. Information returns reporting dividends
paid to U.S. Shareholders will identify the amount of dividends eligible for the reduced
rates. Distributions in excess of such earnings and profits will be treated first as
non-taxable return of capital reducing the U.S. Shareholders tax basis in the
ordinary shares to the extent of the distributions, and then as capital gain from a sale
or exchange of such ordinary shares. Such dividends will generally not qualify for the
dividends received deduction available to corporations. The amount of any cash
distribution paid in Israeli shekels will equal the U.S. dollar value of the distribution,
calculated by reference to the spot exchange rate in effect on the date of the
distribution.

Credit
for Israeli taxes withheld

Subject
to certain conditions and limitations, any Israeli tax withheld or paid with respect to
dividends on the ordinary shares will generally be eligible for credit against a U.S.
Shareholders United States federal income tax liability at such U.S.
Shareholders election. The Code provides limitations on the amount of foreign tax
credits that a U.S. Shareholder may claim, including extensive separate computation
rules under which foreign tax credits allowable with respect to specific categories
of income cannot exceed the United States federal income taxes otherwise payable with
respect to each such category of income. U.S. Shareholders that do not elect to claim a
foreign tax credit may instead claim a deduction for Israeli income tax withheld or paid,
but only for a year in which these U.S. Shareholders elect to do so for all foreign income
taxes. Special rules for determining a U.S. Shareholders foreign tax credit
limitation shall apply in the case of qualified dividend income. Rules similar to those
concerning adjustments to the foreign tax credit limitation to reflect any capital gain
rate differential shall also apply to any qualified dividend income. The rules relating to
foreign tax credits are complex, and each investor should consult his or her tax advisor
to determine whether and if he or she would be entitled to this credit.

48

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Disposition
of the ordinary shares

The
sale or exchange of ordinary shares will generally result in the recognition of capital
gain or loss in an amount equal to the difference between the amount realized on the sale
or exchange and the U.S. Shareholders tax basis in the ordinary shares. Such gain or
loss generally will be long-term capital gain or loss if the U.S. Shareholders
holding period of the ordinary shares exceeds one year at the time of the disposition.
Long-term capital gains realized upon a sale or exchange of ordinary shares after May 5,
2003 and before the end of a taxable year which begins before January 1, 2009 generally
will be subject to a maximum U.S. federal income tax rate of 15%. Gain or loss recognized
by a U.S. Shareholder on a sale or exchange of ordinary shares generally will be treated
as U.S. source income or loss for U.S. foreign tax credit purposes. Under the United
States-Israel Tax Treaty gain derived from the sale, exchange or other disposition of
ordinary shares by a 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.

Passive
foreign investment company status

Based
upon its current income, assets and activities, the Company believes that it is currently
not a passive foreign investment company (a PFIC) for U.S. federal income
tax purposes and currently does not anticipate that it will be a PFIC for any subsequent
year. The Company would be classified as a PFIC if, for any taxable year, either
(i) 75% or more of its gross income in the taxable year is passive income, or (ii)
50% or more of the average value of its gross assets in the taxable year, calculated
quarterly by value, 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 gain over losses from the disposition of assets, which produce passive income.
If the Company were a PFIC for any taxable year during a U.S. Shareholders holding
period and the U.S. Shareholder does not timely elect to treat the Company as a
qualified electing fund under Section 1295 of the Code or elect to mark the
ordinary shares to market, a U.S. Shareholder would be subject to special tax rules on the
receipt of an excess distribution on the ordinary shares (generally, a
distribution to the extent it exceeds 125% of the average annual distributions in the
prior three years) and on gain from the disposition of the ordinary shares. Under these
rules, the excess distribution and any gain would be allocated ratably over the U.S.
Shareholders holding period for the ordinary shares, the amount allocated to the
current taxable year and any taxable year prior to the first taxable year in which the
Company is a PFIC would be taxed as ordinary income, the amount allocated to each of the
other taxable years would be subject to tax at the highest marginal rate in effect for the
applicable class of taxpayer for that year, and an interest charge for the deemed deferral
benefit would be imposed on the resulting tax allocated to such other taxable years. The
tax liability with respect to amounts allocated to years prior to the year of the
disposition or excess distribution cannot be offset by any net operating
losses. Additionally, if the Company is deemed to be a PFIC, a U.S. Shareholder who
acquires ordinary shares in the Company from a decedent will be denied the normally
available step-up in tax basis to fair market value for the ordinary shares at the date of
the death, and instead will have a tax basis equal to the decedents tax basis if
lower than fair market value.

U.S.
          Shareholders may avoid taxation under the rules described above by making (i) a
          qualified electing fund election for the first taxable year in
which           the Company is a PFIC to include such holders share of the Companys
          ordinary earnings and net capital gain on a current basis or (ii) a deemed
          sale election in a subsequent year, along with a qualified electing fund
          election, if the Company is still classified as a PFIC. However, a U.S.
          Shareholder may make a qualified electing fund election only if the Company
          agrees to furnish the U.S. Shareholder annually with certain tax information.
          The Company does not presently prepare or provide such information, and such
          information may not be available to U.S. Shareholders if the Company is
          subsequently determined to be a PFIC.

U.S.
          Shareholders holding marketable shares (which the Company considers
          the ordinary shares to be) in a PFIC may make an election to           mark-to-market the
ordinary shares annually, rather than be subject           to the above-described rules.
Under such election, the U.S. Shareholder will           include in income each year any
excess of the fair market value of the PFIC           stock at the close of each taxable
year over the U.S. Shareholders           adjusted basis in such stock. The U.S.
Shareholder will generally be allowed an           ordinary deduction for the excess, if
any, of the adjusted basis of the PFIC           stock over its fair market value as of
the close of the taxable year, or the           amount of any net mark-to-market gains
recognized for prior taxable years,           whichever is less. A U.S. Shareholders
adjusted tax basis in the ordinary           shares will generally be adjusted to reflect
the amounts included or deducted           under the mark-to-market election.
Additionally, any amounts included in income           pursuant to a mark-to-market
election, as well as gain on the actual sale or           other disposition of the PFIC
stock, are treated as ordinary income. Ordinary           loss treatment also applies to
any loss recognized on the actual sale or           disposition of PFIC stock to the
extent that the amount of such loss does not           exceed the net mark-to-market
gains previously included with respect to such           stock. An election to
mark-to-market generally will apply to the taxable year in           which the election
is made and all subsequent taxable years.

49

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If
a U.S. Shareholder makes one of these two elections, distributions and gain will not be
recognized ratably over the U.S. Shareholders holding period or be subject to an
interest charge as described above. Further, the denial of basis step-up at death
described above will not apply. A U.S. Shareholder making one of these two elections may
experience current income recognition, even if no cash is distributed by the Company.

A
U.S. Shareholder who beneficially owns shares in a PFIC must file an annual return with
the IRS on IRS Form 8621 that describes any distributions received with respect to such
shares and any gain realized on the disposition of such shares.

A
number of specific rules and requirements apply to both of these elections available to
owners of a PFIC and a U.S. Shareholder is urged to consult his or her tax advisor
concerning these elections.

Information
reporting and back up withholding

Dividend
payments and proceeds from the sale or disposal of ordinary shares may be subject to
information reporting to the Internal Revenue Service and possible U.S. federal backup
withholding at the current rate of 28% (increased to 31% for taxable years 2011 and
thereafter). Backup withholding will not apply, however, to a holder who furnishes a
correct taxpayer identification number or certificate of foreign status and makes any
other required certification or who is otherwise exempt from backup withholding (for
example, a corporation). Any U.S. Shareholder who is required to establish exempt status
generally must file IRS Form W-9 (Request for Taxpayer Identification Number and
Certification). Amounts withheld as backup withholding may be credited against a U.S.
Shareholders federal income tax liability. A U.S. Shareholder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the Internal Revenue Service and furnishing any required
information.

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

Market
risks relating to the Companys operations result primarily from weak economic
conditions in the markets in which the Company sells its products and from changes in
exchange rates or in interest rates. Other than forward exchange currency contracts and
forward rate agreements described below, which are used for hedging interest rates and
cash flow in transactions not denominated in U.S. dollars, the Company does not use
derivative financial instruments in its investment portfolio.

The
table below presents principal amounts and related weighted average rates by date of
maturity for the Companys investments in cash and cash equivalents, deposits and
marketable securities held as of December 31, 2004.

|                                       |  | Maturity | TotalBook Value | FairValue atDec. 31,2004
|-------------------------------------- |  | -------- | --------------- | ------------------------
|
|
|
|
|                                       |  |          |                 |                         
|Government and Corporate               |  |          |                 | Book Value              
|Securities - Fixed interest rates      |  |          |                 | WAIR*                   
|                                       |  |         
|Structured Products***                 |  |          |                 | Book Value              
|                                       |  |          |                 | WAIR*                   
|                                       |  |         
|Mortgage and Asset Backed              |  |          |                 | Book Value              
|Securities                             |  |          |                 | WAIR*                   
|                                       |  |         
|Auction Rate Securities                |  |          |                 | Book Value              
|                                       |  |          |                 | WAIR*                   
|Government and Corporate               |  |          |                 | Book Value              
|Securities - Floating interest rates** |  |          |                 | WAIR*                   
|                                       |  |         
|Money Market instruments               |  |          |                 | Book Value              
|                                       |  |          |                 | WAIR*                   
|                                       |  |         
|Money market Fund  & Cash              |  |          |                 | Book Value              
|                                       |  |          |                 | WAIR*                   
|                                       |  |          |                 |                         
|                                       |  |         
|Total                                  |  |          |                 | Book Value              
|                                       |  |          |                 | WAIR*                   
|                                       |  |          |                 |                         

---

|* | WAIR
Weighted Average Interest Rate
|- | ------------------------------------

|** | Based
upon LIBOR as of December 31, 2004
|-- | ----------------------------------------

|*** | Composed
mainly of range accrual bonds and inverse floating interest rate bonds (see also Note 3
of the financial statements) and bear interest rate related to the LIBOR. There is no
assurance that this WAIR could be maintained in the future due to the nature of these
products
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# Foreign Currency Risk

Most
of the Companys sales are denominated in U.S. dollars. In addition, a substantial
portion of the Companys expenses is incurred in U.S. dollars. The Companys
management believes that the U.S. dollar is the primary currency of the economic
environment in which the Company and its subsidiaries operate, and thus the U.S. dollar is
their functional and reporting currency. Accordingly, monetary accounts maintained in
currencies other than the U.S. dollar (principally cash and cash equivalents and
liabilities) are remeasured into U.S. dollars using the foreign exchange rate at the
balance sheet date. Operational accounts and non-monetary balance sheet accounts are
measured and recorded at the rate in effect at the date of the transaction. All
transaction gains and losses of the remeasurement of monetary balance sheet items are
reflected in the statement of income as financial income or expenses, as appropriate.

The
Company hedges the exposure of assets and anticipated revenues denominated in the Japanese
Yen as well as anticipated expenses denominated in Euro with forward and option contracts.
The Company monitors its foreign currency exposures periodically to maximize the overall
effectiveness of its foreign currency hedge positions. If these derivatives meet the
definition of a hedge and are so designated, depending on the nature of the hedge, changes
in the fair value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities through earnings or recognized in other comprehensive
income for firm commitments until the hedged item is recognized in earnings. The
ineffective portion of a derivatives change in fair value is recognized in earnings.

