Document:

REGISTRATION
RIGHTS AGREEMENT

     

    This
Registration Rights Agreement (this “Agreement”) is made
and entered into as of August 26, 2009 among CNS Response, Inc., a Delaware
corporation (the “Company”), and the
Maxim Group, LLC (“Maxim”).

    

    WHEREAS,
the Company and the Holder have entered into that certain Placement Agency
Agreement, dated August 3, 2009 (the “Agency Agreement”) in
connection with the Company’s private offering to select, accredited investors
of units (the “Investors” and,
together with Maxim, the “Holders”), each unit
comprised of 180,000 shares of Common Stock, and a five-year warrant to purchase
90,000 shares of the Company’s Common Stock at an exercise price of $0.30 per
share (the “Investor
Warrants”), in accordance with, and subject to, the terms and conditions
described in that certain Private Placement Memorandum, dated August 26, 2009,
as amended or supplemented from time to time (the “Memorandum”);

    

    WHEREAS,
the Company and the Investors entered into Subscription Agreements, a form of
which is attached hereto as Annex C (the “Subscription
Agreement”); and

    

    WHEREAS,
pursuant to the terms of the Memorandum and in connection with the Holder’s
services under the Agency Agreement, the Company shall issue to the Holder
certain warrants to purchase the Company’s Common Stock (the “Placement Agent
Warrants”, and, together with the Investor Warrants, the “Warrants”).

    

    NOW,
THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto hereby agree as follows:

    

    1.            Definitions. 
  As used in this Agreement, the following terms shall have the
following meanings:

    

    “Advice” shall have
the meaning set forth in Section 6(d).

    

    “Effectiveness Date”
means no later than the 180th
calendar day following the final closing of the Offering; provided, however, that in the
event the Company is notified by the Commission that the Registration Statement
will not be reviewed or is no longer subject to further review and comments, the
Effectiveness Date shall be the fifth Trading Day following the date on which
the Company is so notified if such date precedes the date required
above.

    

    “Effectiveness Period”
shall have the meaning set forth in Section 2(a).

    

    “Event” shall have the
meaning set forth in Section 2(b).

    

    “Event Date” shall
have the meaning set forth in Section 2(b).

    

    “Filing Date” means no
later than the later of (i) ten (10) business days following the Company’s
filing of its Annual Report on Form 10-K for its year ended September 30, 2009
with the Securities and Exchange Commission; or (ii) the 20th calendar day after
termination of the Offering.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Indemnified Party”
shall have the meaning set forth in Section 5(c).

    

    “Indemnifying Party”
shall have the meaning set forth in Section 5(c).

    

    “Losses” shall have
the meaning set forth in Section 5(a).

    

    “Plan of Distribution”
shall have the meaning set forth in Section 2(a).

    

    “Prospectus” means the
prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 424(b) promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by the Registration Statement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

    

    “Registrable
Securities” means, the Shares, the Shares issuable upon the exercise of
the Warrants.

    

    “Registration
Statement” means the registration statement required to be filed
hereunder, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration
statement.

    

    “Rule 415” means Rule
415 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same purpose and effect as
such Rule.

    

    “Rule 424” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same purpose and effect as
such Rule.

    

    “Selling Shareholder
Questionnaire” shall have the meaning set forth in Section
3(a).

    
      
         

      

      
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    2. 
          Registration.    On or prior to the Filing
Date, the Company shall prepare and file with the Commission a Registration
Statement covering the resale of the Registrable Securities on such Filing Date
for an offering to be made on a continuous basis pursuant to Rule 415.  The
Registration Statement shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in which
case such registration shall be on another appropriate form in accordance
herewith) and shall contain (unless otherwise directed by at least an 85%
majority in interest of the Holders) substantially the “Plan of Distribution”
attached hereto as Annex A. 
Subject to the terms of this Agreement, the Company shall use its best efforts
to cause the Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof, but in any
event prior to the applicable Effectiveness Date, and shall use its best efforts
to keep the Registration Statement continuously effective under the Securities
Act until the sooner of the second anniversary of the date of such effectiveness
or the date that all Registrable Securities covered by the Registration
Statement have been sold, or may be sold without volume restrictions pursuant to
Rule 415, as determined by the counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Company’s
transfer agent and the affected Holders (the “Effectiveness
Period”).  Notwithstanding anything to the contrary contained
herein, the amount of Registrable Securities required to be included in the
Registration Statement as described in this Section 2 shall not exceed the
maximum amount of Registrable Securities which may be included in a Registration
Statement without exceeding registration limitations imposed by the SEC pursuant
to Rule 415 under the Securities Act (the “Rule 415 Amount”). In
the event that less than all of the Registrable Securities are included in the
Registration Statement as a result of such limitations, then the Company will
file additional Registration Statements each registering the Rule 415 Amount,
seriatim, until all of the Registrable Securities have been registered. 
The Company shall telephonically request effectiveness of the Registration
Statement as of 5:00 pm Eastern time on a Trading Day.   The Company
shall immediately notify the Holders via facsimile of the effectiveness of the
Registration Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date requested
for effectiveness of the Registration Statement.  The Company shall, by
9:30 am Eastern time on the second Trading Day after the Filing Date, file a
final Prospectus with the Commission as required by Rule 424.  All selling
shareholders included on the applicable Registration Statement shall be given
notice of the effectiveness of such Registration Statement substantially at the
same time.

     

    3. 
          Registration
Procedures.

     

        In connection
with the Company’s registration obligations hereunder, the Company
shall:

     

    (a)           Not
less than five (5) Trading Days prior to the filing of the Registration
Statement and not less than one Trading Day prior to the filing of the related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall, (i) furnish to each Holder copies of all such documents proposed
to be filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders, and
(ii) cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to each Holder to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the Company is
notified of such objection in writing no later than five (5) Trading Days after
the Holders have been so furnished copies of the Registration Statement or one
(1) Trading Day after the Holders have been so furnished copies of the related
Prospectus or amendment or supplement thereto. Each Holder agrees to furnish to
the Company a completed Questionnaire in the form attached to this Agreement as
Annex B (a “Selling
Shareholder Questionnaire”) not less than two (2) Trading Days prior to
the Filing Date or by the end of the fourth (4th) Trading Day following the date
on which such Holder receives draft materials in accordance with this
Section.

    
      
         

      

      
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    (b)          (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period; (ii) cause the related Prospectus to be amended or supplemented by any
required Prospectus supplement (subject to the terms of this Agreement), and as
so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible to any comments received from the Commission
with respect to the Registration Statement or any amendment thereto and as
promptly as reasonably possible provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement (provided that the Company may excise any information contained
therein which would constitute material non-public information as to any Holder
which has not executed a confidentiality agreement with the Company); and (iv)
comply in all material respects with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the Effectiveness Period in
accordance (subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.

    

    (c)           Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (iii) through (vi) hereof, shall also be accompanied by an
instruction to suspend the use of the Prospectus until the requisite changes
have been made) as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than one (1) Trading Day prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one (1) Trading
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a “review” of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement; and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement covering the Registrable Securities
or the initiation of any Proceedings for that purpose; (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; (v) of the occurrence of any event or passage of
time that makes the financial statements included in the Registration Statement
ineligible for inclusion therein or any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and (vi) the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the Company, makes it not in the
best interest of the Company to allow continued availability of the Registration
Statement or Prospectus; provided that any and
all of such information shall remain confidential to each Holder until such
information otherwise becomes public, unless disclosure by a Holder is required
by law; provided, further, that
notwithstanding each Holder’s agreement to keep such information confidential,
the Holders make no acknowledgement that any such information is material,
non-public information.

    
      
         

      

      
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    (d)           Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of (i) any order suspending the effectiveness of the Registration Statement, or
(ii) any suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.

    

    (e)           Furnish
to each Holder, without charge, at least one (1) conformed copy of the
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

    

    (f)           Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving of any notice pursuant to Section 3(d).

    

    (g)           The Company shall effect a filing with respect to the
public offering contemplated by the Registration Statement (an “Issuer Filing”)
with the Financial Industry Regulatory Authority Corporate Financing Department
pursuant to the applicable FINRA Rule within one (1) Trading Day of the date
that the Registration Statement is filed with the Commission and pay the filing
fee required by such Issuer Filing.  The Company shall use commercially
reasonable efforts to pursue the Issuer Filing until FINRA issues a letter
confirming that it does not object to the terms of the offering contemplated by
the Registration Statement.

    

    (h)           (i)  In
the time and manner required by the NYSE Amex and any other market on which the
Registrable Securities are traded (each, a “Principal Market”),
prepare and file with each Principal Market an additional shares listing
application covering all of the Registrable Securities and a notification form
regarding the change in the number of the Company’s outstanding Shares; (ii)
take all steps necessary to cause such Registrable Securities to be approved for
listing on each Principal Market as soon as possible thereafter; (iii) provide
to each Holder notice of such listing; and (iv) maintain the listing of such
Registrable Securities on each Principal Market.

    
      
         

      

      
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    (i)
           Prior to any
resale of Registrable Securities by a Holder, use its commercially reasonable
efforts to register or qualify or cooperate with the selling Holders in
connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement; provided, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified, subject the Company to any
material tax in any such jurisdiction where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

    

    (j)
           If requested
by the Holders, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be delivered
to a transferee pursuant to the Registration Statement, which certificates shall
be free, to the extent permitted by the Subscription Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may
request.

    

    (k)           Upon
the occurrence of any event contemplated by this Section 3, as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the
Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to
suspend the use of any Prospectus until the requisite changes to such Prospectus
have been made, then the Holders shall suspend use of such Prospectus.  The
Company will use its best efforts to ensure that the use of the Prospectus may
be resumed as promptly as is practicable.  The Company shall be entitled to
exercise its right under this Section 3(k) to suspend the availability of the
Registration Statement and Prospectus for a period not to exceed sixty (60)
calendar days (which need not be consecutive days) in any twelve (12) month
period.

    

    (l)           Comply
with all applicable rules and regulations of the Commission and each Principal
Market.

    
      
         

      

      
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    (m)          The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such
Holder and, if required by the Commission, the natural persons thereof that have
voting and dispositive control over the Shares. During any periods that the
Company is unable to meet its obligations hereunder with respect to the
registration of the Registrable Securities solely because any Holder fails to
furnish such information within three (3) Trading Days of the Company’s request,
any liquidated damages that are accruing at such time as to such Holder only
shall be tolled and any Event that may otherwise occur solely because of such
delay shall be suspended as to such Holder only, until such information is
delivered to the Company.

