BluePhoenix Solutions Ltd. Board Approves of Filing of a Draft Prospectus with the Israeli Securities Authority

$8 Million of Convertible Notes to be Offered in Israel and listed on Tel-Aviv Stock Exchange

January 20, 2006

HERZLIA, Israel -- January 20, 2006 -- BluePhoenix Solutions (NASDAQ: BPHX - News), the leader in Enterprise IT Modernization, announced today that its Board of Directors has authorized the filing of a draft prospectus with the Israeli Securities Authority and the Tel Aviv Stock Exchange in connection with a possible underwritten offering to the public in Israel of convertible notes. Each note will be convertible into ordinary shares of BluePhoenix. Holders may convert the notes into BluePhoenix's ordinary shares at conversion rate of one ordinary share per $5.60 principal amount of notes. The proceeds from the offering, if completed and subject to market conditions are expected to be approximately $8 million. The offering is subject to the publishing of a final prospectus approved by the Israeli Securities Authority and the approval of the Tel-Aviv Stock Exchange for the listing of the notes and the shares underlying the notes for trading.

The securities to be offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States or to U.S. persons, absent registration or an applicable exemption from registration requirements.

About BluePhoenix Solutions
BluePhoenix Solutions leads the IT Modernization market by developing unique solutions that enable companies to automate the process of modernizing and upgrading their mainframe and distributed IT infrastructure, thus quickly and cost-effectively extending the ROI of their existing IT systems. The company's comprehensive suite of tools and services, (including technology for Understanding, Migration, Remediation and Redevelopment), reduces the cost of renovation and speeds up the renewal process. BluePhoenix has 12 offices throughout the world, including locations in the US, UK, Denmark, Germany, Italy, The Netherlands, Australia and Israel. The company's major shareholder is Formula Systems (NASDAQ: FORTY), an international Information Technology company principally engaged in providing software products, solutions, and services in various vertical markets.

For more information, please visit www.bphx.com.

SAFE HARBOR: Certain statements contained in this release may be deemed forward-looking statements, with respect to plans, projections, or future performance of the Company, the occurrence of which involves certain risks and uncertainties that could cause actual plans to differ materially from these statements. These risks and uncertainties include but are not limited to: market demand for the Company's tools, successful implementation of the Company's tools, competitive factors, the ability to manage the Company's growth, the ability to recruit and retrain additional software personnel, and the ability to develop new business lines.

This press release is also available at www.bphx.com. All names and trademarks are their owners' property.

Contact:
Iris Yahal
+972-9-9526110