As
of December 31, 2004, the Companys management believes that because the above
transactions are carried out with well-established institutions, liabilities owing to the
Company will be fulfilled. Total outstanding zero cost collar contracts and forward
contracts to hedge customers balances to sell/purchase U.S. dollars in exchange for
Japanese Yen were in the amount of $25.6 million. The above transactions were for a period
of up to twelve months. As of December 31 2004, the Company expects to reclassify during
the following year an insignificant amount of unrealized losses from accumulated other
comprehensive loss to expenses.

# Interest Rate Risk

The
Companys exposure to market risk for changes in interest rates relates primarily to
the Companys investment in marketable securities. The Companys marketable
securities are comprised of U.S., European and other government and corporate debt
instruments. The fair value of the Companys long and short-term securities is based
upon their market values as of December 31, 2004.

In
2003, the Company has entered into forward rate agreements in the amount of $25 million
that effectively convert a portion of its floating rate investments to a fixed rate basis
for a 12 month period beginning one year after the date of the agreements, thus reducing
the impact of the interest rate changes on future interest income. The agreements were
settled in August 2004, resulting in an immaterial gain presented in the statement of
income as financial income. During 2004, the Company has entered into additional forward
rate agreements in the amount of $125 million for a 12 month period beginning one year
after the date of the agreement. As of December 31, 2004, the Company incurred an
immaterial unrealized gain in respect of these agreements.

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

Not
applicable.

52

---

---



# PART II

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

There
are no defaults, dividend arrearages or delinquencies that are required to be disclosed.

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

There
are no material modifications to, or qualifications of, the rights of security holders
that are required to be disclosed.

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

(a)
          The Company performed an evaluation of the effectiveness of its disclosure
          controls and procedures that are designed to ensure that the material financial
          and non-financial information required to be disclosed on Form 20-F and filed
          with the SEC is recorded, processed, summarized and reported timely. Based on
          the Companys evaluation, the Companys management, including the
          Chief Executive Officer and Chief Financial Officer, has concluded that the
          Companys disclosure controls and procedures (as defined in Rules
13a-15(e)           and 15d-15(e) under the Exchange Act) as of the end of the period
covered by           this report are effective. Notwithstanding the foregoing, there can
be no           assurance that the Companys disclosure controls and procedures will
detect           or uncover all failures of persons within Check Point to disclose
material           information otherwise required to be set forth in the Companys
reports.

(b)
          There have been no significant changes in the Companys internal controls
          or in other factors that could significantly affect these controls subsequent
to           the date of the evaluation thereof. Therefore, no corrective actions were
taken           with regard to significant deficiencies and material weaknesses.

|ITEM 16. |  | Reserved.
|-------- |  | ---------

|ITEM 16A. |  | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- |  | --------------------------------

The
Companys Board of Directors has determined that Mr. Irwin Federman is an audit
committee financial expert and that he is independent under the applicable rules
promulgated by the SEC and the NASDAQ National Market.

|ITEM 16B. |  | CODE OF ETHICS
|--------- |  | --------------

In
March 2004, the Companys Board of Directors adopted a Code of Ethics that applies to
all employees, directors and officers of the Company, including the Chief Executive
Officer, Chief Financial Officer, principal accounting officer and other individuals
performing similar functions. A copy of the Companys Code of Ethics may be obtained,
without charge, upon a written request addressed to the Companys investor relations
department, 800 Bridge Parkway, Redwood City, California 94065 (telephone no.
650-628-2000).

53

---

---



|ITEM 16C. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES
|--------- |  | --------------------------------------

# Fees and Services

The
table below summarizes the audit fees paid by the Company and its consolidated
subsidiaries during 2003 and 2004.

|                       | Year Ended December 31, 2003 | Year Ended December 31, 2004
|---------------------- | ---------------------------- | ----------------------------
|
|
|
|
|                       |                              |                             
|Audit Fees             |                              |                             
|Audit-Related Fees (1) |                              |                             
|Tax Fees (2)           |                              |                             
|                       |                              |                             
|Total                  |                              |                             
|                       |                              |                             

---

(1) Audit-related
fees are fees related to due diligence investigations           and to other
assignments relating to internal control and procedures over           financial
reporting.

(2) Tax
fees are fees for professional services rendered by the           Companys
auditors for tax compliance, tax advice on actual or contemplated           transactions,
tax consulting associated with international transfer prices and           employee
benefits.

Audit
Committees pre-approval policies and procedures

The
Audit Committee of the Companys Board of Directors chooses and engages the
Companys independent auditors to audit the Companys financial statements. In
March 2004, the Companys Audit Committee adopted a policy requiring management to
obtain the Audit Committees approval before engaging the Companys independent
auditors to provide any audit or permitted non-audit services to the Company or its
subsidiaries. The policy was last amended in October 2004. This policy, which is designed
to assure that such engagements do not impair the independence or the Companys
auditors, requires the Audit Committee to pre-approve annually various audit and non-audit
services that may be performed by the Companys auditors. In addition, the Audit
Committee limited the aggregate amount of fees the Companys auditors may receive
during 2004 for non-audit services in certain categories.

The
Companys controller reviews all management requests to engage the Companys
auditors to provide services and approves the request if the requested services are of the
type pre-approved by the Audit Committee. The Company informs the Audit Committee of these
approvals at least quarterly. Services of the type not pre-approved by the Audit Committee
require pre-approval by the Audit Committee on a case-by-case basis. The Audit Committee
is not permitted to approve the engagement of the Companys auditors for any services
that fall into a category of services that is not permitted by applicable law or if the
services would be inconsistent with maintaining the auditors independence.

|ITEM 16D. |  | EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
|--------- |  | --------------------------------------------------------

Not
applicable.

54

---

---



|ITEM 16E. |  | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- |  | ---------------------------------------------------------------------

Set
forth below is information concerning repurchases of ordinary shares that the Company
effected during the year ended December 31, 2004.

|Period                     | (a) Total
Number of
Ordinary Shares
Purchased | (b) Average
Price per
Ordinary Share | (c) Total
Number of
Ordinary Shares
Purchased as
Part of Publicly
Announced Plans
or Programs | (d)
Approximate
Dollar Value of
Ordinary Shares
that May Yet Be
Purchased Under
the Plans or
Programs
|-------------------------- | --------------------------------------------- | ------------------------------------ | --------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------
|
|
|
|
|January 1 - January 31     |                                               |                                      |                                                                                               | N/A                                                                                                  
|February 1 - February 28   |                                               |                                      |                                                                                               | N/A                                                                                                  
|March 1 - March 31         |                                               |                                      |                                                                                               | N/A                                                                                                  
|April 1 - April 30         |                                               |                                      |                                                                                               | 605,000                                                                                              
|May 1 - May 31             |                                               |                                      |                                                                                               | 2,354,800                                                                                            
|June 1 - June 30           |                                               |                                      |                                                                                               | 360,000                                                                                              
|July 1 - July 31           |                                               |                                      |                                                                                               | 800,000                                                                                              
|August 1 - August 31       |                                               |                                      |                                                                                               | 5,949,000                                                                                            
|September 1 - September 30 |                                               |                                      |                                                                                               | N/A                                                                                                  
|October 1 - October 31     |                                               |                                      |                                                                                               | 200,000                                                                                              
|November 1 - November 30   |                                               |                                      |                                                                                               | 1,655,000                                                                                            
|December 1 - December 31   |                                               |                                      |                                                                                               | 50,000                                                                                               
|                           |                                               |                                      |                                                                                               |                                                                                                      
|Total                      |                                               |                                      |                                                                                               | 11,973,800                                                                                           
|                           |                                               |                                      |                                                                                               |                                                                                                      

---

|* | First
program, to repurchase of up to $200,000,000 of the Companys outstanding ordinary
shares was announced on October 28, 2003 and was concluded on August 24, 2004.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Second
program to repurchase up to an additional $200,000,000 of the Companys outstanding
ordinary shares was announced on October 28, 2004 and is in effect as of March 31, 2005.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

55

---

---



# PART III

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

The
Company has responded to Item 18.

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

See
pages F-1 to F-33 incorporated herein.

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

|1 |  | Articles
of Association  (incorporated by reference to Exhibit 2.5 of the Company's annual report
                          on Form 20-F for the year ended December 31, 2000)
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Form
 of   Indemnification   Agreement  between  the  Company  and  its  officers  and
 directors                        (Incorporated  by reference to exhibit 4.1 of the
 Company's  annual  report on Form 20-F for the                           year ended
December 31, 2001)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Agreement
and Plan of Merger by and among Check Point  Software  Technologies  Ltd.,  Check Point
                          Software  Technologies,  Inc.,  Zanzibar  Acquisition,  L.L.C.,
 and Zone Labs, Inc., dated as of                        December 15, 2003  (incorporated
 by reference to exhibit 4.2 of the  Company's  annual report on
                          Form 20-F for the year ended December 31, 2003)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 |  | The
1996  Israel  Stock  Option  Plan,  adopted  by the  Board of  Directors  on April  12,
 1996                        (Incorporated  by  reference to exhibit 10.3 filed with the
 Registrant's  Form F-1  Registration                           Statement originally
filed with the Securities and Exchange Commission on May 31, 1996)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 |  | The
Restated and Amended 1996 Section 102 Share Option Plan, effective as of January 2000
|--- |  | -----------------------------------------------------------------------------------------

|4.7 |  | Addendum
to the  Restated  and  Amended  1996  Section 102 Share  Option  Plan,  effective  as of
                          February 2003
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------

|4.8 |  | The
1996 United Stated Stock Option Plan, adopted by the Board of Directors on April 12, 1996
|--- |  | ---------------------------------------------------------------------------------------------

|8 |  | List
of  subsidiaries  (incorporated  by  reference  to "Item 4 -  Information  on the
 Company -                           Organizational Structure" in this Annual Report on
Form 20-F)
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10 |  | Consent
of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global
|-- |  | -------------------------------------------------------------------------

|12.1 |  | Certification
of the Chief Executive Officer pursuant toss.302 of the Sarbanes-Oxley Act of 2002
|---- |  | ------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of the Chief Financial Officer pursuant toss.302 of the Sarbanes-Oxley Act of 2002
|---- |  | ------------------------------------------------------------------------------------------------

|13 |  | Certification
 of Chief  Executive  Officer  and Chief  Financial  Officer  pursuant to 18 U.S.C.
                          Section 1350
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------

56

---

---



# CHECK POINT SOFTWARE
TECHNOLOGIES LTD.

# AND ITS SUBSIDIARIES

# CONSOLIDATED FINANCIAL
STATEMENTS

# AS OF DECEMBER 31, 2004

# IN U.S. DOLLARS

# INDEX

|                                                        | Page      
|------------------------------------------------------- | ----------
|
|
|
|
|Report of Independent Registered Public Accounting Firm | F-2       
|Consolidated Balance Sheets                             | F-3 - F-4 
|Consolidated Statements of Income                       | F-5       
|Statements of Changes in Shareholders' Equity           | F-6       
|Consolidated Statements of Cash Flows                   | F-7       
|Notes to Consolidated Financial Statements              | F-8 - F-33



---

---



# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

# To the Shareholders of

# CHECK POINT SOFTWARE
TECHNOLOGIES LTD.

We
have audited the accompanying consolidated balance sheets of Check Point Software
Technologies Ltd. (the Company) and its subsidiaries as of December 31, 2003
and 2004, and the related consolidated statements of income, changes in shareholders
equity and cash flows for each of the three years in the period ended December 31,
2004. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform audits of the Companys
internal control over financial reporting. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2003 and 2004, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December
31, 2004, in conformity with U.S. generally accepted accounting principles.

|Tel-Aviv, Israel 
March 31, 2005 | KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
|-------------------------------- | -------------------------------------------------------------

F - 2

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|CONSOLIDATED BALANCE SHEETS                                   
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|                                                                                  | December 31,
|--------------------------------------------------------------------------------- | ------------
|
|
|
|
|ASSETS                                                                            |             
|                                                                                  |             
|CURRENT ASSETS:                                                                   |             
|Cash and cash equivalents                                                         |             
|Short-term bank deposits                                                          |             
|Marketable securities                                                             |             
|Trade receivables (net of allowances for doubtful accounts and product returns of |             
|$ 7,400 and $ 7,041 as of December 31, 2003 and 2004, respectively)               |             
|Other accounts receivable                                                         |             
|                                                                                  |             
|                                                                                  |             
|Total current assets                                                              |             
|                                                                                  |             
|LONG-TERM ASSETS:                                                                 |             
|Long-term investments                                                             |             
|Other long-term assets                                                            |             
|Property and equipment, net                                                       |             
|Severance pay fund                                                                |             
|Deferred tax asset, net                                                           |             
|Intangible assets, net                                                            |             
|Goodwill                                                                          |             
|                                                                                  |             
|                                                                                  |             
|Total long-term assets                                                            |             
|                                                                                  |             
|                                                                                  |             
|Total assets                                                                      |             
|                                                                                  |             

The accompanying notes are an
integral part of the consolidated financial statements.

