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ELECTROSOURCE TO SELL PREFERRED STOCK, CANCEL MERGER PLAN

 ELECTROSOURCE TO SELL PREFERRED STOCK, CANCEL MERGER PLAN
 AUSTIN, Texas, Dec. 13 /PRNewswire/ -- Electrosource, Inc. (NASDAQ: ELSI), today announced it has agreed to sell $1.5 million in preferred stock to a partnership and that it will not pursue the proposed merger with a privately held company as announced earlier.
 Frank W. McBee Jr., chairman and president of Electrosource, said the preferred stock transaction would effectively give the partnership voting control over Electrosource.
 Electrosource, an Austin-based battery technology firm, suspended its operations in September 1991 and signed a nonbinding letter of intent to merge with a privately held company. The proposed merger was part of a plan to generate cash to enable it to pay creditors and to provide shareholders an ongoing interest in an operating company.
 McBee said, "We are pleased that we have attracted the interest of an investor in our technology. This investment, if completed, will provide the cash needed for us to settle our outstanding obligations and allow Electrosource to resume limited operations."
 The proposed investment would be made through a limited partnership formed by Benny E. Jay and Donald S. Thomas. Jay was executive vice president-sales and marketing of Electrosource until the company suspended operations in September, and Thomas is an Austin attorney and an Electrosource shareholder. The partnership expects to raise the funds needed for the investment from private investors.
 Under the terms of the proposal, the partnership would purchase shares of newly issued Electrosource preferred stock that are convertible into 6,400,000 shares of Electrosource common stock, which is approximately 51 percent of the fully diluted common stock. The $1.5 million purchase price is equivalent to approximately 23.5 cents per share of common stock. The purchase price includes $1.2 million payable in cash plus a release of the obligations of Electrosource to pay approximately $300,000 in minimum royalties to Blanyer-Mathews Associates, Inc., for 1991, 1992, and 1993.
 The preferred stock will be senior to the common stock in any liquidation of the company in an amount equal to its purchase price. The preferred stock will vote with common stock on an as-converted basis, representing approximately 51 percent of the voting stock.
 The terms of the proposed investment are subject to approval by the board of directors of Electrosource. Approval by Electrosource shareholders is not required.
 McBee said the partnership anticipates that the closing of the purchase will take place on or before Jan. 21, 1992. It is anticipated that after the closing, the current directors of Electrosource will resign, and persons chosen by the partnership will be appointed to the board.
 "The partnership must raise the funds necessary to complete the purchase of the preferred stock, and there can be no assurance that this transaction will be completed. If this financing is not completed, Electrosource will continue its efforts to complete the wind down of the company's operations and to pay its creditors," McBee said.
 -0- 12/13/91
 /CONTACT: Mark A. Huse of Electrosource, 512-445-6606/
 (ELSI) CO: Electrosource, Inc. ST: Texas IN: SU: TNM


JT -- NY018 -- 2303 12/13/91 10:35 EST
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Publication:PR Newswire
Date:Dec 13, 1991
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