Document:

exhibit_4-2.htm

Exhibit 4.2

 

 

SUBSCRIPTION AGENT AGREEMENT

 

Date:

 

American Stock Transfer & Trust Company, LLC

Attn: Reorganizations Department

6201 15th Avenue

Brooklyn, NY 11219

 

Ladies and Gentlemen:

In connection with your appointment as Subscription Agent in the transaction described herein, Magal Security Systems Ltd., an Israeli company (the Company), hereby confirms its arrangements with you as follows:

	
1.

	
Rights Offering - The Company is offering (the ”Rights Offering”) to the holders of its ordinary shares, par value NIS 0.1 per share (”Ordinary Shares”), on ____________, 2011 (the ”Record Date”), the right (”Rights”) to subscribe for Ordinary Shares.  Except as set forth under Paragraphs 8 and 9 below, Rights shall cease to be exercisable at 5:00 p.m., New York City time, on _______________, 2011(the ”Expiration Date”), unless the Company decides to terminate the Rights Offering earlier.  One Right is being issued for two Ordinary Shares held on the Record Date. One Right and Payment in full of the subscription price of $_______ (the ”Subscription Price”) are required to subscribe for one Ordinary Share.  Rights are evidenced by non-transferable subscription certificates in registered form (”Subscription Certificates”). Each holder of Subscription Certificate(s) who exercises the holder’s right to subscribe for all Ordinary Shares that can be subscribed for with the Rights evidenced by such Subscription Certificate(s) (the”Basic Subscription Right”) will have the right to subscribe for additional Ordinary Shares, if any, available as a result of any unexercised Rights (such additional subscription right being referred to hereafter as the”Additional Subscription Privileged”).  The Rights Offering will be conducted in the manner and upon the terms set forth in the Company’s Prospectus included in the Registration Statement on Form F-1 filed by the Company with the SEC on May 11,  2011, as amended from time to time (the ”Prospectus”), which is incorporated herein by reference and made a part hereof as if set forth in full herein.

	
2.

	
Appointment of Subscription Agent - You are hereby appointed as Subscription Agent to effect the Rights Offering in accordance with the Prospectus. Each reference to you in this letter is to you in your capacity as Subscription Agent unless the context indicates otherwise.

  

  

  

 

	
3.

	
Delivery of Documents - Enclosed herewith are the following, the receipt of which you acknowledge by your execution hereof:

(a)           a copy of the Prospectus;

(b)           the form of Subscription Certificate (with instructions);

(c)           resolutions adopted by the Board of Directors of the Company in connection with the Rights Offering, certified by the secretary of the Company; and

(d)           form of Letter to Record Holders.

 

	
  

	
As soon as is reasonably practical, you shall mail or cause to be mailed to each holder of Ordinary Shares at the close of business on the Record Date a Letter to Record Holder, a Subscription Certificate (and instructions) evidencing the Rights to which such holder is entitled, a Prospectus and an envelope addressed to you. Prior to mailing, the Company (or its transfer agent) will provide you with blank Subscription Certificates which you will prepare and issue in the names of holders of Ordinary Shares of record at the close of business on the Record Date and for the number of Rights to which they are entitled.  The Company will also provide you with a sufficient number of copies of each of the documents to be mailed with the Subscription Certificates.

 

4.             Subscription Procedure -

	
  

	
(a) The issuance of ordinary shares purchased in the rights offering will be made on [        ], 2011 (the “Issuance Date”).  Upon your receipt prior to 5:00 p.m., New York City time, on the Expiration Date (by mail or delivery), as Subscription Agent, of (ii) any Subscription Certificate completed and endorsed for exercise, as provided on the reverse side of the Subscription Certificate (except as provided in paragraph 8 hereof), and (ii) payment in full of the Subscription Price in U.S. funds by wire, bank check or money order payable at par (without deduction for bank service charges or otherwise) to the order of American Stock Transfer & Trust Company, you shall as soon as practicable after the Issuance Date, but after performing the procedures described in subparagraphs (b) and (c) below, mail to the subscriber’s registered address on the books of the Company certificates representing the Ordinary Shares duly subscribed for (pursuant to the Basic Subscription Right and the Additional Subscription Privilege) and furnish a list of all such information to the Company.

