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Bluephoenix Solutions Ltd – ‘DEFM14A’ on 10/24/14

On:  Friday, 10/24/14, at 4:20pm ET   ·   Effective:  10/24/14   ·   Accession #:  1213900-14-7493   ·   File #:  333-06208

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/24/14  Bluephoenix Solutions Ltd         DEFM14A    10/24/14    1:4.4M                                   Edgar Agents LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Statement                          HTML   1.88M 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.__)

Check the appropriate box:

BluePhoenix Solutions Ltd.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box)

☐          No fee required.

☒          Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

Dear Shareholder:

On behalf of the Board of Directors and management of BluePhoenix Solutions Ltd. (the “Company”), I cordially invite you to attend the Annual General Meeting of Shareholders. The meeting will be held at the offices of the Company, 601 Union Street, Suite 4616, Seattle, Washington, 98101 on November 18, 2014, at 9:00 a.m. local time. The notice of meeting and proxy statement that follow describe the business that we will consider at the meeting.

At this meeting, among other things, you will be asked to vote on a set of proposals relating to an Amended and Restated Agreement and Plan of Merger including all ancillary agreements entered into in connection therewith as further described in this Proxy Statement (the “Merger Agreement”) by and among the Company, Modern Systems Corporation (f/k/a BluePhoenix Solutions USA, Inc.), a Delaware corporation and an indirect, wholly-owned subsidiary of the Company (“Parent”), BP-AT Acquisition Corporation, a Delaware corporation and a direct, wholly-owned subsidiary of Parent (“Merger Sub”), Sophisticated Business Systems, Inc., a Texas corporation doing business as “Ateras” (“Ateras”), the Ateras stockholders listed on the signature page to the Merger Agreement, and Scott Miller (“Stockholder Representative”), entered into on October 14, 2014. The parties previously entered into an Agreement and Plan of Merger, dated August 13, 2014 and subsequently amended and restated that agreement on October 14, 2014.

Pursuant to the terms and conditions set forth in the Merger Agreement, the Merger Sub will merge with and into Ateras (the “Merger”) with Ateras continuing as the surviving corporation and as a direct, wholly-owned subsidiary of the Parent after the Merger (the “Surviving Corporation”). The aggregate merger consideration issuable to Ateras’s stockholders is equal to 6,195,494 unregistered ordinary shares, par value NIS 0.04 per share, of the Company (the “Merger Consideration”), which will represent approximately 35% of the Company’s outstanding capital stock determined on a shares outstanding plus warrants outstanding basis immediately following the closing of the merger (based on the Company’s outstanding capital stock as of the date of this Proxy Statement).

In addition, at this meeting you will be asked to vote on proposals for the election of nominees for directors, including one of our outside directors and the re-appointment BDO Ziv Haft as our independent auditor for the period beginning on the date of this meeting and ending on the date of the next annual general meeting of shareholders and to review the Company’s financial statement for the fiscal year ending December 31, 2013. The Company’s financial statements are included as Annex D to this Proxy Statement.

At this meeting, shareholders will consider and vote upon:

In addition, at this meeting, the shareholders will receive and consider the Consolidated Financial Statements of the Company for the year ended December 31, 2013.

We cannot complete some or all of the transactions contemplated by the Merger Agreement unless the specified conditions are satisfied or waived. The conditions to completion of the Merger that must be satisfied include, among other conditions, obtaining the approval of our shareholders to Proposals No. 1, 2, 3 and 5(c) set forth above, as well as receipt of a waiver from Prescott as described under the section entitled “The Merger” in this Proxy Statement. We currently expect that the Merger will be completed before the end of calendar year 2014. However, the Merger Agreement can be terminated by (a) the Company if certain conditions to closing are not fulfilled by Ateras by December 12, 2014 and (b) by Ateras if certain conditions to closing are not fulfilled by the Company by December 12, 2014.

Our Board of Directors has determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of the ordinary shares to Ateras stockholders and the grant of preemptive rights to certain Ateras stockholders are in the best interests of the Company, and has approved and adopted the Merger and other transactions contemplated by the Merger Agreement. OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE ABOVE PROPOSALS, “FOR” EACH NAMED NOMINEE AND AN INDICATION OF “THREE YEARS” FOR THE PREFERRED FREQUENCY of shareholder advisory votes on the compensation of the Company’s named executive officers.

We urge you to review carefully the accompanying material and to return the enclosed proxy card promptly. Whether or not you plan to attend the Annual Meeting, please sign, date and return the enclosed proxy card without delay. If you attend the Annual Meeting, you may vote in person even if you have previously mailed a proxy.

YOUR VOTE IS VERY IMPORTANT. PLEASE ENSURE THAT YOUR VOTE COUNTS BY
COMPLETING, SIGNING, DATING AND RETURNING YOUR PROXY.

The date of this Proxy Statement is October 24, 2014.

The approximate date of mailing for this Proxy Statement and proxy card(s) is October 30, 2014.

BLUEPHOENIX SOLUTIONS LTD.

601 Union Street, Suite 4616

Seattle, Washington, 98101

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

To Be Held On November 18, 2014

The 2014 Annual General Meeting of Shareholders (the “Annual Meeting”) of BluePhoenix Solutions Ltd. (“BluePhoenix,” the “Company,” “we” or “us”) will be held at our offices, 601 Union Street, Suite 4616, Seattle, Washington, 98101 on November 18, 2014 at 9:00 a.m. local time for the following purposes:

These items of business are more fully described in the Proxy Statement accompanying this Notice.

The record date for the Annual Meeting is October 20, 2014. Only shareholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy as instructed in these materials, as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) has been provided for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your ordinary shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.

Table of Contents

BLUEPHOENIX SOLUTIONS LTD.

601 Union Street, Suite 4616

Seattle, Washington, 98101

PROXY STATEMENT

FOR THE 2014 ANNUAL GENERAL MEETING OF SHAREHOLDERS

November 18, 2014

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

Why am I receiving these materials?

We have sent you these proxy materials because the Board of Directors of BluePhoenix Solutions Ltd. (sometimes referred to as the “Company,” “BluePhoenix,” “we” or “us”) is soliciting your proxy to vote at the Annual Meeting, including at any adjournments or postponements of the meeting. You are invited to attend the Annual Meeting to vote on the proposals described in this Proxy Statement. However, you do not need to attend the meeting to vote your ordinary shares. Instead, you may simply complete, sign and return the enclosed proxy card.or postponements of the meeting. You are invited to attend the Annual Meeting to vote on the proposals described in this Proxy Statement. However, you do not need to attend the meeting to vote your ordinary shares. Instead, you may simply complete, sign and return the enclosed proxy card.

We intend to mail these proxy materials on or about , 2014 to all shareholders of record entitled to vote at the Annual Meeting.

How do I attend the Annual Meeting?

The meeting will be held on November 18, 2014 at 9:00 a.m. local time at 601 Union Street, Suite 4616 Seattle, Washington, 98101. Directions to the Annual Meeting are as follows:

From the South: Take I-5 North to Seattle. Take the Seneca Street exit (Exit 165). Take the first right onto 6th Avenue. At this point you can take a right-hand turn at the first intersection you come to (University Street) but do not move into the curb (or far-right) lane - beware - if you are in the curb lane, a sharp right will put you back onto the freeway going north; you need to make a wide right-hand turn (parallel with the One Union Square Office Building); to do this, you will go past the cement divider that splits the freeway entrance from the road that goes under the building. This street leads underneath the building and the parking garage is to your left just as you begin to drive underneath the building.) If you miss this previous turn; proceed as follows: Go through two intersections (University & Union) and take a right at the third intersection (Pike). Go one block to 7th Ave. & take a right. Go straight through the next intersection (Union) which will lead underneath our building. There is a parking garage to your right just as you pass the passenger drop-off area.

From the North: Take I-5 South to Seattle. Take the Union Street exit (Exit 165B). The first left you are able to take will take you underneath our building (Two Union Square). As you drive underneath the building, there is a parking garage to your right just as you pass the passenger drop-off area.

Information on how to vote in person at the Annual Meeting is discussed below.

Who can vote at the Annual Meeting?

Only shareholders of record at the close of business on October 20, 2014 will be entitled to vote at the Annual Meeting. On this record date, there were ordinary shares outstanding and entitled to vote.

Shareholder of Record: Ordinary Shares Registered in Your Name

If on October 20, 2014 your ordinary shares were registered directly in your name with the Company’s transfer agent, American Stock Transfer & Trust Company, LLC, then you are a shareholder of record. As a shareholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and return the enclosed proxy card as instructed below to ensure your vote is counted.

1

Beneficial Owner: Ordinary Shares Registered in the Name of a Broker or Bank

If on October 20, 2014 your ordinary shares were held, not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of ordinary shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the shareholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the ordinary shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the shareholder of record, you may not vote your ordinary shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

What am I voting on?

There are eleven matters scheduled for a vote:

What if another matter is properly brought before the meeting?

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly added to the agenda of the meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with their best judgment.

How do I vote?

You may either vote “For” each of the nominees to the Board of Directors or you may “Withhold” your vote for any nominee you specify. With regard to your advisory vote on how frequently we should solicit shareholder advisory approval of executive compensation, you may vote for any one of the following: one year, two years or three years, or you may abstain from voting on that matter. For each of the other matters to be voted on, you may vote “For” or “Against” or abstain from voting.

The procedures for voting are fairly simple:

Shareholder of Record: Ordinary Shares Registered in Your Name

If you are a shareholder of record, you may vote in person at the Annual Meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person even if you have already voted by proxy.

Beneficial Owner: Ordinary Shares Registered in the Name of Broker or Bank

If you are a beneficial owner of ordinary shares registered in the name of your broker, bank, or other agent, you should have received a voting instruction form with these proxy materials from that organization rather than from The Company. Simply complete and mail the voting instruction form to ensure that your vote is counted. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

How many votes do I have?

On each matter to be voted upon, you have one vote for each ordinary share you own as of October 20, 2014.

What happens if I do not vote?

Shareholder of Record: Ordinary Shares Registered in Your Name

If you are a shareholder of record and do not vote by completing your proxy card or in person at the Annual Meeting, your ordinary shares will not be voted.

Beneficial Owner: Ordinary Shares Registered in the Name of Broker or Bank

If you are a beneficial owner your bank, broker or other nominee will vote your shares only if you provide instructions to your bank, broker or other nominee on how to vote. If you do not instruct your broker, bank, or other nominee how to vote your ordinary shares, your shares will not be voted. You should follow the procedures provided by your bank, broker or other nominee regarding the voting of your shares and be sure to provide your bank, broker or other nominee with instructions on how to vote your shares. If your shares are held in “street name” you must contact your bank, broker or other nominee to change or revoke your voting instructions.

What if I return a proxy card or otherwise vote but do not make specific choices?

If you return a signed and dated proxy card or otherwise vote without marking voting selections, your ordinary shares will be voted, as applicable:

If any other matter is properly presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies. In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We will also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

What does it mean if I receive more than one set of proxy materials?

If you receive more than one set of proxy materials, your shares may be registered in more than one name or in different accounts. Please follow the voting instructions on each of the proxy cards in the proxy materials to ensure that all of your shares are voted.

Can I change my vote after submitting my proxy?

Shareholder of Record: Shares Registered in Your Name

Yes. You can revoke your proxy at any time before the final vote at the meeting. If you are the record holder of your shares, you may revoke your proxy in any one of the following ways:

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

When are shareholder proposals and director nominations due for an annual meeting?

Under the Israeli Companies Law of 1999 (the “Companies Law”), resolutions may only be adopted at a general shareholder meeting with respect to matters that are set forth on the agenda. Section 66(b) of the Companies Law provides that one or more shareholders holding, in the aggregate, at least one percent (1%) of the voting power entitled to vote at the company’s shareholder meetings, may request that an item be included in the agenda of a future shareholder meeting, if the subject matter is appropriate to be considered at a shareholder meeting.

Under a recent amendment to the Companies Regulations (Notice and Advertisement of General Meetings and Class Meetings of a Public Company and Addition of Items to the Agenda) 2000 (the “Amendment”), a shareholder who meets the conditions of Section 66(b) of the Companies Law, must submit its request to include an agenda item within seven days following the company’s notice of convening of a shareholders’ meeting if the request relates to any of the following matters:

For all other matters, a shareholder has up to three days following the company’s notice of convening shareholders’ meeting to submit an agenda item request. To the extent that the requested agenda item consists of the appointment of director(s), the Amendments impose particular information and documentary requirements that must be included in the request.

A shareholder proposal to include the nomination of a director pursuant to the Amendment, must include a declaration of the nominee regarding his or her necessary qualifications and ability to devote an appropriate amount of time to the performance of his or her duties as director as further detailed in the section of this Proxy Statement entitled “Information Regarding the Board of Directors and Corporate Governance” below.

To the extent that the board of directors determines that the shareholder-proposed agenda item is appropriate for consideration by the shareholders, the company shall publish an updated notice of the shareholder meeting within seven days following the deadline for shareholders to submit their proposed agenda items. The publication of the updated notice of the shareholder meeting by the company would not impact the record date as to shareholders entitled to participate in the meeting.

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing not later than the 120^th day prior to the date of the proxy statement for this year’s annual meeting; provided, however, that if the date of the annual meeting is more than 30 days after the anniversary date of this Annual Meeting, notice to be timely must be so delivered a reasonable time in advance of the mailing of our proxy statement for the annual meeting for the current year.

Shareholder proposals in accordance with above should be provided to the Company’s Chief Financial Officer at 601 Union Street, Suite 4616, Seattle, Washington 98101.

How are votes counted?

Each outstanding ordinary share entitles the holder thereof to one vote on each matter voted at the meeting. Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count, for all proposals, votes “For” and “Against,” abstentions and, if applicable, broker non-votes. Abstentions and broker non-votes will have no effect and will not be counted towards the vote total for any proposal.

What are “broker non-votes”?

A broker non-vote occurs when a bank, broker or other nominee holding ordinary shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. While counted for quorum purposes, abstentions and broker non-votes will not be treated as voting shares and will not have any effect on whether the requisite vote is obtained for all matters placed before shareholders for their vote.

How many votes are needed to approve each proposal?

Each of Prescott, Columbia Pacific Opportunity Fund, LP and Columbia Pacific Partners Fund, Ltd. (together “Columbia Pacific”) and Lake Union Capital Fund LP and Lake Union Capital TD Fund, LP (together “Lake Union”), who collectively beneficially own approximately 83.2% of the outstanding ordinary shares of the Company as of August 31, 2014, have entered into a unilateral undertaking to vote their shares in favor of Proposals 1, 2, 3, 5(c), 7 and 9. Accordingly, the approval of each of such Proposals at the Annual Meeting is assured without the vote of any other shareholder.

