Elron and Arel sign definitive agreement for formation of joint company to exploit transmission of fax and other messages over Internet.

HAIFA, Israel--(BUSINESS WIRE)--May 7, 1996--Elron Electronic Industries Ltd. (NASDAQ/NMS/ELRNF), a leading multinational high technology holding company, today announced, further to its announcement of February 20, 1996, that the Company has entered into a definitive agreement with Arel Communications and Software Ltd. (NASDAQ/NMS/ARLCF) for the formation of a joint company, ArelNet Ltd., elroNet Associate, to exploit Elron's i-FAX product line and technology for transmission of faxes and other messages over the Internet and Arel's "ARCOM" wide area network systems technology.

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.

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.

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 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.

Mr. Izhak Gross, who has acted as President of Arel, will assume the position of CEO of the new company.

Dr. Jacov (Koby) Ben-Zvi, Senior Vice President Business Development in Elron, commented: "ArelNet is joining the elroNet activity which focuses in the information technology area. ArelNet products will enable its customers to send all kinds of electronic messages over different networks, including Internet, at low cost and high reliability".

Mr. Itzhak Gross, commented: "We believe the partnership with Elron will advance the technology and marketing capabilities of our products and the positioning of ArelNet in the ever growing Internet market".

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, communication, semiconductors, networking services and Internet software.

CONTACT: Elron Technologies Inc., New York 

Yung Jin Kim, 212/935-3110

or

The Anne McBride Co., New York

Anne S. McBride, 212/752-0504

or

Elron Electronic Industries Ltd.

Doron Birger, 972-4-8545000