	
  

	
(b) As soon as practicable after the Expiration Date you shall calculate the number of Ordinary Shares to which each subscriber is entitled pursuant to the Additional Subscription Privilege. The Additional Subscription Privilege may only be exercised by holders who subscribe to all the Ordinary Shares that can be subscribed for under the Basic Subscription Right.  The Ordinary Shares available for additional subscriptions will be those that have not been subscribed and paid for pursuant to the Basic Subscription Right (the”Remaining Rights”).  Where there are sufficient Remaining Rights to satisfy all additional subscriptions by holders exercising their rights under the Additional Subscription Privilege, each holder shall be allotted the number of additional Ordinary Shares subscribed for. If the aggregate number of Ordinary Shares subscribed for under the Additional Subscription Privilege exceeds the number of Remaining Rights, the number of Remaining Rights allotted to each participant in the Additional Subscription Privilege shall be the product (disregarding fractions) obtained by multiplying the number of Remaining Rights by a fraction of which the numerator is the number of Rights subscribed for by that participant under the Additional Subscription Privilege and the denominator is the aggregate number of Remaining Units subscribed for by all participants under the Additional Subscription Privilege. Any fractional Right to which persons exercising their Additional Subscription Privilege would otherwise be entitled pursuant to such allocation shall be rounded to the next whole Right.

 

  

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(c) Upon calculating the number of Ordinary Shares to which each subscriber is entitled pursuant to the Additional Subscription Privilege and the amount overpaid, if any, by each subscriber, you shall, as soon as practicable, furnish a list of all such information to the Company.

	
  

	
(d) Upon calculating the number of Ordinary Shares to which each subscriber is entitled pursuant to the Additional Subscription Privilege and assuming payment for the additional Ordinary Shares subscribed for has been delivered, you shall mail, as contemplated in subparagraph (a) above, the certificates representing the additional Ordinary Shares which the subscriber has been allotted. If a lesser number of Ordinary Shares is allotted to a subscriber under the Additional Subscription Privilege than the subscriber has tendered payment for, you shall remit the difference to the subscriber without interest or deduction at the same time as certificates representing the Ordinary Shares allotted pursuant to the Additional Subscription Privilege are mailed.

	
  

	
(e) Funds received by you pursuant to the Basic Subscription Right and the Additional Subscription Privilege shall be held by you in a segregated account. Upon mailing certificates representing the Ordinary Shares and refunding subscribers for additional Ordinary Shares subscribed for but not allocated, if any, you shall promptly remit to the Company all funds received in payment of the Subscription Price for Ordinary Shares sold in the Rights Offering.

	
  

	
 

	
  

	
(f) Record Holders that reside in Israel (“Israeli Record Holders”) may elect to exercise their Rights by paying the subscription payment in U.S. dollars or in New Israeli Shekels as set forth in the Prospectus under the caption “The Rights Offering–Method of Exercise of Rights for Record Holders.” The Israeli Rights Holders may exercise their Rights by delivery directly to the Company on or prior to midnight Israel time on the Expiration Date of payment in full of the Subscription Price for each Right being exercised in U.S. dollars or in New Israeli Shekels by bank check or wire transfer payable to the Company, all in accordance with the procedures described in the Prospectus. The Company will promptly notify the Rights Agent in writing of the identity of the Israeli Rights Holders who exercised their Rights directly through the Company and the number of Rights so exercised.

	
5.

	
No Subdivision, Sale or Transfer of Rights - As described in the Prospectus, the Rights are not transferable.

	
6.

	
Defective Exercise of Rights Lost Subscription Certificates - The Company shall have the absolute right to reject any defective exercise of Rights or to waive any defect in exercise. Unless requested to do so by the Company, you shall not be under any duty to give notification to holders of Subscription Certificates of any defects or irregularities in subscriptions, but you shall inform the Company of such defects. Subscriptions will not be deemed to have been made until any such defects or irregularities have been cured or waived within such time as the Company shall determine. You shall as soon as practicable return Subscription Certificates with the defects or irregularities which have not been cured or waived to the holder of the Rights. If any Subscription Certificate is alleged to have been lost, stolen or destroyed, you should follow the same procedures followed far lost stock certificates representing Ordinary Shares you use in your capacity as transfer agent for the Company’s Ordinary Shares.

 

  

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7.

	
[Omitted]

	
8.

	
Delivery - You shall deliver to the Company the exercised Subscription Certificates in accordance with written directions received from the Company and shall deliver to the subscribers who have duly exercised Rights at their registered addresses certificates representing the Ordinary Shares subscribed for as instructed on the reverse side of the Subscription Certificates.

	
9.

	
Reports - You shall notify the Company by telephone on an before the close of business an each business day during the period commencing five (5) business days after the mailing of the Rights and ending at the Expiration Date (a ”daily notice”), which notice shall thereafter be confirmed in writing, of (i) the number of Rights exercised on the day covered by such daily notice, (ii) the number of Rights for which defective exercises have been received on the day covered by such daily notice, and (iii) the cumulative total of the information set forth in clauses (i) and (ii) above.  At or before 5:00 p.m., New York City time, on the first NASDAQ Global Market trading day following the Expiration Date, you shall certify in writing to the Company the cumulative total through the Expiration Date of all the information set forth in clauses (i) and (ii) above. You shall also maintain and update a listing of holders who have fully or partially exercised their Rights and holders who have not exercised their Rights.  You shall provide the Company or its designees with such information compiled by you pursuant to this paragraph 9 as any of them shall request.

