Elron and Arel plan joint venture for transmission of fax, other messages over Internet.

HAIFA, Israel--(BUSINESS WIRE)--Feb. 20, 1996--Elron Electronics Industries Ltd. (NASDAQ/NMS:ELRNF) and Arel Communications and Software Ltd. (NASDAQ/NMS:ARLCF), today announced they have entered into a letter of intent for the formation of a joint company 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 network (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 costs. 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 telecommunication transmission networks at low cost and higher reliability.

Pursuant to the letter of intent 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 7.5 percent of Arel share capital at $6.125 per share. In addition, Arel agreed to invest $2 million and Elron $0.5 million in the new company.

The final agreement is subject to approval of the board of directors of Elron and Arel, to a satisfactory due diligence and other customary terms and conditions.

Mr. Uzia Galil, chairman of the board of Elron, today said "this transaction is an additional step in Elron's growing involvement in the Internet and information technology world," adding:

"We believe that Arel's technology, coupled with our Internet fax transmission capabilities, gives both companies an excellent opportunity to realize their technological and marketing potential in the fast growing value-added network messaging market."

Mr. Itzhak Gross, president of Arel, 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." -0-

Elron Electronic Industries Ltd. is a multinational high technology holding company based in Israel. Through affiliates, Elron is engaged with a group of high technology operating companies in the fields of medical diagnostic imaging, advanced defense electronics, manufacturing automation, high speed data communications, networking services, semiconductors and software products.

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 this field. Arel provides a second family of products, IDEAL, Inter-active distance learning solutions to the training and educational markets worldwide.

CONTACT: The Anne McBride Company

Anne S. McBride

212/752-0504

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Elron Technologies, Inc.

Yung Jin Kim

212/935-3110

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Elron Electronics Industries Ltd.

Doron Birger

011-972-4-8545000