F - 3

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|CONSOLIDATED BALANCE SHEETS                                   
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|                                                                               | December 31,
|------------------------------------------------------------------------------ | ------------
|
|
|
|
|LIABILITIES AND SHAREHOLDERS' EQUITY                                           |             
|                                                                               |             
|CURRENT LIABILITIES:                                                           |             
|Trade payables                                                                 |             
|Employee and payroll accruals                                                  |             
|Deferred revenues                                                              |             
|Accrued expenses and other liabilities                                         |             
|                                                                               |             
|                                                                               |             
|Total current liabilities                                                      |             
|                                                                               |             
|                                                                               |             
|ACCRUED SEVERANCE PAY                                                          |             
|                                                                               |             
|                                                                               |             
|Total liabilities                                                              |             
|                                                                               |             
|                                                                               |             
|SHAREHOLDERS' EQUITY:                                                          |             
|Share capital -                                                                |             
|Authorized: 500,000,000 Ordinary shares of NIS 0.01 par value; 10 Deferred     |             
|shares of NIS 1 par value; 5,000,000 Preferred shares of NIS 0.01 par value as |             
|of December 31, 2003 and 2004;                                                 |             
|Issued: 249,276,058 and 260,191,598 Ordinary shares as of December 31, 2003    |             
|and 2004, respectively; Outstanding: 249,276,058 and 248,217,798 Ordinary      |             
|shares as of December 31, 2003 and 2004, respectively; 1 Deferred share        |             
|and no Preferred shares as of December 31, 2003 and 2004                       |             
|Additional paid-in capital                                                     |             
|Accumulated other comprehensive income                                         |             
|Deferred stock-based compensation                                              |             
|Treasury shares at cost - 0 and 11,973,800 Ordinary shares as of December 31,  |             
|2003 and 2004, respectively                                                    |             
|Retained earnings                                                              |             
|                                                                               |             
|                                                                               |             
|Total shareholders' equity                                                     |             
|                                                                               |             
|                                                                               |             
|Total liabilities and shareholders' equity                                     |             
|                                                                               |             

The accompanying notes are an integral
part of the consolidated financial statements.

F - 4

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|CONSOLIDATED STATEMENTS OF INCOME                             
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|                                                                                                                                          | Year ended December 31,
|----------------------------------------------------------------------------------------------------------------------------------------- | -----------------------
|
|
|
|
|Revenues:                                                                                                                                 |                        
|Products and licenses                                                                                                                     |                        
|Software subscriptions                                                                                                                    |                        
|Support, training and consulting                                                                                                          |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Total revenues                                                                                                                            |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Operating expenses:                                                                                                                       |                        
|Cost of revenues*                                                                                                                         |                        
|Research and development                                                                                                                  |                        
|Selling and marketing                                                                                                                     |                        
|General and administrative                                                                                                                |                        
|Acquired in-process research and development                                                                                              |                        
|Stock-based compensation**                                                                                                                |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Total operating expenses                                                                                                                  |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Operating income                                                                                                                          |                        
|Financial income, net                                                                                                                     |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Income before taxes on income                                                                                                             |                        
|Taxes on income                                                                                                                           |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Net income                                                                                                                                |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Net earnings per share:                                                                                                                   |                        
|                                                                                                                                          |                        
|Basic net earnings per Ordinary share                                                                                                     |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Diluted net earnings per Ordinary share                                                                                                   |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|*    Cost of revenues is comprised mainly from cost of support, training and consulting services and amortization of acquired technology. |                        
|                                                                                                                                          |                        
|** Amortization of deferred stock-based compensation to employees and others is allocated as follows:                                     |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|                                                                                                                                          |                        
|Cost of revenues                                                                                                                          |                        
|Research and development                                                                                                                  |                        
|Selling and marketing                                                                                                                     |                        
|General and administrative                                                                                                                |                        
|                                                                                                                                          |                        
|Total deferred stock-based compensation expenses                                                                                          |                        
|                                                                                                                                          |                        

The accompanying notes are an
integral part of the consolidated financial statements.

F - 5

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                 
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|                                                  | Share
capital | Additional
paid-in
capital | Deferred
stock-based
compensation | Treasury
shares
at cost | Accumulated
other
comprehensive
income (loss) | Retained
earnings | Total
comprehensive
income | Total
shareholders' 
equity
|------------------------------------------------- | ------------- | -------------------------- | --------------------------------- | ----------------------- | --------------------------------------------- | ----------------- | -------------------------- | ---------------------------
|
|
|
|
|Balance as of January 1, 2002                     |               |                            | $                                 | 735                     |                                               | $                 | 143,907                    |                            
|Tax benefit related to exercise of stock options  |               |                            |                                   | -                       |                                               |                   | 4,597                      |                            
|Issuance of shares under stock purchase plan and  |               |                           
|upon exercise of (3,084,806 Ordinary shares),     |               |                           
|net                                               |               |                            |                                   | 5                       |                                               |                   | 14,731                     |                            
|Comprehensive income (loss) -                     |               |                           
|Realized gain on hedging derivative instruments   |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Unrealized loss on hedging derivative instruments |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Net income                                        |               |                            |                                   | -                       |                                               |                   | -                          |                            
|                                                  |               |                            |                                   |                         |                                               |                   |                            |                            
|Total comprehensive income                        |               |                            |                                   |                         |                                               |                   |                            |                            
|                                                  |               |                            |                                   |                         |                                               |                   |                            |                            
|Balance as of December 31, 2002                   |               |                            |                                   | 740                     |                                               |                   | 163,235                    |                            
|Tax benefit related to exercise of stock options  |               |                            |                                   | -                       |                                               |                   | 12,566                     |                            
|Issuance of shares under stock purchase plan and  |               |                           
|upon exercise of options (3,367,231 Ordinary      |               |                           
|shares), net                                      |               |                            |                                   | 7                       |                                               |                   | 17,703                     |                            
|Comprehensive income -                            |               |                            |                                   |                         |                                               |                   |                            |                            
|Realized loss on hedging derivative instruments   |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Unrealized gain on hedging derivative             |               |                           
|instruments                                       |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Net income                                        |               |                            |                                   | -                       |                                               |                   | -                          |                            
|                                                  |               |                            |                                   |                         |                                               |                   |                            |                            
|Total comprehensive income                        |               |                            |                                   |                         |                                               |                   |                            |                            
|                                                  |               |                            |                                   |                         |                                               |                   |                            |                            
|Balance as of December 31, 2003                   |               |                            |                                   | 747                     |                                               |                   | 193,504                    |                            
|Tax benefit related to exercise of stock options  |               |                            |                                   | -                       |                                               |                   | 1,160                      |                            
|Issuance of shares under stock purchase plan and  |               |                           
|upon exercise of options (5,609,964 Ordinary      |               |                           
|shares), net                                      |               |                            |                                   | 12                      |                                               |                   | 34,469                     |                            
|Issuance of shares in conjunction with the        |               |                           
|acquisition of Zone Labs, net (5,305,576          |               |                           
|Ordinary shares)                                  |               |                            |                                   | 12                      |                                               |                   | 91,352                     |                            
|Stock options assumed in conjunction with the     |               |                           
|acquisition of Zone Labs (2,847,365 options       |               |                           
|for Ordinary shares)                              |               |                            |                                   | -                       |                                               |                   | 50,393                     |                            
|Reversal of deferred stock-based compensation     |               |                           
|upon forfeiture of options issued to employees    |               |                            |                                   | -                       |                                               |                   | (1,632                     | )                          
|Treasury shares at cost (11,973,800 ordinary      |               |                           
|shares)                                           |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Amortization of deferred stock-based compensation |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Comprehensive income -                            |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Realized gain on hedging derivative instruments   |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Unrealized gain on hedging derivative             |               |                           
|instruments                                       |               |                            |                                   | -                       |                                               |                   | -                          |                            
|Net income                                        |               |                            |                                   | -                       |                                               |                   | -                          |                            
|                                                  |               |                            |                                   |                         |                                               |                   |                            |                            
|Total comprehensive income                        |               |                            |                                   |                         |                                               |                   |                            |                            
|                                                  |               |                            |                                   |                         |                                               |                   |                            |                            
|Balance as of December 31, 2004                   |               |                            | $                                 | 771                     |                                               | $                 | 369,246                    |                            
|                                                  |               |                            |                                   |                         |                                               |                   |                            |                            

The accompanying notes are an integral
part of the consolidated financial statements.

F - 6

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|CONSOLIDATED STATEMENTS OF CASH FLOWS                         
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|                                                                       | Year ended December 31,
|---------------------------------------------------------------------- | -----------------------
|
|
|
|
|Cash flows from operating activities:                                  |                        
|Net income                                                             |                        
|Adjustments  required to reconcile  net income to net cash provided by |                        
|operating activities:                                                  |                        
|Depreciation and amortization of property and equipment                |                        
|Amortization  of  marketable  securities  premium and  accretion  of   |                        
|discount, net                                                          |                        
|Acquisition of in-process research and development                     |                        
|Amortization of intangible assets                                      |                        
|Stock-based compensation                                               |                        
|Deferred income taxes, net                                             |                        
|Decrease (increase) in trade receivables, net                          |                        
|Increase in other accounts receivable and long-term assets             |                        
|Increase (decrease) in trade payables                                  |                        
|Increase in employees and payroll accruals                             |                        
|Increase (decrease) in accrued expenses and other liabilities          |                        
|Increase in deferred revenues                                          |                        
|Tax benefit related to exercise of stock options                       |                        
|Increase in accrued severance pay, net                                 |                        
|Others                                                                 |                        
|                                                                       |                        
|                                                                       |                        
|Net cash provided by operating activities                              |                        
|                                                                       |                        
|                                                                       |                        
|Cash flows from investing activities:                                  |                        
|Cash paid in conjunction with the acquisition of Zone Labs (a)         |                        
|Proceeds from short-term bank deposits                                 |                        
|Investment in short and long-term bank deposits                        |                        
|Proceeds from held-to-maturity marketable securities                   |                        
|Investment in held-to-maturity marketable securities                   |                        
|Purchase of property and equipment                                     |                        
|                                                                       |                        
|                                                                       |                        
|Net cash used in investing activities                                  |                        
|                                                                       |                        
|                                                                       |                        
|Cash flows from financing activities:                                  |                        
|Proceeds  from  issuance of shares under stock  purchase plan and upon |                        
|exercise of options, net of expenses                                   |                        
|Purchase of treasury shares at cost                                    |                        
|                                                                       |                        
|                                                                       |                        
|Net cash provided by (used in) financing activities                    |                        
|                                                                       |                        
|                                                                       |                        
|Increase (decrease) in cash and cash equivalents                       |                        
|Cash and cash equivalents at the beginning of the year                 |                        
|                                                                       |                        
|                                                                       |                        
|Cash and cash equivalents at the end of the year                       |                        
|                                                                       |                        
|                                                                       |                        
|Supplemental disclosure of cash flow information:                      |                        
|Cash paid during the year for income taxes                             |                        
|                                                                       |                        
|                                                                       |                        
|(a) Acquisition of Zone Labs:                                          |                        
|Fair value of net assets acquired (excluding cash) and                 |                        
|liabilities assumed at the acquisition date                            |                        
|Amount paid in Ordinary shares and options                             |                        
|                                                                       |                        
|                                                                       |                        
|Amount paid in cash                                                    |                        
|                                                                       |                        

The accompanying notes are an
integral part of the consolidated financial statements.

