FORM 10-K
               SECURITIES AND EXCHANGE COMMISSION
                    Washington, D.C.  20549

(Mark One)
[X]  ANNUAL  REPORT  PURSUANT  TO SECTION  13  OR  15(d)  OF  THE
     SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997.
                               OR

[ ]  TRANSITION  REPORT PURSUANT TO SECTION 13 OR  15(d)  OF  THE
     SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For    the   transition   period   from   _________________    to
______________

Commission file number 0-16323

                             ELECTROSOURCE, INC.

            (Exact name of Registrant as specified in its charter)

                     Delaware                               742466304
          (State or other jurisdiction of                (I.R.S. Employer
          incorporation or organization)               Identification No.)

    2809 Interstate 35 South,San Marcos, Texas                78666
     (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:       (512) 753-6500

Securities registered pursuant to Section 12(b) of             None
                     the Act:

         Securities registered pursuant to Section 12(g) of the Act:

                   Common Stock, par value $1.00 per share
                               (Title of Class)

Indicate  by check mark whether the Registrant (1) has filed  all
reported  required  to be filed by Section 13  or  15(d)  of  the
Securities  Exchange Act of 1934 during the preceding  12  months
(or  for such shorter period that the Registrant was required  to
file  such  reports),  and (2) has been subject  to  such  filing
requirements for the past 90 days.
     Yes  X     No

Indicate  by  check  mark  if  disclosure  of  delinquent  filers
pursuant  to Item 405 of Regulation S-K is not contained  herein,
and will not be contained, to the best of registrant's knowledge,
in  definitive  proxy or information statements  incorporated  by
reference in Part III of this Form 10-K or any amendment to  this
Form 10-K.  [ ]

As  of  March  27, 1998, 4,534,531 common shares were outstanding
and  the aggregate market value of the common shares held by non-
affiliates  (based  on  the  closing price  of  these  shares  of
$0.6563, as reported by NASDAQ at the close of business on  March
27, 1998) was approximately $2,976,013.

              DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference
into the indicated part or parts of this report:

Portions  of  the  Company's Definitive Proxy Statement  for  the
Annual  Meeting of Shareholders scheduled to be held on  May  20,
1998, are incorporated by reference into Part III hereof.


                             PART I

Item 1.  Business.

General

Electrosource,  Inc.  ("ELSI" or the  "Company"),  is  an  energy
storage  solutions company engaged in the manufacture of advanced
lead-acid, rechargeable storage batteries and the development  of
related   processes  and  technologies.   The  Horizonr   battery
utilizes plate grids made from a patented coextruded wire  and  a
special paste mixture.  The Company is devoting its efforts  upon
development  of  Horizonr  battery technology  for  use  in  many
applications  including hybrid power vehicles,  lawn  and  garden
tools,   electric   vehicles,  neighborhood  electric   vehicles,
electric scooters, power management and starting power.

The  principal  executive offices of the Company are  located  at
2809  Interstate  35  South, San Marcos,  Texas  78666,  and  its
telephone number is (512) 753-6500.

Recent Financial Difficulties

As  a  result  of  the delays in development work  and  sales  of
batteries  and  its inability to successfully complete  a  larger
debt  or  equity financing, in February 1998, the Company reduced
its  staffing  by approximately 40% to reduce costs.   Management
anticipates  that  such cost reductions will  allow  the  Company
additional  time  to  explore strategic alternatives  such  as  a
business  combination,  the  sale of assets  and/or  a  strategic
alliance  and to attempt to increase revenues and further  reduce
costs.   The  Company  is  in preliminary  discussions  regarding
possible   transactions,  but  there  can  be  no  assurance   of
completion.   If  additional financing, a  business  combination,
sale of assets or a strategic alliance cannot be arranged by  May
1,  1998, the Company plans further significant reductions in the
work  force and possible subsequent elimination or relocation  of
manufacturing  and  other  functions with  the  primary  goal  of
maintaining research and development capabilities, the  corporate
legal  entity and protection of the core technology.  Such  plans
would  require additional capital.  These alternative  plans  are
subject  to  a great deal of risk and uncertainty.  There  is  no
assurance that any of these alternate plans will be successful or
that the Company will be able to continue as a going concern.

The Company anticipates that on April 1, 1998 it will be required
to  give  notice to cancel its facility lease effective September
30,  1998.  The Company is in discussions with the lessor  for  a
new  lease of the facility to be effective upon expiration of the
existing  lease on September 30, 1998.  If the Company is  unable
to  renegotiate or replace its lease of the facility by September
30, 1998, its ability to produce batteries would be prohibited or
greatly impaired.

The  Company  is  currently not in compliance  with  the  listing
requirements of NASDAQ and may become delisted unless  compliance
is  achieved  soon  or a plan of compliance is submitted  by  the
Company and approved by NASDAQ.

The Horizonr Battery

The  Company has concentrated its efforts on the design of a  new
concept of lead-acid battery employing coextruded wire in  plates
oriented  in  the  horizontal plane, as opposed to  the  vertical
plane   orientation  of  conventional  batteries.   This  battery
concept, named "Horizonr," enables design of a lead-acid  battery
with  significantly higher energy density than is  possible  with
conventional  battery design.  The Horizonr design  may  also  be
more economical to manufacture than conventional batteries due to
the  elimination  of several steps in the manufacturing  process.
Several  hundred  prototypes  and  production  versions  of   the
Horizonr  battery  have been built and tested  in  a  variety  of
configurations.   Testing by the Company  and  by  third  parties
indicates  that  various configurations of the  battery  meet  or
exceed  some  of  the  performance  goals  established  by  major
governmental and industry groups for electric vehicle  batteries.
The  Company  also believes the Horizon battery has a  number  of
applications other than electric vehicles, such as hybrid powered
vehicles,  portable power tools such as lawn  and  garden  tools,
electric   power  management,  uninterruptible  power   and   for
starting, lighting and ignition ("SLI") batteries for automobiles
and   aircraft.   The  Company  has  designed  various  prototype
batteries  for  such  applications  which  are  currently   under
evaluation by customers.

Coextrusion Technology

The  Company  holds an exclusive license for the development  and
commercial exploitation of patented coextruded wire.  Coextrusion
is a process by which one material is extruded, or forced through
a  die,  with  uniform  thickness, onto a core  material  passing
simultaneously through the same die.  The process is  capable  of
extruding lead (or lead alloy) onto any material having  adequate
tensile  strength to pass at high speed through  the  pressurized
dies.   The  Company  refers to this process as  C2M  technology.
Successfully coextruded core materials include fiberglass, Kevlar
and   cross-linked  carbon  fiber  yarns,  aluminum,  copper  and
titanium   wire   and   polypropylene,   polyester,   nylon   and
polyethylene monofilament.

Coextruded  lead wire facilitates the use in lead-acid  batteries
of  pure  lead or extremely low concentration lead alloys,  which
are  difficult to cast repeatedly at the high rates  required  in
production.   The management of the Company believes  that  grids
made  from such wire and used in lead-acid storage batteries have
improved  corrosion resistance and, therefore,  longer  life,  or
equivalent life with reduced total material content.

Energy-Active Material Formulation

The  Company  has  also  developed a new  type  of  energy-active
material, or paste, for use in lead-acid battery electrodes.  The
Company also invented two additional paste formulations, each  of
which  may  contribute to the reduction of battery  manufacturing
cost.   The Company has protected this proprietary technology  as
trade secrets, and does not plan to apply for patents related  to
these formulations.  The Company is continuing the development of
these  formulations  in  connection  with  the  Horizonr  battery
project,  but has no current plans for separate commercialization
of the energy active material.

Battery Grid

The  Company  has  patented the use of  its  coextruded  wire  in
electrodes  for lead-acid batteries.  The claims in  this  patent
encompass not only the present method employed by the Company  of
weaving the wire into a woven mesh to form the "bigrids" but also
any  non-woven methods of using the coextruded wire in  lead-acid
battery electrodes.

Compression Cage

During  the  development  stage of the Company,  it  was  learned
through battery life testing that the plates and separators in  a
sealed   lead-acid  battery  must  be  kept  under   a   constant
compression  in  order to achieve high cycle  life.  The  Company
developed  and  patented  an  idea  to  encase  the  plates   and
separators   in  a  "compression  cage"  to  comply   with   this
requirement.

Marketing

The  worldwide  market for lead-acid batteries can be  classified
into the following major segments:

      Starting,  Lighting  and  Ignition.   For  engine  starting
applications as used in aircraft, passenger cars, light and heavy
trucks, garden tractors and motorcycles.

       Motive  Power.   For  use  in  electric  vehicles,  hybrid
vehicles,  industrial fork lifts, underground  mining  equipment,
golf  carts  and neighborhood electric vehicles.  Such  batteries
undergo daily discharging and overnight recharging.

      Power  Management.   For  use in utility  emergency  power,
telecommunications,  uninterrupted  computer  and   other   power
supplies  and cellular radio.  Such batteries are typically  used
as a secondary source of power.

      Portable  Power.  Typically small, lead-acid batteries  for
use  in such items as portable power tools and outdoor power tool
products, as well as electrically driven medical equipment.

The  Company  has initiated strategic business relationships  and
cooperative development agreements with companies and  government
agencies  in all of the above markets.  Management believes  that
in  late 1998 some of these customers could move from test phases
to  integration  of  Horizon  technology  into  their  commercial
products.

Competition

The  lead-acid  battery industry is mature, well-established  and
highly competitive.  The industry is characterized by a few major
domestic  and foreign producers including Exide, Delphi,  Johnson
Controls,  Inc.,  GNB,  Hawker  and  Yuasa,  all  of  which  have
substantially  greater  financial  resources  than  the  Company.
Accordingly,  the  Company's ability to succeed  in  this  market
depends upon its ability to demonstrate superior performance  and
cost  attributes of its technology.  The Company has historically
concentrated  its activities in the electric vehicle  segment  of
the market with a view to demonstrating improved energy to weight
and  longer  battery life in comparison to traditional  lead-acid
batteries.   The  principal competitors of  the  company  in  the
electric  vehicle market (Ovonics and Saft) have  directed  their
efforts  to other battery types, such as nickel-cadmium,  nickel-
metal  hydride,  nickel-iron and sodium-sulfur batteries,  rather
than   lead-acid  formulations,  although  at  least  one   major
automobile manufacturer and one major battery company  are  known
to  have  research and development projects underway  to  develop
lead-acid batteries for electric vehicles.

Patents and Protection of Technology

Prior to May 1990, the Company held an exclusive sublicense  from
Tracor,  Inc.  ("Tracor") under several US patents  covering  the
coextruded  wire  and  the  coextrusion apparatus  for  producing
composite  wire  for use only in lead-acid battery  applications.
In  May 1990, Tracor assigned to the Company all rights under the
original  license  agreement between Tracor and  Blanyer-Mathews,
the  inventors  of the coextrusion technology.   This  assignment
terminated  the  sublicense between Tracor and  the  Company  and
allowed  the Company to apply the technology outside of the  area
of  lead-acid  storage  batteries, if any such  applications  are
available.    The   license  assigned  to  the  Company   expires
concurrently with the patents, the earliest of which  expires  in
2004, and requires payment of annual minimum royalties to Blanyer-
Mathews of the greater of $100,000 or sales-based royalties equal
to  1/2  percent of sales for battery applications.  The  license
becomes  non-exclusive in the event the Company defaults  in  its
obligation  to  pay  the minimum royalty.   The  license  may  be
terminated  by   the  licensor  in the  event  that  the  Company
defaults in its obligation to pay sales-based royalties or enters
bankruptcy.   The Company is responsible for the maintenance  and
administration of the licensed patent.  Under the  terms  of  the
assignment,  the  Company  is to pay Tracor  a  royalty  of  four
percent  on  all technology sales unrelated to lead-acid  storage
batteries for the term of the license.

In  March  1990, a patent was issued to the Company  covering  an
energy-active  material formulation, including the processes  for
manufacturing  this material.  In October 1990, a US  patent  was
issued to the Company for the Horizonr battery design.

In  September  1989, a patent was issued to the Company  covering
the  battery  grid and its producing method.  In  April  1995,  a
patent  was  issued  to the Company covering  the  battery  plate
compression assembly.

The  know-how  relating  to the Company's energy-active  material
formulation,  the  application  of  coextruded  wire  to  battery
electrodes  and certain manufacturing processes are  confidential
and proprietary to the Company.

Research and Development

Initial  research and development programs were  directed  toward
understanding  the  behavior of the  wire  in  lead-acid  battery
electrodes   in   various  corrosive  environments.    With   the
development  of the Horizonr C2M battery concept,  the  focus  of
research   work   has  been  redirected  toward   improving   the
performance  of the battery in the following areas; longer  cycle
life,  longer  shelf  life, and increased  specific  energy.   In
addition,  programs  are  in process to reconfigure  the  Horizon
battery   concept  into  a  number  of  different   applications.
Prototype  models  of Horizon batteries for specialized  markets
(see  "Marketing") continue to be built in attempts  to  optimize
battery  electrical  performance and life and  to  meet  customer
requests for different battery configurations or performance.

The  Company  incurred approximately $2,500,000, $1,450,000,  and
$3,455,000  in research and development costs in the years  ended
December  31,  1997,  1996,  and  1995,  respectively,  of  which
approximately  $1,400,000,  $450,000  and  $600,000  related   to
customer  sponsored  research  activities  in  the  years   ended
December 31, 1997, 1996 and 1995, respectively.

Backlog

As  of  December 31, 1997 and 1996, the Company has a backlog  of
approximately  $210,000  and $520,000, respectively,  in  battery
orders.   Additionally, in February 1998, the Company received  a
$1.4  million purchase order for batteries from Chrysler.  As  of
December  31,  1997, the Company has a backlog  of  approximately
$550,000 in project revenue.

Export Sales

During 1997 and 1996, the Company earned revenue of approximately
$1,100,000  and  $208,000, respectively, from  sales  of  Horizon
batteries and project services to foreign customers.

Customer Concentration

A significant portion of the Company's total revenue from battery
sales, project revenue and all other sources (37% and 81% in 1997
and  1996,  respectively) was generated from Chrysler Corporation
("Chrysler").

Management is currently working with several customers to  design
and  build prototype batteries for a variety of applications  and
believes that its sales to Chrysler will decrease as a percentage
of  total revenue.  However, loss of this customer could have  an
adverse impact on operations.

Raw Materials

The basic raw materials of lead-acid batteries are lead, sulfuric
acid  and  plastic,  each  of which is  readily  available.   The
Company  has  experienced no material delays in obtaining  timely
delivery of these materials.

Environmental Concerns

The   Company's  laboratory  facility  and  manufacturing   plant
includes  an enclosed area specifically for the mixing  of  lead-
oxide  paste  and  the  application  of  such  paste  to  battery
electrodes.   The air in these areas is continuously filtered  to
remove  lead particles.  Employees operating in these  areas  are
instructed  in  the  use  of  safety equipment  such  as  gloves,
protective  aprons,  and  respirators  and  are  required   under
Occupational Safety and Health Administration ("OSHA") guidelines
to  submit  to blood monitoring tests on a periodic  basis.   The
analysis of these tests are undertaken by an outside, independent
and   OSHA  approved  laboratory  and  the  results  thereof  are
communicated to the Company's employees.

The  management  of  the Company believes that the  energy-active
material  developed  by the Company may be safer  to  manufacture
than  energy-active  materials currently in general  use  due  to
reductions  in  potential  environmental  hazards.   The   active
material  paste used in conventional batteries has a  consistency
similar to wet cement and must be allowed to dry for two or three
days  after  being  impressed into the grid of a  battery  plate.
When  dried  the  plates  produce fine  lead  dust  as  they  are
transported  in  a  plant through the battery  assembly  process.
This airborne dust poses a potential health risk to workers,  and
there are OSHA regulations regarding allowable levels of airborne
lead  in  a  battery  plant for which manufacturers  must  devote
significant  resources in prevention, treatment, and  compliance.
The  Company's energy-active material, on the other hand,  has  a
consistency  similar to toothpaste and contains  certain  binders
which  minimize  the  generation of lead  dust,  thus  minimizing
worker exposure to airborne lead.

As  a  part  of  the battery manufacturing process,  the  Company
handles and disposes of various hazardous materials such as  lead
and   sulfuric   acid.   The  Company  is   subject   to   strict
environmental regulations and has incurred significant  costs  in
installing  equipment to manage and control hazardous  substances
and  pollution. The Company expended $2,200, $8,000, and $385,000
in  1997,  1996, and 1995, respectively, in capital  expenditures
for  such  equipment.   As part of its on-going  operations,  the
Company  incurred $37,000, $13,000, and $170,000  in  non-capital
expenditures in 1997, 1996, and 1995, respectively,  to  properly
dispose  of hazardous materials and waste.  As a result  of  such
preventive  measures,  the Company has not  incurred  significant
remediation  costs.  The management of the Company believes  that
the Company is currently in compliance with all applicable local,
state,  and  federal environmental rules and regulations  in  all
material  respects  with  the following exceptions.  On
March  20,  1998, the Company received two Letters  of  Violation
from  the City of San Marcos; one relative to its lead discharges
in  wastewater from July 1997 through December 1997 which were in
excess  of  the  limits  established in the National  Categorical
Pretreatment   Standards  ("NCPS")   set  by  the   Environmental
Protection Agency ("EPA") and one relative to its zinc discharges
in  wastewater beginning in December 1997 which were in excess of
the  allowable concentration limits of the Company's  permit  for
zinc regulated by the City of San Marcos.  The City of San Marcos
has  indicated  that no fines or penalties will be  assessed  for
these operational violations.

The NCPS compliance calculations for this facility are based on a
ratio  consisting of the product of total lead contained in daily
wastewater  discharge flows and total daily wastewater  discharge
flows  divided by daily lead usage.  The absolute amount of  lead
in  the  contained  in  the daily wastewater  discharged  by  the
facility  is  well below its allowable limits.  The  Company  has
consistently operated at treatment levels approximately 85% below
the  maximum allowable local limits of lead emissions.  The  NCPS
calculations  were established for traditional lead-acid  battery
manufacturers  which  use a much larger amount  of  lead  in  the
battery  manufacturing process than the Company  and  operate  at
higher  volumes.   The  Company is operating  at  relatively  low
production  levels.   Due to the Company's  relatively  low  lead
usage in the battery manufacturing process and its low production
volume,  the  calculated concentration limits in  the  ratio  are
difficult  for the Company to achieve.  The Company  can  improve
its NCPS compliance calculation ratio by decreasing the amount of
lead  contained  in  its  daily  wastewater  discharge  flow   or
decreasing  the  amount  of  daily  wastewater  discharged.   The
Company has developed a plan that it believes will enable  it  to
become  compliant  with  the  NCPS standards  which  involve  the
recycling and reuse of water within the facility, construction of
roofing  over the exterior air scrubber to divert the  collection
of  rain  water in order to reduce the volume of water  collected
and  treated and other actions.  The Company estimates  that  the
cost of such actions will be approximately $25,000.  There can be
no  assurance that such actions will allow the Company to  become
compliant with the NCPS standards.  If these actions do not allow
the  Company  to operate within the NCPS standards,  it  will  be
necessary for the Company to prepare a request for variance  from
the NCPS standards, which would be time-consuming and costly.

The  Company does not use zinc in its manufacturing process.  The
Company  believes  that the zinc concentrations  were  caused  by
corrosion  of  metal  brackets in the Company's  trenching  which
houses  its plumbing and wastewater piping.  The Company believes
that  the repairs to this trenching which will allow it to become
compliant   with  its  permit  for  zinc  emissions   will   cost
approximately  $25,000.   There can  be  no  assurance  that  the
estimated  repairs to the trenching will be sufficient  to  allow
the   Company  to  become  compliant  with  the  allowable   zinc
concentration limits in its permit.

Other  than  the  costs  associated with  these  two  operational
violations,  management is not currently aware of any  infrequent
or  non-recurring  clean-up expenditures to be  incurred  in  the
future based on present circumstances and conditions.

Employees

As of March 20, 1998, the Company employed approximately 55 full-
time employees.

Item 2.  Properties.

All  of  the Company's operations are located in an 88,000 square
foot facility located in San Marcos, Texas at 2809 Interstate  35
South.   The monthly rental rate is currently $25,000  per  month
and  escalates  over the life of the lease to $35,000  per  month
until  expiration  in 2003.  The Company believes  this  site  is
adequate  for  low-rate  production  requirements  and  possesses
enough  expansion  capacity  if  the  Company  elects  to  expand
capacity at this site.

The  Company's $25,000 monthly obligation for the  lease  of  the
manufacturing   facility   is   currently   guaranteed   by   BDM
Technologies,  Inc.  (now a division of TRW,  Inc.)("BDM").   The
Company  has agreed to purchase the facility or otherwise  remove
BDM as guarantor of the lease by no later than April 1, 1998.  In
the  event  the Company does not purchase the facility or  remove
BDM  as  guarantor by this date, then the Company is required  to
give notice to cancel the facility lease effective September  30,
1998.  Management of the Company expects that it will be required
on  April  1,  1998 to give notice to cancel its  facility  lease
effective  September  30, 1998.  Management  is  discussing   the
terms  of  a new lease to be effective after September  30,  1998
with  the lessor of the facility with essentially the same  terms
as  the existing lease with the exclusion of BDM as guarantor and
the  requirement for a $50,000 security deposit.  However,  there
is  no  assurance that a satisfactory arrangement can be  reached
with  the lessor.  If the Company terminates the facility  lease,
the  cost  of  moving and reinstalling production  and  pollution
control  equipment  to a new location, which  has  not  yet  been
selected,  would  be  significant and would prohibit  or  greatly
impair  the  Company's  ability  to  produce  batteries  for   an
indefinite period of time.

The  Company  also leases premises covering approximately  30,000
square  feet  at  3800-B  Drossett Drive,  Austin,  Texas  (which
formerly  housed the executive offices and research  facilities).
The monthly gross rental rate on the amended lease escalates over
the term of the lease from $12,000 per month to $15,500 per month
in  the  final year of the term.  The lease expires  in  February
1999.  The Company subleases this facility to an unrelated party.
The  monthly  rental  of  the facilities  from  the  sublease  is
approximately the same as the Company's monthly rental payments.