    

    4.           Registration
Expenses. All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with any Principal Market on which the Common Stock is then listed for
trading, and (B) in compliance with applicable state securities or Blue Sky laws
reasonably agreed to by the Company in writing (including, without limitation,
fees and disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities), and (C) if not previously paid by the Company in
connection with an Issuer Filing, with respect to any filing that may be
required to be made by any broker through which a Holder intends to make sales
of Registrable Securities with FINRA  pursuant to the applicable FINRA
Rule, so long as the broker is receiving no more than a customary brokerage
commission in connection wish such sale, (ii) printing expenses of the
Company (including, without limitation, expenses of printing certificates for
Registrable Securities, (iii) messenger, telephone and delivery expenses of the
Company, (iv) fees and disbursements of counsel for the Company, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement.  In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder.  In no event shall the Company be responsible for any broker or
similar commissions of any Holder or, except to the extent provided for in the
Transaction Documents, any legal fees or other costs of the
Holders.

    
      
         

      

      
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    5.            Indemnification

    

    (a)           Indemnification by the
Company. The Company shall, notwithstanding any termination of this
Agreement, indemnify and hold harmless each Holder, the officers, directors,
members, partners, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
(and any other Persons with a functionally equivalent role of a Person holding
such titles, notwithstanding a lack of such title or any other title) of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, members, stockholders, partners, agents and employees (and any other
Persons with a functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable attorneys’ fees) and expenses (collectively,
“Losses”), as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, or (2) any violation or alleged violation by the
Company of the Securities Act, Exchange Act or any state securities law, or any
rule or regulation thereunder, in connection with the performance of its
obligations under this Agreement, except to the extent, but only to the extent,
that (i) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or such Holder’s proposed method of distribution of the Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (ii) in the case of
an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the
use by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section
6(d).  The Company shall notify the Holders promptly of the institution,
threat or assertion of any Proceeding arising from or in connection with the
transactions contemplated by this Agreement of which the Company is
aware.

    

    (b)           Indemnification by
Holders. Each Holder shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons (and any other Persons with a functionally
equivalent role of a Person holding such titles, notwithstanding a lack of such
title or any other title, to the fullest extent permitted by applicable law,
from and against all Losses, as incurred, to the extent arising out of or based
solely upon: (x) such Holder’s failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue or alleged untrue statement
of a material fact contained in any Registration Statement, any Prospectus, or
any form of prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading (i) to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion in
such Registration Statement or such Prospectus or (ii) to the extent that such
information relates to such Holder’s proposed method of distribution of the
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement (it being understood
that the Holder has approved Annex A hereto for this purpose), such Prospectus
or such form of Prospectus or in any amendment or supplement thereto or (iii) in
the case of an occurrence of an event of the type specified in Section
3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.

    
      
         

      

      
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    (c)           Conduct of Indemnification
Proceedings. If any Proceeding shall be brought or asserted against any
Person entitled to indemnity hereunder (an “Indemnified Party”),
such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “Indemnifying Party”)
in writing, and the Indemnifying Party shall have the right to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have prejudiced the Indemnifying Party.

    

    An Indemnified Party shall have the
right to employ separate counsel in any such Proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless:  (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the
Indemnifying Party shall have failed promptly to assume the defense of such
Proceeding and to employ counsel reasonably satisfactory to such Indemnified
Party in any such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and counsel to the Indemnified Party shall reasonably
believe that a material conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and the reasonable fees and expenses of no more than one separate
counsel shall be at the expense of the Indemnifying Party).  The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed.  No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such
Proceeding.

    
      
         

      

      
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    Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined to be not entitled to indemnification hereunder.

    

    (d)           Contribution. If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission.  The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in this Agreement, any reasonable attorneys’ or other fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

    

      The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. 
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
net proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.

    

    The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.

    

    6.            Miscellaneous

    

    (a)           Remedies.  In
the event of a breach by the Company or by a Holder, of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.  The Company and
each Holder agree that monetary damages would not provide adequate compensation
for any losses incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall not assert or shall
waive the defense that a remedy at law would be adequate.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (b)          No Piggyback on
Registrations.  Except as set froth on
Schedule 6(b) attached hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in any Registration Statement other than the
Registrable Securities.  The Company shall not file any other registration
statements until there is an effective Registration Statement(s) pursuant to
which the Holders are permitted to utilize a Prospectus to resell all
Registrable Securities or such Registrable Securities may be resold by the
Holders pursuant to Rule 144(k), provided that this Section 6(b) shall not
prohibit the Company from filing amendments to registration statements filed
prior to the date of this Agreement.

    

    (c)           Compliance. Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.

    

    (d)           Discontinued
Disposition. Each Holder agrees by its acquisition of Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(d)(iii) through (vi), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed.  The Company will use its best
efforts to ensure that the use of the Prospectus may be resumed as promptly as
it practicable.  The Company agrees and acknowledges that any periods
during which the Holder is required to discontinue the disposition of the
Registrable Securities hereunder shall be subject to the provisions of Section
2(b).

    

    (e)           Piggy-Back
Registrations. If at any time during the Effectiveness Period there is
not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the
Commission a Registration Statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit plans, then the Company shall send to each Holder a written notice of
such determination and, if within fifteen (15) days after the date of such
notice, any such Holder shall so request in writing, the Company shall include
in such registration statement all or any part of such Registrable Securities
such Holder requests to be registered; provided, however, that, the
Company shall not be required to register any Registrable Securities pursuant to
this Section 6(d) that are not eligible for resale pursuant to Rule 415
promulgated under the Securities Act or that are the subject of a then effective
Registration Statement.  Notwithstanding anything to the contrary contained
herein, the amount of Registrable Securities required to be included in the
Registration Statement as described in this Section 6(d) shall equal the lesser
of (i) the amount of Registrable Securities that Holders request to have so
registered pursuant to this Section 6(d) and (ii) the maximum amount of
Registrable Securities which may be included in a Registration Statement without
exceeding the Rule 415 Amount.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (f)           Amendments and
Waivers. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
same shall be in writing and signed by the Company and Holders holding at least
67% of the then outstanding Registrable Securities.  Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding
sentence.

    

    (g)           Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be delivered as set forth in the Placement Agent
Warrant.

    

    (h)           Successors and
Assigns. This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of each of the parties and shall inure to
the benefit of each Holder. The Company may not assign (except by merger) its
rights or obligations hereunder without the prior written consent of all of the
Holders of the then-outstanding Registrable Securities. Each Holder may assign
their respective rights hereunder in the manner and to the Persons as permitted
under the Subscription Agreement.

    

    (i)
           No Inconsistent
Agreements. Neither the Company nor any of its Subsidiaries has entered,
as of the date hereof, nor shall the Company or any of its Subsidiaries, on or
after the date of this Agreement, enter into any agreement with respect to its
securities, that would have the effect of impairing the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof.  Except as set forth on Schedule 6(h),
neither the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.

    

    (j)
           Execution and
Counterparts. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original
thereof.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (k)           Governing Law. 
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be determined in accordance with the
provisions of the Subscription Agreement.

    

    (l) 
          Cumulative Remedies.
The remedies provided herein are cumulative and not exclusive of any other
remedies provided by law.

    

    (m)          Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

    

    (n)           Headings. The
headings in this Agreement are for convenience only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

    

    (o)           Independent Nature of
Holders’ Obligations and Rights. The obligations of each Holder hereunder
are several and not joint with the obligations of any other Holder hereunder,
and no Holder shall be responsible in any way for the performance of the
obligations of any other Holder hereunder. Nothing contained herein or in any
other agreement or document delivered at any closing, and no action taken by any
Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Holders are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Holder shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Holder to be joined as an additional party in any
proceeding for such purpose.

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the parties have
executed this Registration Rights Agreement as of the date first written
above.

    

    
      
        	
                CNS
      RESPONSE, INC.

              
	 
      
	
                By:  

              	
                   

              
	 
      	
                Name:
      George Carpenter

              
	 
      	
                Title:
      Chief Executive Officer

              
	 
      
	
                MAXIM
      GROUP LLC

              
	 
      
	
                By:

              	
                   

              
	 
      	
                Name:

              
	 
      	
                Title:

              

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ANNEX
A

     

    Plan of
Distribution

     

    The
shares covered by this prospectus may be offered and sold from time to time by
the selling stockholders. The term “selling stockholder” includes pledgees,
donees, transferees or other successors in interest selling shares received
after the date of this prospectus from each selling stockholder as a pledge,
gift, partnership distribution or other non-sale related transfer. The number of
shares beneficially owned by a selling stockholder will decrease as and when it
effects any such transfers. The plan of distribution for the selling
stockholders’ shares sold hereunder will otherwise remain unchanged, except that
the transferees, pledgees, donees or other successors will be selling
stockholders hereunder. To the extent required, we may amend and supplement this
prospectus from time to time to describe a specific plan of
distribution.

     

    The
selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. The selling stockholders
may make these sales at prices and under terms then prevailing or at prices
related to the then current market price. The selling stockholders may also make
sales in negotiated transactions. The selling stockholders may offer their
shares from time to time pursuant to one or more of the following
methods:

     

    
      	
               
      

            	
              •

            	
              ordinary
      brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

            

    

     

    
      	
               
      

            	
              •

            	
              one
      or more block trades in which the broker-dealer will attempt to sell the
      shares as agent but may position and resell a portion of the block as
      principal to facilitate the
transaction;

            

    

     

    
      	
               
      

            	
              •

            	
              purchases
      by a broker-dealer as principal and resale by the broker-dealer for its
      account;

            

    

     

    
      	
               
      

            	
              •

            	
              an
      exchange distribution in accordance with the rules of the applicable
      exchange;

            

    

     

    
      	
               
      

            	
              •

            	
              publicly
      or privately negotiated
transactions;

            

    

     

    
      	
               
      

            	
              •

            	
              through
      underwriters, brokers or dealers (who may act as agents or principals) or
      directly to one or more purchasers;

            

    

     

    
      	
               
      

            	
              •

            	
              a
      combination of any such methods of sale;
and

            

    

     

    
      	
               
      

            	
              •

            	
              any
      other method permitted pursuant to applicable
  law.