What is the quorum requirement?

A quorum of shareholders is necessary to hold a valid meeting. A quorum will be present if two or more shareholders holding at least 35% of the outstanding shares entitled to vote are present at the meeting in person or represented by proxy. On the record date, there were shares outstanding and entitled to vote. Thus, the holders of shares must be present in person or represented by proxy at the meeting to have a quorum.

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum present within one hour of the time set for the meeting, the meeting shall automatically be adjourned to the same day and same time one week thereafter (unless such day shall fall on a public holiday either in Israel or the United States, in which case the Annual Meeting will be adjourned to the first day, not being Friday, Saturday or Sunday, which follows such public holiday), at the same place fixed for the original meeting (with no need for any notice to the shareholders) or until such other later time if such time is specified in the original notice convening the Annual Meeting, or if the Company gives notice to the shareholders no less than 72 hours before the date fixed for the adjourned meeting.

What conditions are required to be fulfilled to complete the Ateras transaction?

We and Ateras are not required to complete some or all of the transaction contemplated by the Merger Agreement unless specified conditions are satisfied or waived. The conditions to completion of all of the transactions contemplated by the Merger Agreement that must be satisfied include, among other conditions, the approval of our shareholders of the Proposals No. 1, 2, 3 and 5(c) set forth in this Proxy Statement and the receipt of specified government and regulatory approvals. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the transaction, see “Terms of the Merger Agreement — Conditions to Closing.”

Am I entitled to dissenter’s or appraisal rights?

No. Under Israeli law, you do not have any rights of appraisal or similar rights of dissenters, whether you vote for or against the resolutions. You may vote “Against” any proposal.

When do we expect the transaction to be completed?

We are working to complete the transaction as expeditiously as practicable. We currently expect the transaction to be completed before the end of calendar year 2014. However, we cannot predict the exact timing of the completion of the transaction because it is subject to conditions. See “Terms of the Merger Agreement — Conditions to Closing.”

How can I find out the results of the voting at the Annual Meeting?

Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.

What proxy materials are available on the internet?

The letter to shareholders and proxy statement are available at https://materials.proxyvote.com/M20157. The information provided on the Company website is not part of this Proxy Statement, and therefore is not incorporated herein by reference.

Forward Looking Statements

This Proxy Statement may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on the Company’s management’s beliefs and assumptions and on information currently available to the Company’s management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including those relating to future events or our future financial performance and financial guidance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “potential,” “intend” or “continue,” the negative of terms like these or other comparable terminology, and other words or terms of similar meaning in connection with any discussion of future operating or financial performance. These statements are only predictions. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Any or all forward-looking statements in this document may turn out to be wrong. Actual events or results may differ materially. Forward-looking statements can be affected by inaccurate assumptions the Company might make or by known or unknown risks, uncertainties and other factors. These risks and uncertainties include but are not limited to: the risk that the businesses may not be combined successfully or in a timely and cost-efficient manner; the possibility that the transaction will not close, including, but not limited to, due to the failure to obtain shareholder approval or the failure to obtain any required governmental or third-party approval; and the risk that business disruption relating to the merger may be greater than expected; and such other risks and uncertainties as identified in the Company’s most recent Annual Report on Form 10-K and other reports filed by it with the SEC. All names and trademarks are their owners’ property. The names BluePhoenix™ and BluePhoenix™ CTU, appearing in this report are trademarks of BluePhoenix. Other trademarks in this report are owned by their respective holders.

Summary

This summary highlights selected information contained in this Proxy Statement, but does not contain all of the information that may be important to your voting decision. You should carefully read this entire Proxy Statement, including the attached annexes and the documents incorporated by reference into this document for a more complete understanding of the matters to be considered at the Annual Meeting.

Overview

The Company develops and markets enterprise legacy lifecycle IT modernization solutions and provide tools and professional services to international markets through several entities including wholly-owned and majority-owned subsidiaries located in: the United States, the United Kingdom, Italy, Romania and Israel. These technologies and services allow businesses to migrate from their legacy mainframe and distributed IT infrastructures to modern environments and programming languages.

On August 13, 2014, the Company entered into the Merger Agreement with Parent, Merger Sub, the Ateras stockholders and the Stockholder Representative. The parties amended and restated the Merger Agreement on October 14, 2014.

The Proposals

Pursuant to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into Ateras with Ateras continuing as the surviving corporation and as a direct, wholly-owned subsidiary of the Parent after the Merger. The aggregate merger consideration payable to Ateras’s stockholders is equal to 6,195,494 unregistered ordinary shares, par value NIS 0.04 per share, of the Company, which will represent approximately 35% of the Company’s total capital stock determined on a shares outstanding plus warrants outstanding basis immediately following the closing of the Merger (based on the Company’s outstanding capital stock as of the date of this Proxy Statement).

In connection with the Merger Agreement, we are asking our shareholders to vote on the following proposals:

The approval of the above proposals, other than the approval of the Company’s 2007 Award Plan, as amended, is a condition to the closing of the Merger.

The Parties to the Transaction

Modern Systems Corporation, (f/k/a BluePhoenix Solutions USA, Inc.), a Delaware corporation and an indirect, wholly-owned subsidiary of the Company.

BP-AT Acquisition Corporation, a newly formed Delaware corporation and a direct, wholly-owned subsidiary of Parent that has been formed specifically for the purpose of participating in the merger transaction with Ateras.

Sophisticated Business Systems, Inc., a Texas corporation doing business as “Ateras.” ATERAS has supported global enterprises for over 30 years, offering state-of-the-art services that exploit automation for transforming legacy applications and databases into modern technologies using patent-pending automated conversion, modernization, and Re-Hosting technologies (DB-Shuttle®, eav® suite including ATP®). ATERAS’ Application Portfolio Management (APM) solutions and Application Code Understanding tools provide code analysis, enterprise field expansion, data archiving and COBOL/Natural automated documentation tools. Information at: www.ateras.com. The Ateras website address is provided as an inactive textual reference only. The information provided on the Ateras website is not part of this Proxy Statement, and therefore is not incorporated herein by reference.

Ateras Stockholders, Mindus Holding, Ltd., a Texas limited partnership, Cindy S. Howard, Thomas C. Howard, Richard T. Chance and James C. Carpenter, which we refer to herein as the “Ateras shareholders,” are the holders of all of Ateras’s capital stock.

Scott Miller, as Stockholder Representative, is the Chief Executive Officer and through Mindus Holdings, Ltd., the majority beneficial owner of stock in Ateras and the holder of approximately $16 million of debt that immediately prior to the Merger will be contributed to Mindus Holdings, Ltd. and then will be converted into 1,410 shares of Ateras stock (“Mindus Debt Conversion”) that will be converted into 4,000,000 shares of unregistered ordinary shares of the Company.

Structure of the Transaction

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”): (i) (a) each outstanding share of Ateras Common Stock shall be converted into the right to receive shares of unregistered ordinary shares of the Company (subject to adjustment for any issuances of additional shares of Ateras stock or stock split, recapitalization or the like); and (b) the shares of capital stock of Merger Sub outstanding immediately prior to the Effective Time shall be converted into and become the outstanding shares of capital stock of the Surviving Corporation following the Effective Time; and (ii) 1,230,000, representing approximately 20% of the Merger Consideration will be placed in escrow for one year from the date of closing of the Merger as security for the indemnification obligations of the Ateras’s stockholders as set forth in the Merger Agreement.

The representations and warranties of each party set forth in the Merger Agreement have been made solely for the benefit of the other party to the Merger Agreement. In addition, such representations and warranties (a) have been qualified by confidential disclosures made to the other party in connection with the Merger Agreement, (b) are subject to the certain materiality qualifications which may differ from what may be viewed as material by investors, (c) were made only as of the date of the Merger Agreement or such other date as is specified in the Merger Agreement, and (d) may have been included in the Merger Agreement for the purpose of allocating risk between the parties rather than establishing matters as facts. Accordingly, the Merger Agreement is included with this filing only to provide the shareholders with information regarding the terms of the Merger Agreement, and not to provide the shareholders with any other factual information regarding the parties or their respective businesses.

The Board of Directors of the Company has adopted a resolution recommending approval of the issuance of the Company’s ordinary shares in the Merger by its shareholders and the Company subject to shareholders’ approval of the Merger Agreement and the fulfillment of the relevant conditions for the consummation thereof.

The Company has agreed to certain indemnification obligations in favor of Ateras and its stockholders. In addition, the Company has agreed to certain covenants regarding the conduct of its business and otherwise, with which the Company will be obligated to comply through the date of closing of the Merger. The Company has also agreed, subject to approval of Proposal Nos. 1, 2 and 3, to grant Mindus Holdings, Ltd. preemptive rights as mutually agreed to by the parties as described in this Proxy Statement.

Financial Information

A copy of the Company’s consolidated financial statements for the year ended and as of December 31, 2013 are included in this Proxy Statement as Annex D. Copies of the unaudited condensed consolidated financial statements of the Company as of June 30, 2014, audited financial statements of Ateras for the years ended December 31, 2013 and 2012, unaudited condensed consolidated financial statements of Ateras as of June 30, 2014, and unaudited pro forma condensed combined financial statements of the Company reflecting the Merger as of June 30, 2014 are included in this Proxy Statement as Annex E, F, G and H respectively.

Conditions to Closing

Consummation of the Merger is subject to (A) shareholder approval of Proposals 1, 2, 3, 5(c) and (7), (B) the parties reaching mutually agreeable terms with respect to all ancillary agreements referenced in the Merger Agreement, including but not limited to Company shareholder investment letters, registration rights, an escrow agreement and preemptive rights agreement, (C) appointment of the Stockholder Representative to the Company’s Board of Directors, (D) a waiver from Prescott confirming that no adjustment shares referred to under the Prescott Agreement, or other Company securities, are or may be issuable as the result of the Merger, (E) a unilateral letter of undertaking to be provided by the Company’s largest shareholders regarding consent to appoint Scott Miller to the Board of Directors, (F) the parties shall have agreed on certain matters regarding Ateras employees, and (G) other customary conditions, including, among others, governmental filings and regulatory approvals and expiration of applicable waiting periods, accuracy of the representations and warranties of the other party (generally subject to a material adverse effect standard), and material compliance by the other party with its obligations under the Merger Agreement.

Termination of the Merger Agreement

The Merger Agreement provides that the Company or Ateras may mutually agree to terminate the Merger Agreement before completing the Merger. In addition, the Company or Ateras may decide to terminate the Merger Agreement if, among other things:

In addition, Ateras may terminate the Merger Agreement if Company shareholder approval is not obtained at the Annual Meeting or if the meeting to hold such vote is postponed, adjourned, or cancelled  without the prior written consent of the Stockholder Representative.

Beneficial Ownership of Shares

As of August 31, 2014, approximately 4.8% of our issued and outstanding ordinary shares were held by our directors and executive officers, and no shares were held by the Ateras stockholders or any of their affiliates. Immediately following the closing of the Merger, the Ateras stockholders will beneficially own approximately 35.0% of our issued and outstanding ordinary shares (based on the capitalization as of August 31, 2014 and after the Mindus Debt Conversion). More detailed information regarding the beneficial ownership of our directors, executive officers and certain existing shareholders is provided below in “Security Ownership of Certain Beneficial Owners and Management.”

Terms of the Registration Rights and Preemptive Rights Agreement

Registration Rights Agreement

The Company has agreed to provide certain Ateras stockholders with “piggyback” registration rights with respect to the shares issued to such Ateras stockholders pursuant to the Merger Agreement, in accordance with the terms of a Registration Rights Agreement. Pursuant to the Registration Rights Agreement, such Ateras stockholders will be entitled to certain rights with respect to registration of such shares under the Securities Act.

Preemptive Rights Agreement

The Company has agreed to grant Mindus Holdings, Ltd. certain preemptive rights to participate in future Company issuances of its ordinary shares prior to the third anniversary of the Merger, in accordance with the terms of a preemptive rights agreement. Pursuant to this preemptive rights agreement, Mindus Holdings, Ltd. has a right of first refusal to purchase its pro rata share of all equity securities that the Company proposes to sell and issue, with certain exceptions described elsewhere in this Proxy Statement.

Waiver of Terms of The Prescott Agreement from Prescott

Pursuant to the Prescott Agreement between the Company and Prescott, the Company is required to issue additional ordinary shares to Prescott in the event of certain issuances of the Company’s ordinary shares or securities exercisable or convertible into the Company’s ordinary shares. Company and Prescott have agreed that the issuance of the 6,195,494 ordinary shares and pursuant to the Merger shall not result in the issuance of additional ordinary shares or other securities of the Company to Prescott and further agree that the issuance of securities in connection with the Merger shall not terminate the “Protection Period” (as such term is defined in the Prescott Agreement).

Unilateral Undertakings

Each of Prescott, Columbia Pacific and Lake Union, who collectively beneficially own approximately 83.2% of the outstanding ordinary shares of the Company as of August 31, 2014, have entered into a unilateral undertaking to vote their shares in favor of Proposals 1, 2, 3, 5(c), 7 and 9. Accordingly, the approval of each of such Proposals at the Annual Meeting is assured without the vote of any other shareholder. In addition, such shareholders have agreed to vote their shares in favor of the election of Scott Miller to the Board of the Directors of the Company.

The Merger

Effect of the Merger.

Pursuant to the terms and conditions of the Merger Agreement, all of the outstanding shares of common stock of Ateras will be converted into the right to receive 6,195,494 unregistered ordinary shares of the Company. Accordingly, the Merger Sub will merge with and into Ateras with Ateras continuing as the surviving corporation and as a direct, wholly-owned subsidiary of the Parent after the Merger.

Recommendation of the Board and its Reasons for the Merger

After careful consideration, the Board of Directors has determined that the Merger and all other transactions contemplated by the Merger Agreement, including, without limitation (a) the issuance of 6,195,494 unregistered ordinary shares to the Ateras stockholders, which represents more than 20% of the Company’s issued and outstanding ordinary shares, (b) the grant of registration rights with respect to certain of such ordinary shares and (c) the grant of certain indemnification rights to present or former directors and officers of Ateras, are in the best interests of the Company. Accordingly, the Board of Directors has approved the Merger Agreement. The Board of Directors recommends that you vote “FOR” each of the proposals set forth in this Proxy Statement. In making this determination, the Board of Directors considered a number of factors which supported its decision to approve and adopt the Merger Agreement and all related transactions.

Background of the Transaction

Overview

This background section is intended to provide a description of the events leading to the Board of Directors’ decision to approve the Merger Agreement.

Events Leading to Transaction

During the fourth quarter 2013, the Company started to explore acquisition and merger opportunities for the purpose of:

Initial conversations started in November and December of 2013 between Matt Bell and Scott Miller of Ateras regarding the benefits and opportunities for the companies to merge.