	
10.

	
Future Instructions – With respect to notices or instructions to be provided by the Company hereunder, you may rely and act on any written instruction signed by any one or more of the following authorized officers or employees of the Company:

 

	
Name

	
Title

	
Ilan Ovadia

	
Chief Financial Officer

	  	  

	
11.

	
Payment of Expenses - The Company will pay you compensation for acting in your capacity as Subscription Agent hereunder in the amount of $8,000 plus your reasonable out-of-pocket expenses. The Company will pay an additional fee equal to one-third of the Subscription Agent fee for each extension of the Offering, plus any out-of-pocket expenses associated with such extension.

  

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Fees will be paid by:

Name: Ilan Ovadia, Chief Financial Officer

Address: P.O. Box 70, Industrial Zone

Address: Yehud 56100, Israel

Facsimile: +972-3-5366245

Phone: +972-3-539-1444 

Email: IlanO@magal-s3.com

 

	
12.

	
[Omitted.].

	
13.

	
Indemnification - The Company covenants and agrees to indemnify and hold you harmless against any costs, expenses (including reasonable fees of legal counsel), losses or damages, which may be paid, incurred or suffered by or to which you may become subject arising from or out of, directly or indirectly, any claim or liability resulting from your actions as Subscription Agent pursuant hereto; provided that such covenant and agreement does not extend to such costs, expenses, losses and damages incurred or suffered by you as a result of, or arising out of, your own gross negligence, misconduct or bad faith or that of any employees, agents or independent contractors used by you in connection with performance of your duties as Subscription Agent hereunder.

If any action is brought against you in respect of which indemnity may be sought against the Company pursuant to this paragraph 13, you shall promptly notify the Company in writing of the institution of such action and the Company may, at its option, assume the defense of such action, including the employment and fees of counsel and payment of expenses. You shall have the right to employ your own counsel in any such case, but the fees and expenses of such counsel shall be your expense unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action, which consent shall not be unreasonably withheld, or the Company shall not have employed counsel to have charge of the defense of the action or you shall have reasonably concluded that there may be defenses available to you which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action on your behalf), in any of which events the fees and expenses of not more than one additional firm of attorneys shall be borne by the Company, except to the extent that local counsel is required in order to effectively defend against such action, in which event the Company shall pay the fees and expenses of one firm of local counsel.

	
14.

	
Notices -  Unless otherwise provided herein, all reports, notices and other communications required or permitted to be given hereunder shall be in writing and delivered by hand or confirmed telecopy or by first class U.S. mail, postage prepaid, shall be deemed given if by hand or telecopy, upon receipt or if by U.S. mail, three business days after deposit in the U.S. mail and shall be addressed as follows

  

5

  

	
  

	
(a)

	
If to the Company, to:

Magal Security Systems Ltd.

P.O. Box 70, Industrial Zone

Yehud 56100, Israel

Attention: llan Ovadia, Chief Financial Officer

Telephone: +972-3-539-1444 

Telecopy: +972-3-5366245

with copies to:

Carter, Ledyard & Milburn LLP

2 Wall Street

New York, New York 10005

Attention: Steve Glusband

Telephone: (212) 732-8605

Telecopy: (212) 732-3232

 

	
  

	
(b)

	
If to you, to:

 

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

Attention: Corporate Actions

Telephone: (718) 921-8200

Telecopy: (718) 236-4588

 

	
15.

	
Prospectus - In the event that any claim of inconsistency between this Agreement and the Terms of the Rights Offering described in the Prospectus, the terms of the Rights Offering described in the Prospectus shall control, except with respect to the compensation and indemnification of you as Subscription Agent, which shall be controlled by the terms of this Agreement.

	
16.

	
No Assignment; Delegation - Neither this Agreement nor any rights or obligations hereunder may be assigned or delegated by either party without the prior written consent of the other party.  This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns.

 

[Signature Page Follows]

 

  

6

  

 

Executed this ________ day of _______________, 200

 

Magal Security Systems Ltd.

By: ___________________________________

Name: ________________________________

Title: __________________________________

 

Agreed & Accepted:

AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC

By: _______________________________

Name: _____________________________

Title: _______________________________

 

	
[Signature Page to U.S. Subscription Agreement]

 

7exhibit_4-3.htm

Exhibit 4.3

 

MAGAL SECURITY SYSTEMS LTD.