            

    

     

    In
connection with distributions of the shares or otherwise, the selling
stockholders may:

     

    
      	
               
      

            	
              •

            	
              enter
      into hedging transactions with broker-dealers or other financial
      institutions, which may in turn engage in short sales of the shares in the
      course of hedging the positions they
assume;

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              •

            	
              sell
      the shares short and redeliver the shares to close out such short
      positions;

            

    

     

    
      	
               
      

            	
              •

            	
              enter
      into option or other transactions with broker-dealers or other financial
      institutions which require the delivery to them of shares offered by this
      prospectus, which they may in turn resell;
and

            

    

     

    
      	
               
      

            	
              •

            	
              pledge
      shares to a broker-dealer or other financial institution, which, upon a
      default, they may in turn resell.

            

    

     

    In
addition to the foregoing methods, the selling stockholders may offer their
shares from time to time in transactions involving principals or brokers not
otherwise contemplated above, in a combination of such methods or described
above or any other lawful methods. The selling stockholders may also transfer,
donate or assign their shares to lenders, family members and others and each of
such persons will be deemed to be a selling stockholder for purposes of this
prospectus. The selling stockholders or their successors in interest may from
time to time pledge or grant a security interest in some or all of the shares of
common stock, and if the selling stockholders default in the performance of
their secured obligations, the pledgees or secured parties may offer and sell
the shares of common stock from to time under this prospectus; provided however
in the event of a pledge or then default on a secured obligation by the selling
stockholder, in order for the shares to be sold under this registration
statement, unless permitted by law, we must distribute a prospectus supplement
and/or amendment to this registration statement amending the list of selling
stockholders to include the pledgee, secured party or other successors in
interest of the selling stockholder under this prospectus.

     

    The
selling stockholders may also sell their shares pursuant to Rule 144 under the
Securities Act, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions.

     

    Sales
through brokers may be made by any method of trading authorized by any stock
exchange or market on which the shares may be listed or quoted, including block
trading in negotiated transactions. Without limiting the foregoing, such brokers
may act as dealers by purchasing any or all of the shares covered by this
prospectus, either as agents for others or as principals for their own accounts,
and reselling such shares pursuant to this prospectus. The selling stockholders
may effect such transactions directly, or indirectly through underwriters,
broker-dealers or agents acting on their behalf. In effecting sales,
broker-dealers or agents engaged by the selling stockholders may arrange for
other broker-dealers to participate. Broker-dealers or agents may receive
commissions, discounts or concessions from the selling stockholders, in amounts
to be negotiated immediately prior to the sale (which compensation as to a
particular broker-dealer might be in excess of customary commissions for routine
market transactions).

     

    In
offering the shares covered by this prospectus, the selling stockholders, and
any broker-dealers and any other participating broker-dealers who execute sales
for the selling stockholders, may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with these sales. Any profits
realized by the selling stockholders and the compensation of such broker-dealers
may be deemed to be underwriting discounts and commissions.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    The
Company is required to pay all fees and expenses incident to the registration of
the shares.

     

    The
Company has agreed to indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ANNEX
B

     

    CNS
RESPONSE, INC.

     

    Selling
Securityholder Notice and Questionnaire

     

    The
undersigned beneficial owner of common stock (the “Registrable
Securities”) of CNS Response, Inc., a Delaware corporation (the “Company”),
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “Commission”) the
Registration Statement (the “Registration
Statement”) for the registration and resale under Rule 415 of the
Securities Act of 1933, as amended (the “Securities Act”), of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement (the “Registration Rights
Agreement”) to which this document is annexed.  A copy of the
Registration Rights Agreement is available from the Company upon request at the
address set forth below.  All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Registration Rights
Agreement.

     

    Certain
legal consequences arise from being named as a selling securityholder in the
Registration Statement and the related prospectus.  Accordingly, holders
and beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.

     

    NOTICE

     

    The
undersigned beneficial owner (the “Selling
Securityholder”) of Registrable Securities hereby elects to include the
Registrable Securities owned by it in the Registration Statement.

     

    The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

     

    QUESTIONNAIRE

     

    
      
        	
                1.

              	
                Name.

              

      

    

     

    
      
        	
                 
      

              	
                (a)

              	
                Full
      Legal Name of Selling Securityholder

              
	 	 	 

      

    

     

    
      
        	
                 
      

              	
                (b)

              	
                Full
      Legal Name of Registered Holder (if not the same as (a) above) through
      which Registrable Securities are held:

              
	 	 	 

      

    

     

    
      
        	
                 
      

              	
                (c)

              	
                Full
      Legal Name of Natural Control Person (which means a natural person who
      directly or indirectly alone or with others has power to vote or dispose
      of the securities covered by the questionnaire):

              
	 	 	 

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      2. 
Address for Notices to Selling Securityholder:

    

     

    
      
        	 
      
	 
      
	 
      
	
                Telephone:

              	 
      
	
                Fax:

              	 
      
	
                Contact Person:  

              	 
      

      

    

    

    3. 
Broker-Dealer Status:

     

    
      	
               
      

            	
              (a)

            	
              Are
      you a broker-dealer?

            

    

     

    Yes    ̈ No    ̈

     

    
      	
               
      

            	
              (b)

            	
              If
      “yes” to Section 3(a), did you receive your Registrable Securities as
      compensation for investment banking services to the
    Company.

            

    

     

    Yes    ̈ No    ̈

     

    
      	 	
              Note:

            	
              If
      no, the Commission’s staff has indicated that you should be identified as
      an underwriter in the Registration
Statement.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Are
      you an affiliate of a
broker-dealer?

            

    

     

    Yes    ̈ No    ̈

     

    
      	
               
      

            	
              (d)

            	
              If
      you are an affiliate of a broker-dealer, do you certify that you bought
      the Registrable Securities in the ordinary course of business, and at the
      time of the purchase of the Registrable Securities to be resold, you had
      no agreements or understandings, directly or indirectly, with any person
      to distribute the Registrable
Securities?

            

    

     

    Yes    ̈ No    ̈

     

    
      	 	
              Note:

            	
              If
      no, the Commission’s staff has indicated that you should be identified as
      an underwriter in the Registration
Statement.

            

    

     

    
      4. 
Beneficial Ownership of Other Securities of the Company Owned by the Selling
Securityholder.

    

     

    Except
as set forth below in this Item 4, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the Registerable
Securities.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        	
                 
      

              	
                (a)

              	
                Type
      and Amount of other securities beneficially owned by the Selling
      Securityholder:

              
	 	 	 
	 	 	 

      

    

     

    
      5.  Relationships
with the Company:

    

     

    Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.

     

    State any
exceptions here:

     

    
      

    

    
      

    

     

    The
undersigned agrees to promptly notify the Company of any inaccuracies or changes
in the information provided herein that may occur subsequent to the date hereof
at any time while the Registration Statement remains effective.

     

    By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus and any amendments or supplements
thereto.  The undersigned understands that such information
will be relied upon by the Company in connection with the preparation or
amendment of the Registration Statement and the related prospectus.

     

    IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
and Questionnaire to be executed and delivered either in person or by its duly
authorized agent.

     

    
      
        	
                Dated:
      __________________________________

              	
                Beneficial
      Owner: ___________________________________

              
	 
      	 
      
	 
      	
                By:  

              	
                   

              
	 
      	 
      	
                Name:

              
	 
      	 
      	
                Title:

              

      

    

    

    PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:

     

    CNS
Response, Inc.

    2755
Bristol St., Suite 285

    Costa
Mesa, CA 92626

    Attention:  George
Carpenter

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    ANNEX
C

     

    INVESTOR
SUBSCRIPTION AGREEMENTMAGAL
SECURITY SYSTEMS LTD.

    17
Altalef Street

    Industrial
Zone

    Yehud
56100, Israel

    __________________

    

    NOTICE
OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

    __________________

     

    Dear
Shareholders:

     

    You are
cordially invited to attend an Extraordinary General Meeting of Shareholders, or
the Extraordinary Meeting, of Magal Security Systems Ltd.  to be held
at 10:00 a.m. (Israel time) on Wednesday, August 12, 2010 at our offices at 17
Altalef Street, Industrial Zone, Yehud 56100, Israel.

     

    We are
convening the Extraordinary Meeting in response to a demand made by certain of
our shareholders, who together represent approximately 17.81% of our outstanding
shares, pursuant to Section 63(b) of the Israeli Companies Law, the purpose of
which is to consider and vote upon the following two shareholder
proposals:

     

    
      	
               
      

            	
              1.

            	
              To
      terminate the services of all of our directors other than Mr. Nathan Kirsh
      and our outside directors within the meaning of the Israeli Companies Law,
      effective as of the close of business of the Extraordinary
      Meeting.  Such directors are Messrs. Jacob Perry, Jacob
      Even-Ezra, Ze’ev Livne, Jacob Nuss and Barry
  Stiefl.

            

    

     

    
      	
               
      

            	
              2.

            	
              If
      the proposal to remove the foregoing directors from office is adopted at
      the Extraordinary Meeting, to elect each of the following five persons as
      our directors, effective as of the close of business at Extraordinary
      Meeting: Messrs. Avihu Ben-Nun, Yoav Stern, Zivi R. Nedivi, Ami Amir and
      Israel (Relik) Shafir.

            

    

     

    If the
proposal to remove the foregoing directors from office is rejected at the
Extraordinary Meeting, shareholders will be asked to consider and vote upon
certain proposed transactions with Mr. Nathan Kirsh, a director, which may
result in Mr. Kirsh becoming a holder of more than 25% of our outstanding
shares.

     

    Our
Board of Directors recommends a vote AGAINST each of the shareholder proposals
and FOR our proposal, as described in the Proxy Statement.

     

    Shareholders
of record at the close of business on July 7, 2010 are entitled to notice of,
and to vote at, the Extraordinary Meeting.  You can vote either by
mailing in your proxy, or in person, by attending the Extraordinary
Meeting.  If voting by mail, the proxy must be received by our
transfer agent or at our registered office in Israel at least forty-eight (48)
hours prior to the appointed time of the Extraordinary Meeting to be validly
included in the tally of ordinary shares voted at the Extraordinary
Meeting.  If you attend the Extraordinary Meeting, you may vote in
person and your proxy will not be used.  Detailed proxy voting
instructions are provided both in the Proxy Statement and on the enclosed proxy
card.

     

    
      
        	 	
                By
      Order of the Board of Directors

              
	 	 
      
	 	
                Jacob
      Perry

              
	 	
                Chairman
      of the Board of Directors

              

      

    

     

    Yehud,
Israel

    July 4,
2010

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    MAGAL
SECURITY SYSTEMS LTD.