On December 20, 2013, the Company and Ateras agreed to more detailed and continued conversations and signed a Non-Disclosure Agreement.

On January 22, 2014, Matt Bell and Rick Rinaldo had an on-site visit with Ateras (Scott Miller and Richard Chance) as a preliminary due diligence and merger terms discussion. Discussions and negotiations regarding the terms of the merger continued through May 22, 2014.

On March 14, 2014, a Board of Directors discussion occurred regarding the merger benefits and opportunities where the Board of Directors supported continued discussions and negotiations.

On May 22, 2014, the Company and Ateras signed a letter of understanding and term sheet. A due diligence timeline was set out and outside auditors were engaged on June 11, 2014, for an Ateras audit.

During the months of June and July of 2014, due diligence and financial audit was conducted on-site at Ateras.

After extensive discussions and consideration, the Board of Directors ratified and confirmed the definitive Merger Agreement on August 12, 2014, subject to final approval of the ancillary agreements and shareholder approval. The Merger Agreement was signed on August 13, 2014.

During the months of August, September and October of 2014, Matt Bell and Rick Rinaldo conducted continued discussions and negotiations on behalf of the Company regarding the amending and restating of the Merger Agreement and the ancillary agreements in connection therewith.

After extensive discussions and consideration, the Audit Committee and Board of Directors approved the definitive Amended and Restated Merger Agreement, including all ancillary agreements thereunder, as signed on October 14, 2014, subject to final approval of the ancillary agreements and shareholder approval.

Reasons for the Merger

Our Board of Directors believes that the Merger will provide substantial benefits to our business and operations. In reaching its determination to approve the Merger Agreement and the transactions contemplated thereby, and to recommend that our shareholders approve the proposal regarding the approval of the Merger Agreement and all related transactions pursuant thereto, our Board of Directors identified several potential benefits for the Company and for our shareholders, including:

With respect to the last bullet above, we expect our operating margin and cash flow to improve due to the overall increase in scale of the combined business, resulting in a lower impact of fixed costs, as well as the ability to eliminate duplicative costs in areas such as general and administrative expenses, research and development costs, travel, sales meetings, trade shows, and consultants. This improvement in operating margin is the primary contributing factor to our belief that we will be able to achieve breakeven cash flow earlier as a combined business than on a standalone basis.

Our Board of Directors consulted with our management in reaching its decision to approve the Merger Agreement and the transactions contemplated thereby. The factors that our Board of Directors considered include:

Our Board of Directors also identified and considered various potentially negative factors in its deliberations concerning the Merger Agreement and the transactions contemplated thereby, including:

After due consideration, our Board of Directors concluded that the potential benefits of the Merger to our shareholders outweighed the risks associated with the Merger.

Regulatory Approvals for the Completion of the Merger

As of the date of this Proxy Statement, we are not required to make filings or obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the Merger. In the United States, we must comply with applicable federal and state securities laws and the rules and regulations of the NASDAQ in connection with the issuance of our ordinary shares pursuant to the Merger Agreement and filing of this Proxy Statement with the SEC.

Proposal 1

Approval of the Merger and

All Other Transactions Contemplated by the Merger Agreement

The following summary describes selected material provisions of the Merger Agreement and is qualified by reference to the Merger Agreement, which is attached to this Proxy Statement as Annex A. This summary may not contain all of the information about the Merger Agreement, including all ancillary agreements forming an integral part thereof, that is important to you. You are encouraged to carefully read the Merger Agreement in its entirety, as it is the legal document that contains the terms and conditions of the transaction.

The description of the Merger Agreement in this Proxy Statement has been included solely to provide you with information regarding its terms. While we have publicly disclosed the Merger Agreement and its terms by incorporating the Merger Agreement into this Proxy Statement, the representations and warranties made in the Merger Agreement may not accurately characterize the current actual state of facts with respect to us because they were made as of specific dates and are subject to important exceptions, qualifications, limitations and supplemental information agreed to by us and the other parties thereto and in part contained in the confidential disclosure letters delivered by the parties in connection with negotiating the Merger Agreement. Moreover, some of those representations and warranties may be subject to a contractual standard of materiality different from the standard applicable to our public filings with the SEC or may have been used for the purpose of allocating risks between us and the other parties thereto rather than establishing matters as facts. Current factual information about us can be found elsewhere in this Proxy Statement, in the documents that have been delivered with this Proxy Statement, and in the public filings we make with the SEC, which are available without charge at www.sec.gov. See “Where You Can Find More Information.”

Structure of the Transaction

Pursuant to the terms and conditions of the Merger Agreement, all of the outstanding shares of common stock of Ateras will be converted into the right to receive 6,195,494 unregistered ordinary shares of the Company. Accordingly, the Merger Sub will merge with and into Ateras with Ateras continuing as the Surviving Corporation and as a direct, wholly-owned subsidiary of the Parent after the Merger.

Closing

The closing of the transactions contemplated by the Merger Agreement shall take place on a date to be specified by the parties, which date shall be no later than the second business day after satisfaction or waiver of the conditions set forth in the Merger Agreement (the “Closing Date”). At the closing, the Merger will be consummated by the filing certificates of merger with the Secretary of State of the State of Delaware and the Secretary of State of the State of Texas.

Merger Consideration

Pursuant to the terms and conditions of the Merger Agreement described elsewhere in this Proxy Statement, all of the outstanding shares of common stock of Ateras will be converted into the right to receive 6,195,494 unregistered ordinary shares of the Company.

At the closing of the Merger, we will deliver out of the merger consideration to American Stock and Trade, as escrow agent, 1,230,000 ordinary shares. Such shares will be held in escrow for the benefit of the Company and certain other Company related persons to secure certain indemnification obligations of the Ateras stockholders under the Merger Agreement. The remainder of the escrowed shares will be distributed to the Ateras stockholders promptly following the first anniversary of the Closing Date to the extent such funds are not then subject to indemnity claims by the Company and certain other Company related persons.

Representations and Warranties

Our representations and warranties in the Merger Agreement relate to, among other things:

Covenants

Preparation of Proxy Statement. The Company is required to prepare and file with the SEC a preliminary Proxy Statement in connection with this Annual Meeting as promptly as practicable following the date of the Merger Agreement. The Company is also required to use its reasonable best efforts to respond as promptly as practicable to any comments from the SEC with respect to the Proxy Statement and mail the Proxy Statement to our shareholders. Ateras shall cooperate with the Company in connection with the preparation of the Proxy Statement. All filings by the Company with the SEC in connection with the Merger and all mailings to the Company’s shareholders in connection with the Merger are subject to the prior review and comment by Ateras.

Company Shareholders Meeting. The Company is required to convene and hold a meeting of its shareholders for the purposes of considering and voting upon the increase in the authorized ordinary shares of the Company, the consummation of the Merger and the transactions contemplated by the Merger Agreement. The Annual Meeting is being held in part to satisfy this obligation.

Conduct of Business by the Company and by Ateras. The Merger Agreement contains customary interim operating covenants requiring both the Company and Ateras, except as otherwise provided in the Merger Agreement or consented to in writing by the other party, to operate in the ordinary course of business and use reasonable best efforts to maintain and preserve intact the current organization, business and franchise of the Company or Ateras, as applicable, and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with the Company or Ateras, as applicable.

Registration of Ordinary Shares. The Company and the Ateras stockholders will enter into a Registration Rights Agreement as described in “—Terms of the Registration Rights and Preemptive Rights Agreement–Registration Rights Agreement.”

Preemptive Rights. Mindus Holdings, Ltd. will be granted preemptive rights, as described in “—Terms of the Registration Rights and Preemptive Rights Agreement–Preemptive Rights Agreement.”

Other Covenants. The Merger Agreement contains additional covenants, including covenants relating to access to information, notice of certain events, in the case of the Company, the use of reasonable best efforts to cause the ordinary shares of Company to be issued in connection with the Merger to be listed on NASDAQ, furnishing of information, public announcements, indemnification for present and former officers and directors of Ateras, preparation and filing of Form 8-Ks under the Exchange Act related to the Merger, tax free reorganization and tax matters.

Conditions to Closing

The obligations of the Company and the Ateras stockholders to complete the issuance of the ordinary shares are subject to the satisfaction or waiver of the following conditions, among others:

Termination of the Merger Agreement

The Merger Agreement provides that the Company or Ateras may mutually agree to terminate the Merger Agreement before completing the Merger. In addition, the Company or Ateras may decide to terminate the Merger Agreement if, among other things:

In addition, Ateras may terminate the Merger Agreement if Company shareholder approval is not obtained at the Annual Meeting or if the meeting to hold such vote is postponed, adjourned, or cancelled.

Indemnification

The Merger Agreement provides for indemnification of the Company and Ateras, the key provisions of which are described below:

Scope of Indemnification. From and after the Closing Date, the Company will indemnify each Ateras stockholder and certain other related persons for breaches of the Company’s representations and warranties and covenants in the Merger Agreement. From and after the Closing Date, each Ateras stockholder, severally and not jointly, will indemnify the Company and certain other Company related persons for breaches of Ateras’s representations and warranties and covenants in the Merger Agreement and certain employee related matters.

Cap. The aggregate amount of the Company’s indemnity obligations to the Ateras stockholders and certain other related persons shall not exceed the amount determined by multiplying three hundred nine thousand seven hundred and seventy five (309,775) ordinary shares by the volume weighted average price for our ordinary shares for the ten (10) consecutive trading days immediately prior to the Closing Date, other than in the case of fraud, willful misconduct or breach of any Company “fundamental representation or warranty.” The Company’s fundamental representations and warranties relate to the organization and authority of the Company, non-contravention of the Company’s governing documents, the capitalization of the Company and certain anti-dilution protections, due authorization of the Merger Agreement by the Company, the absence of broker fees and certain tax matters.

The aggregate amount of the Ateras stockholder’s indemnity obligations to the Company and certain other Company related persons shall not exceed the amount determined by multiplying one million two hundred thirty thousand (1,230,000) ordinary shares  by the volume weighted average price for our ordinary shares for the ten (10) consecutive trading days immediately prior to the Closing Date, other than in the case of fraud, willful misconduct or breach of any Ateras stockholder’s “fundamental representation or warranty.” The Ateras stockholder’s fundamental representations and warranties relate to the organization and authority of Ateras, the capitalization of Ateras, certain tax matters, due authorization of the Merger Agreement by Ateras and non-contravention of Ateras’s governing documents.

Deductible and De Minimus Claims. No indemnifying party shall be liable for any individual breach of any representation or warranty if the claim is for less than $50,000, other than in the case of breaches of any applicable fundamental representations or warranties.

Survival of Representations and Warranties. The representations and warranties survive until the first anniversary of the Closing Date.

Tax Indemnification. Subject to certain limitations, until the date that all of the ordinary shares of the Company issued pursuant to the Merger Agreement to Ateras shareholders Mindus Holdings, Ltd. and Scott Miller are available for sale without any restriction, the Company and Modern Systems Corporation (f/k/a BluePhoenix USA, Inc.) will, jointly and severally, indemnify Mindus Holdings, Ltd. and its partners and Scott Miller against costs and expenses arising from tax indemnity events as described in the Treasury Regulations section 1.367(a)-8(j)(1) or (2). The aggregate amount of the Company’s tax indemnity obligations to Mindus Holdings, Ltd. and Scott Miller shall not exceed $500,000.

Amendments

The Merger Agreement may be amended only in writing and signed by the Company, and prior to the Merger, Ateras, and after the Merger, by the Stockholder Representative.

Terms of the Registration Rights and Preemptive Rights Agreement

The following summary describes selected material provisions of the Registration Rights Agreement and Preemptive Rights Agreement and is qualified by reference to the Registration Rights Agreement and Preemptive Rights Agreement, which are attached to this Proxy Statement as Annex B and Annex C, respectively. This summary may not contain all of the information about the Registration Rights Agreement and Preemptive Rights Agreement that is important to you. You are encouraged to carefully read the Registration Rights Agreement and Preemptive Rights Agreement in their entirety, as they are the legal documents that contains the terms and conditions summarized below.

Registration Rights Agreement

The Company has agreed to provide certain Ateras stockholders with “piggyback” registration rights with respect to the shares issued to such Ateras stockholders pursuant to the Merger Agreement, in accordance with the terms of a Registration Rights Agreement. Pursuant to the Registration Rights Agreement, such Ateras stockholders will be entitled to certain rights with respect to registration of such shares under the Securities Act.

The registration of our ordinary shares pursuant to the exercise of registration rights would enable the holders to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective. Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares the holders may include.

If we propose to register for offer and sale any of our securities under the Securities Act in another offering, either for our own account or for the account of other security holders, the holders of these shares will be entitled to certain piggyback registration rights allowing them to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, including a registration statement on Form S-3, other than with respect to a registration statement on Forms S-4 or S-8 or related to stock issued upon conversion of debt securities, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration.

The piggyback registration rights described above will terminate upon the earlier of three years after the date of the Registration Rights Agreement, the date of any acquisition, merger, change of control or sale of all or substantially all of the assets of the Company, or, with respect to any particular holder, at such time that such holder can sell its shares under Rule 144 of the Securities Act during any three-month period.

Preemptive Rights Agreement

The Company has agreed to grant Mindus Holdings, Ltd. certain preemptive rights to participate in future Company issuances of its ordinary shares, in accordance with the terms of this preemptive rights agreement. Pursuant to this preemptive rights agreement, Mindus Holdings, Ltd. has preemptive rights to purchase its pro rata share of all equity securities that the Company proposes to sell and issue.

If Mindus Holdings, Ltd. exercises such right to purchase the offered securities, such shareholder must purchase all (but not a portion) of such securities for the price, terms and conditions so proposed. The preemptive rights do not extend to (i) options, warrants or other ordinary share purchase rights issued to employees, officer or directors, or consultants or advisors pursuant to a plan or agreement, (ii) issuance of securities pursuant to a conversion of convertible securities, (iii) stock splits, stock dividends or recapitalization, (iv) issuance of securities pursuant to a merger, consolidation, acquisition or similar business combination, (v) issuance of securities pursuant to certain commercial arrangements, (vi) issuance of securities in connection with strategic transactions involving the Company that is approved by the Board of Directors, including Scott Miller or (vii) equity securities issued pursuant to the Merger Agreement.

The preemptive rights described above will terminate upon the earlier of three years after the date of the preemptive rights agreement or the date of an acquisition of the Company.

