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Jacob Perry ended his stint as head of the Shin Bet security service 15 years ago, but he seems never to have abandoned his habit of secrecy. It appears to have come with him to Magal Systems, which he's been chairing since 2008.

It turns out that Perry and Magal's lawyers neglected to report an arrangement with Nathan Kirsch, the company's biggest shareholder, which proved highly lucrative for the chairman. Under the agreement, which was formulated in 2007 while negotiating Perry's terms of employment, he was to get 400,000 stock options convertible into Magal shares.

Perry, then Magal's vice-chairman, received Kirsch's blessing for three more things. One was that Kobi Even Ezra, who Perry was replacing, wouldn't remain at Magal in any capacity. Two, Perry would get paid NIS 50,000 a month. Three, in the event that Magal netted more than $3 million a year and the company would achieve at least 10% revenue growth.

In July 2008 the general assembly of shareholders approved these employment terms, though there was one difference between the terms and the accord with Kirsch. Regarding the stock options, Perry didn't get all he wanted, at least according to the company's reports. Magal stated that Petty received 300,000 stock options, not 400,000.

It seems however that the 100,000 stock options disappeared from the view of shareholders and the regulator, but not from Perry's portfolio. Kirsch stood by his word and gave Perry 100,000 options for Magal shares, under the same terms as the options the company gave to Perry.

The absence of disclosure was no mistake. Kirsch planned to supplement the 300,000 stock options with another 100,000 in advance. A letter revealed here for the first time shows that back in late 2007, two months after Perry and Kirsch struck their agreement, and seven months before the shareholders' assembly, Magal's lawyers were checking how to avoid reporting the 100,000 options.

Sarit Molcho, a lawyer with the S. Friedman & Co law firm and Magal's legal counsel in Israel, wrote the letter to Steven Glusband, a partner at American firm Carter, Ledyard & Milburn, Magal's legal counsel overseas.

Dear Steve, she wrote, Nate Kirsch promised to sell Perry, chairman elect of Magal, 100,000 shares at a purchase price that would be the same as the price on the day of the shareholders assembly, which is scheduled to take place in the second quarter of 2008, at which his employment terms are supposed to be approved. Do we have to announce that movement? To mention in the proxy that we discussed his employment terms? Naturally we would prefer a No to that. If otherwise, advise us when it is necessary to report it. All the best, Sarit.

Whatever Glusband answered, the fact is that 2 and a half years later Magal still hadn't reported the options Perry received.

Magal is dual-listed in Tel Aviv and Nasdaq, and is therefore subject to the rules of the U.S. Securities and Exchange Commission. Lawyers specializing in securities say the SEC is relatively lenient with dual-listed companies. Magal evidently broke no laws by not reporting Perry's options, but its disclosure is wanting.

Getting rid of Even Ezra proved expensive for the small company. The board headed by Perry approved an "adjustment bonus" of $360,000, pay of $45,000 a year for life, and a luxury car plus driver for life. Yizhar Dekel, Even Ezra's son in law, received NIS 7.2 million in severance compensation.

This week Magal published its financial statement for 2009. The red ink gushes on. It posted a net loss of $800,000, which is quite an improvement compared with its loss of $32 million in 2008. Losses from activities however were $5 million: The reason its net loss was so much lesser is that the company canceled some of its writeoff on an acquisition of an European company from 2008. Magal has meanwhile sold that company at a loss.

Since Perry joined as chairman, Magal's share price has lost 60% of its value. Its market cap has sunk to $40 million.

Magal and Perry refused to comment. Sarit Molcho did not respond to TheMarker's query.