Management  believes  that  all personal  property  used  by  the
Company is in good condition.


Item 3.  Legal Proceedings.

In  1994, the Company signed a "Know-How License Agreement"  (the
"Agreement") with Horizon Battery Technologies, Ltd. ("HBTL"), of
Bombay,  India,  calling for the completion of  several  detailed
subordinate  agreements with the ultimate purpose to license  the
manufacture and sale of batteries in India.  The effectiveness of
the  Agreement was conditioned upon the subsequent  execution  of
these  six related agreements, none of which were executed.   The
Company believes, therefore, the Agreement never became effective
and  has no force or effect.  Separately in 1995, HBTL agreed  to
pay  the Company $250,000 for a Preliminary Design Review ("PDR")
for  a  potential  manufacturing  facility  in  India  which  was
required  to  complete  one of the subordinate  agreements.   The
Company  received  $100,000 from HBTL and completed  the  PDR  in
1995.  The remaining $150,000 was never paid by HBTL, in spite of
repeated demands by the Company.

In  September  1996, the Company received a demand from  HBTL  to
arbitrate  damage  claims for alleged breach  of  the  Agreement.
HBTL  claimed  damages  of approximately  $5.1  million  for  its
expenses and lost profits related to the Agreement.  The  Company
disputes  the  claim for damages and will vigorously  defend  any
action  taken  by  HBTL to pursue the claims.  The  Company  also
filed a petition in State Court in Travis County, Texas, seeking,
among other things, a declaratory judgment that HBTL had no right
to  arbitration or monetary relief.  HBTL contested  jurisdiction
and  removed  the  proceedings to the U.S. Federal  Courts.   The
Federal District Court to which the action was removed ruled that
it did not have personal jurisdiction over HBTL and therefore had
no  power to hear the case.  The Company filed an appeal  in  the
U.S.  Fifth Circuit Court of Appeals from the final judgment  and
rulings  in  the  District Court.  A decision on  the  appeal  is
expected  in three to six months.  No liability has been recorded
in  the  financial  statements at  December  31,  1997  for  this
uncertainty  as management is unable to determine the  likelihood
of  an  unfavorable  outcome of this matter or  to  estimate  the
amount  or  range  of  potential  loss  should  the  outcome   be
unfavorable.  The resolution of this matter could have a material
adverse effect on the financial position of the Company.


Item 4.  Submission of Matters to a Vote of Security Holders.

None.

                             PART II


Item  5.   Market for the Registrant's Common Stock  and  Related
Shareholder Matters.

Trading Market for ELSI Common Stock

The  Company's  Common  Stock has been traded  in  the  over-the-
counter  market  and reported on NASDAQ under the  symbol  "ELSI"
since  January  1988.  The following table sets  forth,  for  the
periods indicated, the high and low bid price per share of Common
Stock  as  reported  by  NASDAQ.  Prices  represent  inter-dealer
quotations,  without  adjustment for retail markup,  markdown  or
commission,  and  may not represent actual transactions.   Prices
have been adjusted to retroactively reflect a one-for-ten reverse
stock split which occurred on July 22, 1996.

                             High           Low
1996
     First Quarter         17 13/16         10
     Second Quarter        15 15/16       5 15/16
     Third Quarter          10 5/8         4 1/2
     Fourth Quarter          9 3/8        4 13/32

1997
     First Quarter           8 3/8         4 5/8
     Second Quarter          8 1/4        5 7/16
     Third Quarter           7 1/2         5 5/8
     Fourth Quarter         7 1/16         1 3/4

The  transfer  agent and registrar for the Common  Stock  of  the
Company  is  Harris Trust Co. of New York, 88 Pine  Street,  19th
Floor, New York, NY 10005.

The approximate number of record holders of Common Stock at March
20, 1998, was 3,595.

In  January  1997, the Company completed a private  placement  of
109,397  shares of Common Stock with its executive  officers  and
certain  other accredited investors which generated net  proceeds
of  $654,850.   In  connection with this  offering,  the  Company
issued  616,383  warrants with a term of two years  and  exercise
prices ranging from $5.25 to $7.56 per share.

In  April 1997, the Company issued 127,500 shares of Common Stock
to  Ally  Capital Corporation ("Ally") on behalf of its assignees
as  prepayment for capital lease obligations owed by the Company.
The  shares were valued at $867,000 based upon the quoted  market
price of the stock on the date the agreement to issue the 127,500
shares was signed.  The shares were sold by Ally on behalf of its
assignees,  and  the  proceeds were used  to  satisfy  the  lease
obligations (approximately $550,000) and to exercise  the  option
to   purchase   the   equipment   for   approximately   $165,000.
Additionally, a loss of $189,316 was recorded upon the completion
of  this transaction and the payment of the capital lease.   Upon
payment  of  these  lease  obligations,  letters  of  credit  for
$663,220 which collateralized the lease obligations were canceled
and   certificates   of   deposit  of  an   equal   amount   that
collateralized the letters of credit were released.

In  December  1997, the Company issued 299,304 shares  of  Common
Stock to BDM as partial payment for past obligations owed to  BDM
for  occupancy  related costs ($314,875, which  the  Company  has
accrued)   and   as   prepayment  under  operating   leases   for
manufacturing  equipment which are guaranteed by BDM  ($452,092).
The  number  of shares issued was determined based  on  the  fair
market  value  of the shares at the date of the agreement  ($2.56
per  share).  When the shares are sold by BDM, the proceeds  will
be  used  to satisfy these past and future obligations.   If  the
proceeds  from  the  sale of such shares are  not  sufficient  to
satisfy the obligations, the Company will issue additional shares
of  Common  Stock  or pay cash to BDM to make up the  deficiency.
BDM has agreed to accept a minimum of $1.00 per share or $299,304
for the shares issued.  BDM will retain any overage from the sale
of  such  shares in excess of the amounts owed. The  Company  has
agreed to pay $300,000 to BDM (for the remaining unpaid occupancy
related  costs  which  the Company has  also  accrued)  from  the
proceeds  received from any fundraising activities  completed  by
the  Company before March 31, 1998 in excess of $5,000,000.   The
Company recorded the shares issued to BDM at fair market value on
the  date of the agreement ($766,967) and recorded a subscription
receivable  for the difference between the fair market  value  of
the  shares and the minimum value for such shares accepted by BDM
which   will   be  recorded  as  permanent  equity   upon   final
determination of the number of shares to be issued.

In  March  1997,  the Company entered into a  Note  Purchase  and
Option  Agreement  and a Convertible Promissory  Note  and  Stock
Option  Agreement  (the "Agreements") with  Corning  Incorporated
("Corning") for proceeds of $4 million.  The 5% Convertible  Note
is  for  $4,000,000 ("$4 Million Note"), is unsecured and matures
on  March 26, 2002.  Interest is payable semi-annually in cash or
in additional notes at the option of the Company.  The $4 Million  Note  is
convertible into Common Stock at a conversion price of $5.50  per
share.   A  note payable in the amount of $100,000 was issued  in
September  1997 for interest for the six months then  ended  with
the  same terms and conditions as the $4 Million Note.  Under the
Agreements,  the  Company  also  granted  Corning  a  warrant  to
purchase up to 275,000 shares of Common Stock at $7.00 per  share
and a warrant to purchase up to 225,000 shares of Common Stock at
$9.00  per share ("Corning Warrants").  The Corning Warrants  are
exercisable  until  March 1999.  The fair  market  value  of  the
Corning Warrants were estimated to be $1,462,500, using the Black-
Scholes  option valuation model.  This amount was recorded  as  a
discount  on the note and is being amortized to interest  expense
over the term of the $4 Million Note.

In  December 1997, the Company issued to Corning a 5% Convertible  Note  for
$2,000,000   ("$2  Million  Note")  to  be  drawn   as   follows:
$1,000,000 on or before December 19, 1997; $500,000 on or  before
January  24,  1998 and $500,000 on or before February  24,  1998.
$1,000,000  was drawn on December 19, 1997, $500,000  on  January
23,  1998 and $500,000 on February 23, 1998.  The $2 Million Note
is  unsecured and matures on December 19, 1998.  The  $2  Million
Note  is  convertible into Convertible Preferred Stock or  Common
Stock.  The $2 Million Note is convertible into 200,000 shares of
the Company's 5% Cumulative Convertible Preferred Stock, which is
then convertible into Common Stock at a conversion price of $4.06
per  share.   The  $2 Million Note is convertible  directly  into
Common  Stock  at  a  conversion price of $3.56  per  share.   In
conjunction with the issuance of the $2 Million Note, the Company
agreed to reduce the exercise price of the Corning Warrants  from
$7.00  and  $9.00  per  share  to  $4.00  and  $6.00  per  share,
respectively.  This increased the estimated fair market value  of
the  Corning Warrants by $128,080 using the Black-Scholes  option
valuation  model.   This  increase in value  was  recorded  as  a
discount  on the note and is being amortized to interest  expense
over  the  term  of  the $2 Million Note. The combined  effective
interest  rate  of  the  $2  Million  and  $4  Million  Notes  is
approximately 15%.  Because of the complexity of determining  the
value of the conversion features of the $4 Million and $2 Million
Notes  and the related cost which would be incurred to obtain  an
expert  valuation,  the  Company  believes  it  impracticable  to
determine the fair value of the $4 Million and $2 Million Notes.

The  Company entered into a technical development agreement  with
Corning  in  September  1997  to jointly  improve  the  Company's
products, production processes and automation.  The Company  paid
Corning  for such services by issuing 160,000 warrants which  are
convertible into 160,000 shares of the Company's Common Stock  at
an  exercise  price of $7.125 per share expiring on December  31,
2000.   The Company expensed the warrants issued in 1997 at their
estimated  fair value of approximately $400,000.  Work under  the
technical   development  agreement  is   expected   to   continue
throughout 1998.

All of the securities described above were issued pursuant to
exemptions from registration under Section 4(2) of the Securities
Act of 1933 and Rule 506 of Regulation D promulgated thereunder.
The securities were sold to domestic parties, all of whom were
"accredited investors," in offerings not involving public
solicitation or advertising.


Dividends and Dividend Policy

The Company has paid no dividends on its Common Stock to date and
does  not  anticipate,  currently or in the  foreseeable  future,
paying  dividends  on  the Common Stock.   Further,  the  Company
currently has a deficit in its "surplus" account (defined as  the
excess of net assets over par value of shares outstanding) which,
under  Delaware  corporate law, precludes  any  distributions  to
shareholders  in  a  given year unless the  Company  reports  net
income  in  that  year  or  the preceding  year,  in  which  case
dividends could be paid to the extent of net income for the  year
in  which the dividend is declared and net income for the  fiscal
year immediately preceding the year of declaration.  In the event
that  the  earnings  of the Company permit payment  of  dividends
under Delaware law, the timing and amount of such dividends  will
be determined by the Board of Directors in light of the Company's
earnings, financial condition and capital requirements.


Item 6.  Selected Financial Data.

                        (In thousands, except per share data)

                               Year Ended December 31,
                      1997      1996      1995      1994      1993

Revenues             $3,244    $3,563    $3,278    $4,614    $3,373
Net Loss            $(7,833)  $(7,825) $(20,508)  $(8,543)    $(197)
Basic (and diluted)
  Loss per Share     $(1.91)   $(2.13)   $(9.76)   $6.05)    $(0.29)
Dividends per Share    None     None      None      None       None


                                 As of Year Ended December 31,
                            1997      1996     1995     1994     1993

Working Capital (Deficit) $(1,675) $(2,845)   $1,556   $2,032   $1,122
Total Assets               $8,006   $9,488   $15,277   $9,318   $4,709
Shareholders' Equity       $1,492   $3,847    $1,240    $(685)  $3,322
Long-Term Obligations      $2,949   $1,768   $11,324   $7,107      $33


See  Item  7 - Management's Discussion and Analysis of  Financial
Condition  and Results of Operations for discussion  of  material
uncertainties which may cause the data above not to be indicative
of  the  Company's  future  financial  condition  or  results  of
operations.

The  foregoing  should be read in conjunction with the  financial
statements and notes thereto appearing elsewhere in this report.

Item  7.   Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations

Disclosure Regarding Forward-Looking Statements

From  time  to  time,  the  Company may  publish  forward-looking
statements  relating  to  such matters as  anticipated  financial
performance,  business prospects, technological development,  new
products,   research  and  development  activities  and   similar
matters.   The Private Securities Litigation Reform Act  of  1995
provides a safe harbor for forward-looking statements.  In  order
to  comply  with the terms of the safe harbor, the Company  notes
that  a  variety  of  factors could cause  the  Company's  actual
results  and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-
looking  statements.   When used in this  discussion,  the  words
"expects," "believes," "anticipates" and similar expressions  are
intended to identify forward-looking statements.  Such statements
are  subject to certain risks and uncertainties which could cause
actual  results  to differ materially from those projected.   The
risks   and   uncertainties  that  may  affect  the   operations,
performance,  development and results of the  Company's  business
primarily  include inability to complete a business  combination,
sale  of  assets  or  strategic  alliance,  inability  to  obtain
additional  debt or equity financing, delisting of the  Company's
Common  Stock  on  NASDAQ, termination of the Company's  facility
lease,  delays in shipment or cancellation of orders,  timing  of
future  orders, customer reorganization, fluctuations  in  demand
primarily   associated  with  governmental   mandates   for   the
production   of  zero  emission  vehicles  and  the  ability   to
successfully  commercialize  the Horizon  battery.   Readers  are
cautioned  not  to place undue reliance on these  forward-looking
statements  which speak only as of the date hereof.  The  Company
undertakes  no  obligation to republish  revised  forward-looking
statements  to  reflect events or circumstances  after  the  date
hereof  or  to  reflect  the occurrence of unanticipated  events.
Readers  are  also  urged to carefully review  and  consider  the
various  disclosures made by the Company which attempt to  advise
interested  parties  of the factors which  affect  the  Company's
business in this report and in the Company's periodic reports  on
Forms  10-Q  and  8-K  filed  with the  Securities  and  Exchange
Commission.

Results of Operations

As  a result of much lower than anticipated mandate-related sales
of  lead-acid batteries in 1996, the Company refocused efforts in
1997   on  relationships  with  customers,  sales  of  production
batteries and continued development of prototype batteries for  a
variety  of  electric  vehicle  ("EV")  hybrid  electric  vehicle
("HEV"), lawn and garden, electric scooter, aircraft starting and
other  applications in domestic and international markets  driven
by   consumer  demand  rather  than  by  government  legislation.
Strategic  alliances with customers and organizations  were  also
sought   to   aid  penetration  of  target  markets  and   assist
financially.   During late 1996 and 1997, the  Company  developed
cooperative development agreements with companies and  government
agencies  such as Black & Decker (portable power tools), Lockheed
Martin  (HEVs), Fiat Auto ("Fiat" - EVs and HEVs), SMH Automobile
S.  A.  ("SMH"  -  HEVs),  the Defense  Advanced  Project  Agency
("DARPA"   -  EVs  and  HEVs),  and  Horizon  Aircraft  (aircraft
starting).   Additionally, the Company entered into  a  strategic
business  relationship with Corning Incorporated  ("Corning")  in
1997.  The Company received $6,000,000 in funding in the form  of
Convertible Notes Payable from Corning in 1997 and early 1998 and
also  entered into a technical development agreement with Corning
in  the  third  quarter of 1997 to jointly improve the  Company's
products,  production  processes  and  automation.   The  Company
agreed  to  pay Corning for such services by issuing warrants  to
purchase common stock at agreed upon values and exercise prices.

The  Company is designing products primarily for new products  in
emerging  markets.  Development work for new battery designs  and
the  integration of such designs into a complete battery pack for
new   products  in  emerging  markets  has  taken   longer   than
anticipated  for a number of reasons. In some circumstances,  the
Company  has  experienced  changing  requirements  for  the   new
products  for  which it is designing battery  packs.   These  new
products are being tested with new battery packs and other  newly
designed  components simultaneously.  Such changing  requirements
have contributed to the delays in completion of the programs.  In
other  circumstances, the Company underestimated  the  amount  of
time  and  effort  required to customize a battery  to  meet  the
unique size, weight, and performance characteristics required for
different applications given the Company's limited resources. The
Company  did  not  have the organizational structure  or  funding
required  for  numerous  simultaneous  research  and  development
programs for new products in emerging markets.  Management of the
Company is attempting to develop the organizational structure and
funding  required for such programs.  Additionally, in  order  to
successfully commercialize the individual battery types,  it  was
necessary  for  the  Company to focus  attention  on  the  unique
charging  and performance management issues associated with  each
particular  battery  pack  and  application.   For  instance,  in
portable  power  tool applications, the customer stipulated  that
the  battery  meet  certain performance  characteristics  with  a
certain type of charger which is very different than the type  of
charger historically used by the Company to charge its batteries.
In EV and HEV applications, certain customers stipulated that the
Company  provide  a  battery management  system  to  monitor  and
optimize  the  performance of a string of batteries  in  a  pack.
These  projects  required  existing and  newly  hired  electrical
engineers  and programmers of the Company to focus  on  designing
and   building  electrical  components  and  developing   related
software for each application with unique battery, packaging  and
performance   characteristics.   The  Company  either   did   not
anticipate that these problems would need to be solved internally
or  underestimated the difficulty of these projects at  the  time
these markets were entered given the Company's limited resources.
In  most cases, it was assumed that these customers would develop
or outsource their unique chargers and battery management systems
since  these systems have historically not been in the  Company's
area  of expertise.  The successful design of a battery pack  for
each  application  (which includes unique  charging  and  battery
management  systems) has been one of the most difficult  problems
of  the  Company to overcome in successfully commercializing  the
numerous   individual  batteries  currently  under   development.
Additionally,  government  certification  of  the  aircraft   and
helicopter starting batteries has taken longer than expected  due
to  the  stringent vibration and other testing required  to  meet
Federal  Aviation  Administration ("FAA") requirements  necessary
for certification, which were never previously encountered by the
Company.

Sales  of existing battery types did not increase as expected  in
late  1997  primarily due to delays in orders from  Chrysler  and
Lockheed  Martin  for batteries to be used in  emerging  markets.
Chrysler had indicated in the third quarter of 1997 that it would
order batteries from the Company in order to meet 1998 government
mandates for Zero Emission Vehicles ("ZEV") in the states of  New
York  and Massachusetts.  In December of 1997, Chrysler announced
its  decision to use Nickel-Metal Hydride batteries in  ZEVs  for
the  1999 model year.  (Chrysler did however place a $1.4 million
order  with  the  Company in early 1998 for  existing  vehicles.)
Lockheed  Martin has indicated that purchases of  batteries  have
been  less  than  anticipated  because  of  problems  with  other
suppliers of parts for their HEVs which has delayed production of
such vehicles.

As  a  result  of  the delays in development work  and  sales  of
batteries  and  its inability to successfully complete  a  larger
debt  or equity financing, in February 1998, the Company cut  its
staffing  by  approximately  40%  to  reduce  costs.   Management
anticipates that such cost cuts will allow the Company additional
time  to  explore  strategic  alternatives  such  as  a  business
combination,  the sale of assets and/or a strategic alliance  and
to  attempt to increase revenues and further reduce costs.    The
Company   is   in  preliminary  discussions  regarding   possible
transactions,  but there can be no assurance of completion.    If
additional financing, a business combination, sale of assets or a
strategic  alliance  cannot be arranged  by  May  1,  1998,   the
Company  plans further significant reductions in the  work  force
and   possible   subsequent   elimination   or   relocation    of
manufacturing  and  other  functions with  the  primary  goal  of
maintaining research and development capabilities, the  corporate
legal  entity and protection of the core technology.  Such  plans
would  require additional capital.  These alternative  plans  are
subject  to  a great deal of risk and uncertainty.  There  is  no
assurance that any of these alternate plans will be successful or
that the Company will be able to continue as a going concern.

Revenue

The   Company   generated   project  revenue   of   approximately
$2,234,000,  $295,000 and $989,000 for the years  ended  December
31,   1997,   1996   and  1995,  respectively.     During   1997,
approximately $1,500,000 of revenue was generated from SMH, DARPA
and  Fiat for the development and/or evaluation of batteries  and
battery  packs  for  HEV  and EV applications  and  $645,000  was
generated  from  Chrysler for various engineering,  environmental
and  other  tests  performed on the battery.  Management  expects
project  revenue  to decrease in 1998 as project agreements  with
these  customers  to  design and build  prototype  batteries  and
battery packs are expected to be complete in mid and late 1998 at
which time orders for prototype batteries from such customers are
expected  to  commence; however, the timing and  amount  of  such
revenue  is uncertain.  Approximately $115,000 in project revenue
in  1996 was generated from Chrysler for environmental and  other
tests performed on the Horizon battery and $797,000 was generated
in  1995  for the retrofit of the Horizon battery for their  EPIC
Minivan  Program.  The remainder of project revenue generated  in
1996 was from DARPA, Fiat, Black & Decker and others which remain
confidential for the development of prototype batteries  for  EV,
HEV  and  portable power tool applications.  Project  revenue  of
$100,000  generated during 1995 was from a program to  perform  a
Preliminary  Design Review ("PDR") for a potential  manufacturing
facility  in India.  This review was concluded in 1995  and  work
under this program was terminated.

