Monday July 30, 2:01 am Eastern Time

Formula Systems (1985) Ltd. to Spin Off Shares of Mashov Computers Ltd. to Formula Shareholders

HERZLIYA, Israel, July 30 /PRNewswire/ -- Formula Systems (1985) Ltd. (Nasdaq: FORTY - news), a leading provider of information technology products, solutions and services, today announced that its board of directors has approved the spin-off of ordinary shares of Mashov Computers Ltd., an Israeli corporation traded on the Tel Aviv Stock Exchange, to the holders of Formula ordinary shares, par value NIS 1 per share. To effect this spin-off, Formula's board has declared a dividend on outstanding Formula ordinary shares consisting of Mashov ordinary shares owned by Formula representing approximately 72% of the outstanding Mashov ordinary shares. The dividend will be distributed on August 28, 2001 at a ratio of two Mashov ordinary shares (rounded to the nearest whole share) for each outstanding Formula ordinary share held as of the record date of August 12, 2001, subject to withholding for taxes as described below.

Formula further announced that it has granted to Mashov an option to purchase the interests held by Formula and its subsidiaries in certain privately-held companies that develop products and services intended primarily for international markets. Under the proposed transaction, Formula would also provide debt financing to Mashov to support the operations and continued growth of the transferred businesses. In consideration, Mashov would issue a debenture to Formula in an amount between $80 million and $95 million. In addition, Mashov would assume certain obligations related to the transferred companies. The option is exercisable by Mashov until November 30, 2001, and, if so exercised, the transaction would be subject to the approvals required under Israeli law.

The spin-off of the Mashov ordinary shares, together with the proposed transaction, if consummated, would enable Formula's shareholders to separately hold interests in publicly-traded companies, through their Formula shares, and in smaller, privately-held companies, through their holdings in Mashov. Dan Goldstein, Chairman and Chief Executive Officer of Formula, said: "By separating our venture capital activities from our large, public subsidiaries such as Magic Software Enterprises Ltd., Crystal Systems Solutions Ltd. and New-Applicom Ltd., we believe that Formula will have a more efficient corporate structure that will enable us to achieve improved operating results and further enhance shareholder value."

On the distribution date of the spin-off, each Formula shareholder will receive its pro rata portion of the dividend shares, net of Israeli withholding taxes at a rate of 25%, unless such holder has presented to Formula sufficient evidence of its exemption from withholding taxes in accordance with the requirements of Israeli law. Accordingly, Formula shareholders that are not exempt from Israeli withholding taxes will receive dividend shares at an effective ratio of 1.5 Mashov ordinary shares for each Formula ordinary share. Formula will withhold shares at source having a value equal to the required withholding taxes and may, in its discretion, sell all or a portion of the withheld shares on the open market or otherwise in order to satisfy the related tax liability.

Formula does not intend to list the Mashov ordinary shares on a United States securities exchange, obtain a quotation for such shares on the Nasdaq National Market, or register such shares under the U.S. Securities Exchange Act of 1934. The Mashov ordinary shares to be distributed to holders of Formula American Depositary Shares will be released to Formula's depositary, The Bank of New York, net of Israeli withholding taxes as described above. As contemplated by the agreement among The Bank of New York, Formula and the holders of Formula American Depositary Shares, The Bank of New York will sell the dividend shares on the Tel Aviv Stock Exchange through a custodian account in Israel and distribute the cash proceeds of such sales (net of depositary fees) pro rata to the holders of Formula American Depositary Shares.

Formula Systems (1985) Ltd. (Nasdaq: FORTY - news)

Formula Systems (1985) Ltd. is a global information technology company principally engaged, through its subsidiaries and affiliates, in providing software consulting services, developing proprietary software products and providing computer-based business solutions.

Mashov Computers Ltd.

Mashov Computers Ltd. currently holds interests in, among others: Babylon.com, which produces an information translation and conversion tool; TeleSpear, which provides web-enabling helpdesks; and U-callnet Inc., which develops ASP voice-enabled applications. Mashov also holds securities of Walla! and Paradigm Geophysical Ltd. On July 29, 2001, the last reported sale price of Mashov ordinary shares, as reported by the Tel Aviv Stock Exchange, was NIS 2.28 per share.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

Statements contained in this press release that are not historical facts are forward-looking statements. Such statements involve various risks that may cause actual results to differ materially. These risks and uncertainties include, but are not limited to: changes in the market price of the Mashov ordinary shares, the consummation by the companies of the proposed transaction, market demand for the companies' products, dependence on strategic partners, integration of new business, successful implementation of the companies' products, economic and competitive factors, international market conditions, management of growth, technological developments, the ability to finance operations and other factors which are detailed in Formula's U.S. Securities and Exchange Commission filings, including its most recent annual report on Form 20-F. Formula undertakes no obligation to publicly release any revision to any forward-looking statement.