Issuance of the Ordinary Shares

Our ordinary shares are listed on NASDAQ and, as a result, we are subject to NASDAQ rules requiring shareholder approval of certain issuances of our securities. The issuance of ordinary shares in excess of 19.99% of our outstanding ordinary shares implicates certain of the NASDAQ listing standards requiring prior shareholder approval in order to maintain our listing on NASDAQ, including the following:

Our shareholders are being asked to approve the issuance of the 6,195,494 unregistered ordinary shares to the Ateras stockholders because such issuance will exceed 19.99% of our outstanding ordinary shares. Under the Merger Agreement, we agreed to submit to our shareholder a proposal to approve the issuance of the 6,195,494 unregistered ordinary shares at this Annual Meeting. The approval of this proposal is a condition to the closing of the Merger.

Vote Required and Board of Directors’ Recommendation

The affirmative vote of the holders of a majority of the voting power represented at the Annual Meeting in person, by proxy or by voting instruction card will be required to approve the Merger and all other transactions contemplated by the Merger Agreement, including, without limitation (a) the issuance of 6,195,494 unregistered ordinary shares to the Ateras stockholders, which represents more than 20% of the Company’s issued and outstanding ordinary shares, (b) the grant of registration rights with respect to certain of such ordinary shares and (c) the grant of certain indemnification rights to present or former officers of Ateras.

The Board of Directors Recommends

a Vote in Favor of Proposal 1.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the ownership of the Company’s ordinary shares: (i) each director and nominee for director; (ii) each of the named executive officers named in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its ordinary shares on:

Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated below, the address of each beneficial owner listed in the table below is c/o BluePhoenix Solutions Ltd., 601 Union Street, Suite 4616, Seattle, Washington 98101. Except where we indicated otherwise, we believe, based on information furnished by these owners, that the beneficial owners of our shares listed below have sole investment and voting power with respect to the shares.

* Represents beneficial ownership of less than 1% of the issued and outstanding ordinary shares.

Description of Share Capital

Our company share capital consists of ordinary shares. Our Articles of Association do not restrict in any way the ownership of our ordinary shares by nonresidents, except that these restrictions may exist with respect to citizens of countries that are in a state of war with Israel.

Transfer of Shares

Fully paid ordinary shares are issued in registered form and may be freely transferred under our Articles of Association unless the transfer is restricted or prohibited by another instrument or any law.

Modification of Class Rights

Under our Articles of Association, the rights attached to any class unless otherwise provided by the terms of the class, including voting, rights to dividends and the like, may be varied by adoption of the necessary amendment to the articles of association, provided that the affected shareholders approve the change by a class meeting in which a simple majority of the voting power of the class represented at the meeting and voting on the matter approves the change.

Dividend Rights and Liquidation Rights

Our Board of Directors is authorized to declare dividends, subject to the provisions of the Companies Law. Dividends, if declared, shall be paid to the holders of ordinary shares according to their rights and interests in our profits. Dividends stemming from our ordinary shares may be paid only out of profits and other surplus, as defined in the Companies Law, as of the end date of the most recent financial statements or as accrued over a period of two years, whichever is higher. Alternatively, if we do not have sufficient profits or other surplus, then permission to effect a distribution can be granted by order of an Israeli court. In any event, our Board of Directors is authorized to declare dividends, provided there is no reasonable concern that the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Under the Companies Law, the declaration of a dividend does not require the approval of the shareholders of the company, unless the company’s articles of association require otherwise. Our Articles of Association provide that our Board of Directors may declare and pay dividends without any further action of our shareholders. Dividends may be paid in cash or in kind. We may pay the dividend as an allotment of shares or a distribution of assets. If we decide to issue dividends by an allotment of shares at a price lower than the nominal value of those shares, we must convert a portion of our profits or any other source of equity to share capital in an amount equal to the difference between the nominal value of the shares and the price paid in the dividend. If dividends remain unclaimed for seven years from the date we declared the dividend, they lapse and revert back to us. In case of liquidation, and upon satisfying liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to their holdings. This right may be affected by the grant of a preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.

Redemption provisions

In accordance with our Articles of Association, we may issue redeemable shares and accordingly redeem those shares. Our Board of Directors may attach to redeemable shares the attributes of shares, including voting rights and the right to participate in profits.

Voting, Shareholder Meetings and Resolutions

Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to the vote of shareholders. These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.

Under the Companies Law and in accordance with our Articles of Association, we must hold an annual general meeting once a year with a maximum period of fifteen months between the meetings. All other meetings of shareholders other than annual general meetings are considered special general meetings. Our Board of Directors may, whenever it deems appropriate, and shall call a special general meeting, within 21 days after receiving a written demand from (a) two directors or 25% of the directors; and/or (b) from one or more shareholders representing at least 5% of the outstanding share capital and 1% of the voting power; and/or (c) from one or more shareholders representing at least 5% of the voting power in the Company. The quorum required for a general meeting of shareholders consists of two or more holders present in person or by proxy, holding or representing at least 35% of the voting power. A meeting adjourned for a lack of a quorum shall be automatically postponed to the same day in the following week at the same time and place or to another later time if such time is specified in the original notice convening the general meeting or if we give notice to the shareholders of another time at least 72 hours before the date fixed for the adjourned meeting. At the reconvened meeting, if a quorum is not present within half an hour from the time appointed for holding the meeting, the required quorum will consist of two shareholders present in person or by proxy.

Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority, except in certain circumstances provided for under the Companies Law, which require a majority of at least 75% of the shares present at the meeting and other cases which may require a special majority. In accordance with the Companies Law, all shareholders meetings require prior notice of at least 35 days prior to the meeting and at least 5 days prior to the record date, and the meeting must occur between 28 and 40 calendar dates after the record date.

Under the Companies Law, a shareholder has a duty to act in good faith towards the company in which he holds shares and towards other shareholders and to refrain from abusing his power in the company, including voting in the general meeting of shareholders on:

A shareholder has the general duty to refrain from depriving rights of other shareholders. Any controlling shareholder, any shareholder who knows that he or she possesses the power to determine the outcome of a shareholder vote and any shareholder that, under the provisions of the articles of association, has the power to appoint an office holder in the company, is under a duty to act in fairness towards the company. The Companies Law does not describe the substance of this duty.

Election of Directors

Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of ordinary shares that represent more than 50% of the voting power represented at a shareholders meeting have the power to elect all of our directors, other than the outside directors that are appointed by a special majority of shareholders.

Anti-Takeover Provisions; Mergers and Acquisitions under Israeli Law

Mergers

The Companies Law includes provisions that allow a merger transaction and generally requires that each company that is a party to a merger approve the transaction by its board of directors and a vote of the majority of its shares voting on the proposed merger at a shareholders’ meeting called on at least 21 days prior notice. In determining whether a majority has approved the merger, shares held by the other party to the merger or any person holding at least 25% of the other party to the merger are excluded from the vote. The Companies Law does not require court approval of a merger other than in specified situations. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least (i) 30 days have elapsed from the date of the merger approval by the shareholders of each of the merging companies; and (ii) 50 days have passed from the time that a proposal for approval of the merger has been filed with the Israel Registrar of Companies.

Tender Offers

The Companies Law also provides that an acquisition of shares of a public company on the open market must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% shareholder of the company. The rule does not apply if there is already another 25% shareholder of the company. Similarly, the Companies Law provides that 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 becomes a 45% shareholder, unless there already exists a shareholder holding at least 45% interest in the company. These rules do not apply if the acquisition is made by way of a merger as opposed to a tender offer. Regulations adopted under the Companies Law provide that these tender offer requirements do not apply to companies whose shares are listed for trading outside of Israel if, according to the law in the country in which the shares are traded, including the rules and regulations of the stock exchange on which the shares are traded, there is either a limitation on acquisitions of any level of control of the company, or the acquisition of any level of control requires the purchaser to do so by means of a tender offer to the public. The Companies Law also provides (subject to certain exceptions with respect to shareholders who held more than 90% of a company’s shares or of a class of shares as of February 1, 2000) that if following any acquisition of shares, the acquirer holds 90% or more of the company’s shares or of a class of shares, the acquisition must be made by means of a tender offer for all the target company’s shares or all the shares of the class, as applicable. An acquirer who wishes to eliminate all minority shareholders must do so by way of a tender offer and acquire 95% of all shares not held by or for the benefit of the acquirer before the acquisition. If, however, the tender offer to acquire 95% is not successful, the acquirer may not acquire shares tendered if by doing so the acquirer would own more than 90% of the shares of the target company.

Proposal 2

Approval of An Increase of the Company’s Authorized Share Capital and
Amendment to Articles of Association

The authorized share capital of the Company is NIS 700,000, divided into 17,500,000 ordinary shares of NIS 0.04 par value each. In addition to the 11,404,460 shares of ordinary shares outstanding on December 31, 2013, the Board of Directors has reserved 1,047,901 shares for grants of restricted stock and issuance upon exercise of options and rights and other equity awards granted under the Company’s incentive stock and stock purchase plans.

In order to ensure availability of share capital for the Merger, the Board of Directors is also requesting that, subject to and conditional upon approval of Proposal No. 1, shareholders approve an increase the Company’s authorized number of ordinary shares by an additional NIS 300,000 comprised of 7,500,000 ordinary shares of NIS 0.04 par value each. Following such increase, if approved, the authorized share capital of the Company would be NIS 1,000,000 comprised of 25,000,000 ordinary shares of NIS 0.04 par value each. Under the Merger Agreement, the Company agreed to submit to our shareholders a proposal to increase the authorized number of ordinary shares at this Annual Meeting. The approval of this Proposal No. 2 is a condition to the closing of the Merger. In the judgment of the Board of Directors, the increase in the authorized number of ordinary shares as part of the Merger Agreement is desirable and in the best interests of the Company.

Except for registration rights and preemptive rights granted to certain shareholders as described in this Proxy Statement, the additional ordinary shares to be authorized by adoption of the amendment would have rights identical to the currently outstanding ordinary shares of the Company. Adoption of the proposed amendment and issuance of the ordinary shares would not affect the rights of the holders of currently outstanding ordinary shares of the Company, except for effects incidental to increasing the number of shares of the Company’s ordinary shares outstanding, such as dilution of the earnings per share and voting rights of current holders of ordinary shares. If the amendment is adopted, it will become effective contingent upon the closing of the Merger Agreement.

An increase of the Company’s share capital involves an amendment of Article 5 of the Company’s Articles of Association. It is proposed that Section 5 of the Company’s Articles of Association will be replaced by the following:

“The authorized share capital of the Company is NIS 1,000,000 (New Israeli Shekels) divided into 25,000,000 ordinary shares of NIS 0.04 nominal value each.”

It is proposed that at the Annual Meeting, the following resolution be adopted:

“Resolved, to increase the authorized share capital of the Company by an additional NIS 300,000 comprised of 7,500,000 ordinary shares of NIS 0.04 par value each, such that following such increase, the authorized share capital of the Company would be NIS 1,000,000 comprised of 25,000,000 ordinary shares of NIS 0.04 par value each, and to amend Article 5 of the Company’s Articles of Association accordingly.”

Vote Required and Board of Directors’ Recommendation

The affirmative vote of the holders of a majority of the voting power represented at the Annual Meeting in person, by proxy or by voting instruction card will be required to approve the increase in share capital and the amendment to the Company’s Articles of Association.

The Board of Directors Recommends

a Vote in Favor of Proposal 2.

Proposal 3

Grant of Preemptive Rights and
Amendment to Articles of Association

Pursuant to a preemptive rights agreement to be entered into concurrently with the closing of the Merger, the Company agreed to grant Mindus Holdings, Ltd. preemptive rights to participate in the Company’s future equity issuances, as described in “Proposal 1 Approval of the Merger Agreement and All Other Transactions Contemplated by the Merger–Terms of the Registration Rights and Preemptive Rights Agreement–Preemptive Rights Agreement.” In the judgment of the Board of Directors, the grant of preemptive rights to Scott Miller and Mindus Holdings, Ltd. in connection with the Merger is desirable and in the best interests of the Company.

Granting preemptive rights involves an amendment of 7.5 of the Company’s Articles of Association in the form appended to this proxy statement as Annex I.

It is proposed that at the Annual Meeting, the following resolution be adopted:

“Resolved, to approve the Preemptive Rights Agreement and the entering thereof by the Company, and to amend 7.5 of the Company’s Articles of Association in the form appended to this Proxy Statement as Annex I.”

Vote Required and Board of Directors’ Recommendation

The affirmative vote of the holders of a majority of the voting power represented at the Annual Meeting in person, by proxy or by voting instruction card will be required to approve the grant of preemptive rights to Scott Miller and Mindus Holdings, Ltd. and the related amendment to the Company’s Articles of Association.

The Board of Directors Recommends

a Vote in Favor of Proposal 3.

Proposal 4

Approval of Change in Company Name and
Approval of Amendment to Memorandum of Association
and Articles of Association

The Board of Directors is also requesting shareholder approval of an amendment to our Memorandum of Association (the “Memorandum”) and Articles of Association to change our corporate name from “BluePhoenix Solutions Ltd.” to “Modern Systems International,” “ModSys International” or such similar name approved by the Israeli Companies’ Registrar. In the judgment of the Board of Directors, the change of its corporate name is desirable and in the best interests of the Company.

It is proposed to change the name of the Company to names using the terms “Modern Systems International” or ModSys International.” Under the Companies Law, the change of the Company’s name is subject to the approval of the Israeli Companies’ Registrar. In the event that the proposed name is not approved by the Israeli Companies’ Registrar due to its similarity to another existing registered name or for any other reason, the Company will revise its application to similar names containing the word “Modern”, such as “Modern Systems Holding Company,” “Modern Systems and Technology” or “Modern Automated Systems.”

A change of the Company’s name also involves an amendment of Article 1 of the Company’s Articles of Association and Section 1 of the Memorandum.

It is proposed that at the Annual Meeting, the following resolution be adopted:

“Resolved, (i) that the Company’s Memorandum be, and hereby is, amended as follows: the Company’s name, as stated in Section 1 in the Memorandum, is changed from “BluePhoenix Solutions Ltd.” to “Modern Systems International,” “ModSys International,” “Modern Systems Holding Company,” “Modern Systems and Technology,” “Modern Automated Systems” or other similar name approved by the Israeli Companies’ Registrar which contains the word “Modern (the “New Name”); and (ii) that the Company’s Articles of Association be, and hereby are, amended as follows: the defined term of “Company” is changed from “BluePhoenix Solutions Ltd.” to the New Name.

Vote Required and Board of Directors’ Recommendation

The affirmative vote of the holders of a majority of the voting power represented at the Annual Meeting in person, by proxy or by voting instruction card will be required to approve the change in the Company’s name and the amendment to the Company’s Memorandum of Association and Articles of Association.

The Board of Directors Recommends

a Vote in Favor of Proposal 4.