 

INSTRUCTIONS AS TO USE OF

SUBSCRIPTION RIGHTS CERTIFICATES

 

The following instructions relate to a rights offering (the “Rights Offering”) by Magal Security Systems Ltd., an Israeli company (“Magal”), to the holders of its ordinary shares, as described in Magal’s prospectus dated [____] (the “Prospectus”).  Each holder of record of ordinary shares at the close of business on [____] (the “Record Date”) will receive one subscription right (the “Subscription Right”) for each two ordinary shares held by it at the Record Date.  Subscription Rights to purchase up to an aggregate of 5,273,274 ordinary shares of Magal, par value NIS 1.0 (“Ordinary Shares”), are being distributed in connection with the Rights Offering.  Each whole Subscription Right entitles the holder, upon payment of $[____] in cash (the “Subscription Price”), to purchase one Ordinary Shares (the “Basic Subscription Right”).  In addition, each Subscription Right also carries the right to subscribe at the Subscription Price for an unlimited number of additional Ordinary Shares (to the extent available, and subject to proration) (the “Oversubscription Right”).  See “The Rights Offering” in the Prospectus.

 

No fractional Subscription Rights or cash in lieu thereof will be issued or paid.  Fractional Subscription Rights will be rounded down to the nearest whole number, with such adjustments as may be determined at the sole discretion of the Company which are necessary to ensure that it offers 5,273,274 Ordinary Shares in the Rights Offering.

 

The Subscription Rights will expire at 5:00 p.m., Eastern Time (midnight Israel time), on [_________] (the “Expiration Date”). If you hold your Subscription Rights through an Israeli brokerage company that holds the Subscription Rights through our Israeli nominee company (the Nominee Company of Bank Leumi Le-Israel Ltd.), you must notify your Israeli brokerage company of your election to exercise your Subscription Rights on or before [_____], 2011, at such time as determined by the applicable Israeli brokerage company. Any rights not exercised at or before that time will expire worthless without any payment to the holders of those unexercised rights. 

 

The number of Subscription Rights to which you are entitled is printed on the face of your Subscription Certificate.  You should indicate your wishes with regard to the exercise of your Subscription Rights by completing the appropriate section on the back of your Subscription Certificate and returning the Subscription Certificate to the Subscription Agent in the envelope provided.

 

Your Subscription Certificate must be received by the Subscription Agent on or before the Expiration Date.  Payment of the Subscription Price of all Subscription Rights exercised, including Subscription Rights pursuant to the Oversubscription Right, must be received by the Subscription Agent on or before the Expiration Date.  You cannot revoke your exercise of either your Basic Subscription Right or Oversubscription Right at any time prior to the expiration of the Rights Offering.  In case you hold Subscription Rights through a broker or other nominee, you should verify with your broker or nominee by when you must deliver your instruction.  See also Section 9 below.

 

1.             Subscription Rights.

 

If you are a record owner of our Ordinary Shares, you may exercise your rights by delivering a signed exercise form on the back of your Subscription Certificate to American Stock Transfer & Trust Company, LLC, our Subscription Agent, at the address noted below together with payment in full of the subscription price for each right being exercised, by 5:00 p.m., New York City time (midnight Israel time), on ____________, 20__.

 

If you are a record owner and reside in Israel, you may also exercise your rights by delivering a signed exercise form on the back of your Subscription Certificate to us at the address noted below, together with payment in full of the subscription price for each right being exercised, by midnight, Israel time, on ____________, 20__.  If you are a record owner who resides in Israel, payment to us may be denominated in U.S. dollars or in New Israeli Shekels, at the representative rate of exchange most recently published by the Bank of Israel at the time of payment.

 

We and American Stock Transfer & Trust Company, LLC, our Subscription Agent, as applicable, may refuse to accept improperly completed or delivered or unexecuted Subscription Certificates.  We and American Stock Transfer & Trust Company, LLC, our Subscription Agent, as applicable, must receive payment in full of the Subscription Price for each Right being exercised together with the exercise form.

 

  

  

  

 

If you are delivering your completed Subscription Certificate and payment for the exercise of your Rights to American Stock Transfer & Trust Company, LLC, our Subscription Agent, please do so by mail, overnight or hand delivery to one of the following addresses:

 

	  	
Hand delivery

American Stock Transfer & Trust Company, LLC

59 Maiden Lane

New York, New York 10038

Attention: Reorganization Department

	
Mail and Overnight Courier

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Attention: Reorganization Department

 

Record owners who reside in Israel, and who wish to deliver their completed Subscription Certificates and subscription payment for the exercise of their rights directly to us, should do so by mail, overnight or hand delivery to the following address:

 

	  	
Magal Security Systems Ltd.

17 Altalef Street, Industrial Zone, Yehud, Israel

Attention: Ilan Ovadia, Chief Financial Officer

 

American Stock Transfer & Trust Company, LLC, our Subscription Agent, will only accept payment in U.S. dollars.  Any payments to American Stock Transfer & Trust Company, LLC, as Subscription Agent, must be made in U.S. dollars by a bank check drawn on a United States or foreign bank or branch and payable to “American Stock Transfer & Trust Company, LLC, as Subscription Agent,” or by wire transfer of funds to the account maintained by American Stock Transfer & Trust Company, LLC, our Subscription Agent, for this rights offering at JPMorgan Chase Bank, 55 Water Street, New York, New York 10005, ABA #021000021, Account # 530-354624 American Stock Transfer FBO Magal Security Systems Ltd., with reference to the rights holder's name.