    P.O. Box
70

    Industrial
Zone

    Yehud
56100, Israel

    __________________

    

    PROXY
STATEMENT

    

    EXTRAORDINARY
GENERAL MEETING OF SHAREHOLDERS

    __________________

     

    This
Proxy Statement is being furnished in connection with the solicitation of
proxies in response to a demand made by certain of our shareholders, who
together represent approximately 17.81% of our outstanding shares, to convene an
Extraordinary General Meeting of Shareholders, or the Extraordinary Meeting,
pursuant to Section 63(b) of the Israeli Companies Law.  The
Extraordinary Meeting will be held at 10:00 a.m. (Israel time) on Wednesday,
August 12, 2010, at our offices at 17 Altalef Street, Industrial Zone, Yehud
56100, Israel.

     

    This
Proxy Statement, the attached Notice of Extraordinary General Meeting and the
enclosed proxy card are being mailed to shareholders on or about July 9,
2010.

     

    Purpose
of the Extraordinary Meeting

     

    At the
Extraordinary Meeting, shareholders will be asked to:

     

    
      
        	
              	
                Item
      1A:

              	
                Consider
      and vote upon a shareholder proposal to terminate the service as directors
      of our Company of all members of the Board of Directors, including without
      limitation, Mr. Jacob Perry, Mr. Jacob Even-Ezra, Mr. Ze’ev Livne, Mr.
      Jacob Nuss and Mr. Barry Stiefl, but excluding Mr. Nathan Kirsh and the
      Company’s external directors, effective as of the close of the
      Extraordinary Meeting.

              

      

    

     

    
      
        	
              	
                Item
      1B:

              	
                Subject
      to the adoption of Item 1A at the Extraordinary Meeting, consider and vote
      upon a shareholder proposal to appoint Messrs. Avihu Ben-Nun, Yoav Stern,
      Zivi R. Nedivi, Ami Amir and Israel (Relik) Shafir as directors of our
      Company, effective as of the close of the Extraordinary
      Meeting.

              

      

    

     

    
      
        	
              	
                Item
      2: 

              	
                In
      the event that Item 1A is rejected at the Extraordinary Meeting, consider
      and vote upon our proposal to approve certain proposed transactions with
      Mr. Nathan Kirsh, a director, which is intended to allow Mr. Kirsh
      becoming a holder of more than 25% of our outstanding
    shares.

              

      

    

     

    Recommendation
of the Board of Directors

     

    Our Board
of Directors recommends a vote AGAINST each of Items 1A and Item 1B and FOR Item
2.

     

    Proxy
Procedure

     

    Only
holders of record of our ordinary shares, par value of NIS 1.00 per share, as of
the close of business on July 7, 2010 are entitled to notice of, and to vote in
person or by proxy at, the Extraordinary Meeting.  As of July 2, 2010
there were 10,396,548 outstanding ordinary shares.

     

    
      
        	
              	
                ·

              	
                Voting in
      Person.  If your shares are registered directly in your
      name with our transfer agent (i.e. you are a “registered shareholder”),
      you may attend and vote in person at the Extraordinary
      Meeting.  If you are a beneficial owner of shares registered in
      the name of your broker, bank, trustee or nominee (i.e. your shares are
      held in “street name”), you are also invited to attend the Extraordinary
      Meeting; however, to vote in person at the Extraordinary Meeting as a
      beneficial owner, you must first obtain a “legal proxy” from your broker,
      bank, trustee or nominee authorizing you to do
  so.

              

      

    

     

      
        
           

        

        
           

          
            

          

        

        
           

        

      
 

    
      	
               
      

            	
              ·

            	
              Voting by
      Mail.  You may submit your proxy by mail by completing,
      signing and mailing the enclosed proxy card in the enclosed, postage-paid
      envelope, or, for shares held in street name, by following the voting
      instructions provided by your broker, bank trustee or
      nominee.  The proxy must be received by our transfer agent or at
      our registered office in Israel at least forty-eight (48) hours prior to
      the appointed time of the Extraordinary Meeting to be validly included in
      the tally of ordinary shares voted at the Extraordinary
      Meeting.  If directions are not given or directions are not in
      accordance with the options listed on a proxy card, such shares will be
      voted AGAINST each of Item 1A and Item 1B and FOR Item
  2.

            

    

     

    Change
or Revocation of Proxy

     

    If you
are a registered shareholder, you may change your vote at any time prior to the
exercise of authority granted in the proxy by delivering a written notice of
revocation to our Corporate Secretary, by granting a new proxy bearing a later
date using, or by attending the Extraordinary Meeting and voting in
person.  Attendance at the Extraordinary Meeting will not cause your
previously granted proxy to be revoked unless you specifically so
request.

     

    If your
shares are held in street name, you may change your vote by submitting new
voting instructions to your broker, bank, trustee or nominee or, if you have
obtained a legal proxy from your broker, bank, trustee or nominee giving you the
right to vote your shares, by attending the Extraordinary Meeting and voting in
person.

     

    Quorum

     

    The
presence of two shareholders, holding at least one-third (1/3) of our company’s
total voting rights, represented in person or by proxy at the Extraordinary
Meeting, will constitute a quorum.  If within half an hour from the
time designated for the Extraordinary Meeting a quorum is not present, the
Extraordinary Meeting will stand adjourned to the same day in the following
week, at the same time and place.  If within half an hour from the
time designated for the reconvened Meeting a quorum is not present, two
shareholders present in person or by proxy will constitute a
quorum.

     

    Abstentions
will be counted towards the quorum.  The proposals presented at the
Extraordinary Meeting are not “routine” matters under New York Stock
Exchange Rule 452, and a New York Stock Exchange member organization therefore
may not make a “broker non-vote” in connection with any of the
proposals.

     

    Unsigned
or unreturned proxies, including those not returned by banks, brokers, or other
record holders, will not be counted for quorum or voting purposes.

     

    Majority
Vote Standard

     

    Each
ordinary share entitles the holder to one vote.  An affirmative vote
of the holders of a majority of the ordinary shares represented at the
Extraordinary Meeting, in person or by proxy, entitled to vote and voting
thereon, is required to approve each of the proposals, except as otherwise
stated in the proposal.

     

    In
tabulating the voting result for any particular proposal, shares that constitute
broker non-votes and abstentions are not considered votes cast on that
proposal.  Unsigned or unreturned proxies, including those not
returned by banks, brokers, or other record holders, will not be counted for
voting purposes.

     

    We have
received indications from our principal shareholder, Mr. Natan Kirsh who holds
approximately 24.2% of our issued and outstanding ordinary shares, that he
presently intends to vote AGAINST Item 1A and Item 1B and FOR Item
2.

     

    Cost
of Soliciting Votes for the Annual Meeting

     

    We will
bear the cost of soliciting proxies from our shareholders.  Proxies
will be solicited by mail and may also be solicited in person, by telephone or
electronic communication, by our directors, officers and
employees.  We will reimburse brokerage houses and other custodians,
nominees and fiduciaries for their expenses in accordance with the regulations
of the Securities and Exchange Commission, or the SEC, concerning the sending of
proxies and proxy material to the beneficial owners of our
stock.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Security
Ownership of Certain Beneficial Owners and Management

     

    The
following table sets forth certain information, as of July 2, 2010, pertaining
to the beneficial ownership of our ordinary shares by (i) all shareholders known
to us to own beneficially 5% or more of our ordinary shares and (ii) all
directors and executive officers as a group.  Except for Mr. Nathan
Kirsh, whose beneficial ownership is set forth in the table below, and Mr. Jacob
Even-Ezra and Mr. Jacob Perry, each of whom beneficially owns less than 5% of
our ordinary shares, none of our directors beneficially own our ordinary
shares.

     

    
      
        
          
            
              
                	
                        
                          Name

                        

                      	 	
                        
                          Number of

                          Ordinary Shares

                          Beneficially Owned(1)

                        

                      	 	 	
                        
                          Percentage of

                          Outstanding

                          Ordinary Shares(2)

                        

                      	 
	
                        Nathan
      Kirsh (3)

                      	 	 	2,516,267	 	 	 	24.2	%
	
                        Clough
      Capital Partners L.P. (4)

                      	 	 	704,042	 	 	 	6.77	%
	
                        Grace
      & White, Inc. (5).

                      	 	 	607,526	 	 	 	5.84	%
	
                        Diker
      Management LLC (6)

                      	 	 	604,495	 	 	 	5.81	%
	
                        Prescott
      Group Aggressive Small Cap Master Fund, G.P. (7)

                      	 	 	544,427	 	 	 	5.23	%

              

            

          

        

      

    

    ________

    
      	
              (1)

            	
              Beneficial
      ownership is determined in accordance with the rules of the SEC and
      generally includes voting or investment power with respect to
      securities.  Ordinary shares relating to options or convertible
      notes currently exercisable or exercisable within 60 days of the date of
      this table are deemed outstanding for computing the percentage of the
      person holding such securities but are not deemed outstanding for
      computing the percentage of any other person.  Except as
      indicated by footnote, the persons named in the table above have sole
      voting and investment power with respect to all shares shown as
      beneficially owned by them.

            

    

     

    
      	
              (2)

            	
              The
      percentages shown are based on 10,396,548 ordinary shares issued and
      outstanding as of July 2, 2010.

            

    

     

    
      	
              (3)

            	
              Based
      upon a Schedule 13D/A filed with the Securities and Exchange Commission on
      May 17, 2010.  Includes: (i) 1,446,772 ordinary shares held of
      record by Mira Mag Inc., or Mira Mag, a company organized in Liberia; and
      (ii) 1,069,495 ordinary shares held of record by Ki Corporation Limited,
      or Ki Corporation, a company organized in Liberia.  The Eurona
      Foundation holds 100% of Ki Corporation.  Ki Corporation holds
      100% of the shares of Mira Mag.  The Eurona Foundation is a
      Liechtenstein trust controlled by Mr. Kirsh, who also serves as its
      trustee.  Mr. Kirsh may be deemed to have beneficial ownership
      of the ordinary shares held of record by Mira Mag and Ki
      Corporation.

            

    

     

    
      	
              (4)

            	
              Based
      solely upon, and qualified in its entirety with reference to, a Schedule
      13D filed with the SEC on June 17, 2010.  The Schedule 13D
      indicates that the shares include shares beneficially owned by the Clough
      Client Accounts for which Clough Capital Partners L.P. serves as
      investment adviser.  Such shares may be deemed beneficially
      owned by (a) Clough Capital Partners L.P., (b) Clough Capital Partners
      LLC, the general partner of Clough Capital Partners L.P., and (c) Messrs.
      Charles Clough, James Canty and Eric Brock, the managing members of Clough
      Capital Partners LLC.  Each such reporting person disclaims
      beneficial ownership of such shares except to the extent of its respective
      pecuniary interest therein.