Proposal 5

Election Of Directors

Under the Company’s Articles of Association, the number of members of the Board of Directors shall be not less than three (3) and not more than six (6).

There are three nominees for director this year and one additional director if and insofar as Proposal No. 1 is approved. Each director, except for the outside directors, holds office until the next annual general meeting of shareholders, when, subject to any law, such director may be reappointed for an additional term of service. Other than Scott Miller, each of the nominees listed below is currently a director of the Company who was previously elected by the shareholders. It is the Company’s policy to invite nominees for directors to attend the Annual Meeting. Melvin L. Keating telephonically attended the 2013 Annual Meeting of Shareholders.

The following table sets forth the names of the three nominees for election at the Annual Meeting, one additional director if and insofar as Proposal No. 1 is approved and the directors whose terms of office will continue after the Annual Meeting, their ages as of August 31, 2014, and certain other information with respect to such directors:

Pursuant to our Articles of Association, directors are elected at a general meeting of our shareholders by a vote of the holders of a majority of the voting power represented at the meeting. Additional directors may be elected between general meetings by a majority of our directors. Accordingly, each nominee that receives a majority of affirmative votes will be elected. If any one or more nominees becomes unable or unwilling to serve the proxies will be voted for the election of such other person or persons as shall be determined by the persons named in the proxy in accordance with their best judgment. Each person nominated for election has agreed to serve if elected. The Company’s management has no reason to believe that any nominee will be unable to serve.

Melvin L. Keating, Thomas J. Jurewicz and Scott Miller, subject to approval of Proposal No. 1, shall hold office until the next annual general meeting of shareholders and until his successor shall have duly taken office, unless his office is earlier vacated under any relevant provisions of the Company’s Articles of Association or other applicable law. Brian Crynes, an outside director of the Company, will hold office for an additional three-year term.

The following is a brief biography of each nominee and each director whose term will continue after the Annual Meeting.

Nominees for Election

The following three nominees, which currently serve as directors of the Company, have advised the Company that they will agree to continue to serve as directors if appointed. Relevant information on each of the nominees, including their principal occupation during at least the past five years, is provided below.

Melvin L. Keating, 67, has served as a director and Chairman of our Board of Directors since February 2012. Mr. Keating has served as a consultant to various private equity firms since October 2008, and has served as a director of various corporations as described below. From October 2005 through October 2008, Mr. Keating was President and Chief Executive Officer of Alliance Semiconductor Corp., in Santa Clara, CA, a worldwide manufacturer and seller of semiconductors (NASDAQ). Mr. Keating is currently a director of several other publicly traded companies, including Red Lion Hotels Corp (NYSE) and API Technologies Corp (NASDAQ). Mr. Keating holds both an MS in accounting and an MBA in finance from the Wharton School at the University of Pennsylvania and holds a BA in art history from Rutgers University. We believe Mr. Keating is qualified to serve on our Board of Directors because of his senior management experience and board service with other publicly traded companies in the technology industry.

Thomas J. Jurewicz, 50, was appointed as a director by our Board of Directors in December 2012. Mr. Jurewicz is also a member of the Company’s Audit Committee and Compensation Committee. Mr. Jurewicz spent 12 years at VMware, Inc. (NYSE: VMW) where he held various financial positions including Treasurer, interim CFO, Board member of its subsidiaries, and EMEA Controller. He was integral to the sale of the company to EMC Corp (NYSE: EMC) and its subsequent IPO. Prior to that, Mr. Jurewicz served as Vice President of Finance of CMC Industries, Inc. (NASDAQ: CMCI), and as Financial Planning and Analysis Manager at NETCOM, On-Line Communications (NASDAQ: NETC). Early in his career, he was an investment banker for Merrill Lynch & Co (NYSE: ML). Mr. Jurewicz holds an MBA from Stanford University, and a BS in applied mathematics from Yale University. Mr. Jurewicz also serves as the chairman of the board of directors of Zulu Software Inc., an affiliate of the Company. We believe Mr. Jurewicz is qualified to serve on our Board of Directors because of his senior management experience with other technology and financial institutions and his prior board service. 

In addition, if and insofar as Proposal No. 1 is approved Mr. Miller has been nominated to be appointed to the Board of Directors. Relevant information on Mr. Miller, including his principal occupation during at least the past five years, is provided below.

Scott Miller, 61, Mr. Miller has served as Chief Executive Officer and President of Sophisticated Business Systems, Inc. d/b/a Ateras since December 2005. Mr. Miller began his career in electronics while serving in the Air Force. We believe Mr. Miller is qualified to serve on our Board of Directors because of his leadership roles with other technology companies and his vast knowledge about automated legacy migration and modernization solutions.

Each Board’s member refrains from making recommendation with respect to his election to the Board.

It is proposed that at the Annual Meeting, the following resolutions be adopted:

“Resolved, that Messrs. Melvin L. Keating and Thomas J. Jurewicz, be, and hereby are, elected to serve as members of the Board of Directors of the Company until the next annual general meeting.”

“Resolved, that subject to the approval of Proposal No. 1, Mr. Scott Miller, be, and hereby is, elected to serve as a member of the Board of Directors of the Company commencing upon the Closing of the Merger and until the next annual general meeting.”

The Board Of Directors Recommends

A Vote In Favor Of Each Named Nominee.

Proposal 6

Election of Outside Director

Under the Companies Law, the Company is required to have at least two outside directors and may appoint more than two outside directors. The Company has two directors, in addition to the directors to be nominated under Proposal No. 5, who qualify as “outside directors” as mandated by the Companies Law.

The following is a brief biography of Brian Crynes, the outside director nominated to be reappointed as outside director and of Carla Corkern, whose term will continue after the Annual Meeting.

Brian Crynes, 67, has served as an outside director of our Board of Directors since August 2012 as well as a member of the Company’s Audit Committee and Compensation Committee. Mr. Crynes served as Interim Chief Information Officer at Russell Investments, Tacoma, WA, during 2009 and 2010. Prior to that, from 2001 to 2008, Mr. Crynes served as Chief Information Officer at Starbucks Coffee Company, Seattle. Between 1997 and 2001, Mr. Crynes served as Chief Information Officer at Coca-Cola Amatil, Ltd. Prior to that, from 1994 to 1997, Mr. Crynes served as Business Unit Chief Information Officer at Bristol-Myers Squibb, Inc. Between 1989 and 1993, Mr. Crynes served as Senior Director, Cross Functional Systems at Apple, Inc. From 1983 to 1989, he served as Vice President, Information Systems at New York Daily News, Inc. Between 1976 and 1983, Mr. Crynes served as Senior Manager, IT Consulting at Price Waterhouse & Co., New York, NY. Mr. Crynes holds both a BS in mathematics and an MBA in finance from the University of Scranton. We believe Mr. Crynes is qualified to serve on our Board of Directors because of his senior management background and prior service on the board.

Carla Corkern, 47, has served as one of the Company’s outside directors as well as a member of the Company’s Audit Committee and Compensation Committee since April 2013. Ms. Corkern has served as Chief Executive Officer and Chairman of the Board of Talyst, Inc. since 2008. During 2006 and 2007, she served as President of Extended Care at Talyst, Inc. and thereafter, until 2008, she served as Chief Operating Officer. Between 2004 and 2006, Ms. Corkern served as Vice President of Engineering and Chief Operations Officer at Vykor, Inc. During 2004, Ms. Corkern acted as principal of Cosmochan Consulting. In 2001 and 2002, she served as Vice President and General Manager of Netegrity, and from 1999 to 2001, she served as Vice President, Professional Services and Training at DataChannel Inc. Ms. Corkern was the President and founder of Isogen International, until its sale to DataChannel Inc. in 1999. Ms. Corkern holds a BS in Technical Communication from Louisiana Tech University. We believe Ms. Corkern is qualified to serve on our Board of Directors because of her executive leadership experience and extensive working knowledge of information systems and process management. Ms. Corkern’s appointment expires in  April 2016.

Mr. Crynes’ appointment expires on August 22, 2015. The Company’s Audit Committee and Board of Directors propose to reappoint Mr. Brian Crynes as an outside director of the Company for an additional three-year term until August 22, 2018.

Pursuant to the Companies Law, all outside directors must have financial and accounting expertise or professional qualifications, and at least one outside director must have financial and accounting expertise. The terms “financial and accounting expertise” and “professional qualifications” have been defined in regulations promulgated under the Companies Law. The Board of Directors has determined that Mr. Brian Crynes meets the criteria for having financial and accounting expertise and professional qualifications, both as defined in the Companies Law and the regulations promulgated thereunder.

The Company proposes that at the Annual Meeting, the following resolution be adopted:

“Resolved, to reappoint Mr. Brian Crynes, as an outside director of the Company for an additional three-year term commencing on August 22, 2015, and ending on August 22, 2018.”

Adoption of this proposal requires the affirmative vote of a majority of ordinary shares present at the meeting, in person, by proxy or by voting instruction card, and voting on the resolution, provided that (i) the shares voting in favor of such resolution include at least the majority of the shares voted by shareholders who are not “controlling shareholders” (as defined below) and who are not interested parties other than interests that do not stem from connections with the controlling shareholders; or (ii) the total number of shares voted against the resolution by shareholders who are not controlling shareholders and interested parties does not exceed two percent of the Company’s outstanding shares.

A “controlling shareholder” under the Companies Law is defined as a shareholder who has the ability to direct the activity of a company, except for an ability that stems from the fulfillment of his or her duty as a director or as a holder of any other position at the company.

Please note that you are required to indicate on the proxy card whether or not you are a controlling shareholder of the Company, or acting on its behalf, with respect to this proposal, no matter whether you vote for or against this proposal. If you fail to notify us as to whether or not you are a controlling shareholder of the Company (as defined above) or acting on its behalf with respect to this Proposal No. 6, your vote will not be counted with respect to Proposal No. 6.

The Board Of Directors Recommends

A Vote In Favor Of Proposal 6.

Information Regarding the Board of Directors and Corporate Governance

Board Structure

Pursuant to our Articles of Association, directors are elected at a general meeting of our shareholders by a vote of the holders of a majority of the voting power represented at the meeting. Additional directors may be elected between general meetings by a majority of our directors. Our Board of Directors is currently comprised of five persons, all of which have been determined to be independent within the meaning of the applicable NASDAQ requirements. Mr. Kodesh, whose term expires at the Annual Meeting, will not stand for reelection. Two of these independent directors (Brian Crynes and Carla Corkern) also serve as outside directors mandated under Israeli law and subject to additional criteria to help ensure their independence (See “—Outside Directors under the Companies Law”). Each director, except for the outside directors, holds office until the next annual general meeting of shareholders, when, subject to any law, such director may be reappointed for an additional term of service. Officers are appointed by our Board of Directors.

 Under the Companies Law, a person who lacks the necessary qualifications and the ability to devote an appropriate amount of time to the performance of his or her duties as a director shall not be appointed to serve as a director of a publicly traded company. While determining a person’s compliance with such provisions, the company’s special requirements and its scope of business shall be taken into account. Where the agenda of a shareholders meeting of a publicly traded company includes the appointment of directors, each director nominee is required to submit a declaration to the company confirming that he or she has the necessary qualifications and he or she is able to devote an appropriate amount of time to performance of his or her duties as a director. In the declaration, the director nominee shall specify his or her qualifications and confirm that the restrictions set out in the Companies Law do not apply.

In addition, each director nominee must include in his or her declaration a statement, the content of which shall be that he or she was not convicted for certain criminal or securities laws offenses provided under the Companies Law. Any person nominated to serve as an office holder of a publicly-traded company shall also comply with such disclosure requirements.

Furthermore, under the Companies Law, a person shall not be appointed as a director or an office holder of a publicly-traded company (i) if a court has ordered that due to the severity and circumstances of an offense committed by a nominee, such nominee is not fit to serve as a director or an office holder of a public company; or (ii) the administrative enforcement committee mandated under the Israeli Securities Law, 1969, referred to as the Securities Law, imposed on such nominee restrictions with respect to serving as a director or office holder, as applicable, of a publicly-traded company for a certain period of time.

Under the Companies Law, if a director or office holder ceases to comply with any of the requirements provided in the Companies Law, such director must notify the company immediately, and his or her term of service shall terminate on the date of the notice.

Outside Directors under the Companies Law

Under the Companies Law, companies incorporated under the laws of Israel whose shares have been offered to the public in or outside of Israel, are required to appoint at least two outside directors.

The Companies Law provides that a person may not be appointed as an outside director if such person is a relative of the controlling shareholder, or if such person or the person’s relative, partner, employer, another person to whom he was directly or indirectly subject, or any entity under the person’s control, has, as of the date of the person’s appointment to serve as outside director, or had, during the two years preceding that date, any affiliation with any of the following:

The term “affiliation” includes:

No person may serve as an outside director if: (a) the person’s position or other business activities create, or may create a conflict of interest with the person’s responsibilities as an outside director or may otherwise interfere with the person’s ability to serve as an outside director; (b) at the same time such person serves as a director of another company on whose board of directors, a director of the other company serves as an outside director; (c) the person is an employee of the Israel Securities Authority or of an Israeli stock exchange; (d) such person or such person’s relative, partner, employer or anyone to whom such person is directly or indirectly subordinate, or any entity under such person’s control, has business or professional relations with any person or entity he or she should not be affiliated with, as described in the preceding paragraph, unless such relations are negligible; or (e) such person received compensation, directly or indirectly, in connection with his or her service as a director, other than as permitted under the Companies Law and the regulations promulgated thereunder.

If, at the time of election of an outside director, all other directors who are not controlling shareholders of such company or their relatives, are of the same gender, the outside director to be elected must be of the other gender. Outside directors are elected by a majority vote at a shareholders’ meeting, provided that either:

Pursuant to the Companies Law, all outside directors must have financial and accounting expertise or professional qualifications, and at least one outside director must have financial and accounting expertise. The terms “financial and accounting expertise” and “professional qualifications” have been defined in regulations promulgated under the Companies Law.

If an outside director ceases to comply with any of the requirements provided in the Companies Law with respect to the appointment of outside directors, such outside director must notify the company immediately, and his or her term of service shall terminate on the date of such notice.

Outside directors are elected for a three-year term and may be re-elected for two additional terms of three years each, provided that with respect to the appointment for each such additional three-year term, one of the following has occurred:

(a) the reappointment of the outside director has been proposed by one or more shareholders holding together one percent or more of the voting rights in the company, and the appointment was approved at the general meeting of the shareholders by a simple majority, provided that: (i) in calculating the majority, votes of controlling shareholders or shareholders having a personal interest in the appointment (other than a personal interest which does not stem from an affiliation with the controlling shareholder) and abstentions are disregarded; and (ii) the total number of shares which voted for the appointment held by shareholders who do not have a personal interest in the appointment (other than a personal interest which does not stem from an affiliation with a controlling shareholder) and/or who are not controlling shareholders, exceed two percent of the voting rights in the company; or

(b)  the reappointment of the outside director has been proposed by the board of directors and the appointment was approved by such special majority required for the initial appointment of an outside director.