 

Any payments to us shall be made in U.S. dollar or New Israeli Shekels according to the representative exchange rate most recently published by the Bank of Israel at the time of payment of the Subscription Price and shall be by wire transfer or by bank check drawn on a bank located in Israel, and payable to “Magal Security Systems Ltd.”  Any wire transfer to us should be sent to the following account of Magal Security Systems Ltd.: Bank LEUMI LE ISRAEL B.M, Tel-Aviv Main Branch, Account No. 116320/49, IBAN: IL070108000000011632049; SWIFT CODE: LUMIILITTLV, with reference to the rights holder’s name.

 

THE METHOD OF DELIVERY OF THE SUBSCRIPTION CERTIFICATE AND THE PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT IS AT YOUR ELECTION AND RISK.  IF YOU SEND YOUR SUBSCRIPTION CERTIFICATE AND PAYMENT BY MAIL, THEN THEY SHOULD BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED.  A SUFFICIENT NUMBER OF DAYS SHOULD BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT PRIOR TO THE EXPIRATION DATE.

 

2.             Acceptance of Payments.  Payments will be deemed to have been received by the Subscription Agent only upon the (i) receipt by the Subscription Agent of a bank check payable in U.S. dollars drawn upon a United States of foreign bank or branch; or (ii) receipt by the Subscription Agent of confirmation from its bank that a wire transfer has been received.

 

3.             Partial Exercises; Effect of Over - and Underpayments.  If you exercise less than all of the Subscription Rights evidenced by your Subscription Certificate, the Subscription Agent will issue to you a new Subscription Certificate evidencing the unexercised Subscription Rights.  However, if you choose to have a new Subscription Certificate sent to you, you may not receive any such new Subscription Certificate in sufficient time to permit exercise of the Subscription Rights evidenced thereby.  If you do not indicate the number of Ordinary Shares to be subscribed for on your Subscription Certificate or if you indicate a number of Ordinary Shares that does not correspond with the aggregate Subscription Price payment you delivered, you will be deemed to have subscribed for the maximum number of Ordinary Shares that may be subscribed for, under both the Basic Subscription Right and the Oversubscription Right, for the aggregate Subscription Price you delivered.  If we do not apply your full Subscription Price payment to your purchase of Ordinary Shares, then we will return the excess amount to you by mail, without interest or deduction, as soon as practicable after the Expiration Date. If you subscribe for fewer than all of the Ordinary Shares represented by your Subscription Certificate, then the unexercised Subscription Rights will become null and void on the Expiration Date.

 

  

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4.             Execution.

 

(a)           Execution By Registered Holder.  The signature on the Subscription Certificate must correspond with the name of the registered holder exactly as it appears on the face of the Subscription Certificate without any alteration or change whatsoever.  Persons who sign the Subscription Certificate in a representative or other fiduciary capacity must indicate their capacity when signing and, unless waived by the Subscription Agent in its sole and absolute discretion, must present to the Subscription Agent satisfactory evidence of their authority so to act.

 

(b)           Execution By Person Other Than Registered Holder.  If the Subscription Certificate is executed by a person other than the holder named on the face of the Subscription Certificate, proper evidence of authority of the person executing the Subscription Certificate must accompany the same unless the Subscription Agent, in its discretion, dispenses with proof of authority.

 

(c)           Signature Guarantees.  Your signature must be guaranteed by an Eligible Guarantor Institution if you specify special payment or delivery instructions.

 

5.             Delivery of Share Certificates, Etc.  The issuance of ordinary shares purchased in the rights offering will be made on [_______], 2011 (the “Issuance Date”).  The following deliveries and payments to you will be made to the address shown on the face of your Subscription Certificate unless you provide instructions to the contrary on the back of your Subscription Certificate:

 

(d)           Basic Subscription Right.  As soon as practicable after the Issuance Date, the Subscription Agent will mail to each validly-exercising Subscription Rights holder who is a record holder certificates representing Ordinary Shares purchased pursuant to the Basic Subscription Right.

 

(e)           Oversubscription Right.  As soon as practicable after the Issuance Date and after all prorations and adjustments contemplated by the terms of the Rights Offering have been effected and taking into account any delays or extensions in closing the oversubscription purchases, the Subscription Agent will mail to each Subscription Rights holder who validly exercises the Oversubscription Right who is a record holder certificates representing the number of Ordinary Shares allocated to such Subscription Rights holder pursuant to the Oversubscription Right.