The   Company  had  battery  sales  of   approximately  $915,000,
$823,000  and $1,196,000 for the years ending December 31,  1997,
1996 and 1995, respectively.  Approximately 56% of  the Company's
1997 battery sales and 50% of 1996 and 1995 battery sales were to
Chrysler.  These purchases were for testing and evaluation of the
Horizon battery in the EPIC Minivan Program, as Chrysler has  not
yet offered the electric minivan for lease or sale to the general
public.   Chrysler  announced its decision  to  use  Nickel-Metal
Hydride  batteries  in its electric minivan for  the  1999  model
year,  however,  it  has  continued to  order  small  amounts  of
batteries  from  the Company for further testing and  evaluation.
Approximately  28% of 1997 battery sales were to Lockheed  Martin
for  use  in  HEVs  and  EVs which they are producing  for  fleet
consumers.  The remainder of battery sales in all years were from
numerous   customers  requesting  batteries   for   testing   and
evaluation.   Management expects the level of  battery  sales  to
remain  flat  or  slightly increase in late 1998 as  the  Company
fills  a  portion or all of its $1.4 million purchase order  from
Chrysler.   Releases under a purchase order from Lockheed  Martin
are  expected  to increase in late 1998, and orders  from  others
testing   production   or   prototype   batteries   may    begin.
Additionally, management expects to receive FAA certification  of
its  battery designs used in the aircraft and helicopter starting
applications in late 1998 at which time sales of these  batteries
are  expected to commence.  However, the amount and timing of any
of   these  sales  remains  uncertain.   The  majority  of  these
applications  are  in emerging markets and  the  entry  of  final
products into such markets is difficult to predict.  Moreover, if
a  business combination, sale of assets, a strategic alliance  or
additional  financing cannot be arranged  by  May  1,  1998,  the
Company   plans   further  personnel  reductions   and   possible
subsequent elimination or relocation of manufacturing  and  other
operations.  Additionally, on April 1, 1998, the Company  expects
to  be  required  to  give notice to cancel  its  facility  lease
effective September 30, 1998.  Management is discussing the terms
of  a new lease to be effective after September 30, 1998 with the
lessor  of  the facility with essentially the same terms  as  the
existing  lease  with the exclusion of BDM as guarantor  and  the
requirement  for a $50,000 security deposit.  If the  Company  is
unable to renegotiate or replace its lease of the facility before
September   30,  1998,  the  cost  of  moving  and   reinstalling
production  and  pollution control equipment to  a  new  location
would  be  significant and would prohibit or greatly  impair  the
Company's  ability to produce batteries for an indefinite  period
of  time,  and  conduct its operations.  (See also Liquidity  and
Capital Resources below.)

In  July  1996,  the Company received a $3,000,000  payment  from
Chrysler.   Chrysler  designated $2,366,000 of  this  payment  as
compensation for continued capacity maintenance and ramp-up costs
incurred by the Company in relation to its role as a supplier  to
the  automaker  for  its EPIC Minivan Program  and  $634,000  for
various  engineering, research and development ("ER&D")  efforts.
During  1996,  the Company recorded $2,366,000 as income  as  all
tasks necessary to earn the income were performed and there  were
no  further  obligations  related to such  revenue.  The  Company
recorded  $634,000  as deferred revenue which was  recognized  as
income in 1997 as the ER&D tasks were performed.

The  Company  also generated $1,000,000 in 1995 in  license  fees
under   a  Distribution  Agreement  with  Mitsui  Engineering   &
Shipbuilding  Co.,  Ltd.  ("MES") for the  export  and  exclusive
distribution of the Company's Horizon battery in Japan.  In 1996,
the  Company  completed a Termination Agreement  with  MES  which
terminated the Distribution Agreement and settled all outstanding
financial matters with MES.

Costs and Expenses

Total  costs and expenses decreased by approximately $310,000  or
3%  during  1997; however the composition of the  costs  incurred
during  1997  was  different than in 1996.   Manufacturing  costs
decreased  by  approximately $213,000 or  6%  during  1997  while
battery  sales increased by 10%.  The decrease in such costs  was
due  to  increases in productivity and further refinement of  the
production processes.  Manufacturing costs have remained high  as
a  percentage of battery sales primarily due to the fact that the
Company has not had the capital required to further automate  the
production  processes,  materials  are  being  purchased  in  low
volumes  and  the fixed facility costs of leasing and maintaining
its  88,000  square  foot  facility are significant.   Management
expects that manufacturing costs can decrease as a percentage  of
battery  sales  if, and when, volume production begins;  however,
additional  capital  will be required for  manufacturing  tooling
required for the production of prototype battery models in  order
to  achieve manufacturing efficiencies and to lower raw  material
costs.     The  timing  and  amount  of  battery  orders  remains
uncertain and the sources of capital which would be required  for
the  related tooling for such orders may not be available to  the
Company.

Selling,   general   and  administrative   costs   decreased   by
approximately $640,000 or 21% during 1997 primarily due  to  cost
savings  associated the consolidation of the Company's  corporate
and  manufacturing  facilities into one location  in  late  1996,
combined  with  cost cutting efforts.  The Company subleased  the
Austin  facility,  reducing related lease and  utility  costs  by
approximately  $250,000  annually.   Costs  were   also   reduced
significantly for travel, legal, accounting and consulting  fees.
Management expects selling, general and administrative  costs  to
continue  to  decrease  in 1998 based on  the  actions  taken  in
February 1998 to further reduce the work force and control costs.

Research   and   development  costs  increased  by  approximately
$1,040,000  or  72%  in 1997 due to the significant  increase  in
development  work associated with the custom design  of  numerous
batteries and battery packs for customers (SMH, Fiat, SMUD, Black
&  Decker,  Chrysler  and  another which  remains  confidential),
testing  and  evaluation  of batteries (aircraft  and  helicopter
starting  applications) and costs associated with joint  research
and  development  efforts with Corning to improve  the  Company's
products,   production  processes  and  automation.   The   costs
associated  with such development efforts have been  significant.
It  is  anticipated  that  the  current  level  of  research  and
development  expenditures will remain relatively constant  during
1998  as the work on most of these and other programs is expected
to continue for most of the year.

Technology  license  and  royalty  costs  and  depreciation   and
amortization  costs were comparable from 1997  to  1996  and  are
expected to remain relatively constant during 1998.

Interest costs slightly decreased during 1997 and are expected to
increase in 1998 as the Company's debt obligations have increased
during  1997  and early 1998.  The Company has issued Convertible
Notes  Payable to Corning with a principal balance of  $6,100,000
as  of  February  28, 1998 at face interest  rates  of  5%.   The
Company  is  also  amortizing discounts on the Convertible  Notes
Payable and expects interest expense related to this amortization
of approximately $370,000 in 1998.

Total costs and expenses decreased significantly during the  year
ended  December 31, 1996 compared to 1995.  Since sales  did  not
materialize as anticipated in late 1995 and into 1996, management
began a cost reduction program during 1996.  Staffing was reduced
by  approximately 50% during 1996.  During late 1996,  management
made the decision to consolidate its Austin headquarters into the
San  Marcos  manufacturing plant to further reduce costs.   Costs
were  also  reduced  as  a result of increases  in  productivity.
Generally, total costs were higher in 1995 as compared  to  1996,
as   the  Company  began  to  purchase  machinery  and  implement
production  processes  to  manufacture  the  Horizon  battery  in
commercial quantities and increased the production, marketing and
administrative   staffs  accordingly  in  anticipation   of   the
production  purchase  order received from  Chrysler  in  December
1995.    During  1995,  the  Company  also  incurred  significant
nonrecurring costs to replace batteries which failed  to  perform
as  expected  due  to  early manufacturing problems  as  well  as
improper  storage  and  charging of the batteries  by  customers.
Additionally,  the Company issued 136,000 shares of unregistered,
restricted  shares of Common Stock in 1995 which were  valued  at
$1,468,000    and    charged   to   expense,   associated    with
investor/public relations services to be provided by a consulting
firm.   Significant  research and development  expenditures  were
also incurred in 1995 which resulted in technical achievements in
specific energy, power and cycle life from batteries  produced on
the manufacturing line, not just laboratory prototypes.  Interest
costs  were higher in 1995 as well due to the incurrance in  1995
of  approximately $13,000,000 in Convertible Debt financing which
generally  converted within 90 days of the respective  financing.
Interest  costs  in  1995  included  $2,603,250  related  to  the
conversion discount from market on the Convertible Notes  Payable
(generally  20-25%).  The discount was amortized over the  period
beginning  with the issuance of the debt to the first  date  that
conversion  could occur (generally 60 days).  Interest  costs  of
$141,750 were recorded in 1996 for the Convertible Notes  Payable
issued  in 1995.  There were no Convertible Notes Payable  issued
in 1996.

As  a  part  of  the battery manufacturing process,  the  Company
handles and disposes of various hazardous materials such as  lead
and   sulfuric   acid.   The  Company  is   subject   to   strict
environmental regulations and has incurred significant  costs  in
installing  equipment to manage and control hazardous  substances
and  pollution. The Company expended $2,200, $8,000 and  $385,000
in 1997, 1996 and 1995, respectively, in capital expenditures for
such  equipment.  As part of its on-going operations, the Company
incurred   $37,000,   $13,000,  and   $170,000   in   non-capital
expenditures  in 1997, 1996 and 1995, respectively,  to  properly
dispose  of hazardous materials and waste.  As a result  of  such
preventive  measures,  the Company has not  incurred  significant
remediation  costs.  However,  on March  20,  1998,  the  Company
received  two Letters of Violation from the City of  San  Marcos;
one  relative to its lead discharges in wastewater from July 1997
through  December  1997  which  were  in  excess  of  the  limits
established  in  the National Categorical Pretreatment  Standards
("NCPS")  set by the Environmental Protection Agency ("EPA")  and
one  relative  to its zinc discharges in wastewater beginning  in
December 1997 which were in excess of the allowable concentration
limits of the Company's permit for zinc regulated by the City  of
San  Marcos.  The City of San Marcos has indicated that no  fines
or penalties will be assessed for these operational violations.

The NCPS compliance calculations for this facility are based on a
ratio  consisting of the product of total lead contained in daily
wastewater  discharge flows and total daily wastewater  discharge
flows  divided by daily lead usage.  The absolute amount of  lead
contained  in  the daily wastewater  discharged  by  the
facility  is  well below its allowable limits.  The  Company  has
consistently operated at treatment levels approximately 85% below
the  maximum allowable local limits of lead emissions.  The  NCPS
calculations  were established for traditional lead-acid  battery
manufacturers  which  use a much larger amount  of  lead  in  the
battery  manufacturing process than the Company  and  operate  at
higher  volumes.   The  Company is operating  at  relatively  low
production  levels.   Due to the Company's  relatively  low  lead
usage in the battery manufacturing process and its low production
volume,  the  calculated concentration limits in  the  ratio  are
difficult  for the Company to achieve.  The Company  can  improve
its NCPS compliance calculation ratio by decreasing the amount of
lead  contained  in  its  daily  wastewater  discharge  flow   or
decreasing  the  amount  of  daily  wastewater  discharged.   The
Company has developed a plan that it believes will enable  it  to
become  compliant  with  the  NCPS standards  which  involve  the
recycling and reuse of water within the facility, construction of
roofing  over the exterior air scrubber to divert the  collection
of  rain  water in order to reduce the volume of water  collected
and  treated and other actions.  The Company estimates  that  the
cost of such actions will be approximately $25,000.  There can be
no  assurance that such actions will allow the Company to  become
compliant with the NCPS standards.  If these actions do not allow
the  Company  to operate within the NCPS standards,  it  will  be
necessary for the Company to prepare a request for variance  from
the NCPS standards, which would be time-consuming and costly.

The  Company does not use zinc in its manufacturing process.  The
Company  believes  that the zinc concentrations  were  caused  by
corrosion  of  metal  brackets in the Company's  trenching  which
houses  its plumbing and wastewater piping.  The Company believes
that  the repairs to this trenching which will allow it to become
compliant   with  its  permit  for  zinc  emissions   will   cost
approximately  $25,000.   There can  be  no  assurance  that  the
estimated  repairs to the trenching will be sufficient  to  allow
the   Company  to  become  compliant  with  the  allowable   zinc
concentration limits in its permit.

Other  than  the  costs  associated with  these  two  operational
violations,  management is not currently aware of any  infrequent
or  non-recurring  clean-up expenditures to be  incurred  in  the
future based on present circumstances and conditions.

The  Company  has  completed  an assessment  of  its  information
technology  systems' readiness for the year  2000  and  currently
believes  that the modifications necessary for the year 2000  are
not  significant.   This  is  because the  Company's  information
systems  are  not complex and have been purchased/installed  over
the  last few years and the Company believes most of the  related
software   is   year  2000  compliant  or  year  2000   compliant
replacements  are readily available.  The Company  also  believes
embedded  software in its manufacturing production  equipment  is
either not year sensitive or was developed considering the impact
of the year 2000 issues.  The Company will be testing its systems
for  year 2000 readiness in 1998 and the project is estimated  to
be  complete  in late 1999, prior to any estimated  impact.   The
Company  does not expect the costs of this project to be material
or for it to have a significant effect on operations and believes
that  with modifications to existing software and conversions  to
new  software,  the  year 2000 issue will  not  pose  significant
operational problems.  However, if management's assessment proves
inaccurate or if such modifications and conversions are not  made
or are not completed timely, the year 2000 issue might impact the
operations of the Company.

The  costs  of  the  project and the date on  which  the  Company
believes  it will complete the year 2000 modifications are  based
on  management's  best  estimates, which were  derived  utilizing
numerous  assumptions of future events, including  the  continued
availability  of  certain resources and other factors.   However,
there  can be no guarantee that these estimates will be  achieved
and   actual   results   could  differ  materially   from   those
anticipated.   Specific factors that might  cause  such  material
differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and
correct all relevant computer codes and similar uncertainties.

During  the  years ended December 31, 1997, 1996  and  1995,  the
Company  issued  approximately 677,000,  844,000,  and  1,500,000
shares  of  Common Stock, respectively, as a result of  financing
transactions, purchases of technology and equipment,  payment  of
the  Technology License Payable and consulting services  and  the
exercise of stock options.  As a result of the increase in shares
for  these  years, the loss per share in each was  less  than  it
would have been based on the shares outstanding at the end of the
preceding  year.   Management of the Company  believes  that  the
issuance  of  shares  in these years was necessary  to  fund  the
increased working capital and capital expenditure requirements.

Liquidity and Capital Resources

During  1997, the Company did not generate sufficient  cash  flow
from  operations to fund its working capital needs.  As a result,
the  Company  sold 109,397 shares of Common Stock (combined  with
616,383 warrants to purchase Common Stock at prices ranging  from
$5.25  to $7.56 per share) which resulted in net proceeds to  the
Company  of $655,000 during the year.  Additionally, in order  to
reduce monthly cash expenditures for operating and capital leases
and  to  obtain  release of restricted cash securing  letters  of
credit securing capital leases, the Company issued 426,804 shares
of  Common  Stock  to  settle or prepay  such  obligations.   The
Company  issued  127,500 shares of Common Stock to  a  lessor  in
settlement of $550,000 of lease obligations and for the  purchase
of  $166,000 of capital equipment at which time letters of credit
for  $663,220  which  collateralized the lease  obligations  were
canceled  and  certificates of deposit of an  equal  amount  that
collateralized the letters of credit were released.  The  Company
issued  299,304 shares of Common Stock to BDM Technologies,  Inc.
(now  a division of TRW, Inc.)("BDM") toward past due obligations
owed and prepayment under operating leases for certain production
equipment.  During 1997, the Company borrowed $5,000,000  in  the
form  of  5%  Convertible  Notes from Corning.   In  January  and
February  1998, the Company borrowed an additional $1,000,000  of
5%  Convertible Notes from Corning.  Funds generated in 1997 from
these   activities  were  used  to  maintain  minimum  production
capabilities  and  to sustain operations, to design  and  develop
custom  batteries and battery packs for several applications  and
to  pay  for the lease and maintenance of its 88,000 square  foot
manufacturing  facility.  Capital expenditures  of  approximately
$134,000  were  incurred in 1997, primarily  related  to  further
automation.

Development  work has taken longer than anticipated  and  battery
sales  have  been delayed.  Cash flow is not sufficient  to  fund
operations.  Therefore, in February 1998, the Company reduced its
staffing  by  approximately  40%  to  reduce  costs.   Management
anticipates  that such reductions in cost will allow the  Company
additional  time  to  explore strategic alternatives  such  as  a
business  combination,  the  sale of assets  and/or  a  strategic
alliance  and to attempt to increase revenues and further  reduce
costs.   The  Company  is  in preliminary  discussions  regarding
possible  transactions,  but there  is  no  assurance  that  such
transactions  can be completed and if completed can generate  the
funds required to sustain the Company.

Management believes that it has sufficient cash on hand and to be
received from firm orders for batteries and development  work  to
continue operations at current levels through May of 1998.  If  a
business  combination,  sale  of assets,  strategic  alliance  or
additional  financing cannot be arranged by May  1,  it  will  be
necessary to make further reductions in the work force, primarily
at  the  executive  management level, which  management  believes
could  allow the Company to operate into August of  1998.   If  a
significant  order for batteries is not completed or  a  business
combination,  sale  of assets, strategic alliance  or  additional
financing cannot be arranged by the end of the second quarter  of
1998,  it  will be necessary for the Company to make  significant
reductions   in  the  work  force,  and  eliminate  or   relocate
manufacturing  and/or other functions with the  primary  goal  of
maintaining research and development capabilities, the  corporate
legal  entity and protection of the core technology.  Such  plans
would  also  require  the Company to obtain  additional  capital.
These  alternate plans are subject to a great deal of uncertainty
and  risk.   There  is  no  assurance that  such  plans  will  be
successful  or  that the Company will be able to  continue  as  a
going concern.

The  Company's $25,000 monthly obligation for the  lease  of  the
manufacturing  facility  is currently  guaranteed  by  BDM.   The
Company  has agreed to purchase the facility or otherwise  remove
BDM  as  guarantor of the lease by no later than April, 1,  1998.
In the event the Company does not purchase the facility or remove
BDM  as  guarantor by this date, then the Company is required  to
give notice to cancel the facility lease effective September  30,
1998.  Management of the Company expects that it will be required
on  April  1,  1998 to give notice to cancel its  facility  lease
effective September 30, 1998.  Management is discussing the terms
of  a new lease to be effective after September 30, 1998 with the
lessor  of  the facility with essentially the same terms  as  the
existing  lease  with the exclusion of BDM as guarantor  and  the
requirement for a $50,000 security deposit.  However, there is no
assurance that a satisfactory arrangement can be reached with the
lessor.   If the Company terminates the facility lease, the  cost
of  moving  and  reinstalling production  and  pollution  control
equipment  to  a  new location, which has not yet been  selected,
would  be  significant and would prohibit or greatly  impair  the
Company's  ability to produce batteries for an indefinite  period
of   time,   and  hence  impair  the  conduct  of  the  Company's
operations.

In  December  1997, the Company issued 299,304 shares  of  Common
Stock to BDM as partial payment for past obligations owed to  BDM
for  occupancy related costs (which the Company has accrued)  and
as  prepayment under operating leases for manufacturing equipment
which  are  guaranteed by BDM.  The number of shares  issued  was
determined  based on the fair market value of the shares  at  the
date  of  the agreement ($2.56 per share).  When the  shares  are
sold by BDM, the proceeds will be used to satisfy these past  and
future obligations.  If the proceeds from the sale of such shares
are  not sufficient to satisfy the obligations, the Company  will
issue  additional shares of Common Stock or pay cash  to  BDM  to
make  up  the deficiency.  BDM has agreed to accept a minimum  of
$1.00  per  share  or $299,304 for the shares issued.   BDM  will
retain any overage from the sale of such shares in excess of  the
amounts owed. The Company has agreed to pay $300,000 to BDM  (for
the  remaining unpaid occupancy related costs) from the  proceeds
received from any fundraising activities completed by the Company
before  March  31, 1998 in excess of $5,000,000.   The  Company's
closing market price as reported by NASDAQ on March 20, 1998  was
$0.6563.  BDM has not notified the Company of an intent  to  sell
such  shares in the near term; however, unless the value  of  the
Company's  Common Stock improves, based on current market  prices
of  the Company's Common Stock, additional shares of Common Stock
or  cash  will be required to settle these obligations under  the
terms of this agreement.

Significant capital expenditures will be required in  the  future
to  further  automate and achieve consistency in  the  production
process;  however,  such  expenditures are  not  expected  to  be
significant  in  1998 to satisfy current battery  orders.   There
were no significant capital commitments at December 31, 1997.

Convertible Notes Payable of $2,000,000 issued by Corning in late
1997  and  early  1998  will mature on December  19,  1998.   The
debentures  are convertible into Convertible Preferred  Stock  or
Common  Stock.  Debentures with a principal balance at $2,000,000
are   convertible  into  200,000  shares  of  the  Company's   5%
Cumulative Convertible Preferred Stock, which is then convertible
into  Common  Stock  at  $4.06 per  share.   The  debentures  are
convertible directly into Common Stock at $3.56 per share.

The  Company's  Common  Stock is traded in  the  Over-the-Counter
Market  and  is reported on the Nasdaq Stock Marketsm ("NASDAQ").
In order to maintain listing by NASDAQ under new rules which went
into effect in February 1998, the Company must maintain a minimum
$2  million  of  net  tangible assets  (total  assets,  excluding
goodwill,  minus  total  liabilities).  The  Company  is  not  in
compliance with this new requirement as of December 31, 1997  and
does  not  expect  to be in compliance without  the  infusion  of
additional  equity financing, the sale of assets, forgiveness  or
conversion of debt or a business combination.  The Company is  in
preliminary discussions regarding possible arrangements, although
there is no assurance that such a transaction can be completed or
if  completed will generate the net tangible assets  required  by
the  new  requirement.  Additionally, NASDAQ requires  a  minimum
$1.00  per  share  minimum bid price to  maintain  listing.   The
Company's closing market price as reported on NASDAQ on March 20,
1998  was $0.6563.  The Company expects to be notified by  NASDAQ
of  its  noncompliance  with  listing requirements.   Ordinarily,
before delisting, NASDAQ would provide the Company notice and  an
opportunity  to present and carry out a plan for compliance  with
the  listing  requirements.  In the event that the  Common  Stock
were  no  longer traded on the NASDAQ market, brokers and dealers
effecting trades in the Common Stock would become subject to  the
Securities  and  Exchange Commission rules  covering  trading  in
"penny  stocks."  These rules generally require that such broker-
dealers   make  specified  disclosures  to  customers   including
information  on available bid and asked prices for the  stock  in
question and compensation to the broker-dealer and his associates
with  respect to the proposed trade, and provide periodic reports
as  to the market value of a customer's position in penny stocks.
The   rules   also   impose  heightened  "know   your   customer"
requirements  that require broker-dealers to obtain  information,
including   personal   financial  information,   from   customers
sufficient  to  allow the broker-dealer to make  a  determination
that investment in penny stocks is suitable for the customer  and
that  the customer is capable of assessing the risks of  such  an
investment.  Broker-dealers may be less willing to effect  trades
in  any  security  subject to these rules due to  the  additional
disclosure, record-keeping and other requirements imposed by  the
rules.  In addition, some potential investors in penny stocks may
be   reluctant   to  provide  the  required  personal   financial
information  to broker-dealers, which may reduce  the  number  of
potential  investors.  These factors would likely further  reduce
trading liquidity in the Common Stock.

