Annual Report on Form 20-F

CHECK POINT SOFTWARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. dollars

NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

Beginning on August 29, 2003, the Company received a number of class action complaints filed in the United States District Court for the Southern District of New York by holders of the Company 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 lead plaintiff. On January 14, 2004, lead plaintiff filed a Consolidated Amended Complaint, purporting to represent a putative class of all purchasers of the Company 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, the Company's sales, revenue, and future prospects. The Company has retained experienced counsel and is currently moving 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. The Company disputes the allegations of wrongdoing and intends to defend the matter vigorously. Accordingly, the Company's management believes that applicable insurance as well as a provision in the financial statements as of December 31, 2003, are adequate to cover probable costs arising from this matter.

NOTE 8:- TAXES ON INCOME

a.	Israeli taxation:
1.	Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985 ("the Israeli law"): Under the Israeli law, results for tax purposes are measured in real terms, in accordance with the changes in the Israeli Consumer Price Index ("Israeli CPI"), or in the exchange rate of the dollar for a "foreign investors' company". Until 2001, results for tax purposes were measured in terms of earnings in NIS after certain adjustments for increases in the Israeli CPI. Beginning January 1, 2002, the basis for remeasurment is the changes in the exchange rate of the U.S. dollar.
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 Enterprise", 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.