ArelNet Limited and Nortel — Northern Telecom Limited — Enter Into a Memorandum of Understanding for the Acquisition by Nortel of 20% of ArelNet Limited

Business Wire, Sept 22, 1997

YAVNE, Israel--(BUSINESS WIRE)--Sept. 22, 1997--Arel Communications and Software Limited (Arel, NASDAQ NMS Symbols ARLCF; ARLWF) announced today the entering into of a memorandum of understanding between ArelNet Ltd. and Northern Telecom Limited (NORTEL, TSE: NTL, NYSE: NT), pursuant to which Nortel will invest $5 million in the share capital of ArelNet in consideration for 20% of the outstanding shares of ArelNet.

In addition, Nortel will be granted a three-year option to acquire a controlling interest in ArelNet at an enhanced valuation. The exact structure of the option will be agreed between the parties in a definitive agreement. Arel is currently an 80% owned subsidiary of Arel, with the remaining 20% owned by Elron Electronic Industries Ltd. (NASDAQ: ELRNF).

The Memorandum of Understanding also contemplates that Nortel will be appointed the exclusive distributor of ArelNet's i-FAX and derivative products (including real time voice applications) to service providers and carriers in North America and will have the exclusive rights to distribute i-FAX to certain service providers outside North America. ArelNet will continue its independent marketing efforts to enterprise networks worldwide and to certain service providers and carriers outside North America.

Consummation of the transaction reported today is subject to the execution of definitive documentation, the completion of due diligence, the receipt of third party consents and approvals and other standard conditions.

Izhak Gross, Chairman of the Board of Arel and ArelNet said that, "We are pleased to enter into a strategic relationship with Nortel -- a leading global provider of telecommunications and networking solutions. This memorandum of understanding is an additional confirmation of the industry's recognition of our technologies, capabilities and vision. Our second generation i-Fax -- Fax over the Internet -- which ArelNet expects to introduce in the near future, will enable our customers, both service providers and corporate networks, to use the same dial-up Public Switched Telephone Network (PSTN) port for a wide range of dial tone services, including Real Time Voice, Real Time Fax, Enhanced Fax/Voice and data. We believe that ArelNet's future IP Telephony Server will be the first true Unified Messaging Server available on the market, which is dedicated to Telecoms, Internet Service Providers and Enterprise Intranet Networks."

Arel Communications and Software Ltd., through its subsidiary ArelNet, designs, develops, markets, produces, integrates and supports, on a worldwide basis, software for two families of message-switching wide-area network systems called ARCOM and i-FAX. Arcom is rated among the leading products in its field worldwide. I-FAX is a leading solution for IP Telephone, designed for medium to large networks. In addition, Arel designs, develops, integrates and markets software for a family of products in the interactive distance learning market called IDEAL.

The IDEAL system is a one-to-many virtual classroom system. It enables a remote instructor to broadcast, control and conduct a fully interactive lesson from one center to a large number of students in remote locations.

CONTACT: Arel Communications and Software Ltd.

Izhak Gross, 972 8 9420880