If  the  Company is delisted from NASDAQ and is unable to  obtain
significant   additional  orders  for  batteries  or   additional
development contracts, it will be difficult to obtain  additional
funding.   There  can  be no assurance that  additional  funding,
contracts or sales which will generate sufficient cash to sustain
operations can be obtained on terms acceptable to the Company, if
at  all.  The financial statements do not include any adjustments
to  reflect the possible future effects on the recoverability and
classification  of  assets or the amounts and  classification  of
liabilities  that may result from the possible inability  of  the
Company to continue as a going concern.

Other

In  1994, the Company signed a "Know-How License Agreement"  (the
"Agreement") with Horizon Battery Technologies, Ltd. ("HBTL"), of
Bombay,  India,  calling for the completion of  several  detailed
subordinate  agreements with the ultimate purpose to license  the
manufacture and sale of batteries in India.  The effectiveness of
the  Agreement was conditioned upon the subsequent  execution  of
these  six related agreements, none of which were executed.   The
Company believes, therefore, the Agreement never became effective
and  has no force or effect.  Separately in 1995, HBTL agreed  to
pay  the Company $250,000 for a Preliminary Design Review ("PDR")
for  a  potential  manufacturing  facility  in  India  which  was
required  to  complete  one of the subordinate  agreements.   The
Company  received  $100,000 from HBTL and completed  the  PDR  in
1995.  The remaining $150,000 was never paid by HBTL, in spite of
repeated demands by the Company.

In  September  1996, the Company received a demand from  HBTL  to
arbitrate  damage  claims for alleged breach  of  the  Agreement.
HBTL  claimed  damages  of approximately  $5.1  million  for  its
expenses and lost profits related to the Agreement.  The  Company
disputes  the  claim for damages and will vigorously  defend  any
action  taken  by  HBTL to pursue the claims.  The  Company  also
filed a petition in State Court in Travis County, Texas, seeking,
among other things, a declaratory judgment that HBTL had no right
to  arbitration or monetary relief.  HBTL contested  jurisdiction
and  removed  the  proceedings to the U.S. Federal  Courts.   The
Federal District Court to which the action was removed ruled that
it did not have personal jurisdiction over HBTL and therefore had
no  power to hear the case.  The Company filed an appeal  in  the
U.S.  Fifth Circuit Court of Appeals from the final judgment  and
rulings  in  the  District Court.  A decision on  the  appeal  is
expected  in three to six months.  No liability has been recorded
in  the  financial  statements at  December  31,  1997  for  this
uncertainty  as management is unable to determine the  likelihood
of  an  unfavorable  outcome of this matter or  to  estimate  the
amount  or  range  of  potential  loss  should  the  outcome   be
unfavorable.  The resolution of this matter could have a material
adverse effect on the financial position of the Company.

Management of the Company believes that inflation does not have a
material effect on the Company's results of operations.


Item 8.  Financial Statements and Supplementary Data.

See  Item  14(a)  for  an index of the financial  statements  and
schedules included as a part of this Annual Report on Form 10-K.


Item  9.   Changes  in  and  Disagreements  with  Accountants  on
Accounting and Financial Disclosure.

None.


                            PART III


Item 10.  Directors and Executive Officers of Registrant.

Information  with regard to directors and executive officers  and
their  business  experience  is  set  forth  under  "ELECTION  OF
DIRECTORS"  in the Company's Definitive Proxy Statement  for  the
Annual Meeting of Stockholders to be held on May 20, 1998, and is
incorporated herein by reference.

Information with regard to the filing of reports of ownership and
changes  of  ownership by the Company's directors, officers,  and
persons  who  beneficially  own  more  than  ten  percent  of   a
registered  class of the Company equity securities is  set  forth
under  "ELECTION OF DIRECTORS - Section 16(a) Disclosure" in  the
Company's  Definitive Proxy Statement for the Annual  Meeting  of
Stockholders  to  be  held on May 20, 1998, and  is  incorporated
herein by reference.


Item 11.  Executive Compensation.

Information with regard to executive compensation and pension  or
similar  plans  is  set  forth under  "ELECTION  OF  DIRECTORS  -
Compensation  of  Executive  Officers  and  Directors"   in   the
Company's  Definitive Proxy Statement for the Annual  Meeting  of
Stockholders  to  be  held on May 20, 1998, and  is  incorporated
herein by reference.


Item  12.   Security Ownership of Certain Beneficial  Owners  and
Management.

Information  with  regard  to  security  ownership   of   certain
beneficial  owners  and management is set forth  under  "SECURITY
OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"  in  the
Company's  Definitive Proxy Statement for the Annual  Meeting  of
Stockholders  to  be  held on May 20, 1998, and  is  incorporated
herein by reference.


Item 13.  Certain Relationships and Related Transactions.

Information  with  regard to certain transactions  is  set  forth
under  "ELECTION OF DIRECTORS - Compensation Committee Interlocks
and  Insider Participation" and "ELECTION OF DIRECTORS -  Certain
Relationships   and  Related  Transaction"   in   the   Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders
to  be  held  on  May  20,  1998, and is incorporated  herein  by
reference.


                                  PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)(1)    The following financial statements of the Company are included in
Item 8:

                                                           Page No.

Balance Sheets -- December 31, 1997 and 1996                  F-3

Statements of Operations -- For the years ended
  December 31, 1997, 1996 and 1995                            F-4

Statements of Shareholders' Equity -- For the years ended
  December 31, 1997, 1996 and 1995                            F-5

Statements of Cash flows -- For the years ended
  December 31, 1997, 1996 and 1995                            F-6

Notes to Financial Statements -- December 31, 1997            F-7


(a)(2)    Financial Statement Schedules

All  schedules  for  which provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are included  in  the
notes  to financial statements, not required under the related instructions
or are inapplicable, and therefore have been omitted.

(a)(3)    Exhibits

3.1     Restated  Certificate  of  Incorporation  of  Electrosource,  Inc.
        (filed   as  Exhibit  3.1  to  Electrosource,  Inc.,  Registration
        Statement on Form 10 filed October 19, 1987, as amended by Form  8
        Amendments filed January 8, 1988 and January 13, 1988 (hereinafter
        referred to as "Form 10") and incorporated herein by reference).

3.2     Certificate of Designation, Preferences, Rights and Limitations of
        1992  Series A Preferred Stock and Series A-1 Preferred  Stock  of
        Electrosource, Inc. as filed of record with the Delaware Secretary
        of   State  on  January  15,  1992  (filed  as  Exhibit   4.1   to
        Electrosource, Inc. Form 8-K Current Report for Issuers Subject to
        the  1934  Act Reporting Requirements filed December 24, 1991  and
        incorporated herein by reference).

3.3     Amendment   to   Restated   Certificate   of   Incorporation    of
        Electrosource, Inc., increase in authorized shares  to  50,000,000
        shares  (filed  as Exhibit 3.1 to Electrosource,  Inc.,  Quarterly
        Report  on  Form  10-Q  for  quarter  ended  June  30,  1995   and
        incorporated herein by reference).

3.4     Amendment   to   Restated   Certificate   of   Incorporation    of
        Electrosource, Inc., elimination of Certificate of Designation for
        Series  A and Series A-1 Preferred Stock (filed as Exhibit 3.2  to
        Electrosource,  Inc., Quarterly Report on Form  10-Q  for  quarter
        ended June 30, 1995 and incorporated hereby by reference).

3.5     Amendment   to  the  Restated  Certificate  of  Incorporation   of
        Electrosource filed as of July 22, 1996 (filed as Exhibit  3.1  to
        Electrosource, Inc. Quarterly Report on Form 10-Q for the  quarter
        ended June 30, 1996 and incorporated herein by reference).

3.6     Bylaws of Electrosource, Inc. (filed as Exhibit 3.2 to Form 10 and
        incorporated herein by reference).

3.7     Amendment  to  Bylaws  of  Electrosource,  Inc.,  pursuant  to   a
        Certificate of Secretary dated May 25, 1990 (filed as Exhibit  3.3
        to  Electrosource, Inc., Annual Report on Form 10-K for the period
        ended December 31, 1991 and incorporated herein by reference).

3.8     Amendment to Bylaws of Electrosource, Inc. dated November 3,  1993
        (filed  as  Exhibit 3.5 to Electrosource, Inc., Annual  Report  on
        Form  10-K for the period ended December 31, 1993 and incorporated
        herein by reference).

3.9     Amendment  to  Bylaws of Electrosource, Inc. dated June  23,  1994
        (filed  as Exhibit 3.6 to Electrosource, Inc. Annual Report  filed
        on   Form  10-K  for  the  period  ended  December  31,  1994  and
        incorporated herein by reference).

3.10    Amendment to Bylaws of Electrosource, Inc. dated November 13, 1996
        (filed as Exhibit 3.10 to Electrosource, Inc. Annual Report  filed
        on   Form  10-K  for  the  period  ended  December  31,  1996  and
        incorporated herein by reference).

4.1     Warrant  to  purchase  up to 5,424 shares of  Electrosource,  Inc.
        Common   Stock   issued   to  Rosehouse  Ltd.,   a   Bermuda-based
        institutional buyer, dated April 5, 1995 (filed as an  Exhibit  to
        Electrosource,  Inc. Current Report on Form 8-K  filed  April  12,
        1995 and incorporated herein by reference).

4.2     Warrant  to  purchase  up to 5,000 shares of  Electrosource,  Inc.
        Common Stock issued to Ally Capital Management, Inc. on April  17,
        1995 (filed as Exhibit 4.1 to Electrosource, Inc. Quarterly Report
        on  Form 10-Q for the quarter ended June 30, 1995 and incorporated
        herein by reference).

4.3     Warrant  to  purchase up to 25,000 shares of Electrosource,  Inc.,
        Common   Stock,   issued  to  Rosehouse  Ltd.,   a   Bermuda-based
        institutional buyer, dated July 27, 1995 (filed as Exhibit 4.4  to
        Electrosource,  Inc.  Quarterly Report on Form  10-Q  for  quarter
        ended June 30, 1995 and incorporated herein by reference).

4.4     Warrant  to purchase up to 100,000 shares of Electrosource,  Inc.,
        Common  Stock, issued to ACM Advisors, Zurich, Switzerland,  dated
        July  27,  1995  (filed  as  Exhibit 4.5 to  Electrosource,  Inc.,
        Quarterly Report of Form 10-Q for quarter ended June 30, 1995  and
        incorporated herein by reference).

4.5     Warrant  to purchase up to 100,000 shares of Electrosource,  Inc.,
        Common  Stock, issued to ACM Advisors, Zurich, Switzerland,  dated
        July  27,  1995  (filed  as  Exhibit 4.6 to  Electrosource,  Inc.,
        Quarterly Report on Form 10-Q for quarter ended June 30, 1995  and
        incorporated herein by reference).

4.6     1987  Stock Option Plan of Electrosource, Inc. (filed as Annex  A,
        pages  44  to 48 of Company's Information Statement filed  October
        16, 1987 and incorporated herein by reference).

4.7     Amendment  No. 1 to 1987 Stock Option Plan of Electrosource,  Inc.
        dated  February  19,  1992  (filed as  Exhibit  4.3  to  Company's
        Registration Statement [No. 33-49049] on Form S-8 filed  June  30,
        1992 and incorporated herein by reference).

4.8     Amendment  No. 2 to 1987 Stock Option Plan of Electrosource,  Inc.
        (filed  as Exhibit 10.36 to Electrosource, Inc., Annual Report  on
        Form  10-K for the period ended December 31, 1992 and incorporated
        herein by reference).

4.9     1988  Non-Employee  Director Option Plan  of  Electrosource,  Inc.
        (filed as Exhibit 4.2 to Company's Registration Statement [No. 33-
        22223]  on Form S-8 filed June 7, 1988 and incorporated herein  by
        reference).

4.10    Amendment  No. 1 to 1988 Non-Employee Director Stock  Option  Plan
        (filed as Exhibit 4.3 to Company's Registration Statement [No. 33-
        35856] on Form S-8 filed July 12, 1990 and incorporated herein  by
        reference).

4.11    Amendment  No. 2 to 1988 Non-Employee Director Stock  Option  Plan
        (filed as Exhibit 4.4 to Company's Registration Statement [No. 33-
        49042] on Form S-8 filed June 30, 1992 and incorporated herein  by
        reference).

4.12    Amendment  No. 3 to 1988 Non-Employee Director Stock  Option  Plan
        (filed   as   Exhibit  4.4  to  Electrosource,  Inc.  Registration
        Statement  [No.  33-64108] on Form S-8  filed  June  9,  1993  and
        incorporated herein by reference).

4.13    1993  Non-Employee Consultant Stock Option Plan for Electrosource,
        Inc.  (filed  as  Exhibit 4.2 to Registration Statement  [No.  33-
        65386] on Form S-8 and incorporated herein by reference).

4.14    1994  Stock  Option Plan of Electrosource, Inc. (filed as  Exhibit
        10.4 to Electrosource, Inc. Quarterly Report on Form 10-Q for  the
        quarter ended June 30, 1995 and incorporated herein by reference).

4.15    1996  Stock Option Plan for Electrosource, Inc. (filed as  Exhibit
        4.2  to  Registration Statement [No. 333-31101] on  Form  S-8  and
        incorporated herein by reference).

4.16    Warrant  (Stock  Option Agreement No. W12-101) to purchase  up  to
        20,000  shares  of  Electrosource, Inc., Common Stock,  issued  to
        Corning  Incorporated dated December 31, 1997 for payment of  that
        certain Project Annex dated October 20, 1997.

4.17    Warrant  (Stock Option Agreement No. W12-102A) to purchase  up  to
        70,000  shares  of  Electrosource, Inc., Common Stock,  issued  to
        Corning  Incorporated dated December 31, 1997 for payment on  that
        certain Project Annex dated October 20, 1997.

4.18    Warrant  (Stock Option Agreement No. W12-103A) to purchase  up  to
        70,000  shares  of  Electrosource, Inc., Common Stock,  issued  to
        Corning  Incorporated dated December 31, 1997 for payment on  that
        certain Project Annex dated October 20, 1997.

10.1    Sublicense   Agreement  dated  as  of  October  5,  1987   between
        Electrosource,  Inc. and Tracor, Inc. (filed as  Exhibit  10.4  to
        Form 10 and incorporated herein by reference).

10.2    Patent and Technology Exclusive License Agreement dated August 14,
        1984  between  Tracor, Inc. and Blanyer-Mathews  Associates,  Inc.
        ("BMA")  (filed as Exhibit 10.9 to Registration Statement [No  33-
        30486]  on Form S-1 filed August 14, 1989 hereinafter referred  to
        as "Form S-1" and incorporated herein by reference).

10.3    Amendment  to  Patent and Technology Exclusive  License  Agreement
        dated  May 29, 1987 between Tracor, Inc. and BMA (filed as Exhibit
        10.10 to Form S-1 and incorporated herein by reference).

10.4    Bonus  Royalty  Agreement dated May 26, 1989 among  Electrosource,
        Inc., Tracor, Inc., and BMA (filed as Exhibit 19 to Electrosource,
        Inc. Quarterly Report on Form 10-Q for the quarter ended June  30,
        1989 and incorporated herein by reference).

10.5    Amendment  to Bonus Royalty Agreement entered into as of  November
        30,  1989  by and among BMA, Tracor, Inc. and Electrosource,  Inc.
        (filed as Exhibit 10.17 to Post Effective Amendment No. 1 to  Form
        S-1  Registration Statement [No. 33-34581] filed December 11, 1989
        hereinafter   referred  to  as  "Post-Effective   Amendment"   and
        incorporated herein by reference).

10.6    Assignment  of  Patent License dated as of May  14,  1990  by  and
        between  Electrosource, Inc. and Tracor, Inc. (joined by  BMA  for
        limited purposes described therein) (filed as Exhibit 10.20 to the
        Company's Annual Report on Form 10-K for the period ended December
        31,  1990  hereinafter  referred to as the "1990  Form  10-K"  and
        incorporated herein by reference).

10.7    Letter   Agreement   dated  as  of  January   15,   1991   between
        Electrosource,  Inc.  and  BMA (filed  as  Exhibit  10.21  to  the
        Company's 1990 Form 10-K and incorporated herein by reference).

10.8    License  Modification  Agreement dated January  16,  1992  between
        Blanyer  Mathews  &  Associates,  Inc.,  Electrosource,  Inc.  and
        Battery  Horizons, Ltd. (filed as Exhibit 10.23 to  Electrosource,
        Inc. Annual Report on Form 10-K for the period ended December  31,
        1991 and incorporated herein by reference).

10.9    First  Amendment to Assignment of Patent License  dated  April  2,
        1992  between  Electrosource, Inc.  and  Tracor,  Inc.  (filed  as
        Exhibit  10.58 to Company's Registration Statement [No.  33-65248]
        on  Form  S-1  filed  June  30, 1993 and  incorporated  herein  by
        reference).

10.10   Lease   Agreement  between  Aetna  Life  Insurance   Company   and
        Electrosource,  Inc.  dated February 22, 1992  (filed  as  Exhibit
        10.25  to Electrosource, Inc. Annual Report on Form 10-K  for  the
        period  ended  December  31,  1991  and  incorporated  herein   by
        reference).

10.11   First  Amendment to Lease Agreement between Aetna  Life  Insurance
        Company and Electrosource, Inc. dated February 24, 1993 (filed  as
        Exhibit  10.27 to Electrosource, Inc. Annual Report on  Form  10-K
        for the period ended December 31, 1992 and incorporated herein  by
        reference).

10.12   Second  Amendment to Lease Agreement between Aetna Life  Insurance
        Company  and  Electrosource, Inc. dated March 1,  1996  (filed  as
        Exhibit  10.14 to Electrosource, Inc. Annual Report on  Form  10-K
        for the period ended December 31, 1995 and incorporated herein  by
        reference).

10.13   Sublease Agreement between Electrosource, Inc. and Merit Printing,
        Inc. dated February 24 1997.

10.14   Lease  Agreement  between William D. McMorris and Horizon  Battery
        Technologies,  Inc. dated August 17, 1993 (filed as Exhibit  10.42
        to  Electrosource Inc. Annual Report on Form 10-K for  the  period
        ended December 31, 1994 and incorporated herein by reference).

10.15   Amendment  to  Business  Alliance  and  License  Agreement   dated
        November  1,  1995 between Electric Power Research  Institute  and
        Electrosource, Inc. (filed as Exhibit 10.2 to Electrosource,  Inc.
        Quarterly Report on Form 10-Q for the quarter ended September  30,
        1995 and incorporated herein by reference).

10.16   Stock  Purchase  Agreement together with the Asset and  Technology
        License Agreement dated January 31, 1995 between BDM Technologies,
        Inc.   and   Electrosource,  Inc.  (filed  as  Exhibit  10.46   to
        Electrosource,  Inc.  Annual Report on Form 10-K  for  the  period
        ended December 31, 1994 and incorporated herein by reference).

10.17   First  Amendment to Asset and Technology License Agreement between
        BDM International, Inc. and Electrosource, Inc. dated December 18,
        1997.

10.18   Termination  Agreement  between  Electrosource,  Inc.  and  Mitsui
        Engineering and Shipbuilding Co., Ltd. dated March 6, 1996  (filed
        as Exhibit 10.36 to Electrosource, Inc. Annual Report on Form 10-K
        for the period ended December 31, 1995 and incorporated herein  by
        reference).

10.19   Purchase  Agreement between Quantum Energy Systems and  Technology
        LLC  and  Electrosource, Inc., dated November 14, 1994, (filed  as
        Exhibit  10.44 to Electrosource, Inc., Annual Report on Form  10-K
        for the period ended December 31, 1994 and incorporated herein  by
        reference).

10.20   Equipment  Lease Agreement dated September 7, 1995, between  Salem
        Capital  Corporation  and Electrosource, Inc.  (filed  as  Exhibit
        10.65  to Electrosource, Inc. Annual Report on Form 10-K  for  the
        period  ending  December  31,  1995  and  incorporated  herein  by
        reference).

10.21   Development Agreement and Agreement for Purchase of Machinery  and
        Supplies  between  Electrosource, Inc.,  and  Charles  L.  Mathews
        ("Contractor") dated November 1, 1995 (filed as Exhibit  10.68  to
        Electrosource,  Inc.  Annual Report on Form 10-K  for  the  period
        ending December 31, 1995 and incorporated herein by reference).

10.22   Purchase  Order  between Chrysler Corporation  and  Electrosource,
        Inc.   dated   January  9,  1996  (filed  as  Exhibit   10.69   to
        Electrosource,  Inc.  Annual Report on Form 10-K  for  the  period
        ending December 31, 1995 and incorporated herein by reference).

10.23   Agreement  for  Aircraft  Starting  Battery  Distribution  between
        Electrosource, Inc. and Horizon Aviation, Inc. dated February  13,
        1996  (filed as Exhibit 10.70 to Electrosource, Inc. Annual Report
        on  Form  10-K  for  the  period  ending  December  31,  1995  and
        incorporated herein by reference).

10.24   Joint  Development Agreement between Electrosource, Inc. and Black
        &  Decker (U.S.), Inc. dated March 8, 1996 (filed as Exhibit 10.71
        to  Electrosource, Inc. Annual Report on Form 10-K for the  period
        ending December 31, 1995 and incorporated herein by reference).

10.25   Memorandum  of  Understanding  between  Electrosource,  Inc.   and
        Lockheed Martin Corporation dated March 15, 1996 (filed as Exhibit
        10.1  to  Electrosource, Inc. Quarterly Report on  Form  10-Q  for
        quarter   ended  March  31,  1996  and  incorporated   herein   by
        reference).

10.26   Letter  of Agreement between Electrosource, Inc. and Ally  Capital
        Corporated  dated  December 18, 1996  (filed  as  Exhibit  4.9  to
        Electrosource, Inc. Registration Statement [No. 333-20103] Form S-
        3  Amendment  No. 1 on April 18, 1997 and incorporated  herein  by
        reference).