 

(f)            Excess Payments.  If you exercised your Oversubscription Right and are allocated less than all of the Ordinary Shares for which you wished to oversubscribe, then your excess Subscription Price payment for Ordinary Shares that were not allocated to you will be returned to you by mail, without interest or deduction, as soon as practicable after the Issuance Date.

 

6.             To Exercise Subscription Rights through a Bank or Broker.  If you are a beneficial owner of our Ordinary Shares and hold them through a broker, dealer, bank or other nominee (including a member of The Depository Trust Company (“DTC”) or the Tel Aviv Stock Exchange (the “TASE”) Clearing House), rather than in your own name, you should expect your broker, dealer or other nominee to notify you of this Rights Offering and the procedures for exercising or transferring your Subscription Rights.  If you wish to exercise your Subscription Rights, you should contact your nominee to exercise your Subscription Rights sufficiently in advance of the expiration date of the Rights Offering in order to ensure timely delivery of a Subscription Certificate reflecting your exercise.  Your nominee will instruct you as to the proper time and form of payment of the Subscription Price.  In that case, the nominee will complete the Subscription Certificate on behalf of the record date shareholder and arrange for proper payment.

 

Summarized below are the procedures for exercising your rights if you are a beneficial owner whose ordinary shares are held through our Israeli nominee company (The Nominee Company of Bank Leumi Le-Israel Ltd.).

 

Procedures Applicable to Holders of Shares Through our Israeli Nominee Company

 

The Nominee Company of Bank Leumi Le-Israel Ltd. (Hevra Le-Rishumim of Bank Leumi Le-Israel Ltd.) will act as the Israeli subscription agent in connection with the rights offering with respect to our ordinary shares that are held through an Israeli brokerage firm that holds the rights through our Israeli nominee company, as well as the ordinary shares held in the DTC account of the TASE Clearing House for the benefit of brokers, dealers, banks and other nominees that are TASE Clearing House members.

 

  

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The TASE Clearing House will credit the accounts of the respective TASE Clearing House members that hold our ordinary shares of record as of [      ], 2011 with one subscription right per two ordinary shares held in such accounts.  The TASE Clearing House members and members of TASE will notify their respective beneficial owners as soon as possible about the terms of the rights offering in order to ascertain their intentions and to obtain instructions with respect to the subscription rights, specifically if and how many basic subscription rights they elect to exercise, and in the event that they elect to exercise their basic subscription rights in full, if and how many rights they elect to subscribe for pursuant to the over-subscription right.

 

TASE members are required to send a written notice to their clients who registered in their records as our shareholders on the record date notifying them that the rights will not be tradable on any stock exchange and that they can choose among the following three alternatives: (i) to not exercise their subscription rights at all; (ii) to exercise their basic subscription rights in full or in part; or (iii) to exercise their basic subscription rights in full and subscribe for all or portion of the rights pursuant to the over-subscription rights.  Such notice should also state that in the event that such member does not receive any instructions from the client on or prior to[____], 2011, the client will be deemed to have declared that such client is not interested in exercising the rights and will further be deemed to have declared that such client is aware that such client's holdings in Magal will be diluted, that other rights holders may receive the benefit of such client’s unexercised subscription rights by subscribing for rights pursuant to the over-subscription rights of such other rights holders, resulting in the dilution of such client’s ownership percentages of the outstanding ordinary shares and that such client will not be able to receive any consideration for the rights as the rights are not transferable or tradable.

 

Beneficial owners who wish to exercise their subscription rights must notify their respective TASE members, no later than [____], 2011, at the time determined by the applicable member, as to the number of basic subscription rights they elect to exercise, and, if they elect to exercise their basic subscription rights in full, the number of rights subscribed for pursuant to the  over-subscription rights, if any.

 

TASE Clearing House members must deliver to the TASE Clearing House by 9:00 a.m. Israel time on [___], 2011, a notice setting forth: (i) the total number of rights subscribed for through the exercise of the basic subscription rights of its respective clients and (ii) the total number of rights subscribed for pursuant to the over-subscription rights, if any, by such beneficial owners.  TASE members and TASE Clearing House members are required to ensure that any client that elected to exercises its over-subscription right has exercised its basic subscription right in full. TASE Clearing House members bear the sole responsibility and liability for the results of any mistake in such member’s exercise notice.

 

The TASE Clearing House must notify, by 12:00 p.m. Israel time on [___], 2011, the Nominee Company of Bank Leumi Le-Israel Ltd., which, in turn, must notify us by 12:00 p.m. Israel time on [____], 2011, of (i) all exercises of basic subscription rights and (ii) all exercises of over-subscription rights by the TASE Clearing House members.