            

    

     

    
      	
              (5)

            	
              Based
      solely upon, and qualified in its entirety with reference to, a Schedule
      13G/A filed with the SEC on February 1, 2010.  The Schedule
      13G/A indicates that Grace & White, Inc. is a registered investment
      adviser.

            

    

     

    
      	
              (6)

            	
              Based
      solely upon, and qualified in its entirety with reference to, a Schedule
      13D filed with the SEC on June 21, 2010.  The Schedule 13D
      indicates that as the sole general partner of certain Diker partnerships
      with respect to stock directly owned by certain Diker funds, or the Diker
      Funds, Diker GP has the power to vote and dispose of the shares owned by
      the Diker Funds and, accordingly, may be deemed the beneficial owner of
      such shares.  Pursuant to investment advisory agreements, Diker
      Management, LLC serves as the investment manager of the Diker Funds.
      Accordingly, Diker Management may be deemed the beneficial owner of shares
      held by the Diker Funds.  Charles M. Diker and Mark N. Diker are
      the managing members of each of Diker GP, LLC and Diker Management LLC,
      and in that capacity direct their operations.  Therefore,
      Charles M. Diker and Mark N. Diker may be deemed the beneficial owners of
      shares beneficially owned by Diker GP, LLC and Diker Management LLC. Diker
      GP, LLC, Diker Management LLC, Charles M. Diker and Mark N. Diker disclaim
      all beneficial ownership, however, as affiliates of a registered
      investment adviser, and in any case disclaim beneficial ownership except
      to the extent of their pecuniary interest in the
  shares.

            

    

     

      
        
           

        

        
          3

          
            

          

        

        
           

        

      
 

    
      	
              (7)

            	
              Based
      solely upon, and qualified in its entirety with reference to, a Schedule
      13D filed with the SEC on June 14, 2010.  The Schedule 13D
      indicates that Prescott Group Aggressive Small Cap, L.P. and Prescott
      Group Aggressive Small Cap II, L.P., referred to together as the Small Cap
      Funds, are the general partners of Prescott Group Aggressive Small Cap
      Master Fund, G.P., or Prescott Master Fund.  Prescott Group
      Capital Management, L.L.C., or Prescott Capital, serves as the general
      partner of the Small Cap Funds and may direct the Small Cap Funds, the
      general partners of Prescott Master Fund, to direct the vote and
      disposition of the ordinary shares held by the Prescott Master
      Fund.  The Schedule 13D further indicates that Mr. Frohlich, the
      principal of Prescott Capital, may direct the vote and disposition of the
      ordinary shares held by Prescott Master
Fund.

            

    

     

    SHAREHOLDER
PROPOSAL FOR REMOVAL AND ELECTION OF DIRECTORS

    (Items 1A
and 1B on the Proxy Card)

     

    On June
13, 2010, we received a letter that was sent by counsel on behalf of certain of
our shareholders, (i) Clough Investment Partners I, L.P., Clough Investment
Partners II, L.P., Clough Offshore Fund, Ltd., Clough Global Equity Fund, Clough
Global Allocation Fund and The Flatley Foundation, (ii) Prescott Group
Aggressive Small Cap, L.P. and Prescott Group Aggressive Small Cap TI, L.P., and
(iii) Diker Micro-Value Fund, L.P., Diker Micro-Value QP Fund, L.P., Diker Micro
and Small Cap Fund, L.P. and Diker M&S Cap Master, Ltd., referred to
collectively in this Proxy Statement as the Dissident
Shareholders.  The Dissident Shareholders together represent
approximately 17.81% of our outstanding shares.  For information
regarding the beneficial ownership of the Dissident Shareholders, see table
above “Security Ownership of Certain Beneficial Owners and
Management.”  The Dissident Shareholders demanded, pursuant to Section
63(b) of the Israeli Companies Law, that we convene an extraordinary general
meeting of shareholders to consider and vote upon the following two shareholder
proposals:

     

    
      	
               
      

            	
              (i)

            	
              To
      terminate the service as directors of the Company of all members of the
      Board of Directors, including without limitation, Mr. Jacob Perry, Mr.
      Jacob Even-Ezra, Mr. Ze’ev Livne, Mr. Jacob Nuss and Mr. Barry Stiefl, but
      excluding Mr. Nathan Kirsh and the Company’s external directors, effective
      as of the close of the Extraordinary Meeting. Messrs. Jacob Perry, Jacob
      Even-Ezra, Ze’ev Livne, Jacob Nuss and Barry Stiefl are referred to
      collectively in this Proxy Statement as the Standing
      Directors.  All of the Standing Directors were reelected to
      serve in such capacity by our shareholders at our 2010 Annual General
      Meeting of Shareholders held on June 23, 2010.  A biography of
      each of the Standing Directors and each of the three directors not subject
      to the termination demand is set forth
below.

            

    

     

    
      	
               
      

            	
              (ii)

            	
              If
      the proposal to remove the Standing Directors from office is adopted at
      the Extraordinary Meeting, to appoint Messrs. Avihu Ben-Nun, Yoav Stern,
      Zivi R. Nedivi, Ami Amir and Israel (Relik) Shafir as directors of the
      Company, effective as of the close of the Extraordinary Meeting. A
      biography of each of the Dissident Shareholders’ director nominees, as
      provided to us by counsel for the Dissident Shareholders, is set forth
      below.

            

    

     

    Biographies
of Standing Directors

     

    The
following information with respect to each of the Standing Directors is based
upon our records and information furnished to us.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    Jacob Perry
(66) has served as the chairman of our board of directors since January
2008.  Prior thereto, Mr. Perry served as the deputy chairman of our
board of directors from 2006 and has served as a director of our company since
December 2002.  From 1995 to December 2002, Mr. Perry served as the
president and chief executive officer of Cellcom Israel Ltd., one of Israel’s
leading cellular phone operators.  Mr. Perry served 29 years with the
Israeli General Security Service and served as its director from 1988 until
1995.  Mr. Perry has also served as a coordinator to the Israeli Prime
Minister on the subject of prisoners of war and missing persons.  Mr.
Perry was a board member of El-Al Israel Airlines and a member of the management
of many public organizations.  Mr. Perry is also a chairman of the
board of directors of Mizrahi Tefahot Bank B.M.  Mr. Perry serves as a
director of Tamarind Technologies and New Kopel, an Israeli vehicle and car
service group.  Mr. Perry holds a B.A. degree in Oriental Studies and
History of the Jewish People from Tel Aviv University and completed the Advanced
Management Program at Harvard Business School.

     

    Jacob Even-Ezra
(79) has served as a director since 1984 and is a member of our
investment committee.  From 1984 until December 2007, Mr. Even-Ezra
served as the chairman of our board of directors.  From 1984 until
2006, Mr. Even-Ezra served as our chief executive officer, and from 1987 until
1990 he also served as our president.  Mr. Even-Ezra is currently a
member of the Executive Council and the Management Committee of Tel Aviv
University.  From 1985 to 1988, Mr. Even-Ezra also served as the
chairman of the Israel Export Institute.  Mr. Even-Ezra holds a B.Sc.
degree in Electrical Engineering from the Technion - Israel Institute of
Technology.

     

    Zeev Livne
(66) has
served as a director since July 2004.  Mr. Livne has served as the chairman of Livne
Strategic Consultants Ltd. since
2001.  Prior to that, Mr. Livne served in the
Israel Defense Forces, or IDF, for 39 years and retired as a Major
General.  During his long military career with the IDF, Mr. Livne
served as the Defense Attaché to the United States and Canada from 1997 to 2001,
Military Secretary to the Prime Minister of Israel from 1996 to 1997 and Ground
Force Commander from 1994 to 1996.  From 1992 to 1994, Mr. Livne
established the IDF Home Front Command and served as its first
Commander.  Mr. Livne serves on the board of directors of PAZKAR Ltd.,
a private Israeli company.  Mr. Livne holds a B.A. degree in History
from Tel Aviv University and an M.A. degree in Geography from the University of
Haifa.

     

    Jacob Nuss
(63) has served as a director since 1993 and is a member of our audit
committee.  Mr. Nuss has served as the vice president - internal
auditing of Israel Aircraft Industries Ltd., or IAI, since 2004, and served as
IAI’s deputy vice president - internal auditing from 1999 to
2003.  From 1993 to 1999, Mr. Nuss served as the director of finance
of IAI’s electronics group.  From 1991 to 1993, Mr. Nuss served as
assistant to the chairman of the board of directors of IAI.  Mr. Nuss
has served in various financial management capacities at IAI since
1975.  Mr. Nuss holds a B.A. degree in Economics and Business
Management from Bar Ilan University and an M.B.A. degree in Business from Tel
Aviv University.  Mr. Nuss holds a certificate in internal
auditing.

     

    Barry Stiefel
(60) has served as a director since November
2008.  Mr. Stiefel served as a director of one of our UK subsidiaries
from 1986 to 1990.  Since 2001, Mr. Stiefel has served as a consultant
for a number of companies, including Premedia Limited and its
subsidiaries.  From 1990 until 2001, Mr. Stiefel was the chief
executive officer of Meridian VAT Reclaim Group, which he
founded.  Between 1985 and 1990, Mr. Stiefel served as consultant in
the field of trade finance.  From 1981 to 1985, Mr. Stiefel served as
finance director of Fisher Brothers Lumber Company Limited, a South African
company.  Mr. Stiefel holds a B.Sc. degree in Mathematics and
Chemistry and a B.A. degree in Accounting, both from the University of
Witwatersrand in South Africa.  Mr. Stiefel is a chartered accountant
in South Africa and is registered as an auditor (not in public practice) in the
United Kingdom.

     

    Biographies
of Directors Continuing in Office

     

    The
following information with respect to each of our directors continuing in office
is based upon our records and information furnished to us.