10.27   Amendment  dated  January 20, 1997 to Letter of Agreement  between
        Electrosource,  Inc. and Ally Capital Corporation  dated  December
        18,   1996   (filed   as  Exhibit  4.10  to  Electrosource,   Inc.
        Registration Statement [No. 333-20103] Form S-3 Amendment No. 1 on
        April 18, 1997 and incorporated herein by reference).

10.28   Amendment  dated  April  10,  1997  to  Letter  Agreement  between
        Electrosource,  Inc. and Ally Capital Corporation  dated  December
        18,   1996   (filed   as  Exhibit  4.11  to  Electrosource,   Inc.
        Registration Statement [No. 333-20103] Form S-3 Amendment No. 1 on
        April 18, 1997 and incorporated herein by reference).

10.29   Subscription  Agreements between participants  and  Electrosource,
        Inc.   dated   January  23,  1997  (filed  as   Exhibit   4.9   to
        Electrosource, Inc. Registration Statement [No. 333-25659] Form S-
        3 on April 23, 1997 and incorporated herein by reference).

10.30   Note Purchase and Option Agreement for $4 million dated March  27,
        1997  between Electrosource, Inc. and Corning Incorporated  (filed
        as Exhibit 4.1 to Electrosource, Inc. Quarterly Report on Form 10-
        Q  for  quarter  ended March 31, 1997 and incorporated  herein  by
        reference).

10.31   5%  Convertible Promissory Note for $100,000 dated  September  27,
        1997  between  Electrosource, Inc. and  Corning  Incorporated  for
        payment  of interest due on the Note Purchase and Option Agreement
        dated March 27, 1997.

10.32   5%  Convertible Promissory Note for $102,500 dated March 27,  1998
        between  Electrosource, Inc. and Corning Incorporated for  payment
        of  interest  due on the Note Purchase and Option Agreement  dated
        March 27, 1997 and Promissory Note dated September 27, 1997.

10.33   Amendment  No. 1 dated December 22, 1997 to Stock Option Agreement
        dated   March   27,   1997   between  Corning   Incorporated   and
        Electrosource, Inc.

10.34   Research  and  Development Umbrella Agreement dated July  1,  1997
        between Corning Incorporated and Electrosource, Inc.

10.35   Project  Annex dated October 20, 1997 to the Development  Umbrella
        Agreement  dated  as  of  July  1, 1997  by  and  between  Corning
        Incorporated  and  Electrosource, Inc., being further  defined  in
        Exhibit 1, Project Proposal, Physical and Chemical Description  of
        Battery Electrode "Moss."

10.36   Project  Annex dated October 20, 1997 to the Development  Umbrella
        Agreement  dated  as  of  July  1, 1997  by  and  between  Corning
        Incorporated  and  Electrosource, Inc., being further  defined  in
        Exhibit 1, Project Proposal, Engineering Resources.

10.37   Project  Annex dated October 20, 1997 to the Development  Umbrella
        Agreement  dated  as  of  July  1, 1997  by  and  between  Corning
        Incorporated  and  Electrosource, Inc., being further  defined  in
        Exhibit   1,  Project  Proposal,  Characterization  of   Electrode
        Materials and Collector Grid Materials.

10.38   Severance    Agreement   between   officers/key   employees    and
        Electrosource, Inc. dated August 25, 1997.

10.39   Note  Purchase  Agreement for $2 million dated December  19,  1997
        between Electrosource, Inc. and Corning Incorporated

10.40   Purchase  Order  for  Horizon Batteries Pack  Development  Program
        between  Fiat  Auto  and Electrosource, Inc. dated  September  30,
        1996.

10.41   Frame-Development  Contract  dated  March  14,  1997  between  SMH
        Automobile S.A. and Electrosource, Inc.

10.42   Summary Contract Amendment Terms dated November 12, 1997 for Frame-
        Development  Contract dated March 14, 1997 between SMH  Automobile
        S.A. and Electrosource, Inc.

The  following  exhibits  filed under Paragraph 10  of  Item  601  are  the
Company's compensation plans and arrangements:

10.43   Form  of Director Indemnification Agreement (filed as Exhibit 10.8
        to  Electrosource, Inc., Annual Report on Form 10-K for the period
        ended December 31, 1987 and incorporated herein by reference).

10.44   Director Indemnification Agreement dated January 16, 1992  between
        Electrosource, Inc. and Charles Mathews (filed as Exhibit 10.26 to
        Electrosource,  Inc.  Annual Report on Form 10-K  for  the  period
        ended December 31, 1991 and incorporated herein by reference).

10.45   Director Indemnification Agreement dated November 4, 1992, between
        Electrosource, Inc. and Thomas S. Wilson (filed as  Exhibit  10.41
        to  Electrosource, Inc. Annual Report on Form 10-K for the  period
        ended December 31, 1992 and incorporated herein by reference).

10.46   Director Indemnification Agreement dated September 1, 1993 between
        Electrosource,  Inc. and Dr. Norman Hackerman  (filed  as  Exhibit
        10.57  to Electrosource, Inc. Annual Report on Form 10-K  for  the
        period  ended  December  31,  1993  and  incorporated  herein   by
        reference).

10.47   Director  Indemnification Agreement dated June  23,  1994  between
        Electrosource, Inc. and Michael G. Semmens (filed as Exhibit 10.72
        to  Electrosource, Inc. Annual Report on Form 10-K for the  period
        ended December 31, 1994 and incorporated herein by reference).

10.48   Director Indemnification Agreement dated November 2, 1994  between
        Electrosource,  Inc. and Richard S. Williamson (filed  as  Exhibit
        10.73  to Electrosource, Inc. Annual Report on Form 10-K  for  the
        period  ended  December  31,  1994  and  incorporated  herein   by
        reference).

10.49   Director  Indemnification Agreement dated June  22,  1995  between
        Electrosource,  Inc. and Nathan Morton (filed as Exhibit  10.2  to
        Electrosource, Inc. Quarterly Report on Form 10-Q for the  quarter
        ended June 30, 1995 and incorporated herein by reference).

10.50   Director  Indemnification Agreement dated June  22,  1995  between
        Electrosource, Inc. and William R. Graham (filed as  Exhibit  10.1
        to  Electrosource,  Inc. Quarterly Report on  Form  10-Q  for  the
        quarter ended June 30, 1995 and incorporated herein by reference).

10.51   Director  Indemnification Agreement dated March  3,  1997  between
        Electrosource, Inc. and Richard E. Balzhiser.

10.52   Director  Indemnification Agreement dated August 26, 1997  between
        Electrosource, Inc. and Earl E. Gjelde.

10.53   1987  Stock Option Plan of Electrosource, Inc. (filed as Annex  A,
        pages  44 to 48 of Electrosource, Inc. Information Statement filed
        October 16, 1987 and incorporated herein by reference).

10.54   Amendment  No. 1 to 1987 Stock Option Plan of Electrosource,  Inc.
        dated  February  19, 1992 (filed as Exhibit 4.3 to  Electrosource,
        Inc.  Registration Statement [No. 33-49049] on Form S-8 filed June
        30, 1992 and incorporated herein by reference).

10.55   Amendment  No. 2 to 1987 Stock Option Plan of Electrosource,  Inc.
        (filed  as  Exhibit 10.36 to Electrosource, Inc. Annual Report  on
        Form  10-K for the period ended December 31, 1992 and incorporated
        herein by reference).

10.56   1988  Non-Employee  Director Option Plan  of  Electrosource,  Inc.
        (filed   as   Exhibit  4.2  to  Electrosource,  Inc.  Registration
        Statement  [No.  33-22223] on Form S-8  filed  June  7,  1988  and
        incorporated herein by reference).

10.57   Amendment  No. 1 to 1988 Non-Employee Director Stock  Option  Plan
        (filed   as   Exhibit  4.3  to  Electrosource,  Inc.  Registration
        Statement  [No.  33-35856] on Form S-8 filed  July  12,  1990  and
        incorporated herein by reference).

10.58   Amendment  No. 2 to 1988 Non-Employee Director Stock  Option  Plan
        (filed   as   Exhibit  4.4  to  Electrosource,  Inc.  Registration
        Statement  [No.  33-49042] on Form S-8 filed  June  30,  1992  and
        incorporated herein by reference).

10.59   Amendment  No. 3 to 1988 Non-Employee Director Stock  Option  Plan
        (filed   as   Exhibit  4.4  to  Electrosource,  Inc.  Registration
        Statement  [No.  33-64108] on Form S-8  filed  June  9,  1993  and
        incorporated herein by reference).

10.60   1993  Non-Employee Consultant Stock Option Plan for Electrosource,
        Inc.  (filed  as  Exhibit 4.2 to Electrosource, Inc.  Registration
        Statement  [No.  33-65386] on Form S-8 filed  June  30,  1993  and
        incorporated herein by reference).

10.61   1994  Stock  Option Plan of Electrosource, Inc. (filed as  Exhibit
        10.4 to Electrosource, Inc. Quarterly Report on Form 10-Q for  the
        quarter ended June 30, 1995 and incorporated herein by reference).

10.62   1996  Stock Option Plan for Electrosource, Inc. (filed as  Exhibit
        4.2  to  Registration Statement [No. 333-31101] on Form  S-8   and
        incorporated herein by reference).

10.63   Consulting Agreement dated March 4, 1995 between Beacon  Advisors,
        Inc.  (Langhorne  Reid,  III) and Electrosource,  Inc.  (as  filed
        Exhibit  10.117 to Electrosource, Inc. Annual Report on Form  10-K
        for the period ended December 31, 1995 and incorporated herein  by
        reference).

10.64   Consulting Agreement dated January 1, 1996 between Jack J. Guy and
        Electrosource,  Inc.  (as filed Exhibit 10.118  to  Electrosource,
        Inc. Annual Report on Form 10-K for the period ended December  31,
        1995 and incorporated herein by reference).

24.1    Consent of Ernst & Young LLP

27.     Financial Data Schedule


(b)       Reports on Form 8-K.

          Reports  on Form 8-K filed during the quarter ended December  31,
          1997 were:

                December  23,  1997, Announcement of  $2,000,000  Note
                 Purchase Agreement with Corning Incorporated.


                           SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of  the
Securities  Exchange Act of 1934, the Registrant has duly  caused
this  report  to  be  signed on its behalf  by  the  undersigned,
thereunto duly authorized.

                                   ELECTROSOURCE, INC.


                                   By:   /s/ Michael G. Semmens
                                       Michael G. Semmens, President
Date:  March 30, 1998

      Pursuant to the requirements of the Securities Exchange Act
of  1934,  this  report has been signed below  by  the  following
persons on behalf of the Registrant and in the capacities and  on
the dates indicated.

       Signature                Title                          Date


/s/ Michael G. Semmens     Chairman, President and        March 30, 1998
Michael G. Semmens         Chief Executive Officer


                           Director                       March __, 1998
Richard E. Balzhiser


/s/ Earl E. Gjelde         Director                       March 20, 1998
Earl E. Gjelde


/s/ William R. Graham      Director                       March 23, 1998
William R. Graham


/s/ Norman Hackerman       Director                       March 24, 1998
Norman Hackerman


/s/ Charles L. Mathews     Director                       March 19, 1998
Charles L. Mathews


/s/ Nathan P. Morton       Director                       March 30, 1998
Nathan P. Morton


/s/ Richard S. Williamson  Director                       March 23, 1998
Richard S. Williamson


/s/ Thomas S. Wilson       Director                       March 23, 1998
Thomas S. Wilson



/s/ James M. Rosel         Vice President Finance         March 30, 1998
James M. Rosel             and General Counsel
                           (Chief Financial Officer)


/s/ Mary Beth Koenig       Treasurer and Controller       March 30, 1998
Mary Beth Koenig           (Principal Accounting Officer)


                        ELECTROSOURCE, INC.

                   Audited Financial Statements



                         December 31, 1997



Audited Financial Statements


     Report of Independent Auditors               F-2
     Balance Sheets                               F-3
     Statements of Operations                     F-4
     Statements of Shareholders' Equity           F-5
     Statements of Cash Flows                     F-6
     Notes to Financial Statements                F-7



                  REPORT OF INDEPENDENT AUDITORS



Shareholders and Board of Directors
Electrosource, Inc.


We  have  audited the accompanying balance sheets of Electrosource,
Inc.,  as of December 31, 1997 and 1996, and the related statements
of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997.  These financial
statements are the responsibility of the Company's management.  Our
responsibility  is  to  express  an  opinion  on  these   financial
statements based on our audits.

We  conducted  our  audits  in accordance with  generally  accepted
auditing  standards.   Those standards require  that  we  plan  and
perform the audit to obtain reasonable assurance about whether  the
financial statements are free of material misstatement.   An  audit
includes  examining,  on  a  test basis,  evidence  supporting  the
amounts and disclosures in the financial statements.  An audit also
includes  assessing the accounting principles used and  significant
estimates  made  by management, as well as evaluating  the  overall
financial  statement  presentation.  We  believe  that  our  audits
provide a reasonable basis for our opinion.

In our opinion,  the financial statements referred to above present
fairly,  in  all  material  respects,  the  financial  position  of
Electrosource, Inc. at December 31, 1997 and 1996, and the  results
of its operations and its cash flows for each of the three years in
the  period  ended December 31, 1997, in conformity with  generally
accepted accounting principles.

The  accompanying financial statements have been prepared  assuming
that  the Company will continue as a going concern.  As more  fully
described  in Note P, the Company has incurred recurring  operating
losses  and revenues have not resulted in sufficient cash  flow  to
sustain  operations.  Management's plans in regard to these matters
are  also  described in Note P.  These conditions raise substantial
doubt  about the Company's ability to continue as a going  concern.
The  financial statements do not include any adjustments to reflect
the   possible   future   effects   on   the   recoverability   and
classification  of  assets  or the amounts  and  classification  of
liabilities that may result from the outcome of this uncertainty.



                              /s/  Ernst & Young LLP


Austin, Texas
February 28, 1998, except for Note P,
   as to which the date is March 20, 1998



                               ELECTROSOURCE, INC.
                                 Balance Sheets

<TABLE>
                                                                           December 31
                                                                     1997                1996
ASSETS

CURRENT ASSETS
  <S>                                                                  <C>               <C>
  Cash and cash equivalents                                            $  782,918        $  367,861
  Trade receivables (net of allowance for doubtful accounts
     of $0 in 1997 and $15,599 in 1996)                                   408,230           247,631
  Inventories                                                             322,289           249,235
  Prepaid expenses and other assets                                       376,757           164,319
TOTAL CURRENT ASSETS                                                    1,890,194         1,029,046

PROPERTY AND EQUIPMENT, Net                                             4,164,459         4,787,019

INTANGIBLE ASSETS
  Technology license agreement                                          3,048,674         3,048,674
  Purchased technology                                                  2,412,886         2,412,886
  Less:  accumulated amortization                                     (3,600,213)       (2,607,093)
NET INTANGIBLE ASSETS                                                   1,861,347         2,854,467

RESTRICTED CASH                                                            81,604           744,824
OTHER ASSETS                                                                8,500            72,950
TOTAL ASSETS                                                           $8,006,104        $9,488,306

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                     $  518,808        $  704,841
  Accrued liabilities                                                   1,668,718         1,103,751
  Deferred revenue and advance payments on batteries                      432,599         1,157,028
  Current portion of capital lease obligations                             72,685           658,226
  Convertible notes payable                                               871,920           250,000
TOTAL CURRENT LIABILITIES                                               3,564,730         3,873,846

CONVERTIBLE NOTES PAYABLE (less current portion)                        2,800,554                 _
TECHNOLOGY LICENSE PAYABLE                                                      _         1,248,684
CAPITAL LEASE OBLIGATIONS (less current portion)                          148,518           519,047

COMMITMENTS AND CONTINGENCIES (Notes I, J and P)

SHAREHOLDERS' EQUITY
  Common Stock, par value $1.00 per share,
     authorized 50,000,000 shares; issued and outstanding
     4,534,531 in 1997 and 3,857,912 in 1996                            4,534,531         3,857,912
  Preferred Stock, par value $1.00 per share; authorized
     10,000,000 shares, no shares issued or outstanding                         _                 _
  Common Stock subscription receivable                                  (467,663)                 _
  Warrants (Note K)                                                             _                 _
  Paid in capital                                                      51,146,508        45,876,668
  Accumulated deficit                                                (53,721,074)      (45,887,851)
                                                                        1,492,302         3,846,729
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                             $8,006,104        $9,488,306

See notes to financial statements.
</TABLE>

                               ELECTROSOURCE, INC.
                            Statements of Operations

<TABLE>
                                               For the years ended December 31,
                                                   1997             1996                1995

REVENUES
  <S>                                             <C>              <C>                 <C>
  Battery sales                                   $  914,901       $  822,698          $ 1,195,597
  Project revenue                                  2,233,923          295,015              989,433
  Capacity maintenance revenue                             _        2,365,535                    _
  Interest income                                     94,849           79,263               93,354
  License fees                                             _                _            1,000,000
                                                   3,243,673        3,562,511            3,278,384

COSTS AND EXPENSES
  Manufacturing                                    3,448,677        3,661,320            9,365,660
  Selling, general and administrative              2,468,778        3,108,909            6,329,776
  Research and development                         2,490,677        1,450,658            3,454,578
  Technology license and royalties                   110,000          111,271              110,000
  Depreciation and amortization                    1,915,942        2,042,007            1,167,461
  Interest expense                                   453,506          487,717            3,238,954
  Loss on payment of capital lease                   189,316                _                    _
  Loss on disposal of equipment                            _          525,497                    _
                                                  11,076,896       11,387,379           23,666,429
LOSS BEFORE INCOME TAXES                         (7,833,223)      (7,824,868)         (20,388,045)

INCOME TAXES (ALL FOREIGN)                                 _                _              120,000

NET LOSS                                        $(7,833,223)     $(7,824,868)        $(20,508,045)

BASIC (AND DILUTED) LOSS PER SHARE              $     (1.91)     $     (2.13)        $      (9.76)

AVERAGE SHARES OUTSTANDING                         4,106,695        3,667,776            2,102,295

See notes to financial statements.
</TABLE>

                               ELECTROSOURCE, INC.
                       Statements of Shareholders' Equity
<TABLE>

                                                                      Common
                                                                       Stock                       Total
                                            Common       Paid In    Subscripti    Accumulated   Shareholder
                                             Stock       Capital        ons         Deficit         s'
                                                                    Receivable                    Equity

<S>                                        <C>         <C>             <C>       <C>             <C>
Balance at January 1, 1995                 $1,513,446  $15,356,043     $      _  $(17,554,938)   $ (685,449)

Shares issued in Regulation S offerings       372,164    4,987,836            _              _    5,360,000
Shares issued for Technology License           66,666    1,026,664            _              _    1,093,330
Stock options exercised                        11,950      131,595            _              _      143,545
Conversion of Convertible Notes Payable       617,123    7,266,104            _              _    7,883,227
Shares issued for consulting services         136,000    1,332,800            _              _    1,468,800
Shares issued in Regulation D offering         80,633      806,333            _              _      886,966
Shares issued for equipment and
  purchased technology                        215,800    2,778,425            _              _    2,994,225
Adjustment for conversion discount
  on Convertible Notes Payable                      _    2,603,250            _              _    2,603,250
Net loss for year ended December 31, 1995           _            _            _   (20,508,045)  (20,508,045
                                                                                                          )
Balance at December 31, 1995                3,013,782   36,289,050            _   (38,062,983)    1,239,849

Shares issued in Regulation S offerings       292,084    2,254,908            _              _    2,546,992
Conversion of Convertible Notes Payable       484,828    6,176,048            _              _    6,660,876
Conversion discount on
  Convertible Notes Payable                         _      141,750            _              _      141,750
Reverse Split - Fractional Shares
  (One-for-Ten)                                 1,353      (1,353)            _              _            _
Shares issued for Technology License           56,665      872,665            _              _      929,330
Shares issued for consulting services           6,000       58,800            _              _       64,800
Shares issued for equipment                     3,200       14,800            _              _       18,000
Stock options issued for
  consulting services                               _       70,000            _              _       70,000
Net loss for year ended December 31, 1996           _            _            _    (7,824,868)  (7,824,868)
Balance at December 31, 1996               $3,857,912  $45,876,668            _  $(45,887,851)   $3,846,729

Shares issued in Regulation D offering        109,397      545,453            _              _      654,850
Shares issued for Technology License           76,668    1,172,016            _              _    1,248,684
Shares issued for capital lease
  obligations and equipment purchases         127,500      708,945            _              _      836,445
Shares issued for operating lease
  and other obligations                       299,304      467,663    (467,663)              _      299,304
Shares issued for consulting services           6,000       58,800            _              _       64,800
Exercises of stock options and warrants        57,750      246,383            _              _      304,133
Stock options issued for technical
  and consulting services                           _      480,000            _              _      480,000
Stock options issued in conjunction
  with Convertible Notes Payable                    _    1,590,580            _              _    1,590,580
Net loss for year ended December 31, 1997           _            _            _    (7,833,223)  (7,833,223)
Balance at December 31, 1997               $4,534,531  $51,146,508   $(467,663)  $(53,721,074)   $1,492,302

See notes to financial statements.
</TABLE>

                               ELECTROSOURCE, INC.
                            Statements of Cash Flows

<TABLE>

                                                                   1997            1996          1995
OPERATING ACTIVITIES
<S>                                                              <C>           <C>           <C>
  Net loss                                                       $(7,833,223)  $(7,824,868)  $(20,508,045)
  Adjustments to reconcile net loss to net cash used
   in operating activities:
     Equity instruments issued for consulting services                544,800       134,800      1,468,800
     Depreciation of property, plant and equipment                    922,822     1,048,887        844,592
     Amortization of intangible assets                                993,120       993,120        322,869
     Amortization of discounts on convertible notes payable
       and deferred financing costs                                   188,728        48,349        104,891
     Interest expense paid in convertible notes payable
       or common stock                                                100,000       105,103        190,000
     Non-cash interest expense (conversion discount)                        _       141,750      2,603,250
     Loss on payment of capital lease                                 189,316             _              _
     Loss on disposal of equipment                                          _       575,497              _
     Decrease in deferred revenue                                           _             _    (1,000,000)
  Changes in operating assets and liabilities:
     (Increase) decrease in trade receivables                       (160,599)       288,118        942,562
     (Increase) decrease in inventories                              (73,054)       155,520      (173,099)
     (Increase) decrease in prepaid expenses and
        other assets                                                   86,865        80,814      (220,482)
     Increase (decrease) in accounts payable
        and accrued liabilities                                       378,934     (234,813)        240,130
     Increase (decrease) in deferred revenue and
        advance payments on batteries                               (724,429)     1,157,028              _
CASH USED IN OPERATING ACTIVITIES                                 (5,386,720)   (3,330,695)   (15,184,532)

INVESTING ACTIVITIES
  Purchases of property and equipment, net                          (134,458)     (384,069)    (3,640,537)
CASH USED IN INVESTING ACTIVITIES                                   (134,458)     (384,069)    (3,640,537)

FINANCING ACTIVITIES
  Proceeds from issuances of convertible notes payable
    and related warrants to purchase Common Stock                   5,000,000             _     12,780,000
  Payment of notes payable and capital lease obligations            (685,968)     (547,399)      (330,490)
  Proceeds from issuances of common stock, net                        958,983     2,546,992      6,390,511
  (Increase) decrease in restricted cash                              663,220             _      (744,824)
  Proceeds from sale and leaseback transactions                             _             _      1,998,064
  Debt issuance and lease financing costs                                   _             _    (1,378,450)
CASH PROVIDED BY FINANCING ACTIVITIES                               5,936,235     1,999,593     18,714,811

INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                    415,057   (1,715,171)      (110,258)

Cash and cash equivalents at beginning of period                      367,861     2,083,032      2,193,290

CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $ 782,918    $  367,861    $ 2,083,032

See notes to financial statements.
</TABLE>

                       NOTES TO FINANCIAL STATEMENTS
                            ELECTROSOURCE, INC.
                             December 31, 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization:   Electrosource, Inc. (the "Company") was incorporated  as  a
Delaware corporation on June 3, 1987.  The Company designs and manufactures
advanced lead-acid batteries for use in four major markets:  motive  power,
portable  power, power management, and starting applications.  The majority
of  revenue recognized through December 31, 1997, has been derived from the
development  and  sales  of  batteries for  electric  vehicles  and  hybrid
electric  vehicles to automotive manufacturers in the United States,  Italy
and Switzerland.