 

The TASE Clearing House will credit the accounts of the respective TASE Clearing House members with the ordinary shares issued to them in the rights offering, concurrently with the debit of the subscription price from such accounts, on [    ], 2011.  The payment of the subscription price will be denominated in NIS, at the “known” representative rate of exchange on [    ], 2011, which is the representative rate of exchange published by the Bank of Israel on the date prior to such date.  On such date, the Nominee Company of Bank Leumi Le-Israel Ltd. will transfer the related payment to us.

 

Set forth below is a summary of the offering timeline for holders of shares through our Israeli nominee company:

 

	
[.......], 2011

	
Record date

	 	 
	
[.......], 2011

	
Ex-Day

	 	 
	
[.......], 2011,

at the time determined by the applicable TASE member

	
The last day for clients of TASE members to notify the applicable TASE member as to the number of basic subscription rights they elect to exercise, and to the extent that such basic subscription rights are exercised in full, the number of rights subscribed for pursuant to the over-subscription rights, if any.

	 	 
	
[.......], 2011, by

9:00 a.m. Israel time

	
TASE Clearing House members deliver to the TASE Clearing House notices of rights exercised pursuant to the basic and over-subscription rights.

 

  

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[.......], 2011, by 12:00 p.m. Israel time

	
TASE Clearing House delivers the notices of its members to the Nominee Company of Bank Leumi Le-Israel Ltd.

	 	 
	
[.......], 2011, by 12:00 pm Israel time-

	
Nominee Company of Bank Leumi Le-Israel Ltd. delivers the notices of TASE Clearing House members to Magal.

	 	 
	
[.......], 2011

	
The issuance date of the ordinary shares issued in the rights offering.  TASE Clearing House credits the accounts of the respective TASE Clearing House members with the ordinary shares issued to them in the rights offering, concurrently with the debit of the subscription price from such accounts.

 

7.             Procedures for DTC (The Depository Trust Company) Participants.  In the case of holders of Subscription Rights that are held of record through DTC, exercises of the Basic Subscription Right and the Oversubscription Right may be effected by instructing DTC to transfer Subscription Rights from the DTC account of such holder to the DTC account of the Subscription Agent, together with certification as to the aggregate number of Subscription Rights you are exercising and the number of Ordinary Shares you are subscribing for under your Basic Subscription Right and your Oversubscription Right, if any, and your Subscription Price payment for each Ordinary Share that you subscribed for pursuant to your Basic Subscription Right and your Oversubscription Right.

 

8.             Substitute Form W-9.  Each Rights holder who elects to exercise the Subscription Rights through the Subscription Agent and who is a U.S. person should provide the Subscription Agent with a correct Taxpayer Identification Number (“TIN”) and, where applicable, certification of such Rights holder’s exemption from backup withholding on Substitute Form W-9, which is included in this package of subscription materials.  Each Rights holder who elects to exercise the Subscription Rights through the Subscription Agent and who is not a U.S. person should provide the Subscription Agent with certification of such Rights holder’s foreign status on a Form W-8.  Additional copies of the Substitute Form W-9 and copies of Form W-8 may be obtained upon request from the Subscription Agent at the address indicated above.  Failure to provide the information on the form may subject such holder to 30% federal income tax withholding with respect to any proceeds received by such Rights holder.

 

  

5

  

 

MUST BE COMPLETED BY TENDERING HOLDER(S) WHO ARE U.S. PERSONS

PAYER'S NAME:  Magal Security Systems Ltd.

 

	SUBSTITUTE	
Part 1 - PLEASE PROVIDE YOUR TIN IN 

THE BOX AT RIGHT AND 

	 	
TIN:

 

	 	 	 	 
	
Form W-9

	CERTIFY BY SIGNING AND DATING BELOW 	 	
Social Security Number or 

	 	 	 	 
	Department of the Treasury	 	 	Employer Identification Number
	 	 	 	 
	
Internal Revenue Service

	 
	 	 	 	 
	Payer's Request for Taxpayer	Part 2 - TIN Applied for      o	 	 
	
Identification Number (“TIN”)

	 	 	 

 

Certification: Under penalties of perjury, I certify that:

 

	
(1)

	
the number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me);

 

	
(2)

	
I am not subject to backup withholding either because (a) I am exempt from backup withholding or (b) I have not been notified by the Internal Revenue Service (the “IRS”) that I am subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding; and

 

	
(3)

	
I am a U.S. person (including a U.S. resident alien).

 

Certification Instructions - You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the attached Guidelines.)

 

	
 

SIGNATURE

 

	DATE

 

	
NOTE:

	
FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING ON ANY PAYMENTS MADE TO YOU IN CONNECTION WITH THE RIGHTS OFFERING.  PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

 

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING (OR WILL

SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

 

I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future.  I understand that if I do not provide a taxpayer identification number before reportable payments are made, all reportable payments made to me will be subject to backup withholding until I provide such number.