F - 7

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 1: |  | GENERAL
|------- | - | -------

| | a. | Check
Point Software  Technologies Ltd. ("Check Point Ltd."), an Israeli corporation,  and its
                     subsidiaries  (collectively  the  "Company"  or "Check  Point"),
 are  engaged in  developing,                      marketing and  supporting  Internet
 security  solutions for  enterprise  networks and service                      providers.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  operates in one  reportable  segment and its revenues are mainly derived from
the                      sales of its network security  products,  packaged and marketed
mostly under the VPN-1 product                      family and related software
 subscription,  support  technical  services and training program.
                     The Company sells its software  products  worldwide  through
 multiple  distribution  channels                      ("channel  partners")  including
 distributors,   resellers,   system  integrators,   Original
                     Equipment Manufacturers ("OEMs") and Managed Security service
Providers ("MSPs").
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
the end of 2002, the Company  established a wholly-owned  Singapore resident  subsidiary
to                      manage  most  of  its  financial  assets.  The  financial
  management  is  performed  by  the                      subsidiary's U.S. branch.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | On
March 26,  2004,  the  Company  acquired  all of the  outstanding  shares of Zone Labs
Inc.                      ("Zone  Labs"),  a leading  provider of endpoint  security
 solutions for  enterprises,  small                      businesses  and  consumers.  The
 acquisition  of Zone Labs  enables  the Company to deliver a
                     comprehensive  end-to-end  Internet  security to all types of
customers.  The  transaction was                      accounted for using the purchase
method of accounting and,  accordingly the operating  results                      of
Zone Labs have been  included in the  Company's  accompanying  consolidated  statements
 of                      income from the date of acquisition.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total purchase price of Zone Labs was composed as follows:
| | --------------------------------------------------------------

|                                     | 
|------------------------------------ | 
|
|
|
|
|Cash paid                            | 
|Fair value of Ordinary shares issued | 
|Fair value of options assumed        | 
|Acquisition related costs            | 
|                                     | 
|                                     | 
|Total purchase price                 | 
|                                     | 

| | The
fair value of the Ordinary shares issued was determined using the average closing price
of the Companys Ordinary shares in the period of two trading days before and after
the announcement date, December 15, 2003. The Company issued 5,338,368 Ordinary shares
based upon the number of shares of Zone Labs outstanding as of December 15, 2003 and the
exchange ratio in accordance with the acquisition agreement. The Company also issued
options to purchase approximately 2.8 million Ordinary shares in exchange for all Zone
Labs employees stock options outstanding as of March 26, 2004. The fair value of the
Companys options issued was determined using the Black-Scholes option-pricing model
with the following assumptions: volatility of 44%; risk-free interest of 2%; dividend
yield of 0%; and expected life of 0.7 years after the option is vested.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 1: |  | GENERAL (Cont.)
|------- | - | ---------------

| | The
Company has allocated the purchase  price of Zone Labs'  acquisition  as of March 26,
2004                      as follows:
| | -------------------------------------------------------------------------------------------------------------------------------

|                                    | 
|----------------------------------- | 
|
|
|
|
|Cash                                | 
|Tangible assets                     | 
|Deferred tax asset                  | 
|Liabilities assumed                 | 
|Deferred tax liability              | 
|In-process research and development | 
|Core technology                     | 
|Contracts                           | 
|Trademarks                          | 
|Goodwill                            | 
|Deferred stock-based compensation   | 
|                                    | 
|                                    | 
|Total purchase price                | 
|                                    | 

| | The
Company recorded a deferred tax asset of $ 15,666 primarily relating to net operating
loss and tax credit carryforwards, as well as to reserves and accruals acquired as part
of the acquisition. In addition, a deferred tax liability of $ 12,036 was recorded for
the difference between the assigned values and the tax bases of the core technology,
trademarks and contracts acquired in the acquisition.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average amortization period of core technology and contracts is four years.
These assets are amortized on a straight-line basis over their useful lives which best
represent the distribution of their economic value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Trademarks
value represents the recognition value of Zone Labs brand name as a result of
advertising expenditures for customer relations and the technological development to
provide consistent, leading edge products and a strong research and development
commitment by the Company. The value of the trademarks was determined using the
discounted cash flow approach at a discount rate of 20%. Trademarks will not be amortized
and will be tested for impairment at least annually.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill
of $ 175,536 represents the excess of the purchase price over the fair market value of
the net tangible and intangible assets acquired. Goodwill will not be amortized and will
be tested for impairment at least annually.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
the acquisition date, the Company recorded a $ 23,098 charge for acquired in-process
research and development (IPR&D) in conjunction with projects which have
not yet reached technological feasibility and which have no alternative future use. The
value of IPR&D was determined using the discounted cash flow approach. The expected
future cash flow attributable to the in-process technology was discounted at 25%. At the
time of the acquisition it was estimated that these IPR&D projects were 32% complete,
and will be completed over the next 3 years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 1: |  | GENERAL (Cont.)
|------- | - | ---------------

| | In
conjunction  with the acquisition of Zone Labs, the Company recorded  deferred
 stock-based                      compensation   in  the  amount  of  $  16,594,   which
  represents  the  intrinsic  value  of                      approximately  2.8 million
options to purchase the Company's  Ordinary shares that the Company
                     issued in  exchange  for Zone Labs'  unvested  stock  options.  This
amount is included in the                      total  fair  value of the  Zone  Labs'
 options  assumed  of $  50,393.  Deferred  stock-based                      compensation
 is  amortized  over the  remaining  vesting  period of the related  options on a
                     straight-line  basis.  During the year ended  December  31,  2004,
 amortization  of  deferred                      stock-based  compensation  associated
 with these options  amounted to $ 4,620.  The estimated
                     amortization  of deferred  stock-based  compensation  is $ 4,873 for
2005, $ 3,664 for 2006, $                      1,780 for 2007 and $ 74 for 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
results of operations of Zone Labs are included in the  Company's  consolidated
 financial                      statements  from March 26, 2004. The following  table
presents pro forma results of operations                      and gives effect to the
acquisition of Zone Labs as if the  acquisition  had been  consummated
                     at the beginning of each year. The unaudited pro forma results of
operations are not                      necessarily  indicative  of what would have
occurred had the  acquisition  been made as of the                      beginning of each
period or of the results  that may occur in the future.  Net income for each
                     period   presented   excludes  the  write-off  of  acquired  IPR&D  of
 $23,098  and  includes                      amortization  of  intangible  assets
 related to the  acquisition  of $1,410 per  quarter  and
                     amortization of deferred  stock-based  compensation  of $1,540 per
quarter.  The unaudited pro                      forma information is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Year ended December 31,
|------------------------------ | -----------------------
|
|
|
|
|Revenues                       |                        
|                               |                        
|Net income                     |                        
|                               |                        
|Basic net earnings per share   |                        
|                               |                        
|Diluted net earnings per share |                        
|                               |                        

| | c. | During
2002, 2003 and 2004, approximately 13% of revenues in each year were
               derived from a single channel partner, the Companys largest
distributor.                During 2002, 2003 and 2004, approximately 36%, 35% and 35%,
respectively, of                revenues in each year were derived from the five largest
distributors and                resellers.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 10

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES
|------- | - | -------------------------------

| | The
consolidated  financial  statements are prepared  according to United States  generally
 accepted               accounting principles ("U.S. GAAP").
| | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Use
of estimates:
| | -- | -----------------

| | U.S
GAAP requires management to make certain estimates, judgments and assumptions. Management
believes that the estimates, judgments and assumptions upon which it relies, are
reasonable based upon information available at the time that these estimates, judgments
and assumptions were made. To the extent that there are material differences between
these estimates and actual results, the financial statements may be affected.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Financial
statements in United States dollars:
| | -- | ----------------------------------------------

| | Most
of the Companys revenues are denominated in United States dollars (dollars).
In addition, a substantial portion of the Companys costs is incurred in dollars.
The Companys management believes that the dollar is the primary currency of the
economic environment in which Check Point Ltd. and each of its subsidiaries operate.
Thus, the dollar is their functional and reporting currency. Accordingly, monetary
accounts maintained in currencies other than the dollar are remeasured into dollars in
accordance with Statement of Financial Accounting Standard No. 52 Foreign Currency
Translation (SFAS No. 52). All transaction gains and losses from the
remeasurement of monetary balance sheet items are reflected in the statements of income
as financial income or expenses, as appropriate.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Principles
of consolidation:
| | -- | ----------------------------

| | The
consolidated financial statements include the accounts of Check Point Ltd. and its
subsidiaries. Intercompany transactions and balances have been eliminated upon
consolidation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Cash
equivalents:
| | -- | -----------------

| | Cash
equivalents are short-term highly liquid investments that are readily convertible to cash
with original maturities of three months or less.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | Short-term
bank deposits:
| | -- | -------------------------

| | Bank
deposits with maturities of more than three months but less than one year were included
in short-term bank deposits. Deposits presented at cost, while related accrued interest
is included in other accounts receivable.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | f. | Investments
in marketable securities:
| | -- | -------------------------------------

| | The
Company  accounts for  investments in marketable  securities in accordance  with
Statement                      of Financial  Accounting  Standard No. 115,  "Accounting
 for Certain  Investments in Debt and                      Equity Securities ("SFAS No.
115").
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
 determines the  appropriate  classification  of its  investments in government and
                     corporate   marketable  debt  securities  at  the  time  of
 purchase  and  reevaluates   such                      determinations   at  each
  balance   sheet  date.   Debt   securities   are   classified   as
                     held-to-maturity  as the Company has the  positive  intent and
ability to hold the  securities                      to  maturity  and are  stated  at
 amortized  cost.  The  amortized  cost of  held-to-maturity
                     securities  is adjusted for  amortization  of premiums and accretion
of discounts to maturity.                      Such  amortization  and  interest  are
 included in financial  income,  net.  Interest  income                      resulting
 from  investments  in structured  notes that are  classified as held to maturity is
                     accounted for under the  provision of Emerging  Issue Task Force No.
 96-12,  "Recognition  of                      Interest  Income and Balance Sheet
 Classification  of Structured  Notes" ("EITF No.  96-12").                      Under
 EITF No.  96-12,  the  retrospective  interest  method  should be used for  recognizing
                     interest income.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | Property
and equipment:
| | -- | -----------------------