During  1993,  the  Company and BDM Technologies,  Inc.  ("BDM"),  under  a
strategic  alliance, formed Horizon Battery Technologies, Inc. ("HBTI")  in
order   to  establish  and  operate  a  limited  capability  facility   for
manufacturing  and producing advanced technology batteries.   Each  partner
maintained a 50% interest.  During 1994, the Company finalized a Technology
License Agreement with BDM and obtained an exclusive license to use certain
technologies under development by BDM for the manufacture of batteries.  In
addition,  the Company purchased BDM's interest in HBTI for 100,000  shares
of Common Stock.  (See also Note H.)

Cash and Cash Equivalents:  The Company's cash and cash equivalents consist
of  cash and short-term investments with a maturity of three months or less
when purchased.

Inventories:  Inventories are stated at the lower of cost (on  a  standard,
direct materials and direct labor cost basis) or market value.

Property and Equipment:  Property and equipment are recorded at cost.   The
Company  has  also capitalized equipment in accordance with  the  terms  of
related  leases.  Depreciation of property and equipment (including amounts
recorded  under  capitalized leases) is computed  using  the  straight-line
method  over  the  estimated useful lives of the assets or  the  respective
lease term, ranging from 3 to 10 years.

Technology  License Agreement and Purchased Technology:   The  Company  has
been  assigned  all  license  rights relating to  coextruded  wire  by  the
original  licensee.   (See  Note D.)  The cost of  this  license  is  being
amortized over the legal life of the patents on the technology (17  years).
The  patents  expire beginning in 2004.  On November 1, 1995,  the  Company
obtained  intellectual  property  rights (purchased  technology)  developed
under  a  Research and Development Agreement.  (See Note D.)  The  cost  of
this  purchased  technology is being amortized over  three  years.   On  an
ongoing  basis,  management reviews the valuation and amortization  of  its
intangibles,  taking  into consideration any events or circumstances  which
might have diminished their value.

Project  Revenue:   Projects  are accounted for  under  the  percentage  of
completion method, wherein revenue is recognized based on cumulative  costs
incurred  and  the  estimated cost to complete as  such  relates  to  total
contract price.  All costs are expensed as incurred and losses on contracts
are  estimated  and recognized when it becomes apparent a  loss  is  to  be
incurred.

Stock  Compensation:   The  Company accounts  for  its  stock  compensation
arrangements  under the provisions of APB 25, "Accounting for Stock  Issued
to Employees."

Basic  and  Diluted Loss Per Share:  Basic and diluted loss  per  share  is
based  on  the average number of shares of common stock outstanding  during
each  period.   Since  the Company has experienced  net  operating  losses,
outstanding  options  and  warrants  to  purchase  common  stock  have   an
antidilutive  effect.   Therefore,  such  options  and  warrants  were  not
included in the diluted loss per share calculation.

In  1997,  the  Financial Accounting Standards Board  issued  Statement  of
Financial  Accounting Standards No. 128, Earnings Per Share  ("SFAS  128").
Under  SFAS 128, the dilutive effect of stock options, warrants and similar
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

securities is excluded in computing basic earnings (loss) per share.  Since
the  Company  has reported net losses in prior periods, SFAS  128  did  not
impact the Company's prior reported loss per share amounts.  The method  of
calculating   fully   diluted  earnings  per  share  remained   essentially
unchanged.

Business  Segments:  The Company is engaged in the manufacture of  advanced
lead-acid,  rechargeable storage batteries and the development  of  related
processes  and technologies.  Accordingly, the Company considers itself  to
be operating in one business segment.

In  June 1997, the Financial Accounting Standards Board issued Statement of
Financial  Accounting Standards No. 131, Disclosures about Segments  of  an
Enterprise  and  Related Information ("SFAS 131").   SFAS  131  establishes
standards  for the way that public business enterprises report  information
about  operating segments in annual financial statements and requires  that
those  enterprises report selected information about operating segments  in
interim  financial  reports.   It also establishes  standards  for  related
disclosures  about  products  and  services,  geographic  areas  and  major
customers.  SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt the
new  requirements retroactively in 1998.  Management has not completed  its
review  of  SFAS  131, but does not anticipate that the  adoption  of  this
statement  will  have  a  significant  effect  on  the  Company's  reported
segments.

Comprehensive  Income:   In June 1997, the Financial  Accounting  Standards
Board  issued  Statement 130, Reporting Comprehensive Income ("SFAS  130").
SFAS   130  establishes  new  rules  for  the  reporting  and  display   of
comprehensive  income and its components.  Management  does  not  currently
expect  that the adoption of this statement will have a material effect  on
the Company's financial statements.

Income  Taxes:   The  Company reports income taxes in accordance  with  the
Financial  Accounting  Standards Board's Statement of Financial  Accounting
Standards  No. 109, "Accounting for Income Taxes" ("SFAS 109").   SFAS  109
requires  that deferred tax assets and liabilities be determined  based  on
the  difference between the financial statement and tax bases of assets and
liabilities  using enacted tax rates in effect for the years in  which  the
differences are expected to reverse.

Use  of  Estimates:  The preparation of financial statements in  conformity
with  generally accepted accounting principles requires management to  make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  Actual results could differ from  those
estimates.

Reclassification:  Certain reclassifications have been  made  to  the  1996
financial statements to conform with the 1997 presentation.


NOTE B - INVENTORIES

                                            1997           1996
      Raw materials                       $172,469      $151,841
      Work in progress                      79,774        31,406
      Finished goods                        70,046        65,988
                                          $322,289      $249,235




NOTE C - PROPERTY AND EQUIPMENT

                                            1997            1996
      Office equipment                 $   785,529     $   751,342
      Production and lab equipment       5,317,729       5,062,475
      Leasehold improvements             1,301,018       1,290,197
                                         7,404,276       7,104,014
      Less - accumulated
      depreciation and amortization     (3,239,817)     (2,316,995)

      Total Property and Equipment      $4,164,459      $4,787,019

Production  equipment of $377,780 has been capitalized in  accordance  with
the terms of related leases at December 31, 1997.  Accumulated depreciation
for such equipment was $173,388 at December 31, 1997.


NOTE D - INTANGIBLE ASSETS

Technology License Agreement
At  its  inception,  the Company obtained an exclusive sublicense  for  the
development, manufacture and commercial exploitation of coextruded wire for
lead-acid  battery  applications.   The  Company  is  responsible  for  the
maintenance and administration of the licensed patent and has an obligation
to  pay  the  original licensee a royalty of four percent on all technology
sales unrelated to lead-acid, storage batteries for the term of the License
Agreement.  The Company is obligated to pay the licensor a royalty of  one-
half  of  one  percent  of net sales of coextruded  wire  and  wire-related
products, with a minimum annual royalty of $100,000.

Purchased Technology
In  November,  1995,  the  Company completed  a  research  and  development
agreement  with  the  Electric  Power  Research  Institute  ("EPRI").    In
accordance  with the terms of a November 1995 amendment to  the  agreement,
the  Company  issued  215,800 shares of Common Stock in  exchange  for  the
transfer  of  intellectual property rights (purchased technology)  and  the
transfer of title to certain equipment which had been purchased by EPRI  in
connection  with research activity undertaken by the Company.   The  shares
were valued at $2,994,225; recorded as $581,339 to equipment and $2,412,886
to  purchased  technology.  In addition, pursuant  to  the  terms  of  such
agreement,  certain  member  utilities of  EPRI  have  elected  to  receive
royalties  which result in the payment of royalties by the Company  at  the
rate  of  one-tenth of one percent on sales of products containing licensed
technology and on other revenues derived by the Company from license  fees,
joint ventures and other arrangements involving the licensed technology.


NOTE E - RESTRICTED CASH

In  connection with lease transactions completed during 1995,  the  Company
was  required  to  collateralize the obligations  by  establishing  standby
letters-of-credit  in  the  amount of $744,824.   Certain  of  these  lease
obligations  were  satisfied in 1997, and the related letters-of-credit  in
the  amount of $663,220 were released.  (See Note I.)  Outstanding letters-
of-credit  at  December  31,  1997 are collateralized  by  certificates  of
deposit of an equal amount.


NOTE F - ACCRUED LIABILITIES

                                           1997            1996

      Payroll and related items           $  336,461     $  240,030
      Due to BDM (occupancy related)         614,875        407,269
      Other                                  717,382        456,452
                                          $1,668,718     $1,103,751


NOTE G - CONVERTIBLE NOTES PAYABLE

Convertible Notes Payable consist of the following:

                                              1997               1996

      Convertible Notes - 5%                $5,100,000        $       _
      Convertible Notes - 10%                        _          250,000
                                             5,100,000          250,000
      Less:  Discount                       (1,427,526)
      Convertible Notes Payable,
      net of discount                       $3,672,474         $250,000

The  composition of the current and long-term portion of Convertible  Notes
Payable at December 31, 1997 is as follows:

                                     Total           Current       Long-Term

Convertible Notes - Principal         $5,100,000     $1,000,000    $4,100,000
Less:  Discount                       (1,427,526)      (128,080)   (1,299,446)
Convertible Notes Payable, net        $3,672,474       $871,920    $2,800,554
of discount


In  March  1997,  the  Company  entered into a  Note  Purchase  and  Option
Agreement and a Convertible Promissory Note and Stock Option Agreement (the
"Agreements")  with  Corning Incorporated ("Corning") for  proceeds  of  $4
million.  The 5% Convertible Note is for $4,000,000 ("$4 Million Note"), is
unsecured and matures on March 26, 2002.  Interest is payable semi-annually
in  cash  or in kind at the option of the Company.  The $4 Million Note  is
convertible into Common Stock at a conversion price of $5.50 per share.   A
note  payable  in the amount of $100,000 was issued in September  1997  for
interest  for the six months then ended with the same terms and  conditions
as  the  $4  Million Note.  Under the Agreements, the Company also  granted
Corning a warrant to purchase up to 275,000 shares of Common Stock at $7.00
per share and a warrant to purchase up to 225,000 shares of Common Stock at
$9.00 per share ("Corning Warrants").  The Corning Warrants are exercisable
until  March  1999.   The  fair market value of the Corning  Warrants  were
estimated to be $1,462,500, using the Black-Scholes option valuation model.
This  amount was recorded as a discount on the note and is being  amortized
to interest expense over the term of the $4 Million Note.

In  December 1997, the Company issued a 5% Convertible Note for  $2,000,000
("$2  Million  Note")  to  be drawn as follows:  $1,000,000  on  or  before
December  19, 1997; $500,000 on or before January 24, 1998 and $500,000  on
or  before  February 24, 1998.  $1,000,000 was drawn on December 19,  1997,
$500,000  on  January 23, 1998 and $500,000 on February 23, 1998.   The  $2
Million Note is unsecured and matures on December 19, 1998.  The $2 Million
Note is convertible into Convertible Preferred Stock or Common Stock.   The
$2  Million  Note  is convertible into 200,000 shares of the  Company's  5%
Cumulative  Convertible  Preferred Stock, which is  then  convertible  into
Common Stock at a conversion price of $4.06 per share.  The $2 Million Note
is  convertible directly into Common Stock at a conversion price  of  $3.56
per  share.  In conjunction with the issuance of the $2 Million  Note,  the
Company  agreed to reduce the exercise price of the Corning  Warrants  from
$7.00 and $9.00 per share to $4.00 and $6.00 per share, respectively.  This
increased  the  estimated  fair market value of  the  Corning  Warrants  by
$128,080 using the Black-Scholes option valuation model.  This increase  in
value  was  recorded  as a discount on the note and is being  amortized  to
interest  expense  over  the  term of the $2 Million  Note.   The  combined
effective  interest  rate  of  the  $2 Million  and  $4  Million  Notes  is
approximately 15%.  Because of the complexity of determining the  value  of
the  conversion  features of the $4 Million and $2 Million  Notes  and  the
related  cost  which would be incurred to obtain an expert  valuation,  the
Company  believes it impracticable to determine the fair value  of  the  $4
Million and $2 Million Notes.


G - CONVERTIBLE NOTES PAYABLE (CONTINUED)

In  April 1995, the Company issued $6,000,000 of 10% Convertible Debentures
(the  "April 1995 Debentures") resulting in net proceeds to the Company  of
$5,375,000.   The April 1995 Debentures were convertible into Common  Stock
at  a  conversion price equal to 80% of the average closing  price  of  the
Common Stock for the five business days immediately preceding such time  as
the  debentures were converted and matured on April 12, 1997.  During 1995,
April  1995  Debentures with a total principal amount  of  $5,750,000  were
converted  into 379,548 shares of Common Stock.  The remaining $250,000  of
April  1995 Debentures matured on April 12, 1997, and was paid in  cash  by
the Company.

Cash interest paid by the Company was approximately $128,000, $241,000  and
$342,000 in 1997, 1996 and 1995, respectively.


NOTE H - TECHNOLOGY LICENSE PAYABLE

Through  its  funding  to  HBTI  for development  of  a  low  rate  initial
production  line for the Horizon battery, BDM owned the rights  to  certain
technologies  for  the  manufacture of such batteries.   During  1994,  the
Company finalized a Technology License Agreement with BDM.  Under the terms
of this agreement, the Company obtained an exclusive license to use certain
technologies  under  development by BDM for the manufacture  of  batteries.
The Company agreed to pay BDM: $80,000 cash; issue 170,000 shares of Common
Stock  in thirty-six equal installments; issue 20,000 additional shares  of
Common  Stock  if  the Company decided to maintain the license  beyond  the
original  three year term; grant 100,000 options to purchase  Common  Stock
exercisable  at $40.00 per share expiring in January 1998;  and  buy  BDM's
interest  in HBTI for 10,000 shares of Common Stock.  The Company  recorded
an  expense  of $3,819,350 in 1994 for this transaction based on  the  fair
market  value  of  the  various components of the  transaction.   This  was
treated as an expense as the technological feasibility of the manufacturing
technology licensed had not been completely proven and the Company at  that
time  had  no alternative future uses for this technology.  As of  December
31,  1997,  all shares of stock had been issued to BDM under the  terms  of
this agreement and the technology license payable was satisfied.


NOTE I - LEASE AND OTHER COMMITMENTS

The  Company  leases various plant and office facilities,  and  production,
office  and warehouse equipment under operating and capital leases expiring
between  1997  and  2003.   Future  minimum  annual  rentals  under   lease
arrangements at December 31, 1997 are as follows:

                                      Capital Leases
                                            Sale/                   Operating
       Fiscal Year             Total      Leaseback      Other       Leases
                                              s

1998                           $95,091       $90,576     $4,515      $ 899,898
1999                            90,576        90,576          _        471,070
2000                            75,480        75,480          _        400,934
2001                                 _             _          _        365,000
2002                                 _             _          _        420,000
Thereafter                           _             _          _              _
                               261,147       256,632      4,515     $2,556,902
Less imputed interest         (39,944)      (39,717)      (227)
Present value of              $221,203      $216,915     $4,288
capital lease obligations

The  Company's  monthly rental rate on its 88,000 square foot  facility  is
approximately $25,000 per month, expiring in November 2003.  The  Company's
obligations under this lease are guaranteed by BDM.  The Company

NOTE I - LEASE AND OTHER COMMITMENTS (CONTINUED)

has  agreed to purchase the facility or otherwise remove BDM as a guarantor
of  the  lease  by no later than April 1, 1998.  In the event  the  Company
shall  not have purchased the facility or removed BDM as guarantor by  this
date,  then  the  Company  will give notice to cancel  the  facility  lease
effective September 30, 1998.

During  1997,  the Company issued 127,500 shares of Common  Stock  to  Ally
Capital  Corporation ("Ally") on behalf of its assignees as prepayment  for
capital  lease obligations owed by the Company.  The shares were valued  at
$867,000  based upon the quoted market price of the stock on the  date  the
agreement to issue the 127,500 shares was signed.  The shares were sold  by
Ally on behalf of its assignees, and the proceeds were used to satisfy  the
lease  obligations (approximately $550,000) and to exercise the  option  to
purchase the equipment for approximately $165,000.  Additionally, a loss of
$189,316  was  recorded  upon the completion of this  transaction  and  the
payment  of  the  capital lease.  Upon payment of these lease  obligations,
letters  of  credit for $663,220 which collateralized the lease obligations
were  canceled  and  certificates  of  deposit  of  an  equal  amount  that
collateralized the letters of credit were released.

Rental expense for operating leases for the years ended December 31,  1997,
1996   and   1995  was  approximately  $898,000,  $824,000  and   $858,000,
respectively.   Sublease  rental  income  of  approximately  $119,000   was
received   in   1997.   Future  minimum  rentals  to  be   received   under
noncancelable subleases were $185,000 at December 31, 1997.

Other  leased  equipment  is collateralized by a  letter-of-credit  in  the
amount of $81,604.

In  December 1997, the Company issued 299,304 shares of Common Stock to BDM
as  partial payment for past obligations owed to BDM for occupancy  related
costs  ($314,875,  which the Company has accrued) and as  prepayment  under
operating  leases for manufacturing equipment which are guaranteed  by  BDM
($452,092).  The number of shares issued was determined based on  the  fair
market  value of the shares at the date of the agreement ($2.56 per share).
When the shares are sold by BDM, the proceeds will be used to satisfy these
past  and future obligations.  If the proceeds from the sale of such shares
are  not  sufficient  to satisfy the obligations, the  Company  will  issue
additional  shares  of  Common Stock or pay cash to  BDM  to  make  up  the
deficiency.   BDM  has agreed to accept a minimum of  $1.00  per  share  or
$299,304 for the shares issued.  BDM will retain any overage from the  sale
of such shares in excess of the amounts owed. The Company has agreed to pay
$300,000 to BDM (for the remaining unpaid occupancy related costs which the
Company  has  also accrued) from the proceeds received from any fundraising
activities  completed by the Company before March 31,  1998  in  excess  of
$5,000,000.   The Company recorded the shares issued to BDM at fair  market
value  on  the date of the agreement ($766,967) and recorded a subscription
receivable  for the difference between the fair market value of the  shares
and  the  minimum  value for such shares accepted  by  BDM  which  will  be
recorded  as  permanent equity upon final determination of  the  number  of
shares to be issued.


NOTE J - CONTINGENCIES

In   1994,   the  Company  signed  a  "Know-How  License  Agreement"   (the
"Agreement") with Horizon Battery Technologies, Ltd. ("HBTL"),  of  Bombay,
India,   calling  for  the  completion  of  several  detailed   subordinate
agreements with the ultimate purpose to license the manufacture and sale of
batteries  in  India.  The effectiveness of the Agreement  was  conditioned
upon  the  subsequent  execution of these six related agreements,  none  of
which  were executed.  The Company believes, therefore, the Agreement never
became  effective  and has no force or effect.  Separately  in  1995,  HBTL
agreed  to pay the Company $250,000 for a Preliminary Design Review ("PDR")
for  a  potential  manufacturing facility in India which  was  required  to
complete  one of the subordinate agreements.  The Company received $100,000
from  HBTL and completed the PDR in 1995.  The remaining $150,000 was never
paid by HBTL, in spite of repeated demands by the Company.

In  September  1996, the Company received a demand from HBTL  to  arbitrate
damage claims for alleged breach of the Agreement.  HBTL claimed damages of
approximately $5.1 million for its expenses and lost profits related to

NOTE J - CONTINGENCIES (CONTINUED)

the  Agreement.   The  Company  disputes the claim  for  damages  and  will
vigorously  defend  any  action taken by HBTL to pursue  the  claims.   The
Company  also  filed  a  petition in State Court in Travis  County,  Texas,
seeking, among other things, a declaratory judgment that HBTL had no  right
to arbitration or monetary relief.  HBTL contested jurisdiction and removed
the proceedings to the U.S. Federal Courts.  The Federal District Court  to
which  the  action  was  removed  ruled  that  it  did  not  have  personal
jurisdiction  over HBTL and therefore had no power to hear the  case.   The
Company filed an appeal in the U.S. Fifth Circuit Court of Appeals from the
final judgment and rulings in the District Court.  A decision on the appeal
is  expected in three to six months.  No liability has been recorded in the
financial  statements  at  December  31,  1997  for  this  uncertainty   as
management is unable to determine the likelihood of an unfavorable  outcome
of  this matter or to estimate the amount or range of potential loss should
the  outcome  be unfavorable.  The resolution of this matter could  have  a
material adverse effect on the financial position of the Company.