	
 

SIGNATURE

 

	DATE

 

  

6

  

 

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION

 

NUMBER ON SUBSTITUTE FORM W-9

 

Guidelines for Determining the Proper Identification Number for the Payee (You) to Give the Payer.

 

Social security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. All “Section” references are to the Internal Revenue Code of 1986, as amended. “IRS” is the Internal Revenue Service.

 

The table below will help determine the taxpayer identification number to give the payer.

 

	

For this type of account

	 	

Give the SOCIAL SECURITY 

number of ­

	 	

For this type of account

	 	

Give the EMPLOYER 

IDENTIFICATION number of ­

	
1.  Individual

	 	
The individual

	 	
6.  Sole proprietorship

	 	
The owner3

	
2.  Two or more individuals (joint account)

	 	
The actual owner of the account, or if combined funds, the first individual on the account1

	 	
7.  A valid trust, estate, or pension trust

	 	
The legal entity4

	
3.  Custodian account of a minor (Uniform Gift to Minors Act)

	 	
The minor2

	 	
8.  Corporate

	 	
The corporation

	
4.  a. The usual revocable savings trust 

         account (grantor is also trustee)

 

     b. So-called trust account that is not a 

         legal or valid trust under state law

	 	
The grantor-trustee1

 

 

The actual owner1

	 	
9.  Association, club, religious, 

     charitable, educational, 

     or other tax-exempt organization

	 	
The organization

	
5.  Sole proprietorship

	 	
The owner3

	 	
10. Partnership

	 	
The partnership

	  	 	  	 	
11. A broker or registered nominee

	 	
The broker or nominee

	  	 	  	 	
12.  Account with the 

       Department of Agriculture 

       in the name of a public entity 

       (such as a state or local government, 

        school district, or prison) 

        that receives agricultural 

        program payments

 

	 	
The public entity

	
(1)

	
List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished.

 

	
(2)

	
Circle the minor's name and furnish the minor's social security number.

 

	
(3)

	
You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one).

 

	
(4)

	
List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)

 

Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed.

 

  

7

  

 

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION

 

NUMBER ON SUBSTITUTE FORM W-9

Obtaining a Number

 

If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Card, at the local Social Security Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number.

Payees Exempt from Backup Withholding

 

Payees specifically exempt from backup withholding include:

	
·

	
An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2).

 

	
·

	
The United States or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly-owned agency or instrumentality of any one or more of the foregoing.

 

	
·

	
An international organization or any agency or instrumentality thereof.

 

Payees that may be exempt from backup withholding include:

	
·

	
A corporation.

 

	
·

	
A financial institution.

 

	
·

	
A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States.

 

	
·

	
A real estate investment trust.

 

	
·

	
A common trust fund operated by a bank under Section 584(a).

 

	
·

	
An entity registered at all times during the tax year under the Investment Company Act of 1940.

 

	
·

	
A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List.

 

	
·

	
A futures commission merchant registered with the Commodity Futures Trading Commission.

 

	
·

	
A foreign central bank of issue.

 

Payments of dividends and patronage dividends generally exempt from backup withholding include:

	
·

	
Payments to nonresident aliens subject to withholding under Section 1441.

 

	
·

	
Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner.

 

	
·

	
Payments of patronage dividends not paid in money.

 

	
·

	
Payments made by certain foreign organizations.

 

	
·

	
Section 404(k) payments made by an ESOP.

 

Payments of interest generally exempt from backup withholding include:

 

	
·

	
Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and you have not provided your correct taxpayer identification number to the payer.

 

	
·

	
Payments of tax-exempt interest (including exempt- interest dividends under Section 852).

 

	
·

	
Payments described in Section 6049(b)(5) to nonresident aliens.

 

  

8

  

 

	
·

	
Payments on tax-free covenant bonds under Section 1451.

 

	
·

	
Payments made by certain foreign organizations.

 

	
·

	
Mortgage interest paid to you.

 

Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see the regulations under Sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N.

 

Exempt payees described above must file Form W-9 or a substitute Form W-9 to avoid possible erroneous backup withholding. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE “EXEMPT” ON THE FACE THEREOF, SIGN AND DATE THE FORM, AND RETURN IT TO THE PAYER.

 

Privacy Act Notice

 

Section 6109 requires you to provide your correct taxpayer identification number to payers, who must report the payments to the IRS. The IRS uses the number for identification purposes and may also provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally backup withhold on taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply.

 

Penalties

 

	
(1)

	
Failure to Furnish Taxpayer Identification Number - If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.

 

	
(2)

	
Civil Penalty for False Information With Respect to Withholding - If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty.

 

	
(3)

	
Criminal Penalty for Falsifying Information - Willfully falsifying certificates or affirmations may subject you to criminal penalties including fines and/or imprisonment.

 

FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT

OR THE INTERNAL REVENUE SERVICE

 

9

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