Arel and Elron Conclude the Establishment of Joint Company to Exploit Transmission of Fax and Other Messages Over Internet.

YAVNE, Israel--(BUSINESS WIRE)--July 15, 1996--Arel Communications and Software Ltd. (NASDAQ/NMS:ARLCF), today announced that the Company has concluded a previously reported transaction with Elron Electronic Industries Ltd. (NASDAQ/NMS:ELRNF) for the formation of a joint company, Arel Net Ltd., to exploit Arel's wide area network systems technology and Elron's i-FAX product line and technology for transmission of fax and other messages over the Internet.

Arel's ARCOM store-and-forward based, value added network message handling, switching and management system can receive a wide variety of telecommunication messages, including facsimile, telex, telegram, E-mail, telephone and X.400, and retransmit them in the same or a transformed protocol. In addition, customers of the ARCOM system can utilize high speed telecommunication networks (e.g. satellite or dedicated leased line) in order to interconnect between the various distributed nodes, whether these nodes are part of their own network or whether an interconnecting agreement with other message handling VAN service providers is created.

Elron's i-FAX system is a "client/server" line of products which uses the Internet to send international and long-distance faxes, achieving substantial savings on fax cost. The "client" can be a standard fax machine or a PC/Windows.

The combined ARCOM, i-FAX technology will enable corporations to distribute single and multiple messages such as faxes over the Internet network, as well as through traditional telecommunications transmission networks at low cost and higher reliability.

Pursuant to the transaction concluded today, effective July 1, 1996, Arel has transferred its assets and technology relating to its ARCOM systems to ArelNet, and Elron has transferred its i-FAX product line and underlying technology to ArelNet.

Arel owns 80 percent of ArelNet, of which 5 percent has been reserved for options to employees and Elron holds 20 percent. Elron has also received warrants to purchase up to 500,000 Arel shares at $6.125 per share. Arel has invested $2 million and Elron approximately $0.5 million in the new company.

Mr. Itzhak Gross, the Chief Executive Officer of ArelNet, commented: "We are pleased that we have concluded our partnership with Elron. This transaction will position Arel for the ever growing Internet transmission market. ArelNet estimates that it will begin to generate revenues from sales of i-faxes in this quarter."

Arel Communications and Software Ltd. designs, develops, produces, markets and supports a family of value-added telecommunications network service system ("VANS"). Arel's leading product, ARCOM, is rated worldwide amongst the leading products in the field. Arel provides a second family of products, IDEAL, Inter-active distance learning solutions to the training and educational markets worldwide.

CONTACT: Arel Communications and Software Ltd.

Mr. Itzhak Gross

Mrs. Rachel Ben Nun, C.E.O.

Tel: [phone] Fax: [phone]