     

    Nathan
Kirsh (78) has
served as a director since 1984.  Mr. Kirsh is an independent
investor.  Mr. Kirsh serves as one of the trustees of the Eurona
Foundation, the beneficial owner of 100% of the ordinary shares of our company
that are held by Mira Mag Inc.  Mr. Kirsh holds a B.S. degree in
Commerce from the University of Witwatersrand, Johannesburg, South
Africa.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    Shaul
Kobrinsky (58) has
served as an outside director since July 2004 and is the chairman of our audit
committee and a member of our investment committee and mergers and acquisition
committee.  Mr. Kobrinsky has served as the President and Chief
Executive Officer of Urdan Industries Ltd., an investment and holding company
since 1997.  Since 2003, Mr. Kobrinsky has served as senior managing
director of Alagem Capital Group, a Beverly Hills based investment
group.  From 1989 to 1997, Mr. Kobrinsky served as chief executive
officer of Cargal Ltd., an Israeli company that manufactures
corrugates.  Prior to that and from 1984, Mr. Kobrinsky served as
deputy managing director of Clal Industries Ltd., a holding and investment
company.  Mr. Kobrinsky serves as an outside director and a member of
the audit committee of Scope Metal Trading Ltd., a public company traded on the
Tel Aviv Stock Exchange.  Mr. Kobrinsky holds a B.A. degree in
Economics from Tel Aviv University.  Mr. Kobrinsky is a member of the
Antitrust Court of the State of Israel.

     

    Liza
Singer (39) has
served as an outside director since June 2010.  Ms. Singer served as
the owner’s representative in the Lewis Trust Group, an investment assessment
and development entity that focuses on tourist projects and the development of
marine and hotels resorts, since 2003.  Since 2007, Ms. Singer has
also served as the Chief Operating Officer and Country Manager of Brack Capital
Real Estate.  Between 2002 and 2003, Ms. Singer served as the Vice
President of Business Development of the Baran Group, a provider of engineering
and construction services.  From 2000 to 2001, Ms. Singer served as
investment director of Syntek Capital, a private-equity investment company, and
between 1999 and 2000, Ms. Singer served as an associate at APAX Partners &
Co., a venture capital fund.  Mr. Singer was also an accountant at
Kesselman & Kesselman, the Israeli member firm of
PricewaterhouseCoopers.  Ms. Singer has an LLB degree, a BA degree in
accounting and an MBA degree, all from Tel Aviv University.  Ms.
Singer is a certified public accountant (Israel).

     

    Biographies
of Dissident Shareholder Director Nominees

     

    The
following information with respect to each director nominated by the
Dissident Shareholders has been
furnished to us by counsel for the Dissident Shareholders.

     

    Major Gen., (Ret) Avihu
Ben-Nun, 70

     

    Major
Gen. (Ret.) Avihu Ben-Nun served for 34 years in the Israeli Air Force, retired
in 1992, after 2 years as Head of Strategic Planning Division in the Israeli
Defense Forces' General Staff Headquarters, and 5 years as the Supreme Commander
of the Israeli Air Force. Since his retirement, Mr. Ben-Nun serves as the
Chairman of Universal Motors Israel (UMI), which he founded through a merger
between 3 competitors, and led to become the exclusive distributor of all
General Motors exported brands in Israel and the leading distributor and vehicle
importer in the Israeli automotive market. He also served as Chairman of GM UMIT
R&D and General Motors’ R&D center in Israel. Mr. Ben-Nun held key
executive positions in the private sector as well as voluntary positions in the
public sector. He also serves on the Board of Directors of leading companies,
including Kardan Ltd, ExactCost and FIRST Israel, and in the past on the Boards
of Golden Wings V.C. Fund, Elbit Systems Ltd., Bank Mizrahi, Electronic Data
Systems Israel Ltd. (which he also established) and Advanced Material
Technology. In the public sector, Mr. Ben-Nun is a director of the
Israel-America Chamber of Commerce and the Tel Aviv Chamber of Commerce, former
President of the Israeli Air Force Association, Chairman of the Israeli Vehicles
Importer Association and Vice-Chairman of the Combined Chamber of Commerce and
of the Council of the Federation of Israeli Chamber of Commerce. Mr. Ben-Nun
holds a Bachelor degree from Auburn University, Alabama; graduated with
distinction from the US Air Force Air Warfare College, graduated the Advanced
Management Program at Harvard Business School and was awarded an Honorary
Doctorate from the Technion in Haifa, Israel.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    Mr. Yoav Stern,
56

     

    Mr. Stern
served from late 2008 throughout part of 2009 as the Acting President and Chief
Executive Officer of the Company, during which he repositioned the Company after
suffering continuous losses, and redesigned its business plan for the corning
years, which was approved for execution by the Company’s Board. Since 1997, Mr.
Stern serves as the Co-Chairman of the Board of Directors of Bogen
Communications International Inc. (NASDAQ: BOGN), a New Jersey and European
based digital voice processing company with annual revenues of approximately $50
million. During 2007-2008, Mr. Stem led the privatization and deregistration of
Bogen through a series of public tender offers, and he is continuously involved
in its M&A, financing and strategic development activities. Prior to 1995,
Mr. Stem was a Co-Chief Executive Officer of Bogen's predecessor company,
European Gateway Acquisition Corporation (NASDAQ: EGAC). Mr. Stern was the
founder and managing partner of Helix Capital LLC, a private M&A and
turnaround advisory firm based in San Francisco and New York.  During
1998-2003, Mr, Stern served as the Executive Chairman of Kellstrom Industries
Inc., an industry leader in the airborne equipment segments of the international
aviation services after-market. Together with Mr. Nedivi, he led a series of
complex M&A and financing transactions that increased Kellstrom's annual
revenues from $8 million to $330 million. Following the September 11 attacks and
the downturn in the aviation industry, Mr. Stem introduced a financial
turnaround plan for Kellstrom and raised $100 million from private equity funds
as well as from GE Capital and Sumitomo Bank, thus enabling Kellstrom to
significantly recover from brink of liquidation. Mr. Stem is still one of the
largest private shareholders of Kellstrom, Mr. Stern was also the President of
WordStar International Inc., a California based publicly traded software
company, which he led through a turnaround process and a three-way public merger
that resulted in it becoming the largest consumer software company (The Learning
Company (NYSE: TLC)). Mr. Stern served as a director and executive officer in
various private and public companies, including Random Access Inc. and Elron
Electronic Industries Ltd. (NASDAQ: ELRNF), in which he was extensively involved
in major M&A transactions, the raising of public equity and debt and
business restructuring. Mr. Stem served for 25 years in active duty and reserve
service in the Israeli Air Force, as a fighter pilot and senior flight leader of
various aircrafts (such as F-15, A-4, Mirage and Kfir), an Avionic Systems
Officer, a Commander of the Operational Training Unit and an F-15 Deputy
Squadron Commander. Mr. Stem earned a Practical Engineering Diploma (magna cum
laude) in advance mechanics and automation from ORT Technological College,
Israel, graduated the Israeli Air Force Academy and holds a B.Sc. Degree (cum
laude) in Mathematics and Computer Science from Tel Aviv
University.

     

    Mr. Zivi R. Nedivi
52

     

    Mr.
Nedivi has served, between 2008 and 2010 as the Chief Executive Officer and
thereafter as Special Advisor of Axiorn Investment Advisors, LLC, a hedge fund
located in New York, focused on foreign currency trading with assets under
management of over $1.6 billion, servicing large financial institutions,
including Deutsche Bank and the World Bank. Prior to joining Axiom, Mr. Nedivi
served as the Chief Operating Officer of Lumenis Ltd., a global leader in
medical and aesthetic lasers and light based technology. From 1995 until 2005,
Mr. Nedivi served as President and Chief Executive Officer of Kellstrom
Aerospace (as well as its predecessor companies), an industry leader in the
airborne equipment segments of the international aviation services after-market.
Together with Mr. Stern, he led complex M&A and financing transactions that
increased Kellstrom's annual revenues from $8 million to $330 million. Following
the September 11 attacks and the downturn in the aviation industry, Mr. Nedivi
also planned and executed a turnaround plan for Kellstrom, thus enabling it to
significantly recover from brink of liquidation. Mr. Nedivi is still one of the
largest private shareholders of Kellstrom. Mr. Nedivi was also the General
Manager of Maakav Ltd., a private aviation management company based in Israel,
which represented certain American companies in Israel, including companies
active in the distribution of aircraft parts. Mr. Nedivi served as a Human
Engineering Consultant to Israel Aircraft Industries Ltd. on the Lavi fighter
aircraft program. He also served for seven years in the Israel Air Force as an
F-15 fighter pilot and held the rank of Major.

     

    Mr. Ami Amir,
66

     

    Mr. Amir
established and currently serves as the General Partner at Partech
International, a global venture fund, focusing on sourcing and investing in
local early stage technology companies. Mr. Amir founded Radvision Ltd. (NASD:
RVSN) in 1993 and managed it as the Chief Executive Office for 9 years. Under
his leadership, the company became a market leader in the voice and video over
IP space. During 2000, Mr. Amir initiated the IPO of Radvision on NASDAQ in
which an amount of $85 million was raised by the company and led the company's
growth to 300 employees and revenues in excess of $70 million. Prior to
Radvision, Mr. Amir served for 6 years as the Chief Executive Officer of RAD
Inc., during which he led RAD to over $20 million in sales to OEMs and
distributors. Mr. Amir’s extensive technical background includes years spent in
R&D building real time, embedded electronic warfare systems and large
software based communications systems, Internet related technologies and
solutions and developing various hardware and software. Mr. Amir holds a B. Sc.
Electrical Engineering from Technion in Haifa, Israel.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    Brig. Gen. (Res.) Israel
(Relik) Shafir, 57

     

    Mr.
Shafir joined the Company in 2009 and resigned in early 2010. He served as the
Vice President of Business Development and Command and Control Products Manager.
Mr. Shafir currently serves as the Chief Executive Officer of Thermal Cleaning
Technologies Ltd., a subsidiary of IDT Energy, a company pursuing the cleanup of
contaminated soils. Mr. Shafir was the founder and Chief Executive Officer of
4DM-Technologies, a software company in the field of Command and Control
software for management of emergency situations. After selling the source code
to the Israel Aircraft Industry, Mr. Shafir headed a project of upgrading the
system for municipal and statewide security applications. Mr. Shafir is the Head
of the Commission for Safety in Civil Aviation which was appointed by the
Israeli Minister of Defense and Minister of Transportation to redesign civil
aviation safety procedural and control issues. Mr. Shafir has vast experience in
the Israeli Air Force, where he served as a fighter pilot, the Commander of the
Israeli Air Force Academy, Commander of Hazor AFB (an all F-16 base) and
Commander of Tel-Nof Air Force Base, the largest Air Force base in Israel. Mr.
Shafir majored in Mathematics and Philosophy at the University of Bar-Ilan,
Israel and has a MBA from the Naval Post Graduate School in Monterey,
California.