At present, Brian Crynes and Carla Corkern serve as our outside directors. Mr. Crynes is to hold office until August 2015 and Ms. Corkern is to hold office until April 2016. In accordance with the Israeli Companies Regulations (Alleviation for Public Companies Whose Shares are Listed on a Stock Exchange Outside of Israel) 2000, referred to as the Alleviation Regulations, Israeli companies whose shares are listed on a stock exchange outside of Israel, such as our company, may re-appoint an outside director for additional terms not exceeding three years each, beyond the three three-year terms generally applicable, provided that, if an outside director is being re-elected for an additional term or terms beyond the three three-year terms: (i) the audit committee and board of directors must determine that, in light of the outside director’s expertise and special contribution to the board of directors and its committees, the re-election for an additional term is to the company’s benefit; (ii) the outside director must be re-elected by the special majority required for the initial appointment and subject to the provisions stipulated in the Companies Law; and (iii) the term during which the nominee has served as an outside director and the reasons given by the audit committee and board of directors for extending his or her term of service must be presented to the shareholders prior to approval of the reappointment.

Each committee exercising the powers of the board of directors is required to include at least one outside director. However, the audit committee is required to include all outside directors serving on the board of directors.

An outside director is entitled to compensation as provided in regulations promulgated under the Companies Law and is otherwise prohibited from receiving any compensation, directly or indirectly, in connection with services provided as an outside director.

Qualifications of Other Directors under the Companies Law

Under the Companies Law, the board of directors of a publicly traded company is required to make a determination as to the minimum number of directors who must have financial and accounting expertise according to criteria that is defined in regulations promulgated under the Companies Law. In accordance with the Companies Law, the determination of the board should be based on, among other things, the type of the company, its size, the volume and complexity of its activities and the total number of directors serving on the board. Based on the aforementioned considerations, our Board of Directors determined that the number of directors with financial and accounting expertise in our company shall not be less than two.

Independence of The Board of Directors

As required under NASDAQ listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the board of directors. The Board of Directors consults with the Company’s counsel to ensure that the Board of Directors’ determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of NASDAQ, as in effect from time to time. Two of these independent directors also serve as outside directors mandated under the Companies Law and subject to additional criteria to help ensure their independence.

Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and the Company, its senior management and its independent auditors, the Board of Directors has affirmatively determined that our outside directors, as well as Messrs. Melvin L. Keating, Thomas J. Jurewicz and Harel Kodesh, qualify as independent directors under the applicable NASDAQ rules and those of the Securities and Exchange Commission. In making this determination, the Board of Directors found that none of these directors or nominees for director had a material or other disqualifying relationship with the Company.

Independent Directors under the Companies Law

Pursuant to the Companies Law, a public company, such as the Company, may include in its articles of association provisions relating to corporate governance. Such provisions may include the number of directors which shall be independent of management. Alternatively, a company may adopt the proposed standard provision included in a supplement to the Companies Law, under which a majority of the directors are to be independent, or, if the company has a controlling shareholder or a 25% or more shareholder, that at least one-third of the directors serving on the board be independent. An “independent director” is defined as a director who meets all of the following:

The Alleviation Regulations provide that a director in a company whose shares are listed in a stock exchange outside of Israel, such as the Company, who meets the criteria of an independent director under the relevant non-Israeli rules relating to independence standards for audit committee membership and who meets certain non-affiliation criteria, which are less stringent than those applicable to outside directors, would be deemed an “independent” director pursuant to the Companies Law provided he or she has not served as a director for more than nine consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less is not deemed to sever the consecutive nature of such director’s service. In accordance with the Alleviation Regulations, a company whose shares are listed in a stock exchange outside of Israel may extend the term of service of its independent directors beyond nine years, for additional terms of service, each of which shall be no more than three years.

As of the date of this Proxy Statement, our Articles of Association have not yet been amended to include these provisions of the Companies Law relating to corporate governance.

Board Leadership

The Board of Directors has an independent chair, Melvin L. Keating, who has authority, among other things, to call and preside over Board of Directors meetings, including meetings of the independent directors, to set meeting agendas and to determine materials to be distributed to the Board of Directors. Accordingly, the Chairman of the Board has substantial ability to shape the work of the Board of Directors. Under the Companies Law, while it is permitted for the Chief Executive Officer to serve on the Board, the Chief Executive Officer may not simultaneously serve as chairman of the board unless a resolution is passed at the general meeting with the approval of a special majority of non-controlling shareholders and interested parties, and in such case the concurrent service shall be for a period not to exceed three years. Furthermore, a relative of the chairman may not serve as Chief Executive Officer unless a similar resolution is passed. The Company believes that separation of the positions of Chairman of the Board and Chief Executive Officer reinforces the independence of the Board of Directors in its oversight of the business and affairs of the Company. In addition, the Company believes that having an independent Chairman of the Board creates an environment that is more conducive to objective evaluation and oversight of management’s performance, increasing management accountability and improving the ability of the Board of Directors to monitor whether management’s actions are in the best interests of the Company and its shareholders. As a result, the Company believes that having an independent Chairman of the Board can enhance the effectiveness of the Board of Directors as a whole.

Family Relationships

 Mr. Matt Bell and Mr. Thomas J. Jurewicz are first cousins.

Role of the Board in Risk Oversight

One of the Board of Directors’ key functions is informed oversight of the Company’s risk management process. The Board of Directors does not have a standing risk management committee, but rather administers this oversight function directly through the Board of Directors as a whole, as well as through various Board of Directors standing committees that address risks inherent in their respective areas of oversight. In particular, our Board of Directors is responsible for monitoring and assessing strategic risk exposure, including a determination of the nature and level of risk appropriate for the Company. Our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal and regulatory requirements and oversees the process and procedures of management. Our compensation committee, inter alia, assesses and monitors whether any of our compensation policies and programs as updated from time to time, generally complies with the Company’s risk management policy and does not have the potential to encourage excessive risk-taking. Typically, the entire Board of Directors meets with the Chief Executive Officer and Chief Financial Officer at least annually, and the applicable Board of Directors committees meet at least annually with the Chief Executive Officer and Chief Financial Officer to discuss the committees’ respective areas of oversight. Both the Board of Directors as a whole and the various standing committees receive periodic reports from the Chief Executive Officer and Chief Financial Officer, as well as incidental reports as matters may arise. It is the responsibility of the committee chairs to report findings regarding material risk exposures to the Board of Directors as quickly as possible.

Meetings of The Board of Directors

The Board of Directors met six (6) times during 2013. All directors except one attended at least 75% of the aggregate number of meetings of the Board of Directors and of the committees on which they served, held during the portion of the last fiscal year for which they were directors or committee members, respectively. Ms. Adi Bershadsky, one of our former directors for part of 2013, was unable to attend one (1) meeting of the Board because of a personal matter.

Information Regarding Committees of the Board of Directors

The Board of Directors has two committees: an Audit Committee and a Compensation Committee. The following table provides membership and meeting information for fiscal 2013 for each of the Board of Directors committees:

_______

Below is a description of each committee of the Board of Directors.

Audit Committee

The Companies Law requires public companies to appoint an audit committee, comprised of at least three directors, and which shall include all of the company’s outside directors. The majority of the members of the audit committee must be independent directors. The Companies Law further stipulates that the following may not serve as members of the audit committee: (a) the chairman of the board of directors; (b) any director employed by or providing services on an ongoing basis to the company, to the controlling shareholder of the company or an entity controlled by the controlling shareholder of the company; (c) a director whose main income derives from the controlling shareholder; and (d) the controlling shareholder or any relative of the controlling shareholder.

Under the Companies Law, the responsibilities of the audit committee include: (a) identifying flaws in the management of a company’s business and making recommendations to the board of directors as to how to correct them; (b) with respect to certain actions involving conflicts of interests and with respect to certain related party transactions, deciding whether such actions are material actions and whether such transactions are extraordinary transactions, for the purpose of approving such actions or transactions; (c) reviewing and deciding whether to approve certain related party transactions and certain transactions involving conflicts of interest, when such authority with respect to such transactions is granted by law to the audit committee; (d) reviewing the comptroller’s work program; (e) examining the company’s internal control structure and processes, the performance of the comptroller and whether the comptroller has at his or her disposal the tools and resources required to perform his or her duties, considering, inter alia, the special needs of the company and its size; (f) examining the external auditor’s scope of work, as well as the external auditor’s fees and providing its recommendations to the board; and (g) providing for arrangements as to the manner in which the company deals with employee complaints with respect to deficiencies in the administration of the company’s business, and protection to be provided to such employees.

In accordance with the Sarbanes-Oxley Act and NASDAQ requirements, our audit committee is directly responsible for the appointment, compensation and oversight of our independent auditors. In addition, the audit committee is responsible for assisting the board in monitoring our financial statements and the effectiveness of our internal controls.

Our Board of Directors authorized our audit committee to act as committee for review of financial statements under the Companies Regulations (Provisions and Terms with Respect to Procedures for Approval of Financial Statements), 2010. Under the regulations, the committee for review of financial statements is required to make recommendations to our Board of Directors with respect to various issues related to the financial statements, at a reasonable time prior to the approval the financial statements by the Board of Directors.

We have established an audit committee, consisting of Thomas J. Jurewicz and our two outside directors, Brian Crynes and Carla Corkern. The Audit Committee met four times during fiscal year 2013.

The Board of Directors reviews the NASDAQ listing standards definition of independence for Audit Committee members on an annual basis and has determined that all members of the Company’s Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the NASDAQ listing standards).

The Board of Directors has also determined that Thomas J. Jurewicz qualifies as an “audit committee financial expert,” as defined in applicable SEC rules. The Board of Directors made a qualitative assessment of Mr. Jurewicz’s level of knowledge and experience based on a number of factors, including his formal education and experience as a treasurer and interim chief financial officer for a public reporting company.

Compensation Committee

In December 2012, an amendment to the Companies Law came into effect which requires Israeli publicly traded companies, like us, to establish a compensation committee. In addition, under this amendment, we were required to adopt a compensation policy, to be recommended by the compensation committee, with respect to the remuneration of our executive officers and directors. Such compensation policy must include, among others, certain mandatory provisions as stipulated in the amendment.

The compensation committee is responsible to periodically advise the Board of Directors as to the necessity to update the compensation policy and to examine its implementation. In the event that a compensation policy is set to expire after a period longer than three years, the Compensation Committee shall advise the Board of Directors, every three years, whether such policy should be amended, discontinued or remain intact.

In addition, under the Companies Law, the Compensation Committee is authorized to approve the compensation of certain executive officers, including the chief executive officer, the company’s directors and the controlling shareholder, if he or she is employed by the company. Furthermore, the Compensation Committee is authorized to exempt the company from bringing the chief executive officer’s compensation to shareholders approval, under certain circumstances stipulated in the Companies Law.

According to the Companies Law, the compensation committee shall be comprised of no less than three directors and only directors eligible to serve as members of the audit committee may serve on the compensation committee. All of the outside directors must serve as members of the compensation committee and shall constitute a majority thereof. The chairman shall be an outside director. The compensation of all members of the compensation committee shall be identical.

We have established a Compensation Committee, consisting of Thomas J. Jurewicz and our two outside directors, Brian Crynes and Carla Corkern. The Compensation Committee met four times during fiscal year 2013.

All members of the Company’s Compensation Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the NASDAQ listing standards).

In February 2013, our Board of Directors approved our compensation policy (following the recommendation of our Compensation Committee), which was further approved by our shareholders in April 2013, as required by the Companies Law (the “Compensation Policy”).

According to the Companies Law, the compensation of our directors and officers must be approved in accordance with our compensation policy, unless certain procedural and substantive requirements are met.

Subject to any extraordinary circumstances stipulated in the Companies Law, the compensation of our officers (who do not also serve as directors), including options, other share-based compensation, procurement of insurance coverage and indemnification, is subject to the approval of the Compensation Committee and Board of Directors. The compensation of our directors and chief executive officer is also subject to shareholder approval.

The renewal of our officers’ compensation package (including our chief executive officer) may be approved by our compensation committee (without requiring the approval of our Board of Directors and shareholders) if the compensation committee has determined that the renewed package is not materially different from his or her previous package.

Compensation Committee Processes and Procedures

Several main principles and objectives form the basis of the Company’s Compensation Policy: (a) to promote the Company’s goals and targets and its long term policy; (b) to create appropriate incentives for the Company’s officers, considering, among others, the Company’s risk management policy; (c) to adapt a compensation package combination that matches the size of the Company and the nature of its activities; and (d) to comply with the provisions of the law by compensating those eligible pursuant to the Compensation Policy, based on their contribution and their efforts to the development of the Company’s business and promotion of its goals, in the short and long term.

The Compensation Policy is a multi-year policy which is in effect for a period of three years from the date of its approval, currently until April 2016, after which time it may be reapproved. The Compensation Committee and the Board of Directors review the Compensation Policy from time to time, as well as the need to adjust it. In so doing, they conduct an examination of changes in the Company’s goals, market conditions, the Company’s profits and revenues in previous periods and in real time, and any other relevant factors.

The Compensation Policy considers that different terms of employment may apply in various countries, and therefore a global comparison of employment terms for similar positions within the Company, may not be a relevant parameter when determining officer compensation.

Prior to approval of a compensation package for an officer, the Company may conduct a wage survey that compares and analyses the compensation packages granted to officers in similar positions (in other companies of the same type as the Company) to that of the relevant officer.

The policy requires that the Company do its utmost to approve the compensation terms of new officers prior to the date of commencement of their employment in the Company.

The compensation package may include various components including a base salary, sales commissions, annual cash bonus and share-based compensation (e.g. options, restricted stock units) as well as social benefits, car allowance, mobile allowance, reimbursement of expenses, perquisites, advance notice for termination of employment, medical insurance, exculpation and indemnification arrangements, retirement grants, sign-on fees and special bonuses. The Compensation Policy sets certain criteria, standards and limitations with regard to the above components, and in particular regarding bonus.

Nominating and Corporate Governance Committee

Our Board of Directors does not have a standing Nominating and Corporate Governance Committee or a Nominating and Corporate Governance Committee charter. Instead, the full Board of Directors performs the function of a nominating committee. The Board of Directors believes it is appropriate not to have a standing Nominating and Corporate Governance Committee because we are a small company with little turnover in our Board of Directors. Moreover, we believe the current structure provides better oversight and is more efficient.