| | Property
 and  equipment  are  stated  at  cost  less  accumulated   depreciation   using  the
                     straight-line  method over the estimated  useful lives of the
assets,  ranging from two to ten                      years.  Leasehold  improvements are
amortized by the straight-line  method over the shorter of                      their
useful life or the term of the lease.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | Impairment
of long-lived assets:
| | -- | --------------------------------

| | The
Company's  long-lived  assets are reviewed for impairment in accordance  with Statement
of                      Financial  Accounting  Standard  No.  144  "Accounting  for  the
 Impairment  or  Disposal  of                      Long-Lived  Assets"  ("SFAS No. 144")
 whenever  events or changes in  circumstances  indicate                      that the
carrying  amount of an asset may not be  recoverable.  Recoverability  of an asset to
                     be held and  used is  measured  by a  comparison  of the  carrying
 amount  of an asset to the                      future  undiscounted  cash flows
 expected  to be  generated  by the  asset.  If such asset is
                     considered  to be  impaired,  the  impairment  to be  recognized  is
measured by the amount by                      which the  carrying  amount of the asset
 exceeds  its fair value.  During  2003 and 2004,  no                      material
impairment was recorded.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | i. | Goodwill
and other intangible assets:
| | -- | -------------------------------------

| | Goodwill,
 indefinite-lived  intangible  assets and certain other purchased  intangible assets
                     have  been   recorded  as  a  result  of  the   acquisition   of
 Zone  Labs.   Goodwill   and                      indefinite-lived  intangible  assets
are not  amortized,  but rather are  subject to an annual                      impairment
 test.  Other intangible  assets are amortized using the  straight-line  basis over
                     the remaining useful lives of four years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | SFAS
 No. 142  requires  goodwill  and  indefinite-lived  intangible  assets to be tested  for
                     impairment  at least  annually or between  annual  tests if certain
 events or  indicators  of                      impairment  occur.  The  impairment  test
 consists  of a  comparison  of the fair value of an                      intangible
 asset with its carrying  amount.  If the carrying  amount of an  intangible  asset
                     exceeds its fair value,  an  impairment  loss is recognized in an
amount equal to that excess.                      Goodwill is tested for  impairment  at
the  reporting  unit level by a comparison  of the fair                      value of a
reporting  unit with its carrying  amount.  During 2004, no impairment  losses were
                     identified.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | j. | Research
and development costs:
| | -- | -------------------------------

| | Research
and development  costs are charged to the statement of income as incurred.  Statement
                     of Financial  Accounting  Standard No. 86,  "Accounting for the
Costs of Computer  Software to                      be Sold,  Leased or Otherwise
 Marketed" ("SFAS No. 86"),  requires  capitalization of certain
                     software development costs subsequent to the establishment of
technological feasibility.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based
on the Company's product development process,  technological  feasibility is established
                     upon completion of a working model.  Costs incurred by the Company
 between  completion of the                      working  models and the point at which
the  products  are ready for general  release have been
                     insignificant. Therefore, all research and development costs have
been expensed.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k. | Revenue
recognition:
| | -- | --------------------

| | The
 Company  derives  its  revenues  from  products and licenses,  software  subscriptions,
 support,                      training and consulting.  The Company sells its
products  primarily  through channel                      partners  including
 distributors,  resellers,  OEMs, system integrators and MSPs, all of whom
                     are considered  end-users.  The Company also sells its products
 directly to end users through                      its Web site.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  accounts for software sales in accordance  with  Statement of Position  No.
97-2,                      "Software  Revenue  Recognition  ("SOP No. 97-2"),  as
amended.  In addition,  the Company has                      adopted  Statement of
Position  No. 98-9,  "Modification  of SOP No.  97-2,  Software  Revenue
                     Recognition  with Respect to Certain  Transactions"  ("SOP No.
 98-9").  SOP No. 98-9 requires                      that  revenue be  recognized  under
the  "residual  method"  when  Vendor  Specific  Objective                      Evidence
 ("VSOE") of Fair Value exists for all  undelivered  elements and VSOE does not exist
                     for all of the delivered elements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
from license fees is recognized  when  persuasive  evidence of an arrangement  exists,
                     delivery of the product has occurred,  the fee is fixed or
 determinable,  and  collectability                      is probable.  Arrangements  with
payment terms extending  beyond  customary  payment terms are
                     considered  not to be  fixed  or  determinable.  If the fee is
 considered  not to be fixed or                      determinable,  revenue is deferred
and recognized  when payments  become due from the customer                      or are
actually  collected,  providing that all other revenue  recognition  criteria have been
                     met.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | Software subscription and support  revenues included in multiple-element  arrangements
                     are  deferred and either  recognized  on a  straight-line  basis
over the term of the software                      subscription  and support  agreement
or when  consulting and training  services are performed.                      Revenues
earned on software  arrangements  involving  multiple-elements  are allocated to each
                     undelivered  element  based on VSOE of fair value.  The VSOE of fair
value of the  undelivered                      elements  (software  subscription,
 support,  consulting  services and training) is determined                      based on
the price charged for the undelivered element when sold separately or renewed.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  maintains  certain  provisions for product returns,  in accordance with
Statement                      of Financial  Accounting  Standard No. 48, "Revenue
 Recognition When Right of Return Exists",                      based on its  experience
 with  historical  sales  returns,  analysis  of credit memo data and
                     other known factors.  Such provisions amounted to $ 2,098 and $
1,531 as of December 31,  2003                      and 2004, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
revenue includes unearned amounts received under software subscription and support
                     contracts.
| | ---------------------------------------------------------------------------------------------------------------------------

| | l. | Severance
pay:
| | -- | --------------

| | The
Company's  liability for  severance  pay is calculated  pursuant to Israeli  severance
pay                      law based on the most  recent  salary of the  employees
 multiplied  by the number of years of                      employment as of the balance
sheet date.  The Company  records as expenses the net increase in
                     its funded or unfunded severance  liability.  Employees are entitled
to one month's salary for                      each year of employment,  or a portion
thereof.  The Company's  liability is fully provided by                      monthly
 payments  deposited  with  insurers  and by a reserve  established  by the Company to
                     cover the portion of this liability not covered by the Company's
deposits.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
deposited  funds include  profits  accumulated up to the balance sheet date. The
deposited                      funds may be  withdrawn  only upon the  fulfillment  of
the  obligation  pursuant  to  Israeli                      severance pay law or labor
 agreements.  The value of the deposited funds is based on the cash
                     surrender value of these policies, and includes immaterial profits.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severance
 expenses  for the years ended  December  31,  2002,  2003 and 2004,  were  $ 1,741,
                     $ 1,437 and $ 2,240, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | m. | Employee
benefit plan:
| | -- | ----------------------

| | The
Company has a 401(K)  defined  contribution  plan covering  certain  employees in the
U.S.                      All  eligible  employees  may elect to  contribute  up to 50%,
 but not greater  than $ 13 per                      year,  of their annual  compensation
 to the plan  through  salary  deferrals,  subject to IRS                      limits.
 From January 1,  1996  (inception) to December 31, 2004, the Company made no matching
                     contributions to the plan.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | n. | Income
taxes:
| | -- | -------------

| | The
Company  accounts for income taxes in accordance  with  Statement of Financial
 Accounting                      Standard No. 109,  "Accounting  for Income Taxes" ("SFAS
No.  109").  SFAS No. 109  prescribes                      the use of the liability
 method  whereby  deferred tax asset and liability  account  balances
                     are determined based on differences  between  financial  reporting
and tax bases of assets and                      liabilities  and are  measured  using
 the  enacted  tax rates and laws that will be in effect                      when the
differences are expected to reverse. The Company provides a valuation  allowance,  if
                     necessary, to reduce deferred tax assets to their estimated
realizable value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o. | Advertising
expenses:
| | -- | ---------------------

| | Advertising
 costs  are  expensed  as  incurred.  Advertising  expenses  for the  years  ended
                     December 31, 2002, 2003 and 2004, were $ 11,502, $ 8,371 and $
12,317, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | p. | Concentrations
of credit risk:
| | -- | ------------------------------

| | Financial
 instruments that potentially  subject the Company to  concentrations of credit risk
                     consist  principally  of cash and  cash  equivalents,  short-term
 bank  deposits,  marketable                      securities  and trade  receivables.
 The majority of the Company's  cash and cash  equivalents                      and
marketable  securities is held by the Company's Singapore  resident subsidiary,
 invested                      in dollar and  dollar-linked  investments,  and is
 deposited  in major banks in the U.S.  and                      Europe.  Such  deposits
 in the U.S. may be in excess of insured  limits and are not insured in
                     other  jurisdictions.  Management  believes  that the  financial
 institutions  that  hold the                      Company's  investments  are
 financially  sound and,  accordingly,  minimal credit risk exists
                     with respect to these investments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
 Company's   marketable   securities  include  investments  in  government  and
 corporate                      debentures  and  structured  notes  of  issuers  that
 are  considered  by  management  to  be                      financially  sound.  The
 Company's  investments  in debt  securities  are  diversified  among
                     high-quality credit securities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company's  trade  receivables  are  geographically  diversified  and derived from sales
to                      channel  partners mainly in the United States,  Europe and Asia.
The Company  performs ongoing                      credit  evaluations  of its channel
 partners.  The allowance for doubtful  accounts is mainly                      composed
of specific  debts that are doubtful of  collection  amounting to $ 5,302 and $ 5,510
                     as of December 31,  2003 and 2004,  respectively.  Doubtful
 accounts  expenses and write-offs amounted to $                      706, $ 927 and $ 940 in 2002,
2003 and 2004, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | q. | Derivatives
and hedging:
| | -- | ------------------------

| | The
Company  accounts for derivatives  and hedging based on Statement of Financial
 Accounting                      Standard No. 133,  "Accounting for Derivative
 Instruments and Hedging  Activities" ("SFAS No.                      133").  SFAS No.
133 requires the Company to recognize  all  derivatives  on the balance sheet
                     at fair  value.  If the  derivatives  meet the  definition  of a
hedge and are so  designated,                      depending  on the nature of the hedge,
 changes in the fair value of  derivatives  will either                      be offset
 against  the  change  in fair  value of the  hedged  assets,  liabilities,  or firm
                     commitments  through earnings,  or recognized in other
 comprehensive  income until the hedged                      item is recognized  in
earnings.  The  ineffective  portion of a  derivative's  change in fair
                     value is  recognized  in earnings.  During  2002,  2003 and 2004
there were no gains or losses                      recognized in earning for hedge
ineffectiveness.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
 Company  hedges  the  exposure  of assets and  anticipated  revenues  denominated  in
the                      Japanese  Yen as well as  anticipated  expenses  denominated  in
Euros with forward and option                      contracts.  To protect  against  the
risk of overall  changes  in cash  flows  resulting  from                      export
 sales  over the next  year,  the  Company  has  adopted a foreign  currency  cash flow
                     hedging  program  with  zero-cost  collar  contracts.  The net gains
 (losses)  recognized  in                      revenues  during  2002,  2003 and 2004
were  $ 1,369,  $ (173)  and $ 0,  respectively.  As of                      December 31,
2004, the Company expects to reclassify  during 2005 $85 of unrealized  losses on
                     hedging derivative  instruments from accumulated other comprehensive
loss to revenues.  During                      2003 and 2004,  the Company  entered into
a foreign  currency cash flow hedging  programs with                      option
 contracts  designated to hedge expenses in Euros.  The net gain which offset  expenses
                     during 2003 and 2004  amounted to $ 655 and $ 360,  respectively.
 Also,  the Company  entered                      into  forward  exchange  contracts
 designated  to hedge  the fair  value of  certain  foreign                      currency
 denominated  partner  balances  and  accrued  liabilities.  The net  gains  (losses)
                     recognized in earnings during 2002, 2003 and 2004,  representing
 the foreign exchange forward                      contract gains (losses), were $ (451),
$ 166 and $ (144), respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2003,  the  Company  entered  into  forward  rate  agreements  ("FRA"),  in the  amount
 of                      $ 25,000,  that effectively convert a portion of its floating
rate investments to a fixed rate                      basis  for a 12 month  period
 beginning  one year  after  the  date of the  agreements,  thus
                     reducing the impact of the interest  rate changes on future
 interest  income.  The  agreement                      was settled in August 2004,
 resulting in a total gain of  approximately  $ 200,  presented in
                     the statement of income as financial  income.  During 2004, the
Company entered into a similar                      FRA  agreement in the amount of $
125,000.  As of December 31,  2004,  the Company  expects to
                     reclassify  during 2005 $ 291 of unrealized  gain on this  agreement
 from  accumulated  other                      comprehensive income to financial income.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2004,  the  Company's  management  believed  that since the
 abovementioned                      activities were transacted with  well-established
 institutions,  the obligations  owed to the                      Company will be
fulfilled.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | r. | Basic
and diluted net earnings per share:
| | -- | -----------------------------------------