     

    Our
Board of Directors Statement AGAINST the Shareholder Proposals

     

    Our Board
of Directors strongly opposes the adoption of the two shareholder
proposals.  We believe that it is in the best interest of our
shareholders to maintain the current composition of our Board of
Directors.  To that extent, all the members of our Board of Directors
were recently re-elected at our 2010 Annual General Meeting of our Shareholders
held on June 23, 2010, by a majority of more than 80% of the votes represented
at the meeting.  We believe that our current Board of Directors has
the knowledge, experience, independence and commitment to best represent the
interests of all of our shareholders.  Our Board of Directors
navigated our company through the recent economic turmoil that adversely
impacted the company and has taken decisive action to improve shareholder value
based on its deep experience and interest in the company.  To that
end, our Board of Directors implemented management changes, cost cutting
measures and adopted a new strategic plan for the company.  Under the
leadership of the current Board of Directors and management team, we are
executing on our strategy to create value for our company and its
shareholders.  Our Board of Directors is focused on one central goal
to best maximize shareholder value and we ask to you to reject the proposal to
remove from office our highly qualified and capable directors.

     

    The
Dissident Shareholders have invested in us and we value and respect the
Dissident Shareholders.  However, we do not believe that the director
nominees proposed by the Dissident Shareholders would strengthen our company or
add value to our shareholders.  The Dissident Shareholders have not
presented any plan for improving our company’s position.  Based on the
biographies provided to us, it appears that the director nominees are affiliated
with our former interim Chief Executive Officer, Mr. Yoav Stern, one of the
director nominees, whose temporary engagement with our company was not made
permanent. Both Mr. Stern and Mr. Shafir held managerial positions in our
company for less than a year and we view their contribution to the development
of the our business as minimal, if at all. None of the other directors nominees
have any special knowledge or experience in perimeter security, our core
business. We
therefore urge you to reject both of the shareholder proposals.

     

    FOR
ALL OF THE FOREGOING REASONS, THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE “AGAINST” THE SHAREHOLDER PROPOSALS.  PROXIES
RECEIVED BY THE COMPANY WILL BE VOTED “AGAINST” THE SHAREHOLDER PROPOSALS UNLESS
THE SHAREHOLDER SPECIFIES OTHERWISE IN THE PROXY.

     

    Under the
Israeli Companies Law and our Articles of Association, the affirmative vote of
the holders of a majority of the ordinary shares represented at the
Extraordinary Meeting, in person or by proxy, entitled to vote and voting on the
matter, is required to approve each of the above shareholder
proposals.

     

    BOARD
OF DIRECTORS AND COMMITTEES

     

    Election
of Directors

     

    Our
Articles of Association provide for a board of directors of not less than three
and not more than 11 members, as may be determined from time to time at our
annual general meeting.  Our board of directors is currently composed
of eight directors, including two outside directors appointed in accordance with
the Israeli Companies Law.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    Our
directors (except the outside directors, as detailed below), are elected by our
shareholders at our annual general meeting and hold office until the next annual
general meeting.  All the members of our board of directors (except
the outside directors), may be reelected upon completion of their term of
office.  Our annual general meetings of shareholders are held at least
once every calendar year, but not more than 15 months after the last preceding
annual general meeting.  In the intervals between our annual general
meetings of shareholders, the board of directors may from time to time appoint a
new director to fill a casual vacancy or to add to their number, and any
director so appointed will remain in office until our next annual general
meeting of shareholders and may be re-elected.

     

    Outside
and Independent Directors

     

    Outside
Directors.  The Israeli Companies Law requires Israeli
companies with shares that have been offered to the public in or outside of
Israel to appoint at least two outside directors.  The Israeli
Companies Law provides that a person may not be appointed as an outside director
if the person, or the person’s relative, partner, employer or an entity under
that person’s control, has or had during the two years preceding the date of
appointment any affiliation with the company, or any entity controlling,
controlled by or under common control with the company.  The term
“relative” means a spouse, sibling, parent, grandparent, child or child of
spouse or spouse of any of the above.  In general, the term
“affiliation” includes an employment relationship, a business or professional
relationship maintained on a regular basis, control and service as an office
holder.  Regulations promulgated under the Israeli Companies Law
include certain additional relationships that would not be deemed an
“affiliation” with a company for the purpose of service as an outside director.
In addition, no person may serve as an outside director if the person’s position
or other activities create, or may create, a conflict of interest with the
person’s responsibilities as director or may otherwise interfere with the
person’s ability to serve as director.  If, at the time an outside
director is appointed, all current members of the board of directors are of the
same gender, then that outside director must be of the other
gender.  A director of one company may not be appointed as an outside
director of another company if a director of the other company is acting as an
outside director of the first company at such time.

     

    At least
one of the elected outside directors must have “accounting and financial
expertise” and any other outside director must have “accounting and financial
expertise” or “professional qualification,” as such terms are defined by
regulations promulgated under the Israeli Companies Law.  However,
Israeli companies listed on certain stock exchanges outside Israel, including
The NASDAQ Global Market, such as our company, are not required to appoint an
outside director with “accounting and financial expertise” if a director with
accounting and financial expertise who qualifies as an independent director for
purposes of audit committee membership under the laws of the foreign country in
which the stock exchange is located serves on its board of
directors.  All of the outside directors of such a company must have
“professional qualification.”

     

    The
outside directors are elected by shareholders at a general
meeting.  The shareholders voting in favor of their election must
include at least one-third of the shares of the non-controlling shareholders of
the company who voted on the matter.  This minority approval
requirement need not be met if the total shareholdings of those non-controlling
shareholders who vote against their election represent 1% or less of all of the
voting rights in the company.

     

    In
general, outside directors serve for a three-year term and may be reelected to
one additional three-year term.  However, Israeli companies listed on
certain stock exchanges outside Israel, including The NASDAQ Global Market, such
as our company, may appoint an outside director for additional terms of not more
than three years subject to certain conditions.  Such conditions
include the determination by the audit committee and board of directors, that in
view of the director’s professional expertise and special contribution to the
company’s board of directors and its committees, the appointment of the outside
director for an additional term is in the best interest of the
company.  Outside directors can be removed from office only by the
same special percentage of shareholders that can elect them, or by a court, and
then only if the outside directors cease to meet the statutory qualifications
with respect to their appointment or if they violate their fiduciary duty to the
company.

     

    Each
committee of the board of directors that is authorized to exercise powers vested
in the board of directors must include at least one outside director and the
audit committee must include all the outside directors.  An outside
director is entitled to compensation as provided in regulations adopted under
the Israeli Companies Law and is otherwise prohibited from receiving any other
compensation, directly or indirectly, in connection with such
service.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    Independent
Directors.  In general, NASDAQ Listing Rules require that the
board of directors of a NASDAQ-listed company have a majority of independent
directors and that its audit committee have at least three members and be
comprised only of independent directors, each of whom satisfies the respective
“independence” requirements of NASDAQ and the SEC.  However, foreign
private issuers, such as our company, may follow certain home country corporate
governance practices instead of certain requirements of the NASDAQ Listing
Rules.  On June 30, 2006, we provided NASDAQ with a notice of
non-compliance with respect to the requirement to maintain a majority of
independent directors, as defined under NASDAQ Listing
Rules.  Instead, under Israeli law and practice we are required to
appoint at least two outside directors, within the meaning of the Israeli
Companies Law, to our board of directors.  However, despite such
notification of non-compliance, we maintain a majority of independent
directors.  In addition, in accordance with the rules of the SEC and
NASDAQ, we have the mandated three independent directors, as defined by the
rules of the SEC and NASDAQ, on our audit committee.

     

    Pursuant
to a recent amendment to the Israeli Companies Law, an Israeli company whose
shares are publicly traded may elect to adopt a provision in its articles of
association pursuant to which a specified part of its board of directors will be
comprised of individuals complying with certain independence criteria prescribed
by the Israeli Companies Law.  Such independent directors shall have
all the qualifications of an outside director; however, he or she is not subject
to the “accounting and financial expertise” or “professional qualification”
requirements and may be elected and removed from office by a simple majority
vote of the general shareholders meeting.  We have not included such a
provision in our articles of association.

     

    Our Board
of Directors has determined that Ms. Singer and Mr. Kobrinsky qualify both as
independent directors under the requirements of the SEC and NASDAQ and as
outside directors under the requirements of the Israeli Companies
Law.  Our Board of Directors has further determined that Messrs. Nuss
and Livne qualify as independent directors under the requirements of the SEC and
NASDAQ.

     

    Audit
Committee

     

    Under the
Israeli Companies Law, the board of directors of any public company must
establish an audit committee.  The audit committee must consist of at
least three directors and must include all of the outside
directors.  The audit committee may not include the chairman of the
board of directors; any director employed by the company or providing services
to the company on an ongoing basis; or a controlling shareholder or any of the
controlling shareholder’s relatives.  The responsibilities of the
audit committee include identifying irregularities in the management of the
company’s business and approving related party transactions as required by
law.  Under Israeli law, an 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 an approval was granted.

     

    In
addition, the NASDAQ Listing Rules require us to establish an audit committee
comprised of at least three members, all of whom must be independent directors,
each of whom is financially literate and satisfies the respective
‘‘independence’’ requirements of the SEC and NASDAQ and one of whom has
accounting or related financial management expertise at senior levels within a
company.

     

    Our audit
committee consists of three board members who satisfy the respective
“independence” requirements of the SEC, NASDAQ and Israeli law for audit
committee members.  Our audit committee is currently composed of
Messrs. Shaul Kobrinsky and Jacob Nuss and Ms. Liza Singer.  The audit
committee meets at least once each quarter.  Our audit committee
charter is available on our website at www.magal-s3.com.

     

    Investment
Committee

     

    Our board
of directors has established an investment committee, which is responsible for
the investment of our cash and our hedging transactions.  The
investment committee is currently composed of Messrs. Jacob Even-Ezra and Shaul
Kobrinsky.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    Mergers
and Acquisitions Committee

     

    Our board
of directors has established a mergers and acquisitions committee, which is
responsible for the examination and review of merger and acquisition
opportunities and making recommendations to the board of directors with respect
to such opportunities.  The mergers and acquisitions committee is
currently composed of Messrs. Jacob Even-Ezra, Ze’ev Livne and Shaul
Kobrinsky.