The  Company is also involved in certain other contingencies incidental  to
its  business.   While  the  ultimate results of these  matters  cannot  be
predicted  with  certainty,  management does not  expect  them  to  have  a
material adverse effect on the financial position of the Company.

Trade  receivables  are composed of balances due from  a  limited  customer
base.  Although the Company has a concentration of credit risk, the Company
has  not  experienced significant collection losses from  these  respective
customers.

Activity in the Company's allowance for doubtful accounts was as follows:

                                        Additions
                               Balance    Charged   Charged  Write-Off   Balance
                                  at     to Costs     to         of      at End
         Description           Beginni      and      Other   Uncollecti    of
                                  ng      Expense   Account     ble      Period
                                  of                   s      Accounts
                                Period

Year ended December 31, 1997    $15,599  ($15,599)    - 0 -       - 0 -    - 0 -

Year ended December 31, 1996    $36,223    $15,599    - 0 -   $(36,223)  $15,599

Year ended December 31, 1995     $7,500   $278,653    - 0 -  $(249,930)  $36,223



NOTE K - SHAREHOLDERS' EQUITY

Reverse Stock Split
On  June 26, 1996, the Company's shareholders approved an amendment to  the
Company's Restated Certificate of Incorporation that effected a one-for-ten
reverse stock split.  Pursuant to this amendment, each ten shares of Common
Stock  outstanding  immediately prior to the reverse split  ("Old  Shares")
were reclassified as one share of new Common Stock ("New Shares").  The par
value  per  share  of the Common Stock was correspondingly  increased  from
$0.10  per share to $1.00 per share.  No fractional New Shares were  issued
as  a result of the reverse split.  In lieu thereof, each shareholder whose
Old  Shares  were not evenly divisible by ten received one  additional  New
Share for the fractional New Share that such shareholder would otherwise be
entitled to have received as a result of the reverse split.  All references
in  the  financial  statements to share and per  share  amounts  have  been
restated to retroactively reflect the reverse split.

In  1997,  the  Company sold 109,397 shares of Common Stock (combined  with
warrants to purchase Common Stock at prices ranging from $5.25 to $7.56 per
share) for net proceeds of approximately $655,000.

NOTE K - SHAREHOLDERS' EQUITY (CONTINUED)

Stock Option Plans
The  Company has elected to follow Accounting Principles Board Opinion  No.
25,  "Accounting  for  Stock Issued to Employees" ("APB  25")  and  related
Interpretations  in accounting for its employee stock options  because,  as
discussed  below, the alternative fair value accounting provided for  under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use  of  option valuation models that were not developed for use in valuing
employee  stock options.  Under APB 25, because the exercise price  of  the
Company's  employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

The  Company  has one stock option plan, the 1996 Stock Option Plan  ("1996
Plan"),  which  received  shareholder approval  in  1997.   The  1996  Plan
provides  for  the  grant/award  of options  to  employees,  directors  and
consultants at the discretion of the Compensation/Stock Option Committee to
purchase shares of the Company's Common Stock at a price not less than 100%
of the market price of such stock on the date the option is granted.  These
options  generally become exercisable in three stages beginning six  months
after  the date of grant and expire up to ten years from the date of grant.
Upon  approval of the 1996 Plan, all outstanding options under the  various
stock option plans previously in place were canceled and reissued under the
1996  Plan  at  the same price and vesting schedule.  All  preceding  stock
option  plans  were terminated.  The 1996 Plan approved by the shareholders
increased  the  number of shares previously authorized under then  existing
plans by 588,165 shares to 960,000 shares.

During  1996, the Compensation/Stock Option Committee approved the creation
of  the  1996  Plan as well as the cancellation of options under  preceding
stock  option plans and the reissuance of such options under the 1996 Plan.
Additionally, the Compensation/Stock Option Committee approved  the  grants
of  options to purchase 219,972 shares during 1996.  All such actions  were
pending shareholder approval of the 1996 Plan, which was received in  1997.
Accordingly,  the information below has been restated for 1996  to  reflect
the subsequent approval of the 1996 Plan by the shareholders.

Pro forma information regarding net loss and loss per share is required  by
FASB  Statement 123 and has been determined as if the Company had accounted
for  its  employee  stock  options under the  fair  value  method  of  that
Statement.  The fair value for these options was estimated at the  date  of
grant  using  a  Black-Scholes  option pricing  model  with  the  following
weighted-average  assumptions for 1997, 1996 and 1995, respectively:  risk-
free  interest  rates  of  5.3%,  6.0% and  6.1%;  dividend  yield  of  0%;
volatility  factors  of the expected market price of the  Company's  common
stock  of  .80, 1.0 and .93; and a weighted-average expected  life  of  the
option of five years.

The  Black-Scholes  option  valuation  model  was  developed  for  use   in
estimating  the  fair  value  of  traded  options  which  have  no  vesting
restrictions  and  are fully transferable.  In addition,  option  valuation
models  require  the input of highly subjective assumptions  including  the
expected  stock  price  volatility.  Because the Company's  employee  stock
options  have characteristics significantly different from those of  traded
options,  and  because  changes  in the subjective  input  assumptions  can
materially  affect  the fair value estimate, in management's  opinion,  the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

For  purposes  of pro forma disclosures, the estimated fair  value  of  the
options  is  amortized to expense over the options'  vesting  period.   The
Company's pro forma information follows:




                                    1997             1996            1995

Pro forma stock-based              $1,320,661        $ 716,989     $ 422,610
 compensation expense
Pro forma net loss                  9,153,884        8,541,857    20,930,655
Pro forma loss per share                 2.23             2.33          9.96

NOTE K - SHAREHOLDERS' EQUITY (CONTINUED)

The effects of applying Statement No. 123 for pro forma disclosures are not
necessarily indicative of future amounts due to the prospective adoption of
FASB Statement No. 123's effects on reported net income for future years.

A  summary of changes in common stock options during 1995, 1996 and 1997 is
as follows:

                                                                      Weighted-
                                                       Range of        Average
                                                       Exercise       Exercise
                                        Shares        Prices ($)      Price ($)

Options outstanding January 1, 1995       199,285     10.60 - 46.25       29.31
     Granted                               75,500     13.72 - 33.75       25.06
     Exercised                           (11,950)     10.60 - 23.10       12.01
     Surrendered                         (24,900)     18.75 - 35.00       31.07
Options outstanding December 31, 1995     237,935     10.60 - 46.25       28.65
     Granted                              596,676      5.28 - 37.50       13.73
     Exercised                                  _                 _           _
     Surrendered                        (338,846)      5.28 - 46.25       23.62
Options outstanding December 31, 1996     495,765      5.28 - 37.50       14.13
     Granted                              298,131     2.94 -   7.75        6.79
     Exercised                           (31,500)              5.28        5.28
     Surrendered                         (28,100)      5.28 - 35.00        9.50
Options outstanding December 31, 1997     734,296      2.94 - 37.50       11.71

Options exercisable, December 31,
     1995                                 132,602     10.60 - 46.25       27.01
     1996                                 181,880      5.28 - 37.50       21.80
     1997                                 525,145      2.94 - 37.50       13.37

The  weighted-average fair value of options granted during 1997,  1996  and
1995 was $4.60, $4.49 and $15.58 per share, respectively.

A  summary of option information by exercise price as of December 31,  1997
follows:

                         Total Options Outstanding               Currently
                                                                Exercisable
                                          Weighted-
                            Weighted-      Average                  Weighted-
                  Number     Average      Remaining      Number      Average
   Exercise         of       Exercise     Contractua       of        Exercise
  Price ($)       Options     Price           l         Options       Price
                                             Life
   2.94 - 4.91        900        $3.92         9.50          450         $4.91
          5.28    191,498         5.28         8.83      191,498          5.28
   5.29 - 6.87     76,625         6.35         9.55       32,625          6.43
          6.94    205,200         6.94         9.48       68,681          6.94
  7.00 - 11.60     74,825        10.92         8.87       59,157         10.74
 12.50 - 23.10     74,348        14.65         8.83       61,834         14.90
 27.50 - 35.00     98,900        33.59         8.83       98,900         33.59
 36.25 - 37.50     12,000        36.98         8.83       12,000         36.98
  2.94 - 37.50    734,296       $11.71         9.09      525,145        $13.37

NOTE K - SHAREHOLDERS' EQUITY (CONTINUED)

Warrants
The  Company has issued numerous warrants associated with various debt  and
equity  financings  and  other  agreements with  varying  expiration  dates
through 2005.

The Company entered into a technical development agreement with Corning  in
September  1997  to  jointly  improve the  Company's  products,  production
processes  and automation.  The Company paid Corning for such  services  by
issuing  warrants at agreed upon values and exercise prices.   The  Company
expensed  the  warrants  issued in 1997 at their estimated  fair  value  of
approximately $400,000.  Work under the technical development agreement  is
expected to continue throughout 1998.

The  following table represents a summary of warrant activity for the three
years ended December 31, 1997:

                                                               Price Per
                                             Warrants         Warrant ($)

Warrants outstanding January 1, 1995              48,550       25.00 - 55.00
     Issued                                      345,873       15.30 - 40.00
Warrants outstanding December 31, 1995           394,423       15.30 - 55.00
     Issued, Exercised or Expired                      0                   0
Warrants outstanding December 31, 1996           394,423       15.30 - 55.00
     Issued                                    1,277,383        4.00 -  9.00
     Exercised                                  (26,250)                5.25
     Expired                                    (56,499)       16.13 - 55.00
Warrants outstanding December 31, 1997         1,589,057        4.00 - 50.00

Reserved Shares
At December 31, 1997, shares of the Company's Common Stock were reserved as
follows for issuance under:

      Stock option plans                                        928,500
      Exercise of warrants                                    1,589,057
      Conversion of Convertible Notes Payable                 1,026,157
                                                              3,543,714


NOTE L - REVENUE

Project
In  August  1994,  Chrysler awarded the Company a  $1,600,000  contract  to
custom  fit  the  Horizon battery to prototypes of Chrysler's  NS  electric
minivan.   The  Company  completed  the contract  in  1995  and  recognized
approximately  $778,000 in project revenue under this  agreement  in  1995.
During   1996   and  1997,  the  Company  generated  project   revenue   of
approximately  $115,000  and  $645,000,  respectively,  from  Chrysler  for
various environmental and other tests performed on the Horizon battery.

The  majority  of  the  remaining  project revenue  generated  during  1997
(approximately  65%)  was  from SMH Automobile S.A.  ("SMH"),  the  Defense
Advanced  Research  Projects  Agency  ("DARPA")  and  Fiat  Auto  for   the
development and/or evaluation of batteries for hybrid vehicle and  electric
vehicle  applications.  SMH is located in Switzerland, DARPA in the  United
States and Fiat Auto in Italy.

Capacity Maintenance
In  July  1996,  the Company received a $3,000,000 payment  from  Chrysler.
Chrysler  designated  $2,366,000  of  this  payment  as  compensation   for
continued capacity maintenance and ramp-up costs incurred by the Company in
NOTE L - REVENUE (CONTINUED)

relation  to  its  role  as a supplier to the automaker  for  its  electric
vehicle EPIC Minivan Program and $634,000 for various engineering, research
and   development  (ER&D)  efforts.   During  1996,  the  Company  recorded
$2,366,000
as  income  as  all tasks necessary to earn the income were  performed  and
there  were  no further obligations related to such revenue.   The  Company
recorded  $634,000 as deferred revenue which was recognized  in  income  in
1997 as the ER&D tasks were performed.

Batteries
Approximately 56% of the Company's 1997 battery sales and 50% of  1996  and
1995  battery sales were to Chrysler.  In December 1997, Chrysler announced
its decision to use nickel-metal-hydride batteries made by a competitor  in
its  EPIC  Minivan.  In February 1998, the Company received a $1.4  million
purchase  order  from  Chrysler for batteries.  Chrysler's  purchase  of  a
significant of number additional batteries from the Company beyond the $1.4
million order is uncertain.


NOTE M - INCOME TAXES

Deferred  income taxes reflect the net tax effects of temporary differences
between  the  carrying  amount  of assets  and  liabilities  for  financial
reporting   purposes  and  the  amounts  used  for  income  tax   purposes.
Significant components of the Company's deferred tax asset at December  31,
1997 and 1996 are as follows:

                                                      1997            1996
Deferred Tax Assets:
  Net operating loss and other tax carry-forwards   $14,784,032     $11,432,000
  Book depreciation in excess of tax depreciation     1,925,827         576,000
  Inventory, accruals and other                         954,350         730,000
Total deferred tax assets                            17,664,209      12,738,000
Less valuation allowance                            (17,664,209)    (12,738,000)
   Deferred tax assets, net                         $         _      $        _

The  reconciliation  of  income tax computed at the United  States  federal
statutory tax rates to income tax expense for the years ended December  31,
1997, 1996 and 1995 are as follows:

                                           1997         1996          1995
Income tax benefit at statutory U.S.
  federal income tax rate                   (34.0%)      (34.0%)       (34.0%)
Increase in valuation allowance              34.0%        34.0%         35.6%
Other                                         0.0%         0.0%         (0.9%)
Effective income tax rate                     0.0%         0.0%          0.7%

The  Company's  valuation  allowance increased by  $4.9  million  and  $2.2
million  during 1997 and 1996, respectively, primarily as a result  of  net
operating  losses  which  were generated but may  not  be  realizable.   At
December  31,  1997,  the Company had net operating loss  carryforwards  of
approximately  $42  million,  which will expire  from  2002  through  2012,
research and development credits of approximately $400,000 and foreign  tax
credits of approximately $200,000 which expire beginning in 2002 and  1999,
respectively.   Ownership changes as defined in the Internal  Revenue  Code
have  resulted  in  utilization of the Company's net operating  losses  and
other  tax attributes being limited if the Company generates taxable income
in the future.





NOTE N - RELATED PARTY TRANSACTIONS

During  1995,  the Company entered into agreements with a director  of  the
Company  for the development of certain machinery and materials as well  as
general  consulting.  The Company paid $32,000, $103,000 and $17,000  under
such agreements in 1997, 1996 and 1995, respectively.  The Company may also
purchase  machinery  developed in accordance with  this  agreement  at  its
option  for  an  additional  fee.  During  1997,  the  Company  also  began
purchasing  certain  raw  materials from the director.   The  Company  paid
$65,000  for  such  materials during 1997.  In addition,  the  Company  has
leased  approximately  4,000  square feet in the  director's  manufacturing
facility  for  a  monthly  cost of $400 and  has  paid  $4,800  under  such
agreement during 1997.


NOTE O - EMPLOYEE BENEFIT PLAN

The  Company  sponsors a qualified defined contribution plan  covering  all
full-time eligible employees.  The Company matches twenty-five percent of a
participant's voluntary contributions up to a maximum of four percent of  a
participant's  compensation.   The  Company's  contribution   expense   was
approximately  $33,000,  $18,000  and  $20,000  in  1997,  1996  and  1995,
respectively.


NOTE P - ABILITY TO CONTINUE AS A GOING CONCERN

During 1997, management continued to focus attention on relationships  with
customers,  sales  of  production batteries and  development  of  prototype
batteries for a variety of electric vehicle, hybrid electric vehicle,  lawn
and  garden,  electric scooter, aircraft starting and  other  applications.
Strategic alliances were also sought to aid penetration of target  markets,
improve battery development and manufacturing and to provide funds to cover
operating  losses.  The development work has taken longer than anticipated,
commercial  battery sales have been delayed and to date such  efforts  have
not resulted in sufficient cash flow to sustain operations.  Therefore,  in
February  1998,  the  Company cut its work force by  approximately  40%  to
reduce  costs.  Management anticipates that such reductions  in  cost  will
allow  the Company additional time to explore strategic alternatives,  such
as  a  business combination, sale of assets or a strategic alliance as well
as  to  attempt to increase revenues and further reduce costs.  The Company
is  in  preliminary  discussions regarding possible transactions,  although
there  is  no  assurance that such transactions can be  completed,  and  if
completed can generate the funds required to sustain the Company.

Management believes that it has sufficient cash on hand and to be  received
from  firm orders for batteries and development work to continue operations
at  current levels through May of 1998.  If a business combination, sale of
assets,  strategic alliance or additional financing cannot be  arranged  by
May  1,  it will be necessary to make further reductions in the work force,
primarily  at  the  executive management level, which  management  believes
would  allow  the Company to operate into August of 1998.  If a significant
order  for  batteries is not received or a  business combination,  sale  of
assets,  strategic alliance or additional financing cannot be  arranged  by
the end of the second quarter, it will be necessary for the Company to make
large  scale  reductions in the work force, and would likely  eliminate  or
relocate  manufacturing  and  other functions  with  the  primary  goal  of
maintaining  research  and development capabilities,  the  corporate  legal
entity and protection of the core technology.  Such plans would also likely
require the Company to raise additional capital.  These alternate plans are
subject  to  a  great deal of uncertainty and risk.  There is no  assurance
that  such  plans will be successful or that the Company will  be  able  to
continue as a going concern.

The Company's $25,000 monthly obligation for the lease of the manufacturing
facility  is  currently  guaranteed by BDM.   The  Company  has  agreed  to
purchase the facility or otherwise remove BDM as guarantor of the lease  by
no  later  than April 1, 1998.  In the event the Company does not  purchase
the  facility or remove BDM as guarantor by this date, then the Company  is
required  to  give notice to cancel the facility lease effective  September
30,  1998.   Management of the Company expects that it will be required  on
April  1,  1998  to  give  notice to cancel its  facility  lease  effective
September 30, 1998.  Management is discussing the terms of a new  lease  to
be  effective after September 30, 1998 with the lessor of the facility with
essentially the same terms as the existing lease with

NOTE P - ABILITY TO CONTINUE AS A GOING CONCERN (CONTINUED)

the  exclusion  of  BDM  as  guarantor and the requirement  for  a  $50,000
security  deposit.,   However, there is no assurance  that  a  satisfactory
arrangement can be reached with the lessor.  If the Company terminates  the
facility  lease,  the  cost  of  moving  and  reinstalling  production  and
pollution  control  equipment to a new location, which  has  not  yet  been
selected,  would  be significant and would prohibit or greatly  impair  the
Company's  ability to produce batteries for an indefinite period  of  time,
and hence impair the conduct of the Company's operations.

The Company's Common Stock is traded in the Over-the-Counter Market and  is
reported  on  the Nasdaq Stock Marketsm ("NASDAQ").  In order  to  maintain
listing by NASDAQ under new rules which went into effect in February  1998,
the  Company  must  maintain a minimum $2 million of  net  tangible  assets
(total  assets, excluding goodwill, minus total liabilities).  The  Company
is  not in compliance with this new requirement as of December 31, 1997 and
does  not  expect  to be in compliance without the infusion  of  additional
equity financing, the sale of assets, forgiveness or conversion of debt  or
a   business  combination.   The  Company  is  in  preliminary  discussions
regarding possible arrangements, although there is no assurance that such a
transaction can be completed or if completed will generate the net tangible
assets  required by the new requirement.  Additionally, NASDAQ  requires  a
minimum  $1.00  per  share bid price to maintain  listing.   The  Company's
closing  market price as reported on NASDAQ on March 20, 1998 was  $0.6563.
The  Company  expects  to be notified by NASDAQ of its  noncompliance  with
listing  requirements.  Ordinarily, before delisting, NASDAQ would  provide
the  Company notice and an opportunity to present and carry out a plan  for
compliance  with  the listing requirements.  In the event that  the  Common
Stock  were  no  longer traded on the NASDAQ market,  brokers  and  dealers
effecting trades in the Common Stock would become subject to the Securities
and  Exchange  Commission rules covering trading in "penny stocks."   These
rules generally require that such broker-dealers make specified disclosures
to  customers including information on available bid and asked  prices  for
the  stock  in  question  and  compensation to the  broker-dealer  and  his
associates with respect to the proposed trade, and provide periodic reports
as to the market value of a customer's position in penny stocks.  The rules
also  impose  heightened  "know your customer"  requirements  that  require
broker-dealers   to   obtain  information,  including  personal   financial
information, from customers sufficient to allow the broker-dealer to make a
determination that investment in penny stocks is suitable for the  customer
and  that  the  customer  is capable of assessing  the  risks  of  such  an
investment.   Broker-dealers may be less willing to effect  trades  in  any
security  subject to these rules due to the additional disclosure,  record-
keeping  and  other requirements imposed by the rules.  In  addition,  some
potential  investors  in  penny stocks may  be  reluctant  to  provide  the
required personal financial information to broker-dealers, which may reduce
the  number  of  potential investors.  These factors would  likely  further
reduce trading liquidity in the Common Stock.

If  the Company is delisted from NASDAQ and is unable to obtain significant
additional  orders  for batteries or additional development  contracts,  it
will  be difficult to obtain additional funding.  There can be no assurance
that  additional funding, contracts or sales which will generate sufficient
cash  to  sustain  operations can be obtained on terms  acceptable  to  the
Company,  if  at  all.   The  financial  statements  do  not  include   any
adjustments  to  reflect the possible future effects on the  recoverability
and  classification  of  assets  or  the  amounts  and  classification   of
liabilities that may result from the possible inability of the  Company  to
continue as a going concern.


                     Washington, D.C.  20549




            ________________________________________

                           EXHIBITS TO
                            FORM 10-K


        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934


          For the fiscal year ended          Commission File
               December 31, 1997             Number 0-16323



           __________________________________________


                       ELECTROSOURCE, INC.
     (Exact name of Registrant as specified in its charter)

           Delaware                         742466304
(State or other jurisdiction of          (I.R.S. Employer
incorporation or organization)         Identification No.)