| | Basic
net earnings  per share is computed  based on the  weighted  average  number of Ordinary
                     shares  outstanding  during each year. Diluted net earnings per
share is computed based on the                      weighted  average  number of
 Ordinary  shares  outstanding  during each year,  plus  dilutive
                     potential  Ordinary  shares  outstanding  during the year,  in
 accordance  with  Statement of                      Financial Accounting Standard No.
128, "Earnings Per Share" ("SFAS No. 128").
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total weighted  average number of shares related to the outstanding  options excluded
from                      the  calculations  of diluted net earnings per share,  since
they would have an  anti-dilutive                      effect, were 7,448,419, 8,859,208
and 7,277,352 for 2002, 2003 and 2004, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | s. | Accounting
for stock-based compensation:
| | -- | ----------------------------------------

| | The
Company has elected to follow  Accounting  Principles Board Opinion No. 25 "Accounting
for                      Stock Issued to Employees"  ("APB No. 25") and FASB.
 Interpretation  No. 44  "Accounting  for                      Certain  Transactions
 Involving  Stock  Compensation"  ("FIN No. 44") in  accounting  for its
                     employee  stock  option  plans.  Under APB No. 25, when the
 exercise  price of the  Company's                      stock  options is less than the
market  price of the  underlying  shares on the date of grant,
                     compensation expense is recognized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company adopted the disclosure  provisions of Statement of Financial  Accounting
Standards                      No. 148,  "Accounting  for Stock-Based  Compensation -
transition and  disclosure"  ("SFAS No.                      148"),  which  amended
 certain  provision  of  Statement  of  Accounting  Standards  No. 123,
                     "Accounting for Stock-Based  Compensation"  ("SFAS No. 123") to
provide alternative methods of                      transition  for an  entity  that
 voluntarily  changes  to the  fair  value  based  method  of
                     accounting for stock-based employee  compensation,  effective as of
the beginning of 2003. The                      Company  continues  to apply  the
 provisions  of APB No.  25 in  accounting  for  stock-based
                     compensation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pro
forma  information  regarding  the  Company's  net  income and net  earnings  per share
is                      required  by SFAS No. 123 and has been  determined  as if the
Company  had  accounted  for its                      employee stock options under the
fair value method prescribed by SFAS No. 123.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | The
fair value for options  granted in 2002,  2003 and 2004 is  amortized  over their
 vesting                      period and is  estimated  at the date of grant using a
 Black-Scholes  options  pricing  model                      with the following weighted
average assumptions:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | Year ended December 31,
|------------------------------------------------ | -----------------------
|
|
|
|
|Expected volatility                              |                        
|Risk-free interest                               |                        
|Dividend yield                                   |                        
|Expected life after the option is vested (years) |                        
|                                                 |                        
|
|                                                 |                        
|Expected volatility                              |                        
|Risk-free interest                               |                        
|Dividend yield                                   |                        
|Expected life (years)                            |                        

| | The
following table illustrates the effect on net income and net earnings per share, assuming
that the Company had applied the fair value recognition provision of SFAS No. 123 on its
stock-based employee compensation:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      |  |  |  
|----------------------------------------------------- |  |  | -
|
|
|
|
|Net income as reported                                |  |  | $
|Add: Stock-based compensation expense included        |  | 
|in reported net income                                |  |  |  
|Deduct:  Stock-based  compensation expense determined |  | 
|under fair value  method  for all  awards,  net of    |  | 
|related tax effects                                   |  |  |  
|                                                      |  |  |  
|Pro forma net income                                  |  |  | $
|                                                      |  |  |  
|Net earnings per share:                               |  | 
|Basic net earnings per Ordinary shares, as reported   |  |  | $
|                                                      |  |  |  
|Diluted net earnings per Ordinary shares, as reported |  |  | $
|                                                      |  |  |  
|                                                      |  |  |  
|Basic pro forma net earning per Ordinary shares       |  |  | $
|                                                      |  |  |  
|                                                      |  |  |  
|Diluted pro forma net earning per Ordinary shares     |  |  | $
|                                                      |  |  |  

F - 18

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | t. | Fair
value of financial instruments:
| | -- | ------------------------------------

| | The
following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:
| | ----------------------------------------------------------------------------------------------------------------------------------

| | 1. | The
carrying amount of cash and cash equivalents, short-term bank deposits,           trade
receivables and trade payables approximates their fair values due to the
          short-term maturities of these instruments.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | The
fair value of short and long-term marketable securities and bank deposits           with
quoted market prices is based on quoted market prices (see Notes 3 and 4).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | The
carrying amount of the Companys long-term bank deposits is estimated           by
discounting the future cash flows using the interest rates for deposits of
          similar terms and maturities (see Note 4).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
fair value of derivative instruments and structured products is estimated           by
obtaining quotes from brokers.
| | -- | -------------------------------------------------------------------------------------------------------------------------

| | u. | Reclassification:
| | -- | -----------------

| | The
Company reclassified certain amounts from 2003 to conform to the 2004 presentation. The
reclassification had no effect on previously reported net loss, shareholders equity
or cash flows.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | v. | Impact
of recently issued accounting standards:
| | -- | -----------------------------------------------

| | On
December 16, 2004, the Financial Accounting Standards Board issued Statement No. 123
(revised 2004), Share-Based Payment (SFAS No. 123(R)), which is a revision of
SFAS No. 123. SFAS No.  123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees and amends FASB statement No. 95 Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS
No. 123. However, SFAS No. 123 permits, but does not require, share-based payments to
employees to be recognized based on their fair values, while SFAS No.  123(R) requires
all share-based payments to employees to be recognized based on their fair values. Pro
forma disclosure is no longer an alternative.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 123(R) must be adopted no later than July 1, 2005. The Company expects to adopt this
statement on July 1, 2005. The Company plans to adopt SFAS No. 123(R) using the modified
prospective method.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The adoption of SFAS No.
123(R)s fair value method will have a significant impact on the Companys
results of operations, although it will have no impact on the companys overall
financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this
time because it will depend on levels of share-based payments granted in the future.
However, had the Company adopted SFAS 123(R) in prior periods, the impact of that standard
would have approximated the impact of SFAS 123 as described in the disclosure of pro forma
net income and earnings per share in Note 2s.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 3: |  | MARKETABLE
SECURITIES
|------- | - | ---------------------

|                        | December 31,
|----------------------- | ------------
|
|
|
|
|
|Government and          |             
|corporate               |             
|debentures - fixed      |             
|interest rate           |             
|Structured products (*) |             
|Government and          |             
|corporate               |             
|debentures -            |             
|floating interest       |             
|rate                    |             
|Mortgage and asset      |             
|backed securities (**)  |             
|Auction rate            |             
|securities              |             
|Money market            |             
|instruments             |             
|                        |             
|                        |             
|                        |             

| | (*) | The
structured notes include mainly inverse floating interest rate bonds and
               range accrual bonds.
| | --- | ----------------------------------------------------------------------------------------------------------------

| | (**) | The
actual maturity dates may differ from the contractual maturities because
               debtors may have the right to call or prepay obligations without
penalties.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Range
accrual bonds are bonds where interest is paid only if a specified interest rate stays
within a pre-established range, otherwise the bond pays no interest. Inverse floating
rate bonds are bonds where the coupon varies inversely with changes in specified interest
rates or indices (for example, LIBOR).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
unrealized losses on the Companys investments in all types of securities are due to
interest rate increases. Since the Company has the ability and intent to hold these
investments until a recovery of fair value, which may be until maturity, the Company does
not consider these investments to be other-than-temporarily impaired as of December 31,
2004. In addition, the unrealized losses are for periods not longer than twelve months.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 4: |  | LONG-TERM
INVESTMENTS
|------- | - | ---------------------

| | Long-term
investments due within one to five years, are as follows:
| | -------------------------------------------------------------------

|                                             | December 31,
|-------------------------------------------- | ------------
|
|
|
|
|
|Government and corporate debentures (a)      |             
|Investment in a privately - held company (b) |             
|                                             |             
|                                             |             
|                                             |             
|                                             |             

F - 20

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 4: |  | LONG-TERM
INVESTMENTS (Cont.)
|------- | - | -----------------------------

| | (a) | Composed
as follows:
| | --- | --------------------

|                      | December 31,
|--------------------- | ------------
|
|
|
|
|
|Government and        |             
|corporate             |             
|debentures - fixed    |             
|interest rate         |             
|Government and        |             
|corporate             |             
|debentures -          |             
|floating interest     |             
|rate                  |             
|Mortgage and asset    |             
|backed securities (*) |             
|                      |             
|                      |             
|                      |             

| | (*) | The
actual maturity may differ from the contractual maturities, because debtors
               may have the right to call or prepay obligations without penalties.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
unrealized losses on the Companys investments in all types of securities are due to
interest rate increases. Since the Company has the ability and intent to hold these
investments until a recovery of fair value, which may be until maturity, the Company does
not consider these investments to be other-than-temporarily impaired as of December 31,
2004. In addition, the unrealized losses are for a period not longer than twelve months.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | The
investment in a privately held company is stated at cost, since the Company
               does not have a significant influence over that private company.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 5: |  | PROPERTY
AND EQUIPMENT, NET
|------- | - | ---------------------------

|                                   | December 31,
|---------------------------------- | ------------
|
|
|
|
|
|Cost:                              |             
|Computers and peripheral equipment |             
|Office furniture and equipment     |             
|Leasehold improvement and other    |             
|                                   |             
|                                   |             
|Accumulated depreciation           |             
|                                   |             
|Depreciated cost                   |             
|                                   |             

| | Depreciation
and amortization expenses amounted to approximately $ 7,390, $ 6,030 and $
5,519 for 2002, 2003 and 2004, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 5: |  | PROPERTY
AND EQUIPMENT, NET (Cont.)
|------- | - | -----------------------------------

| | During
2003 and 2004, the U.S. subsidiary of the Company recorded a reduction of approximately $ 4,000
and $ 900, respectively, to the cost and accumulated depreciation of fully depreciated
equipment no longer in use, primarily due to relocation of facilities in the U.S.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 6: |  | INTANGIBLE
ASSETS, NET
|------- | - | ----------------------

| | Net
intangible assets, as of December 31, 2004 consisted of the following:
| | --------------------------------------------------------------------------

|                | Original amount | Accumulated
amortization | Amortized
balance
|--------------- | --------------- | ------------------------ | -----------------
|
|
|
|
|
|Core technology |                 |                          | $                
|Trademarks      |                 |                          |                  
|Contracts       |                 |                          |                  
|                |                 |                          |                  
|                |                 |                          | $                
|                |                 |                          |                  

| | Amortization
expense for the year ended December 31, 2004 amounted to $ 4,232. The estimated
total amortization expense associated with acquired intangible assets was $ 5,642 for
each of the years 2005, 2006 and 2007 and $ 1,413 for 2008.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 7: |  | ACCRUED
EXPENSES AND OTHER LIABILITIES
|------- | - | --------------------------------------

|                           | December 31,
|-------------------------- | ------------
|
|
|
|
|
|Income taxes payable       |             
|Marketing expenses payable |             
|Others                     |             
|                           |             
|                           |             
|                           |             