The Articles of Association of the Company provide that a director may appoint another person to serve as his alternate with all the rights and obligations of the appointing director, except the right to appoint a further alternate. The alternate director may not act at any meeting at which the director appointing him is present. Unless the time period or scope of any such appointment is limited by the appointing director, such appointment is effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing director’s term. An alternate director is solely responsible for his own acts and defaults, and is not the agent of the appointing director. To date, no alternate directors serve on behalf of the directors of the Company. Under the Companies Law, the outside directors may not appoint alternates to serve on the Board of Directors.

Our Board of Directors believes that candidates for director should have certain minimum qualifications, as described in “Information Regarding the Board of Directors and Corporate Governance-Board Structure.” Neither our Articles of Association, nor the Companies Law, include any procedures by which security holders may recommend nominees to the Company’s board of directors.

Shareholder Communications With The Board Of Directors

Historically, the Company has not provided a formal process related to shareholder communications with the Board of Directors. Nevertheless, every effort has been made to ensure that the views of shareholders are heard by the Board of Directors or individual directors, as applicable, and that appropriate responses are provided to shareholders in a timely manner. The Company believes its responsiveness to shareholder communications to the Board of Directors has been excellent.

Code of Conduct

The Company has adopted a code of conduct applicable to our executive officers, directors and all other employees. The code of conduct is available on the Company’s website at www.bphx.com. The information provided on the Company website is not part of this Proxy Statement, and therefore is not incorporated herein by reference. In addition, we intend to promptly disclose the nature of any amendment to, or waiver from, our code of business conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions on our website in the future.

Proposal 7

Waiver of Terms of The Prescott Agreement

Pursuant to the Merger Agreement, the Board of Directors is also requesting shareholder approval of a waiver by Prescott of certain terms of the Prescott Agreement, which may require the issuance of additional shares to Prescott as a result of the consummation of the Merger. Consummation of the Merger is subject to a waiver from Prescott regarding any anti-dilution adjustment shares referred to under the Prescott Agreement and the Company and Prescott agreeing that the Merger shall not be considered a “Qualified Financing,” which would otherwise terminate Prescott’s right to receive anti-dilution shares in the future. In the judgment of the Board of Directors, shareholder approval of this waiver is desirable and in the best interests of the Company. A copy of the waiver is included in this Proxy Statement as Annex J.

Vote Required and Board of Directors’ Recommendation

Adoption of this proposal requires the affirmative vote of a majority of ordinary shares present at the meeting, in person, by proxy or by voting instruction card, and voting on the resolution, provided that (i) the shares voting in favor of such resolution include at least the majority of the shares voted by shareholders who are not interested parties; or (ii) the total number of shares voted against the resolution by shareholders who are not interested parties does not exceed two percent of the Company’s outstanding shares.

Please note that you are required to indicate on the proxy card whether or not you are an interested party, or acting on its behalf, with respect to this proposal, no matter whether you vote for or against this proposal. If you fail to notify us as to whether or not you are an interested party, or acting on its behalf with respect to this Proposal No. 7, your vote will not be counted with respect to Proposal No. 7.

The Board Of Directors Recommends

A Vote In Favor Of Proposal 7.

Proposal 8

Re-Appointment of Independent Auditor

Based upon the recommendation of the Audit Committee, the Board of Directors recommends that BDO Ziv Haft, an independent registered public accounting firm and BDO member firm, be reappointed as our independent registered public accounting auditor firm for the period ending on the date of the next annual general meeting of shareholders and has further directed that management submit the selection of its independent registered public auditor firm for appointment by the shareholders at the Annual Meeting. BDO Ziv Haft has served as the Company’s independent auditor since 1993. Representatives of BDO Ziv Haft are expected to be available for the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

BDO Ziv Haft has no relationship with the Company or with any affiliate of the Company except as an auditor and, to a limited extent, as consultants. The Board of Directors and the Audit Committee believe that such limited non-audit function does not affect the independence of BDO Ziv Haft.

Principal Accountant Fees and Services

The following table represents aggregate fees billed to the Company for the fiscal years ended December 31, 2012 and December 31, 2013, by BDO Ziv Haft, our principal accountant.

An engagement letter stating the fees above was signed by the Chair of the Audit Committee and our Chief Financial Officer.

Pre-Approval Policies and Procedures

The Audit Committee is in the process of adopting a policy and procedures for the pre-approval of audit and non-audit services rendered by the Company’s independent registered public accounting firm, BDO Ziv Haft. The policy will generally pre-approve specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent auditor or on an individual, explicit, case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next scheduled meeting.

The Audit Committee has determined that the rendering of services other than audit services by BDO Ziv Haft is compatible with maintaining the principal accountant’s independence.

Vote Required and Board of Directors’ Recommendation

The affirmative vote of the holders of a majority of the voting power represented at the Annual Meeting in person, by proxy or by voting instruction card will be required to appoint BDO Ziv Haft.

The Board Of Directors Recommends

A Vote In Favor Of Proposal 8.

Proposal 9

Approval of 2007 Stock Award Plan, As Amended

In July 2007, we adopted an award plan, referred to as the 2007 Award Plan, under which our Board of Directors may grant conditional rights to receive the Company’s ordinary shares (RSUs) to our and our subsidiaries’ directors, officers, consultants and employees. Our Board of Directors approved the issuance of the shares under the 2007 Award Plan and award agreements. On October 8, 2014 the Board of Directors amended the 2007 Award Plan, subject to shareholder approval, to increase the number of ordinary shares authorized for issuance under the 2007 Award Plan to a total of 2,000,000 ordinary shares. The Board of Directors adopted this amendment in order to ensure that the Company can continue to grant RSUs at levels determined appropriate by the Board of Directors. The 2007 Award Plan, as amended, is included in this Proxy Statement as Annex K.

Our Board of Directors administers the 2007 Award Plan and is empowered, among other things, to designate the grantees, dates of grant and the terms of RSUs, including the vesting schedule, all of which in accordance with the principle guidelines approved by the Board of Directors. Under the 2007 Award Plan, unless determined otherwise by the Board of Directors, RSUs vest over a three years period from the date of the grant. In accordance with the Companies Law, grants that require the approval of our Compensation Committee or shareholders, are also approved by the Compensation Committee and shareholders, as applicable. Unvested RSUs are forfeited shortly following termination of employment, unless otherwise agreed. Under the 2007 Award Plan, the grantee is responsible for all personal tax consequences of the grant and the sale of the shares. The plan will expire in July 2017.

2007 Award Plan Benefits

The following table sets forth, for each of the individuals and the various groups indicated, the total number of ordinary shares subject to RSUs that have been granted (even if not currently outstanding) under the 2007 Award Plan since its approval by our shareholders in 2007 through August 31, 2014. In addition, pursuant to Mr. Bell’s employment letter agreement, Mr. Bell may be granted up to another 50,000 RSUs under the 2007 Award Plan in connection with performance and revenue goals as described elsewhere in this Proxy Statement. Otherwise, future awards to our directors, officers and employees under the 2007 Award Plan are discretionary. As a result, the benefits and amounts that will be received under the 2007 Award Plan are not determinable at this time.

________

Vote Required and Board of Directors’ Recommendation

The affirmative vote of the holders of a majority of the voting power represented at the Annual Meeting in person, by proxy or by voting instruction card will be required to approve the Company’s 2007 Stock Award Plan.

Equity Compensation Plan Information

The following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of December 31, 2013.

The Board Of Directors Recommends

A Vote In Favor Of Proposal 9.

Proposal 10

Advisory Vote on Executive Compensation

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and Section 14A of the Exchange Act, the Company’s shareholders are entitled to vote to approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in this proxy statement in accordance with SEC rules.

This vote is not intended to address any specific item of compensation, but rather the overall compensation of the Company’s named executive officers and the policies and practices described in this proxy statement. The compensation of the Company’s named executive officers subject to the vote is disclosed in the compensation tables and the related narrative disclosure contained in this proxy statement. The Company believes that its compensation policies and decisions are consistent with current market practices. Compensation of the Company’s named executive officers is designed to enable the Company to attract and retain talented and experienced executives to lead the Company successfully in a competitive environment.

Accordingly, the Board is asking the shareholders to indicate their support for the compensation of the Company’s named executive officers as described in this proxy statement by casting a non-binding advisory vote “FOR” the following resolution:

“Resolved, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion is hereby APPROVED.”

Because the vote is advisory, it is not binding on the Board of Directors or the Company. Nevertheless, the views expressed by the shareholders, whether through this vote or otherwise, are important to management and the Board and, accordingly, the Board and the Compensation Committee intend to consider the results of this vote in making determinations in the future regarding executive compensation arrangements.

Advisory approval of this proposal requires the vote of the holders of a majority of the shares present in person or represented by proxy.

The Board Of Directors Recommends

A Vote In Favor Of Proposal 10.

Proposal 11

Advisory Vote on the Frequency of Solicitation of
Advisory Shareholder Approval of Executive Compensation

The Dodd-Frank Wall Street Reform and Consumer Protection Act, and Section 14A of the Exchange Act also enable the Company’s shareholders, at least once every six years, to indicate their preference regarding how frequently the Company should solicit a non-binding advisory vote on the compensation of the Company’s named executive officers as disclosed in the Company’s proxy statement. The Company is asking shareholders to indicate whether they would prefer an advisory vote every year, every other year or every three years. Alternatively, shareholders may abstain from casting a vote. For the reasons described below, the Board recommends that the shareholders select a frequency of three years.

After considering the benefits and consequences of each alternative, the Board recommends that the advisory vote on the compensation of the Company’s named executive officers be submitted to the shareholders once every three years.

We value the opinion of our shareholders and welcome communication regarding our executive compensation policies and practices. We believe that a triennial vote will provide shareholders with the ability to express their views on our executive compensation policies and practices while providing us with an appropriate amount of time to consult with our shareholders and to consider their input. Our executive compensation program is administered by our Compensation Committee, as described in this proxy statement. Compensation decisions are complex and, with respect to our named executive officers, are disclosed in our proxy statement. We believe that establishing a three-year time frame for holding shareholder advisory votes on executive compensation will both enhance shareholder communication and provide the Company time to consider, engage with and respond to shareholders, in terms of expressed concerns or other feedback.

Accordingly, the Board is asking shareholders to indicate their preferred voting frequency by voting for one, two or three years or abstaining from voting on this proposal. The alternative among one year, two years or three years that receives the votes of the holders of a majority of shares present in person or represented by proxy and entitled to vote on the matter at the annual meeting will be deemed to be the frequency preferred by the shareholders

While the Board believes that its recommendation is appropriate at this time, the shareholders are not voting to approve or disapprove that recommendation, but are instead asked to indicate their preferences, on an advisory basis, as to whether the non-binding advisory vote on the approval of the Company’s executive officer compensation practices should be held every year, every other year or every three years. The option among those choices that receives the votes of the holders of a majority of shares present in person or represented by proxy and entitled to vote at the annual meeting will be deemed to be the frequency preferred by the shareholders.

The Board and the Compensation Committee value the opinions of the shareholders in this matter and, to the extent there is any significant vote in favor of one frequency over the other options, even if less than a majority, the Board will consider the shareholders’ concerns and evaluate any appropriate next steps. However, because this vote is advisory and, therefore, not binding on the Board of Directors or the Company, the Board may decide that it is in the best interests of the shareholders that the Company hold an advisory vote on executive compensation more or less frequently than the option preferred by the shareholders. The vote will not be construed to create or imply any change or addition to the fiduciary duties of the Company or the Board.

The Board Of Directors Recommends

A Vote In Favor Of “Three Years” On Proposal 11.

Executive Officers

The following table sets forth certain information with respect to our executive officers as of August 31, 2014.

Matt Bell, 41, has served as our chief executive officer since July 2012.  He had served as our president from March 2012 to July 2012.  In 2011, prior to joining our company, Mr. Bell served as chief operating officer at PitchBook Data, Inc. Between 2007 and 2011, Mr. Bell served as vice president of sales and business development for three enterprise startup companies backed by a venture capital firm from Seattle, WA. Mr. Bell also served as general manager of sales of RealNetworks where he managed the enterprise, education, government, and ASP sales throughout North America. He also managed all enterprise OEM business globally. Mr. Bell holds a BA in business and administration specializing in marketing and finance from the University of Washington.

Rick Rinaldo, 49, has served as our chief financial officer since April 2013. Prior to this position, between 2009 and 2013, Mr. Rinaldo worked for Expedia.com running the treasury operations group which included worldwide responsibilities for cash management, investments and insurance.  Prior to that, Rick had over 15 years of financial experience at various positions. Mr. Rinaldo holds a BS in finance from California State University, Chico.

Rick Oppedisano, 40, has served as our vice president of global research and development and marketing. since January 2013.  Prior to joining BluePhoenix, Mr. Oppedisano worked with Azaleos Corporation, holding roles in marketing, product management and global channel sales from 2009 to 2013.  Mr. Oppedisano also performed various roles in marketing and product development for large companies like IBM and Bank of America. Mr. Oppedisano holds a BA from the University of Mary Washington in Political Science.

Executive Compensation

Summary Compensation Table for the Years Ended December 31, 2013 and 2012

The table below summarizes the total compensation earned during 2013 and 2012 by our principal executive officer and our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at the end of the last completed fiscal year.

(a)  Amounts reflect the executive officers’ annual cash bonus payouts for 2013 performance. These amounts were recommended by the compensation committee and approved by our Board of Directors. Of these amounts earned in 2013, $10,000 for Rick Rinaldo was paid in January 2014 and $20,000 for Rick Oppedisano was paid in January 2014.

(b)  Amounts reflect the aggregate value of restricted stock unit awards under the 2007 Award Plan (vested and unvested) granted to the executive officer in the applicable fiscal year, computed in accordance with applicable accounting standards and based on the stock price on the date of grant. For more information about the assumptions we made in determining the grant date fair value, see Note 10 of the Notes to Consolidated Financial Statements in our audited financial statements included with this Proxy Statement. All stock awards vest as described in the individual footnotes in the Summary Table for Outstanding Equity Awards below.

(c)  Amounts reflect the aggregate fair value of the option awards under the 2003 Option Plan on the grant date, as determined in accordance with ASC 718 using the BSM option pricing model for option awards. For more information about the assumptions we made in determining the grant date fair value, see Note 10 of the Notes to Consolidated Financial Statements in our audited financial statements included with this Proxy Statement. This column includes the value of the awards granted by the Board of Directors during the relevant calendar year. All options vest as described in the individual footnotes.

(d)  Amount represents consulting fees paid to Rick Rinaldo for his role as interim Chief Financial Officer for five months from April 2013 – September 2013. Commencing September 15, 2013, Mr. Rinaldo became an employee of the Company and accordingly his salary from such date onwards was recorded in the applicable column.