     

    APPROVAL
OF CERTAIN TRANSACTIONS WITH MR. NATHAN KIRSH, OUR PRINCIPAL SHAREHOLDER AND A
DIRECTOR

    (Item 2
on the Proxy Card)

     

    As a
result of the difficult economic situation during the past two years, especially
in Europe, and the tight credit markets, we will require additional funding to
execute our strategic plan.  We intend to effectuate a $15 million
rights offering, in which we will offer all of our shareholders the right to
subscribe to purchase our ordinary shares, on a pro rata basis, at a price per
share that will be determined by our Board of Directors.  Our Board of
Directors has appointed a special committee that will oversee the rights
offering and will make a recommendation to the Board of Directors with respect
to the terms of the rights offering.  The special committee is
composed of the Chairman of our Board of Directors and our two outside directors
within the meaning of Israeli law.  We believe that such financing
will provide us with the necessary funds to allow us to achieve our goals. The
rights offering, which will be made in accordance with U.S. securities laws,
will require the filing of a registration statement with the SEC and will be
subject to SEC review, which may be a lengthy process.

     

    Each
shareholder who elects to subscribe to purchase his or her entire pro rata share
of the rights offering will be entitled to subscribe for additional shares at
the same price per share.  In the event that such shareholders chose
to exercise such option for a total number of remaining shares in excess of the
number available, the remaining shares available for purchase will be allocated
to such shareholders based on the number of shares such shareholders have
elected to purchase pursuant to the pro rata subscription right.  Mr.
Nathan Kirsh, our principal shareholder and a director, has undertaken to
exercise such oversubscription right in full and to subscribe for all of the
shares offered in the rights offering, subject to the shareholder approval of
this proposal and provided that prior to Meeting there will be no “Change of
Control,” as such term is defined below.

     

    In order
to finance our operations during the interim period, Mr. Kirsh has agreed to
provide us with a six month bridge loan in the aggregate principal amount of
$5.0 million.  The principal amount will bear interest at the rate of
three month LIBOR+4% per annum, which accrues on a quarterly
basis.  The principal amount will be paid to us within five business
days following the fulfillment of certain conditions, including shareholder
approval of this proposal and that prior to the Extraordinary Meeting there will
be no “Change of Control,” as such term is defined below.

     

    The
bridge loan is for a term of six months, which may be extended by us for up to
an additional 60 days upon prior written notice.  The principal amount
and accrued interest will be payable at the end of term unless repaid earlier,
as described below.  In the event of a “Change of Control,” the entire
bridge loan, including accrued interest, will become immediately due and
payable.  For this purpose “Change of Control” means: (x) the purchase
by any person or entity (other than Mr. Kirsh) of: (i) all or substantially all
of our assets or (ii) more than 50% of our outstanding share capital (including
through the issuance of shares and securities convertible into shares); (y) the
replacement of the Chairman of our Board of Directors (other than as a result of
his death or incapacity or as a result of his voluntary resignation), or (z) the
replacement of more than 50% of the members of our Board of Directors (excluding
outside directors within the meaning of the Israeli Companies Law) within a 90
day period during the term of the bridge loan.

     

    Two
business days prior to the effective date of the rights offering, we intend to
effect a private placement of 150,000 of our ordinary shares to Mr. Kirsh at an
initial price per share equal to the closing price of our ordinary shares on the
date prior to the private placement.  Upon the effective date of the
rights offering, the private placement price per share will be adjusted to a
price per share equal to the higher of the price per share in the rights
offering and the closing price of our ordinary shares on the date prior to the
effective date of the rights offering provided that in no event will the
adjusted private placement price per share be less than the initial price per
share  The private placement consideration from Mr. Kirsh will be paid
to us by means of a set off against a portion of the then outstanding bridge
loan, including accrued interest.  The outstanding balance of the
bridge loan, including accrued interest, will be paid by us to Mr. Kirsh within
five business days after the successful closing of the rights
offering.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    This
private placement is being made for the purpose of allowing Mr. Kirsh to
participate in the rights offering under Israeli law.  Mr. Kirsh
currently holds approximately 24.2% of our issued and outstanding
shares.  Under Israeli law, an acquisition of shares in a public
company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% or greater shareholder of the
company unless there is already another 25% or greater shareholder of the
company.  This rule does not apply if, among other things, the
acquisition was made in a private placement that received shareholder approval
as a private placement that is intended to allow the offerree to hold 25% or
more of the voting rights in the company if there is no other shareholder
holding 25% or more of such voting rights.  Accordingly, if our
shareholders approve the private placement, Mr. Kirsh’s holdings will increase
to approximately 25.65% and he will be entitled to participate in the rights
offering without the need to conduct a tender offer.

     

    Under
NASDAQ Listing Rules shareholder approval may be deemed to be required for the
rights offering if the price per share in the rights offering is less than the
greater of the book or market value of our ordinary shares.

     

    Our Audit
Committee and Board of Director have approved the terms of the rights offering,
the bridge loan from Mr. Nathan Kirsh and the private placement in which Mr.
Nathan Kirsh will become a 25% or greater shareholder.

     

    It is
therefore proposed that at the Extraordinary Meeting our shareholders adopt the
following resolution:

     

    
      “RESOLVED, subject to the
rejection of Item 1A, that the terms of the private placement, which is intended
toallow Mr. Nathan Kirsh to become a 25% or greater shareholder, and the terms
of the rights offering, as described in the Proxy Statement for the
Extraordinary General Meeting dated July 4, 2010, be, and hereby are,
approved.”

    

     

    This
Proxy Statement does not constitute an offer to sell or the solicitation of
offers to buy any securities of our Company and will not constitute an offer,
solicitation or sale of any security in any state or jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state or
jurisdiction

     

    The
Board of Directors recommends a vote FOR the foregoing resolution.

     

    
      
        	 	
                By
      Order of the Board of Directors

              
	 	 
      
	 	
                Jacob
      Perry

              
	 	
                Chairman
      of the Board of Directors

              

      

    

    

    Dated:
July 4, 2010

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    
      MAGAL
SECURITY SYSTEMS LTD.

      

      THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

      

      The
undersigned hereby appoint(s) Ilan Ovadia and Sarit Molcho, or either of them,
attorneys or attorney of the undersigned, for and in the name(s) of the
undersigned, with power of substitution and revocation in each to vote any and
all ordinary shares, par value NIS 1.0 per share, of Magal Security Systems Ltd.
(the “Company”), which the undersigned would be entitled to vote as fully as the
undersigned could if personally present at the Extraordinary General Meeting of
Shareholders of the Company to be held on Wednesday, August 12, 2010 at 10:00
a.m. (Israel time) at the registered office of the Company, 17 Altalef Street,
Industrial Zone, Yehud 56100, Israel and at any adjournment or adjournments
thereof, and hereby revoking any prior proxies to vote said shares, upon the
following items of business more fully described in the notice of and proxy
statement for such Extraordinary General Meeting (receipt of which is hereby
acknowledged):

      

      THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED.  IN THE
ABSENCE OF SUCH SPECIFICATION, THE SHARES REPRESENTED BY THIS PROXY CARD WILL BE
VOTED AGAINST ITEMS 1A AND 1B AND FOR ITEM 2.

      

      (Continued
and to be signed on the reverse side)

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXTRAORDINARY
GENERAL MEETING OF SHAREHOLDERS OF

      

      MAGAL
SECURITY SYSTEMS LTD.

      

      August
12, 2010

      

      Please
date, sign and mail

      your
proxy card in the

      envelope
provided as soon

      as
possible.

      

      Please
detach along perforated line and mail in the envelope provided. 

      
        

      

       

      — 

       

      
        

      

      THE BOARD
OF DIRECTORS RECOMMENDS A VOTE “AGAINST” ITEMS 1A AND 1B AND “FOR” ITEM
2.

      PLEASE
SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.  PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x

      
        
          

        

      

      

      
        	
                1A.

              	
                to
      terminate the service as directors of our Company of all members of the
      Board of Directors, including without limitation, Mr. Jacob Perry, Mr.
      Jacob Even-Ezra, Mr. Ze’ev Livne, Mr. Jacob Nuss and Mr. Barry Stiefl, but
      excluding Mr. Nathan Kirsh and the Company’s external directors, effective
      as of the close of the Extraordinary
Meeting.

              

      

      

      
        
          	
                   ̈
      FOR

                	
                   ̈
      AGAINST

                	
                   ̈
      ABSTAIN

                

        

      

      

      
        	
                1B.

              	
                Subject
      to the adoption of Item 1A, to appoint each of the following nominees as
      directors of our Company, effective as of the close of the Extraordinary
      Meeting..

              

      

      

      NOMINEES:

      

      
        	 
      	
                FOR

              	
                AGAINST

              	
                ABSTAIN

              
	 
      	 
      	 
      	 
      
	
                AVIHU
      BEN-NUN

              	
                 ̈

              	
                 ̈

              	
                 ̈

              
	 
      	 
      	 
      	 
      
	
                YOAV
      STERN

              	
                 ̈

              	
                 ̈

              	
                 ̈

              
	 
      	 
      	 
      	 
      
	
                ZIVI
      R. NEDIVI

              	
                 ̈

              	
                 ̈

              	
                 ̈

              
	 
      	 
      	 
      	 
      
	
                AMI
      AMIR

              	
                 ̈

              	
                 ̈

              	
                 ̈

              
	 
      	 
      	 
      	 
      
	
                ISRAEL
      (RELIK) SHAFIR

              	
                 ̈

              	
                 ̈

              	
                 ̈

              

      

      

      
        	
                2.

              	
                Subject
      to the rejection of Item 1A, to approve the terms of the private
      placement, which is intended to allow Mr. Nathan Kirsh to become a 25% or
      greater shareholder, and the terms of the rights offering, as described in
      the Proxy Statement for the Extraordinary General Meeting dated July 4,
      2010.

              

      

      

      
        
          	
                   ̈
      FOR

                	
                   ̈
      AGAINST

                	
                   ̈
      ABSTAIN

                

        

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      To change
the address on your account, please check the box at right and indicate your new
address in the address space above.  Please note that changes to the
registered name(s) on the account may not be submitted via this
method.   ̈

      

      
        	
                Signature of Shareholder

              	
                _______

              	 
      	
                Date

              	
                ____

              	 
      	
                Signature of Shareholder

              	
                _________

              	 
      	
                Date

              	
                _____

              	 
      

      

      

      Note:  Please
sign exactly as your name or names appear on this Proxy. When shares are held
jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such.  If the
signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such.  If signer is a partnership,
please sign in partnership name by authorized person.

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