F - 22

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 8: |  | COMMITMENTS
AND CONTINGENT LIABILITIES
|------- | - | --------------------------------------

| | a. | Lease
commitments:
| | -- | ------------------

| | The
facilities of the Company are rented under operating lease agreements that expire on
various dates.
| | -------------------------------------------------------------------------------------------------------

| | Aggregate
minimum lease commitments under non-cancelable operating leases as of December 31,
2004, were as follows:
| | -------------------------------------------------------------------------------------------------------------------

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

| | Rent
expenses for the years ended December 31, 2002, 2003 and 2004, were $ 7,289, $ 5,587
and $ 6,901 respectively.
| | -------------------------------------------------------------------------------------------------------------------

| | b. | Litigation:
| | -- | -----------

| | 1. | Beginning
on August 29, 2003, Check Point received a number of class action           complaints
filed in the United States District Court for the Southern District           of New York
by holders of Check Point ordinary shares, alleging violations of           Section 10(b)
of the Securities Exchange Act of 1934 (the Exchange           Act), Rule
10b-5 promulgated thereunder, and Section 20(a) of the Exchange           Act. On
November 20, 2003, the court consolidated all of the complaints into one           action
and appointed a lead plaintiff. On January 14, 2004, the lead plaintiff           filed a
Consolidated Amended Complaint, purporting to represent a putative class           of all
purchasers of ordinary shares between July 10, 2001 and April 4, 2002.           The
complaint generally alleges that Check Point and certain of its senior           officers
made misrepresentations and omissions regarding, among other things,           Check Points
sales, revenue, and future prospects. Check Point retained           counsels and filed a
motion to dismiss the complaint pursuant to Rule 12(b)(6)           and Rule 9(b) of the
Federal Rules of Civil Procedure and Section 21D(b)(3) of           the Exchange Act. On
March 7, 2005 Check Points motion to dismiss was           granted by the District
Court. The issued Order permits the plaintiffs to file           an amended complaint to
cure the defects in the dismissed complaint by April 22,           2005. Further analysis
cannot be provided until the submission of an amended           complaint. Check Point
continues to dispute the allegations of wrongdoing and           intends to defend the
matter vigorously. Check Point maintains applicable           insurance as well as a
financial reserve in its financial statements as of           December 31, 2004.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 8: |  | COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)
|------- | - | ----------------------------------------------

| | 2. | On
November 16, 2004, a shareholder of SofaWare, a 65% owned subsidiary of the
          Company, filed a motion in the Tel-Aviv District Court asking that the court
          authorize him to conduct a shareholders derivative suit against the Company on
          behalf of SofaWare in the amount of $5,149, not including linkage and interest.
          The suit relates to discounts, sales commissions and royalties that the
          plaintiff alleges the Company owes to SofaWare, with respect to products that
          were sold by or through the Company. The matter is at a  preliminary  stage and the  Companys  management  is  therefore  unable to estimate its effect on the
Companys financial results.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 14, 2004, another shareholder and director of SofaWare filed an initiating
motion in the Tel-Aviv District Court against the Company. The motion alleges that the
Company is oppressing the plaintiff, who is a minority shareholder of SofaWare.
Therefore, the plaintiff is asking the court to compel the Company to purchase the
plaintiffs shares in SofaWare, based upon a valuation to be determined by an
independent expert. The plaintiff is also seeking disclosure of information and documents
relating to the business plans of the Company and SofaWare, and to the inter-company
balances between the two companies. The matter is at a  preliminary  stage and the  Companys  management  is  therefore  unable to estimate its effect on the
Companys financial results.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Stamp
tax:
| | -- | ----------

| | Under
Israels Stamp Tax on Documents Law, certain documents are subject to stamp tax.
Recently promulgated regulations provide for a gradual phase-out of the stamp tax by
2008. In 2004, however, the tax authorities began an enforcement campaign involving
extensive audits of companies compliance with the stamp tax obligation with respect
to all agreements which had been signed since June 2003. The Company has recently
received from the tax authorities a request to list all agreements signed since June 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has received legal advice that there are a variety of defenses relating to its
obligation to pay stamp tax or to the amount to be paid. The Companys management
believes that the applicable provision in its financial statements as of December 31,
2004, is adequate to cover probable costs arising from this law.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 24

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 9: |  | TAXES
ON INCOME
|------- | - | ---------------

| | a. | Israeli
taxation:
| | -- | -----------------

| | 1. | Corporate
tax structure:
| | -- | ------------------------

| | Taxable
income of Israeli companies is subject to tax at the rate of 35% in 2004, 34% in 2005,
32% in 2006 and 30% in 2007 and thereafter.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Tax
benefits under the Law for the Encouragement of Capital Investments, 1959           (the
Law):
| | -- | ----------------------------------------------------------------------------------------------------

| | Practically
all of Check Point Ltd.s production facilities have been granted the status of
Approved Enterprises, under the Law, in five investment programs (the Programs).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
accordance with the Law, Check Point Ltd. has chosen to enjoy Alternative plan
benefits. Accordingly, Check Point Ltd.s income attributed to the Approved
Enterprise is tax exempt for a period of two years and is subject to a reduced
corporate tax rate of 10%  25% for an additional period of eight years, based on
the percentage of foreign investment in Check Point Ltd. The abovementioned tax benefits
are scheduled to gradually expire from 2005 through 2013.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
duration of tax benefits, for each of the Programs is subject to limitations of the
earlier of 12 years from commencement of investment, or 14 years from receipt of
approval, as an Approved Enterprise under the Law.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Tax-exempt
income attributable to the Approved Enterprise cannot be distributed to
shareholders without subjecting the Company to taxes except upon complete liquidation of
the Company. Out of the Companys retained earnings as of December 31, 2004
approximately $ 568,000 are tax-exempt. If such retained tax-exempt income is distributed
in a manner other than upon the complete liquidation of the Company, it would be taxed at
the reduced corporate tax rate applicable to such profits (between 10%-25%) and an income
tax liability of up to approximately $ 142,000 would be incurred as of December 31, 2004.
The Company currently intends to reinvest the amount of its tax-exempt income and not to
distribute such income as a dividend. Accordingly, no deferred income taxes have been
provided on income attributable to the Companys Approved Enterprise.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
entitlement to the above benefits is conditional upon the Companys fulfilling the
conditions stipulated by the Law, regulations published thereunder and the certificates
of approval for the specific investments in approved enterprises.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Should
Check Point Ltd. fail to meet such requirements in the future, income attributable to its
Approved Enterprise programs could be subject to the statutory Israeli
corporate tax rate and the Company could be required to refund a portion of the tax
benefits already received, with respect to such programs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 9: |  | TAXES
ON INCOME (Cont.)
|------- | - | -----------------------

| | Income
from sources other than the Approved Enterprise is subject to tax at regular
Israeli corporate tax rate.
| | -----------------------------------------------------------------------------------------------------------------

| | 3. | Check
Point Ltd has final tax assessments through the year 2001. As of December 31, 2004, the Company has recorded an accrual of $33,475 in respect of potential  exposures  related to tax
returns for subsequent tax years.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Deferred
tax assets and liabilities:
| | -- | ------------------------------------

| | Deferred
tax assets reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. As of December 31, 2003 and 2004, the Companys deferred
taxes were in respect of the following:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | December 31,
|---------------------------------------------- | ------------
|
|
|
|
|
|U.S. carryforward tax deductions               |             
|Reserves and allowances                        |             
|Research and development tax credit            |             
|                                               |             
|Deferred tax assets before valuation allowance |             
|Valuation allowance                            |             
|                                               |             
|Deferred tax assets                            |             
|                                               |             
|Deferred tax liabilities                       |             
|                                               |             
|Deferred tax assets, net                       |             
|                                               |             
|Domestic                                       |             
|Foreign                                        |             
|                                               |             
|                                               |             
|                                               |             

| | The
subsidiaries in the U.S. have provided valuation allowances in respect of deferred tax
assets resulting from tax benefits related to employee stock option exercises, which will
be credited to additional paid-in capital when realized. Management currently believes
that it is more likely than not that those deferred tax deductions will not be realized
in the foreseeable future.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 9: |  | TAXES
ON INCOME (Cont.)
|------- | - | -----------------------

| | Through
December 31, 2004, the U.S. subsidiaries had a U.S. federal loss carryforward of
approximately $ 745,000 resulting from tax benefits related to employees stock
option exercises that can be carried forward and offset against taxable income for 15 to
20 years, expiring between 2010  2024.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Utilization
of U.S. loss carryforwards may be subject to substantial annual limitation due to the
change in ownership provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitations may result in the expiration of losses
before utilization.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Income
before taxes on income is comprised as follows:
| | -- | ------------------------------------------------------

|         | Year ended December 31,
|-------- | -----------------------
|
|
|
|
|
|Domestic |                        
|Foreign  |                        
|         |                        
|         |                        
|         |                        

| | d. | Income
tax expenses are comprised as follows:
| | -- | ---------------------------------------------

|         |  |  |   |        |  |   |        |   |   |        | 
|-------- |  |  | - | ------ |  | - | ------ | - | - | ------ | 
|Current  |  |  | $ | 48,450 |  | $ | 55,867 |   | $ | 56,346 | 
|Deferred |  |  |   | 796    |  |   | (556   | ) |   | 257    | 
|         |  |  |   |        |  |  
|         |  |  | $ | 49,246 |  | $ | 55,311 |   | $ | 56,603 | 
|         |  |  |   |        |  |  
|Domestic |  |  | $ | 43,700 |  | $ | 49,638 |   | $ | 52,159 | 
|Foreign  |  |  |   | 5,546  |  |   | 5,673  |   |   | 4,444  | 
|         |  |  |   |        |  |  
|         |  |  | $ | 49,246 |  | $ | 55,311 |   | $ | 56,603 | 
|         |  |  |   |        |  |  

