Modern Systems Corporation Continues Merger Progress, Secures New Debt Financing

Modern Systems Corporation, an indirect, wholly-owned subsidiary of BluePhoenix Solutions, Ltd.

, provided an update on the expected timing of its proposed merger with Sophisticated Business Systems, Inc. ("ATERAS") and announced new debt financing from Comerica Bank. The merger is an all stock transaction in which BluePhoenix will issue approximately 6.2M shares to ATERAS shareholders in exchange for 100 percent of ATERAS' shares. ATERAS will become a wholly-owned subsidiary of Modern Systems Corporation, subject to the satisfaction of the conditions to closing the merger, such as BluePhoenix shareholder approval. A meeting of the BluePhoenix shareholders is scheduled for November 18, 2014 to vote on the proposed merger and related transactions. If approved, this merger is expected to close prior to December 2014. On a pro-forma basis, we estimate that the revenue for the combined entities in 2013 would have been $14.3M, if the merger with ATERAS had been completed on January 1, 2013. ATERAS' Operating Loss in 2013 was nearly break-even at ($264K). Operational efficiencies and savings are anticipated to be realized through the merger as the new combined entity will continue to progress towards break-even cash flow. Pro forma financial information is for informational purposes only and is not necessarily indicative of what BluePhoenix's financial results would have been had BluePhoenix completed the merger with ATERAS on January 1, 2013. The merger will make Modern Systems one of the largest independent legacy modernization firms in the world, extending coverage in the US and offering a wider set of products. The merger will also extend the company's sales channels, broadening partnerships with IBM, Dell, HP and Fujitsu. BluePhoenix recently extended a service agreement with IBM assisting in legacy system modernization with a large US government agency, and completed a successful project with UK financial services firm Moorcroft Debt Services. Modern Systems' new products, which accelerate the transition from legacy systems to the cloud, have attracted the attention of analysts from Gartner and 451 Research. "Our customers, partners and those covering the legacy modernization market are excited by the merger and our growth plan," says Modern Systems CEO Matt Bell. "New products and partnerships, along with the combined resources of both companies will enable us to provide modernization services to companies across the globe." "Legacy modernization has become a top CIO priority," says Bell. "Modernizing legacy systems is necessary to fully reap the benefits of mobile, cloud and big data. It's no surprise companies are mobilizing to address this growing need." Modern Systems also announced that it had entered into an amendment to its existing loan agreement with Comerica Bank to: increase the non-formula revolving line up to the amount of $2 million backed by guarantees; increase the borrowing base revolving line amount up to $1.5 million upon the closing of the ATERAS merger; and extend the loan maturity date to December 31, 2015. The amendment has a financial covenant for a minimum liquidity ratio effective upon the close of the ATERAS merger. BluePhoenix's obligations under the Amendment are secured by a security interest in BluePhoenix's copyrights, trademarks and patents. The remaining substantive provisions of the credit facility are not materially changed by this amendment. "The new financing terms will help stabilize the company through the merger and lay the foundation for growth," says Bell. "We're fortunate to have a partner like Comerica, who recognizes the needs of our niche and believes in our ability to serve them."