Arel and Elron Sign Definitive Agreement for Formation of Joint Company to Exploit Transmission of Fax and Other Messages Over Internet.

YAVNE, Israel--(BUSINESS WIRE)--May 7, 1996--Arel Communications and Software Ltd. (NASDAQ/NMS:ARLCF), announced today, further to its announcement of February 20, 1996, that the Company has entered into a definitive agreement with Elron Electronic Industries Ltd. (NASDAQ/NMS:ELRNF) for the formation of a joint company, Arel Net Ltd., an associate of elroNET, to exploit Arel's wide area network systems technology (ARCOM) and Elron's i-FAX product line and technology for transmission of faxes 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 agreement announced today, Arel will transfer its assets and technology relating to its ARCOM systems to a new company to be formed by Arel, and Elron will transfer its i-FAX product line and underlying technology to the new company. Arel will own 80 percent of the new company, of which 5 percent will be reserved for options to employees and Elron will hold 20 percent. Elron will receive warrants to purchase up to 500,000 Arel shares at $6.125 per share. In addition, Arel agreed to invest $2 million and Elron approximately $0.5 million in the new company. The final agreement is subject to customary terms and conditions.

Arel also announced that Mr. Itzhak Gross, who has acted as President of Arel, will assume the position of CEO of the new company.

Mr. Itzhak Gross commented, "We believe the partnership with Elron will advance the technology and marketing capabilities of our products and we believe this transaction will position Arel for the ever growing Internet transmission market. The new company, providing both Internet and non-Internet message switching capabilities, gives both companies an excellent opportunity to realize our technological and marketing potential in the fast growing value-added network messaging market."

Arel Communications and Software Ltd., designs, develops, produces, markets and supports a family of value-added telecommunications network service systems ("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.

Itzhak Gross/ Rachel Ben Nun, 972 8 9420420