F - 27

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 9: |  | TAXES
ON INCOME (Cont.)
|------- | - | -----------------------

| | e. | Reconciliation
of the theoretical tax expenses:
| | -- | -----------------------------------------------

| | A
reconciliation between the theoretical tax expenses, assuming all income is taxed at the
statutory rate applicable and the actual income tax as reported in the statements of
income, is as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                |  |  |  
|----------------------------------------------- |  |  | -
|
|
|
|
|
|Income before taxes as reported in the          |  |  |  
|statements of income                            |  |  | $
|                                                |  |  |  
|Statutory tax rate in Israel                    |  |  |  
|                                                |  |  |  
|Increase (decrease) in taxes resulting from:    |  | 
|Effect of "Approved Enterprise" status (*)      |  |  |  
|Others, net                                     |  |  |  
|                                                |  |  |  
|Effective tax rate                              |  |  |  
|                                                |  |  |  
|(*) Basic net earnings per share amounts of the |  | 
|benefit resulting from the "Approved            |  | 
|Enterprise" status                              |  |  | $
|                                                |  |  |  
|Diluted net earnings per share amounts of       |  | 
|the benefit resulting from the                  |  | 
|"Approved Enterprise" status                    |  |  | $
|                                                |  |  |  

|NOTE 10: |  | SHAREHOLDERS EQUITY
|-------- | - | --------------------

| | a. | General:
| | -- | --------

| | Ordinary
shares confer upon their holders the right to receive notice to participate and vote in
general meetings of the Company, and the right to receive dividends if declared.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Dividends
declared on Ordinary shares will be paid in NIS. Dividends paid to shareholders outside
Israel will be converted into U.S. dollars, on the basis of the exchange rate prevailing
at the date of payment.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Deferred
share:
| | -- | ---------------

| | The
Deferred share is not entitled to any rights other than the right to receive its nominal
value upon liquidation of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------

F - 28

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 10: |  | SHAREHOLDERS'
EQUITY (Cont.)
|-------- | - | ----------------------------

| | c. | Employee
Stock Purchase Plan ("ESPP"):
| | -- | --------------------------------------

| | The
 Company  reserved  a total of  6,000,000  Ordinary  shares for  issuance  under the
ESPP.                      Eligible  employees use up to 15% of their  salaries to
purchase  Ordinary  shares but no more                      than  1,250  shares  per
 participant  on any  purchase  date.  The  purchase  plan  is  being
                     implemented  by  effecting  an  offering  every six  months.  The
price of an  Ordinary  share                      purchased  under the  purchase  plan is
equal to 85% of the lower of the fair market  value of                      the Ordinary
share on the subscription date of each offering period, or on the purchase date.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2002, 2003 and 2004,  employees purchased 146,291,  254,889 and 261,008 Ordinary shares
                     at average prices of $21.08, $12.29 and $15.80 per share,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2004, 4,572,519 Ordinary shares were available for future issuance.
| | --------------------------------------------------------------------------------------

| | d. | Stock
options:
| | -- | --------------

| | Under
the Company's 1996  International  and U.S.  Incentive  Employee Stock Option Plans (the
                     "Plan"),  options are granted to employees,  officers and directors
at an exercise price equal                      to at least the fair  market  value at
the date of grant and are  granted  for  periods not to                      exceed seven
years.  Options  granted under this Plan  generally vest over a period of four to
                     five years of  employment.  Any options  that are  cancelled or
 forfeited  before  expiration                      become available for future grants.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection  with its  acquisition  of Zone Labs in March 2004,  the Company  assumed all
of                      the  outstanding  Zone Labs  stock  options  under the Zone Labs
1998 Stock  Option  Plan (the                      "Zone Labs Plan"),  which were
 converted into options to purchase  approximately  2.8 million
                     shares of the Company's  Ordinary  shares.  The stock options
 generally have terms of between                      five and ten years and generally
vest over a four-year  period.  Options that are cancelled or
                     forfeited before expiration do not become available for future grant.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
 2004,  the  Company's  board of directors  determined  to reduce the number of shares
                     reserved for future grants under the Plan by an aggregate of
60,000,000 Ordinary Shares.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of the Plan, options to purchase 126,520,592 Ordinary shares were reserved
                     for issuance for the plan, out of which as of December 31, 2004,
40,935,783 options were                      available for future grant under the plan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 10: |  | SHAREHOLDERS'
EQUITY (Cont.)
|-------- | - | ----------------------------

| | A
summary of the Company's stock option activity, and related information, is as follows:
| | -----------------------------------------------------------------------------------------

|                         | Options (in thousands) | Weighted average exercise price
|------------------------ | ---------------------- | -------------------------------
|
|
|
|
|
|Outstanding at beginning |                        |                                
|of year                  |                        |                                
|Granted                  |                        |                                
|Exercised                |                        |                                
|Forfeiture               |                        |                                
|                         |                        |                                
|                         |                        |                                
|Outstanding as of        |                        |                                
|December 31,             |                        |                                
|                         |                        |                                
|                         |                        |                                
|Exercisable as of        |                        |                                
|December 31,             |                        |                                
|                         |                        |                                

| | The
options outstanding as of December 31, 2004, have been separated into ranges of exercise
                     price, as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------

|Exercise price | Options
outstanding at
December 31,
2004
(in thousands) | Weighted
average
remaining
contractual
life
(years) | Weighted
average
exercise
price | Options
exercisable at
December 31,
2004
(in thousands) | Weighted
average
exercise
price of
exercisable
options
|-------------- | ------------------------------------------------------- | --------------------------------------------------- | ------------------------------- | ------------------------------------------------------- | ------------------------------------------------------
|
|
|
|
|
|1.66 - 2.65    |                                                         |                                                     |                                 | 1,108                                                   |                                                       
|2.99 - 4.46    |                                                         |                                                     |                                 | 1,329                                                   |                                                       
|4.76 - 9.83    |                                                         |                                                     |                                 | 7,336                                                   |                                                       
|10.33 - 13.67  |                                                         |                                                     |                                 | 3,456                                                   |                                                       
|13.83 - 17.64  |                                                         |                                                     |                                 | 7,312                                                   |                                                       
|17.68 - 23.82  |                                                         |                                                     |                                 | 3,327                                                   |                                                       
|27.00 - 30.54  |                                                         |                                                     |                                 | 4,510                                                   |                                                       
|31.75 - 36.72  |                                                         |                                                     |                                 | 217                                                     |                                                       
|40.09 - 44.42  |                                                         |                                                     |                                 | 1,961                                                   |                                                       
|44.96 - 51.21  |                                                         |                                                     |                                 | 537                                                     |                                                       
|57.59 - 65.58  |                                                         |                                                     |                                 | 16                                                      |                                                       
|68.42 - 70.02  |                                                         |                                                     |                                 | 333                                                     |                                                       
|70.19 - 75.08  |                                                         |                                                     |                                 | 82                                                      |                                                       
|79.79 - 86.54  |                                                         |                                                     |                                 | 315                                                     |                                                       
|               |                                                         |                                                     |                                 |                                                         |                                                       
|1.66 - 86.54   |                                                         |                                                     |                                 | 31,839                                                  |                                                       
|               |                                                         |                                                     |                                 |                                                         |                                                       

F - 30

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 10: |  | SHAREHOLDERS EQUITY
(Cont.)
|-------- | - | ----------------------------

| | The
weighted average fair values at grant date of options granted for the years ended
December 31, 2002, 2003 and 2004, with an exercise price equal to the market value at the
date of grant were $ 9.44, $ 5.44 and $ 9.50, respectively. The weighted average
fair values at grant date of options assumed in the Zone Labs acquisition with an
exercise price lower than the market value at the date of grant was $ 17.89.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | In
October 2003, the Company announced that its Board of Directors has
               authorized the repurchase of up to $200,000 of its outstanding ordinary
shares                in the open market or through privately negotiated transactions. In
October                2004, after the Company had completed the repurchase of $200,000
of its ordinary                shares, the Company announced that its Board of Directors
had authorized                additional repurchases of up to $ 200,000 of its
outstanding ordinary shares in                the open market or through privately
negotiated transactions. Under the                repurchase programs, share purchases
may be made from time to time depending on                market conditions, share price,
trading volume and other factors and will be                funded from available working
capital. The repurchase programs have no time                limit and may be suspended
from time to time or discontinued. Under the above                programs, the Company
purchased during 2004 a total of approximately 12  million                shares at a
total cost of $ 244,586 at an average price per share of $20.4.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 11: |  | EARNINGS
PER SHARE
|-------- | - | ------------------

| | The
following table sets forth the computation of historical basic and diluted net earnings
per share:
| | ------------------------------------------------------------------------------------------------------

|                                             | Year ended December 31,
|-------------------------------------------- | -----------------------
|
|
|
|
|
|Net income                                   |                        
|                                             |                        
|Weighted average Ordinary shares outstanding |                        
|(in thousands)                               |                        
|                                             |                        
|Dilutive effect:                             |                        
|Employee stock options (in thousands)        |                        
|                                             |                        
|Diluted weighted average Ordinary shares     |                        
|outstanding (in thousands)                   |                        
|                                             |                        
|Basic net earnings per Ordinary share        |                        
|                                             |                        
|Diluted net earnings per Ordinary share      |                        
|                                             |                        

F - 31

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 12: |  | GEOGRAPHIC
INFORMATION AND SELECTED STATEMENTS OF INCOME DATA
|-------- | - | -------------------------------------------------------------

| | a. | Summary
information about geographical areas:
| | -- | ---------------------------------------------

| | The
Company adopted Statement of Financial  Accounting  Standard No. 131,  "Disclosures
 About                      Segments of an Enterprise and Related  Information",  ("SFAS
No. 131").  The Company  operates                      in one  reportable  segment (see
Note 1 for a brief  description  of the Company's  business).                      The
total revenues are  attributed to geographic  areas based on the location of the
Company's                      channel partners which are considered as end customers.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following  present  total  revenues for the years ended  December 31, 2002,  2003 and
2004                      and long-lived assets as of December 31, 2002, 2003 and 2004:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | Revenues
based on the channel partners' location:
| | -- | -------------------------------------------------

|                               | Year ended December 31,
|------------------------------ | -----------------------
|
|
|
|
|
|Americas                       |                        
|Europe, Middle East and Africa |                        
|Japan                          |                        
|Asia Pacific                   |                        
|                               |                        
|                               |                        
|                               |                        

| | It
is impracticable to provide revenues by product lines for the years ended December 31,
2002, 2003 and 2004
| | -------------------------------------------------------------------------------------------------------------

| | 2. | Long-lived
assets:
| | -- | ------------------

|         | December 31,
|-------- | ------------
|
|
|
|
|
|Americas |             
|Israel   |             
|Other    |             
|         |             
|         |             
|         |             

F - 32

---

---



|CHECK POINT SOFTWARE TECHNOLOGIES LTD.                        
|--------------------------------------------------------------
|AND ITS SUBSIDIARIES                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    
|                                                              
|U.S. dollars in thousands (except share and per share amounts)

|NOTE 12: |  | GEOGRAPHIC
INFORMATION AND SELECTED STATEMENTS OF INCOME DATA (Cont.)
|-------- | - | ---------------------------------------------------------------------

| | b. | Financial
income, net:
| | -- | ----------------------

|                                                    | Year ended December 31,
|--------------------------------------------------- | -----------------------
|
|
|
|
|
|Financial income:                                   |                        
|Interest income                                     |                        
|Foreign currency remeasurement gain and others, net |                        
|                                                    |                        
|                                                    |                        
|                                                    |                        
|Financial expense:                                  |                        
|Foreign currency remeasurement loss, net            |                        
|Others                                              |                        
|                                                    |                        
|                                                    |                        
|                                                    |                        
|                                                    |                        
|                                                    |                        

F - 33

---

---



# SIGNATURES

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

| |  | CHECK POINT SOFTWARE TECHNOLOGIES LTD.BY: /S/ Gil Shwed
Gil ShwedChief Executive Officer and Chairman of the Board
| |  | --------------------------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Eyal Desheh
Eyal DeshehChief Financial Officer
| |  | --------------------------------------------------------------------

Date: April 04, 2005



---

---