(e)  Amount represents sign on bonus granted to Rick Oppedisano as an integral part of his employment terms.

(f)  Under Mr. Oppedisano’s employment agreement 50% of his annual bonus was to be paid in the form of equity awards. Notwithstanding, Mr. Oppedisano’s entire bonus for the second, third, and fourth quarter for 2013, was paid in cash and is included in the applicable bonus column above.

Summary Table for Outstanding Equity Awards at Fiscal Year-End

The table below sets forth information with respect to outstanding equity incentive awards held by our executive officers as of December 31, 2013.

Employment Agreements

We maintain written employment agreements with each of our executive officers. These employment agreements are with Modern Systems Corporation (f/k/a BluePhoenix USA, Inc.).  Executive officers or employees of the Company who also serve as directors or executive officers in our subsidiaries do not receive additional compensation for such service.

The employment agreements are not always specific regarding the term. However, the compensation policy stipulates that such agreements will be for a fixed term that does not exceed three years. Upon the expiry of an employment agreement, the agreement may be extended.  If we terminate the employment agreements, we are required to pay the usual severance pay in accordance with applicable law. The agreements with our executive officers provide for annual base salary and other benefits such as vacation, sick leave, health, dental, vision, 401(k) retirement savings plan, life and disability insurance.  In addition, our executive officers are required to enter into non-compete and confidentiality agreements.  A summary of the material terms of the employment agreements and offer letters with our executive officers is below.

The following definition applies to the term Change of Control in the employment agreements with our executive officers.  Change of Control occurs when any person, entity or affiliated group becomes the owner or owners of more than fifty percent (50%) of the outstanding equity securities of the Company, not including an increase in the current shareholders or any of their affiliates’ holdings.

Matt Bell

We entered into a letter agreement with Mr. Bell in March 2012, as President, providing an annual salary of $170,000 and all standard company benefits.  During the first year of employment, a two month notice of termination is required and after the first year a three month notice of termination is required.  During the notice period all salary, benefits, bonus accruing, vesting and payments will continue unchanged.  Pursuant to the agreement, Mr. Bell was granted 300,000 options at an exercise price of $1.80 which would vest over a period of three years in monthly installments with a six month cliff as long as Mr. Bell continued his employment with the company during this time.  In case of a Change of Control, all such Options granted under the agreement shall become fully vested.  Additionally, Mr. Bell was offered a bonus of $500,000 if the company is sold for more than $60 million before March 2015.

In September 2012, we entered into a letter agreement with Mr. Bell, providing an annual salary of $300,000, as President and Chief Executive Officer, with the salary change to be retroactive to his start as Chief Executive Officer, which was July 2012.  During the first year of employment, a three month notice of termination is required and after the first year of employment, a six month notice period is required.  All salary, benefits, bonus accruing, vesting and payments will continue unchanged.   In addition to the options granted above, Mr. Bell was granted 75,000 restricted stock units, which will vest over a three year period in monthly installments starting on his original hire date of March 2012, with a six month cliff.  Additionally, Mr. Bell would be granted up to another 50,000 RSUs if he met performance and revenue goals of up to $30 million in revenue and net margins of up to 15%.  In the case of a Change of Control, all granted RSUs from this agreement would become fully vested.  Additionally, the potential bonus upon a Change of Control described above was amended to $500,000 if the company is sold for more than $50 million and $1million if the company is sold for more than $100 million.

In January 2014, Mr. Bell entered into a letter agreement transferring his employment from BridgeQuest Solutions, Inc. to Modern Systems Corporation (f/k/a BluePhoenix USA, Inc.).

Rick Rinaldo

We entered into a letter agreement with Mr. Rinaldo in September 2013, as Chief Financial Officer, providing an annual salary of $200,000 and all standard company benefits.  In the event his employment is terminated without cause, Mr. Rinaldo is eligible for 90 days of severance with stock vesting and benefits to continue unchanged.  Mr. Rinaldo was granted a total of 75,000 RSUs to vest over a period of three years from the signature date of the letter agreement.  A revised vesting schedule for such RSUs was approved by the Board of Directors at their meeting in March 2014.  The revised vesting schedule states that 14,581 shares shall vest immediately on April 15, 2014 and the remaining 60,419 RSUs shall vest over 29 months, in equal monthly installments, commencing on May 15, 2014. Mr. Rinaldo's compensation terms were updated by the Board and Compensation Committee in April 2014, pursuant to which upon the occurrence of a Structural Change (as such terms is defined in the Company's 2007 Award Plan) in the Company, while Mr. Rinaldo is still employed by the Company the following shall apply (a) the vesting schedule of Mr. Rinaldo's unvested RSUs for a period of 12 months as of the date of the Structural Change (“Initial Accelerated Awards”) shall be accelerated and shall be fully vested and exercisable upon the Structural Change; and (b) if within 6 months as of the date of the Structural Change, Mr. Rinaldo's employment is terminated by the Company without Cause (as such term is defined in the Company's 2007 Award Plan) or Mr. Rinaldo terminates his employment with the Company due to material reduction of his rate of compensation or in his authority, title or duties by the Company without Cause, then the vesting schedule of Mr. Rinaldo's RSUs for an additional period of 12 months after the Initial Accelerated Awards, shall be accelerated and shall be fully vested and exercisable. Mr. Rinaldo has the opportunity to earn a prorated quarterly bonus of 20% of his annual salary based upon personal and company performance goals.

Rick Oppedisano

We entered into a letter agreement with Mr. Oppedisano in December 2012, as Vice President of Marketing providing an annual salary of $168,000 and all standard company benefits.   Mr. Oppedisano’s start date was January 1, 2013.  Pursuant to the agreement, Mr. Oppedisano was granted 70,000 options at an exercise price of $3.87 which shall vest over a period of three years in monthly installments with a six month cliff as long as he continued his employment with the company during this time.  In case of a Change of Control, all such options shall become fully vested.  A sign on bonus of $10,000 was paid in monthly installments for the first 10 months of employment.  An annual bonus of $120,000 would be granted subject to achievement of target sales in the amount of $15 million in 2013. Pursuant to the agreement, this annual bonus will be awarded in quarterly payments to be paid one half in stock options and the other half in cash.  During the first year of employment a two month notice of termination is required and after the first year of employment, a three month notice of termination is required.  During the notice period all salary, benefits, bonus accruing, vesting and payments will continue unchanged.

In October 2013, an addendum to the employment agreement with Mr. Oppedisano was entered into expanding the scope of Mr. Oppedisano’s role.  As full consideration for the expanded scope of his position, Mr. Oppedisano was granted a one-time special grant of 10,000 RSUs to vest over three years in monthly installments from the date of the grant.   A revised vesting schedule was approved by the Board of Directors at their meeting in March 2014 pursuant to which  the above 10,000 RSU’s will vest as follows:   3,058 shares will vest on May 1, 2014 and the remaining 6,942 share will vest in 25 equal monthly installments commencing June 1, 2014.  In the case of a Change of Control, these RSUs described above would become fully vested. In keeping with the compensation policy, the addendum also stipulated a three year employment term and also provides for an advance termination notice period of 60 days.  Additionally, in accordance with the addendum, the annual  bonus in an amount up to $120,000 is now subject to the achievement of target sales, determined at the Chief Executive Officer’s discretion, subject to required approvals of the Board of Directors.  It was further stated in the addendum that half of such bonus would be paid in cash and half in RSUs (rather than in stock options). 

Director Compensation

In 2013, we compensated only non-employee directors for serving on our Board of Directors in accordance with previously approved guidelines.  Each non-employee director received an annual retainer of $20,000 paid in quarterly payments.  For those that joined the Board of Directors during 2013, the amount was pro-rated by 365 days.  For 2013, the total aggregate cash compensation earned by our non-employee directors for their service was $98,726. We also reimburse each of our directors for expenses incurred in connection with attending Board of Directors’ meetings and for their service as directors in accordance with our compensation policy.

Our general policy is to grant our new non-employee directors an initial equity award of 30,000 RSU’s to vest in equal installments over 36 months.

Our non-employee directors, currently Melvin L. Keating, the Chairman of our Board of Directors, Thomas J. Jurewicz and Harel Kodesh, receive a compensation package, as approved in accordance with the Companies Regulations (Reliefs in Transactions with Related Parties) 2000 in the same amounts and on such terms payable to our outside directors, in accordance with the Companies Regulations (Rules for the Payment of Remuneration and Expenses of Outside Directors) 2002, referred to as the Outside Directors Regulations, as follows:

 The grant of the RSUs is made under the terms set forth in our 2007 Award Plan and in accordance with our standard grant letter. In the event of a change of control pursuant to which (i) any shareholder holding less than 25% of the outstanding share capital of the company on the date of grant (except for the three shareholders) shall hold at least 50% of the outstanding share capital of the company;  or (ii) a merger or a sale of 50% or more of the company’s activities shall be effected (each of (i) and (ii), referred to herein as a “Change of Control”), then all outstanding RSUs previously granted, shall be automatically vested.

 Compensation of the Chairman of the Board of Directors

On April 11, 2013, our shareholders approved, following the approval of our compensation committee and Board of Directors, in accordance with the Companies Law, a compensation package for Mr. Keating similar to the compensation package for the non-employee directors, with the exception that the number of RSUs granted to Mr. Keating shall be 45,000 RSUs which shall be granted following the shareholders’ approval and shall vest and become exercisable in equal monthly installments over a 36 month period, beginning on March 1, 2013.

It was further resolved by the shareholders, that any chairman of the board appointed from time to time, other than Mr. Keating, shall be entitled to the compensation generally payable to our non-employee directors.

Compensation of Our Outside Directors

In September 2012, our shareholders approved, following the approval of our audit committee and our Board of Directors, the compensation payable to our outside directors (Carla Corkern and Brian Crynes), in accordance with the Companies Regulations (Rules for the Payment of Remuneration and Expenses of Outside Directors) 2002, as follows:

(a) Cash Compensation — an annual total compensation of $20,000 consisting of the annual payment, payable in quarterly installments in accordance with the Outside Directors Regulations and per meeting payment, which shall be paid following each meeting in accordance with the Outside Directors Regulations; and

(b) RSUs Compensation — 30,000 RSUs to be granted to each outside director upon his or her initial appointment to the Board of Directors (and every three years thereafter). The RSUs shall vest and become exercisable in equal monthly installments over a period of 36 months following the date of grant.

The grant of the RSUs is made under the terms set forth in our 2007 Award Plan and in accordance with our standard grant letter. In the event of a Change of Control, then all outstanding RSUs previously granted, shall be automatically vested.

Summary Table for Director Compensation

The table below sets forth, for each non-employee or outside director, the amount of cash compensation paid by us and the value of stock awards received from us for his or her service, during 2013:

Transactions With Related Persons

In November 2013, we issued 625,000 ordinary shares to Prescott Group Aggressive Small Cap Master Fund, G.P. at a price per ordinary share of $4.00 in a private placement.  We received aggregate gross proceeds of $2.5 million. Issuance expenses amounted to $210,000. The issuance of such shares was exempt from registration in reliance on Section 4(2) of the Securities Act for transactions not involving any public offering. There were no underwriting discounts or commissions in connection with such offering.

Modern Systems Corporation (f/k/a BluePhoenix USA, Inc.) is party to a loan and security agreement with Comerica Bank, the terms of which were amended in October 2014.  Each of Columbia Pacific and Prescott is a guarantor of certain of our obligations under the loan and security agreement, as amended.

Receipt And Consideration Of The Financial Statements

Our audited financial statements for the year ended December 31, 2013 are included in our Annual Report on Form 10-K, which we filed with the SEC on March 28, 2013. A copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 is available at www.bphx.com. The information provided on the Company website is not part of this Proxy Statement, and therefore is not incorporated herein by reference. A copy of the financial statements for the year ended December 31, 2013 are included in this Proxy Statement as Annex D.

The Company’s Annual Report is not a part of this Proxy Statement. At the Annual Meeting, the Consolidated Financial Statements of the Company for the fiscal year ended December 31, 2013 and the Auditor’s Report in respect thereto will be presented and considered.

Vote Required and Board of Directors’ Recommendation

This item does not involve a vote of the shareholders.

Report of the Audit Committee of the Board of Directors⁽¹⁾

The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2013 with management of the Company. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence. Based on the foregoing, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors, executive officers, and greater than 10% shareholders file reports with the SEC and the NASDAQ on their initial beneficial ownership of our ordinary shares and any subsequent changes. They must also provide us with copies of the reports. We were not subject to Section 16(a) during the year ended December 31, 2013.

Householding of Proxy Materials

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Annual Meeting materials with respect to two or more shareholders sharing the same address by delivering a single set of Annual Meeting materials addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.

This year, a number of brokers with account holders who are Company shareholders will be “householding” the Company’s proxy materials. A single set of Annual Meeting materials will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate set of Annual Meeting materials, please notify your broker or the Company. Direct your written request to the Company’s Chief Financial Officer at 601 Union Street, Suite 4616, Seattle, Washington 98101 or contact our Chief Financial Officer at (206) 395-4152. Shareholders who currently receive multiple copies of the Annual Meeting materials at their addresses and would like to request “householding” of their communications should contact their brokers.

Other Matters

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting.

Where You Can Find More Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read any reports, proxy statements or other information that we file with the SEC at the following location of the SEC:

Public Reference Room
100 F Street, N.E. Room 1580
Washington, D.C. 20549

Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Our SEC filings are also available to the public from document retrieval services and the Internet website maintained by the SEC at www.sec.gov.

You should rely only on the information contained in this Proxy Statement. We have not authorized anyone to provide you with information that is different from what is contained in this Proxy Statement. This Proxy Statement is dated , 2014. You should not assume that the information contained in this Proxy Statement is accurate as of any date other than that date. The mailing of this Proxy Statement to shareholders does not create any implication to the contrary.

If you have any questions about the Annual Meeting after reading this Proxy Statement, or if you would like additional copies of this Proxy Statement or the proxy card, you should contact us as follows:

A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2013 is available without charge upon written request to: BluePhoenix Solutions, Ltd, c/o Chief Financial Officer, 601 Union Street, Suite 4616, Seattle, Washington.

Annex A

BluePhoenix Solutions, Ltd.

Amended and Restated Merger Agreement

Execution Version

AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER

by and among

BLUEPHOENIX SOLUTIONS LTD.,

MODERN SYSTEMS CORPORATION,

BP-AT ACQUISITION CORPORATION,

SOPHISTICATED BUSINESS SYSTEMS, INC.,

THE STOCKHOLDERS OF SOPHISTICATED BUSINESS

SYSTEMS, INC.

And

SCOTT MILLER

As Stockholder Representative,

DATED AS OF OCTOBER 14, 2014

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