   2809 Interstate 35 South,
       San Marcos, Texas                      78666
(Address of principal executive             (Zip Code)
           offices)

Registrant's telephone number,            (512) 753-6500
     including area code:

Securities registered pursuant                 None
 to Section 12(b) of the Act:

   Securities registered pursuant to Section 12(g) of the Act:

             Common Stock, par value $1.00 per share
                        (Title of Class)



                        INDEX TO EXHIBITS


 No.                       Description                        Page

3.1     Restated    Certificate   of   Incorporation    of        --
        Electrosource,  Inc.  (filed  as  Exhibit  3.1  to
        Electrosource,  Inc.,  Registration  Statement  on
        Form 10 filed October 19, 1987, as amended by Form
        8 Amendments filed January 8, 1988 and January 13,
        1988  (hereinafter referred to as "Form  10")  and
        incorporated herein by reference).

3.2     Certificate  of  Designation, Preferences,  Rights        --
        and  Limitations of 1992 Series A Preferred  Stock
        and  Series  A-1 Preferred Stock of Electrosource,
        Inc.   as   filed  of  record  with  the  Delaware
        Secretary  of State on January 15, 1992 (filed  as
        Exhibit  4.1  to  Electrosource,  Inc.  Form   8-K
        Current Report for Issuers Subject to the 1934 Act
        Reporting Requirements filed December 24, 1991 and
        incorporated herein by reference).

3.3     Amendment to Restated Certificate of Incorporation        --
        of  Electrosource,  Inc., increase  in  authorized
        shares to 50,000,000 shares (filed as Exhibit  3.1
        to  Electrosource, Inc., Quarterly Report on  Form
        10-Q   for   quarter  ended  June  30,  1995   and
        incorporated herein by reference).

3.4     Amendment to Restated Certificate of Incorporation        --
        of Electrosource, Inc., elimination of Certificate
        of   Designation  for  Series  A  and  Series  A-1
        Preferred   Stock  (filed  as   Exhibit   3.2   to
        Electrosource, Inc., Quarterly Report on Form 10-Q
        for  quarter  ended June 30, 1995 and incorporated
        hereby by reference).

3.5     Amendment   to   the   Restated   Certificate   of        --
        Incorporation of Electrosource filed  as  of  July
        22,  1996  (filed as Exhibit 3.1 to Electrosource,
        Inc. Quarterly Report on Form 10-Q for the quarter
        ended  June  30, 1996 and incorporated  herein  by
        reference).

3.6     Bylaws  of  Electrosource, Inc. (filed as  Exhibit        --
        3.2   to  Form  10  and  incorporated  herein   by
        reference).

3.7     Amendment   to  Bylaws  of  Electrosource,   Inc.,        --
        pursuant  to a Certificate of Secretary dated  May
        25,  1990  (filed as Exhibit 3.3 to Electrosource,
        Inc.,  Annual Report on Form 10-K for  the  period
        ended December 31, 1991 and incorporated herein by
        reference).

3.8     Amendment  to Bylaws of Electrosource, Inc.  dated        --
        November  3,  1993  (filed  as  Exhibit   3.5   to
        Electrosource, Inc., Annual Report  on  Form  10-K
        for   the  period  ended  December  31,  1993  and
        incorporated herein by reference).

3.9     Amendment  to Bylaws of Electrosource, Inc.  dated        --
        June   23,   1994   (filed  as  Exhibit   3.6   to
        Electrosource, Inc. Annual Report filed on Form 10-
        K for the period ended December 31, 1994).

3.10    Amendment  to Bylaws of Electrosource, Inc.  dated        --
        November  13,  1996  (filed  as  Exhibit  3.10  to
        Electrosource, Inc. Annual Report filed on Form 10-
        K for the period ended December 31, 1996).

4.1     Warrant   to  purchase  up  to  5,424  shares   of        --
        Electrosource,   Inc.  Common  Stock   issued   to
        Rosehouse   Ltd.,  a  Bermuda-based  institutional
        buyer, dated April 5, 1995 (filed as an Exhibit to
        Electrosource,  Inc. Current Report  on  Form  8-K
        filed  April 12, 1995 and incorporated  herein  by
        reference).

4.2     Warrant   to  purchase  up  to  5,000  shares   of        --
        Electrosource,  Inc. Common Stock issued  to  Ally
        Capital Management, Inc. on April 17, 1995  (filed
        as  Exhibit  4.1 to Electrosource, Inc.  Quarterly
        Report on Form 10-Q for the quarter ended June 30,
        1995 and incorporated herein by reference).

4.3     Warrant  to  purchase  up  to  25,000  shares   of        --
        Electrosource,  Inc.,  Common  Stock,  issued   to
        Rosehouse   Ltd.,  a  Bermuda-based  institutional
        buyer,  dated July 27, 1995 (filed as Exhibit  4.4
        to Electrosource, Inc. Quarterly Report on Form 10-
        Q for quarter ended June 30, 1995 and incorporated
        herein by reference).

4.4     Warrant  to  purchase  up  to  100,000  shares  of        --
        Electrosource, Inc., Common Stock, issued  to  ACM
        Advisors, Zurich, Switzerland, dated July 27, 1995
        (filed  as  Exhibit  4.5 to  Electrosource,  Inc.,
        Quarterly  Report of Form 10-Q for  quarter  ended
        June   30,   1995  and  incorporated   herein   by
        reference).

4.5     Warrant  to  purchase  up  to  100,000  shares  of        --
        Electrosource, Inc., Common Stock, issued  to  ACM
        Advisors, Zurich, Switzerland, dated July 27, 1995
        (filed  as  Exhibit  4.6 to  Electrosource,  Inc.,
        Quarterly  Report on Form 10-Q for  quarter  ended
        June   30,   1995  and  incorporated   herein   by
        reference).

4.6     1987  Stock  Option  Plan of  Electrosource,  Inc.        --
        (filed  as  Annex A, pages 44 to 48  of  Company's
        Information Statement filed October 16,  1987  and
        incorporated herein by reference).

4.7     Amendment  No.  1  to 1987 Stock  Option  Plan  of        --
        Electrosource, Inc. dated February 19, 1992 (filed
        as Exhibit 4.3 to Company's Registration Statement
        [No. 33-49049] on Form S-8 filed June 30, 1992 and
        incorporated herein by reference).

4.8     Amendment  No.  2  to 1987 Stock  Option  Plan  of        --
        Electrosource,  Inc. (filed as  Exhibit  10.36  to
        Electrosource, Inc., Annual Report  on  Form  10-K
        for   the  period  ended  December  31,  1992  and
        incorporated herein by reference).

4.9     1988   Non-Employee  Director   Option   Plan   of        --
        Electrosource,  Inc.  (filed  as  Exhibit  4.2  to
        Company's Registration Statement [No. 33-22223] on
        Form  S-8  filed  June  7, 1988  and  incorporated
        herein by reference).

4.10    Amendment  No.  1  to  1988 Non-Employee  Director        --
        Stock  Option  Plan  (filed  as  Exhibit  4.3   to
        Company's Registration Statement [No. 33-35856] on
        Form  S-8  filed  July 12, 1990  and  incorporated
        herein by reference).

4.11    Amendment  No.  2  to  1988 Non-Employee  Director        --
        Stock  Option  Plan  (filed  as  Exhibit  4.4   to
        Company's Registration Statement [No. 33-49042] on
        Form  S-8  filed  June 30, 1992  and  incorporated
        herein by reference).

4.12    Amendment  No.  3  to  1988 Non-Employee  Director        --
        Stock  Option  Plan  (filed  as  Exhibit  4.4   to
        Electrosource, Inc. Registration Statement [No. 33-
        64108]  on  Form  S-8  filed  June  9,  1993   and
        incorporated herein by reference).

4.13    1993 Non-Employee Consultant Stock Option Plan for        --
        Electrosource,  Inc.  (filed  as  Exhibit  4.2  to
        Registration Statement [No. 33-65386] on Form  S-8
        and incorporated herein by reference).

4.14    1994  Stock  Option  Plan of  Electrosource,  Inc.        --
        (filed  as  Exhibit  10.4 to  Electrosource,  Inc.
        Quarterly  Report  on Form 10-Q  for  the  quarter
        ended  June  30, 1995 and incorporated  herein  by
        reference).

4.15    1996  Stock  Option  Plan for Electrosource,  Inc.        --
        (filed  as  Exhibit 4.2 to Registration  Statement
        [No.  333-31101]  on  Form  S-8  and  incorporated
        herein by reference).

4.16    Warrant  (Stock Option Agreement No.  W12-101)  to      E-10
        purchase  up  to  20,000 shares of  Electrosource,
        Inc., Common Stock, issued to Corning Incorporated
        dated  December  31,  1997  for  payment  of  that
        certain Project Annex dated October 20, 1997.

4.17    Warrant  (Stock Option Agreement No. W12-102A)  to      E-12
        purchase  up  to  70,000 shares of  Electrosource,
        Inc., Common Stock, issued to Corning Incorporated
        dated  December  31,  1997  for  payment  on  that
        certain Project Annex dated October 20, 1997.

4.18    Warrant  (Stock Option Agreement No. W12-103A)  to      E-14
        purchase  up  to  70,000 shares of  Electrosource,
        Inc., Common Stock, issued to Corning Incorporated
        dated  December  31,  1997  for  payment  on  that
        certain Project Annex dated October 20, 1997.

10.1    Sublicense Agreement dated as of October  5,  1987        --
        between  Electrosource,  Inc.  and  Tracor,   Inc.
        (filed as Exhibit 10.4 to Form 10 and incorporated
        herein by reference).

10.2    Patent  and Technology Exclusive License Agreement        --
        dated  August  14, 1984 between Tracor,  Inc.  and
        Blanyer-Mathews Associates, Inc. ("BMA") (filed as
        Exhibit  10.9  to Registration Statement  [No  33-
        30486]   on  Form  S-1  filed  August   14,   1989
        hereinafter   referred  to  as  "Form   S-1"   and
        incorporated herein by reference).

10.3    Amendment   to  Patent  and  Technology  Exclusive        --
        License  Agreement  dated  May  29,  1987  between
        Tracor,  Inc. and BMA (filed as Exhibit  10.10  to
        Form S-1 and incorporated herein by reference).

10.4    Bonus  Royalty Agreement dated May 26, 1989  among        --
        Electrosource, Inc., Tracor, Inc., and BMA  (filed
        as  Exhibit  19  to Electrosource, Inc.  Quarterly
        Report on Form 10-Q for the quarter ended June 30,
        1989 and incorporated herein by reference).

10.5    Amendment to Bonus Royalty Agreement entered  into        --
        as  of November 30, 1989 by and among BMA, Tracor,
        Inc.  and  Electrosource, Inc. (filed  as  Exhibit
        10.17 to Post Effective Amendment No. 1 to Form S-
        1  Registration  Statement  [No.  33-34581]  filed
        December 11, 1989 hereinafter referred to as "Post-
        Effective  Amendment" and incorporated  herein  by
        reference).

10.6    Assignment of Patent License dated as of  May  14,        --
        1990  by  and  between  Electrosource,  Inc.   and
        Tracor,  Inc. (joined by BMA for limited  purposes
        described therein) (filed as Exhibit 10.20 to  the
        Company's  Annual  Report on  Form  10-K  for  the
        period   ended   December  31,  1990   hereinafter
        referred   to   as  the  "1990  Form   10-K"   and
        incorporated herein by reference).

10.7    Letter  Agreement  dated as of  January  15,  1991        --
        between  Electrosource, Inc.  and  BMA  (filed  as
        Exhibit 10.21 to the Company's 1990 Form 10-K  and
        incorporated herein by reference).

10.8    License  Modification Agreement dated January  16,        --
        1992  between Blanyer Mathews & Associates,  Inc.,
        Electrosource,  Inc.  and Battery  Horizons,  Ltd.
        (filed  as  Exhibit  10.23 to Electrosource,  Inc.
        Annual  Report on Form 10-K for the  period  ended
        December  31,  1991  and  incorporated  herein  by
        reference).

10.9    First  Amendment to Assignment of  Patent  License        --
        dated  April  2, 1992 between Electrosource,  Inc.
        and  Tracor,  Inc.  (filed  as  Exhibit  10.58  to
        Company's Registration Statement [No. 33-65248] on
        Form  S-1  filed  June 30, 1993  and  incorporated
        herein by reference).

10.10   Lease   Agreement  between  Aetna  Life  Insurance        --
        Company and Electrosource, Inc. dated February 22,
        1992  (filed  as  Exhibit 10.25 to  Electrosource,
        Inc.  Annual  Report on Form 10-K for  the  period
        ended December 31, 1991 and incorporated herein by
        reference).

10.11   First  Amendment to Lease Agreement between  Aetna        --
        Life  Insurance  Company and  Electrosource,  Inc.
        dated February 24, 1993 (filed as Exhibit 10.27 to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1992   and
        incorporated herein by reference).

10.12   Second Amendment to Lease Agreement between  Aetna        --
        Life  Insurance  Company and  Electrosource,  Inc.
        dated  March  1, 1996 (filed as Exhibit  10.14  to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1995   and
        incorporated herein by reference).

10.13   Sublease Agreement between Electrosource, Inc. and      E-16
        Merit Printing, Inc. dated February 24 1997.

10.14   Lease  Agreement between William D.  McMorris  and        --
        Horizon  Battery Technologies, Inc.  dated  August
        17,  1993 (filed as Exhibit 10.42 to Electrosource
        Inc.  Annual  Report on Form 10-K for  the  period
        ended December 31, 1994 and incorporated herein by
        reference).

10.15   Amendment   to  Business  Alliance   and   License        --
        Agreement dated November 1, 1995 between  Electric
        Power  Research Institute and Electrosource,  Inc.
        (filed  as  Exhibit  10.2 to  Electrosource,  Inc.
        Quarterly  Report  on Form 10-Q  for  the  quarter
        ended  September 30, 1995 and incorporated  herein
        by reference).

10.16   Stock  Purchase Agreement together with the  Asset        --
        and Technology License Agreement dated January 31,
        1995   between   BDM   Technologies,   Inc.    and
        Electrosource,  Inc. (filed as  Exhibit  10.46  to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1994   and
        incorporated herein by reference).

10.17   First  Amendment  to Asset and Technology  License      E-20
        Agreement  between  BDM  International,  Inc.  and
        Electrosource, Inc. dated December 18, 1997.

10.18   Termination Agreement between Electrosource,  Inc.        --
        and  Mitsui Engineering and Shipbuilding Co., Ltd.
        dated  March  6, 1996 (filed as Exhibit  10.36  to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1995   and
        incorporated herein by reference).

10.19   Purchase Agreement between Quantum Energy  Systems        --
        and  Technology LLC and Electrosource, Inc., dated
        November  14,  1994, (filed as  Exhibit  10.44  to
        Electrosource, Inc., Annual Report  on  Form  10-K
        for   the  period  ended  December  31,  1994  and
        incorporated herein by reference).

10.20   Equipment Lease Agreement dated September 7, 1995,        --
        between    Salem    Capital    Corporation     and
        Electrosource,  Inc. (filed as  Exhibit  10.65  to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ending  December   31,   1995   and
        incorporated herein by reference).

10.21   Development  Agreement and Agreement for  Purchase        --
        of  Machinery  and Supplies between Electrosource,
        Inc.,  and Charles L. Mathews ("Contractor") dated
        November  1,  1995  (filed  as  Exhibit  10.68  to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ending  December   31,   1995   and
        incorporated herein by reference).

10.22   Purchase  Order  between Chrysler Corporation  and        --
        Electrosource, Inc. dated January 9,  1996  (filed
        as  Exhibit  10.69 to Electrosource,  Inc.  Annual
        Report on Form 10-K for the period ending December
        31, 1995 and incorporated herein by reference).

10.23   Agreement    for    Aircraft   Starting    Battery        --
        Distribution  between  Electrosource,   Inc.   and
        Horizon  Aviation,  Inc. dated February  13,  1996
        (filed  as  Exhibit  10.70 to Electrosource,  Inc.
        Annual  Report on Form 10-K for the period  ending
        December  31,  1995  and  incorporated  herein  by
        reference).

10.24   Joint Development Agreement between Electrosource,        --
        Inc.  and Black & Decker (U.S.), Inc. dated  March
        8,  1996 (filed as Exhibit 10.71 to Electrosource,
        Inc.  Annual  Report on Form 10-K for  the  period
        ending  December 31, 1995 and incorporated  herein
        by reference).

10.25   Memorandum of Understanding between Electrosource,        --
        Inc.  and Lockheed Martin Corporation dated  March
        15,  1996 (filed as Exhibit 10.1 to Electrosource,
        Inc.  Quarterly  Report on Form 10-Q  for  quarter
        ended  March 31, 1996 and incorporated  herein  by
        reference).

10.26   Letter  of  Agreement between Electrosource,  Inc.        --
        and  Ally  Capital Corporated dated  December  18,
        1996  (filed as Exhibit 4.9 to Electrosource, Inc.
        Registration  Statement [No. 333-20103]  Form  S-3
        Amendment No. 1 on April 18, 1997 and incorporated
        herein by reference).

10.27   Amendment  dated  January 20, 1997  to  Letter  of        --
        Agreement  between Electrosource,  Inc.  and  Ally
        Capital Corporation dated December 18, 1996 (filed
        as    Exhibit   4.10   to   Electrosource,    Inc.
        Registration  Statement [No. 333-20103]  Form  S-3
        Amendment No. 1 on April 18, 1997 and incorporated
        herein by reference).

10.28   Amendment dated April 10, 1997 to Letter Agreement        --
        between   Electrosource,  Inc.  and  Ally  Capital
        Corporation  dated  December 18,  1996  (filed  as
        Exhibit  4.11  to Electrosource, Inc. Registration
        Statement [No. 333-20103] Form S-3 Amendment No. 1
        on  April  18,  1997  and incorporated  herein  by
        reference).

10.29   Subscription  Agreements between participants  and        --
        Electrosource, Inc. dated January 23, 1997  (filed
        as Exhibit 4.9 to Electrosource, Inc. Registration
        Statement  [No. 333-25659] Form S-3 on  April  23,
        1997 and incorporated herein by reference).

10.30   Note  Purchase and Option Agreement for $4 million        --
        dated  March 27, 1997 between Electrosource,  Inc.
        and Corning Incorporated (filed as Exhibit 4.1  to
        Electrosource, Inc. Quarterly Report on Form  10-Q
        for  quarter ended March 31, 1997 and incorporated
        herein by reference).

10.31   5%  Convertible Promissory Note for $100,000 dated      E-26
        September 27, 1997 between Electrosource, Inc. and
        Corning  Incorporated for payment of interest  due
        on  the  Note Purchase and Option Agreement  dated
        March 27, 1997.

10.32   5%  Convertible Promissory Note for $102,500 dated      E-33
        March  27,  1998 between Electrosource,  Inc.  and
        Corning  Incorporated for payment of interest  due
        on  the  Note Purchase and Option Agreement  dated
        March 27, 1997 and Promissory Note dated September
        27, 1997.

10.33   Amendment No. 1 dated December 22, 1997  to  Stock      E-40
        Option  Agreement  dated March  27,  1997  between
        Corning Incorporated and Electrosource, Inc.

10.34   Research and Development Umbrella Agreement  dated      E-41
        July  1,  1997  between Corning  Incorporated  and
        Electrosource, Inc.

10.35   Project  Annex  dated  October  20,  1997  to  the      E-53
        Development Umbrella Agreement dated as of July 1,
        1997  by  and  between  Corning  Incorporated  and
        Electrosource,  Inc.,  being  further  defined  in
        Exhibit 1, Project Proposal, Physical and Chemical
        Description of Battery Electrode "Moss."

10.36   Project  Annex  dated  October  20,  1997  to  the      E-55
        Development Umbrella Agreement dated as of July 1,
        1997  by  and  between  Corning  Incorporated  and
        Electrosource,  Inc.,  being  further  defined  in
        Exhibit    1,    Project   Proposal,   Engineering
        Resources.

10.37   Project  Annex  dated  October  20,  1997  to  the      E-58
        Development Umbrella Agreement dated as of July 1,
        1997  by  and  between  Corning  Incorporated  and
        Electrosource,  Inc.,  being  further  defined  in
        Exhibit  1, Project Proposal, Characterization  of
        Electrode Materials and Collector Grid Materials.

10.38   Severance Agreement between officers/key employees      E-61
        and Electrosource, Inc. dated August 25, 1997.

10.39   Note  Purchase  Agreement  for  $2  million  dated      E-83
        December 19, 1997 between Electrosource, Inc.  and
        Corning Incorporated

10.40   Purchase   Order   for  Horizon   Batteries   Pack     E-142
        Development   Program  between   Fiat   Auto   and
        Electrosource, Inc. dated September 30, 1996.

10.41   Frame-Development Contract dated  March  14,  1997     E-159
        between  SMH  Automobile S.A.  and  Electrosource,
        Inc.

10.42   Summary  Contract Amendment Terms  dated  November     E-172
        12,  1997  for  Frame-Development  Contract  dated
        March  14,  1997 between SMH Automobile  S.A.  and
        Electrosource, Inc.

The following exhibits filed under Paragraph 10 of Item  601  are
     the Company's compensation plans and arrangements:

10.43   Form  of Director Indemnification Agreement (filed        --
        as  Exhibit  10.8 to Electrosource,  Inc.,  Annual
        Report  on Form 10-K for the period ended December
        31, 1987 and incorporated herein by reference).

10.44   Director  Indemnification Agreement dated  January        --
        16,  1992 between Electrosource, Inc. and  Charles
        Mathews  (filed as Exhibit 10.26 to Electrosource,
        Inc.  Annual  Report on Form 10-K for  the  period
        ended December 31, 1991 and incorporated herein by
        reference).

10.45   Director  Indemnification Agreement dated November        --
        4, 1992, between Electrosource, Inc. and Thomas S.
        Wilson  (filed  as Exhibit 10.41 to Electrosource,
        Inc.  Annual  Report on Form 10-K for  the  period
        ended December 31, 1992 and incorporated herein by
        reference).

10.46   Director Indemnification Agreement dated September        --
        1, 1993 between Electrosource, Inc. and Dr. Norman
        Hackerman    (filed    as   Exhibit    10.57    to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1993   and
        incorporated herein by reference).

10.47   Director Indemnification Agreement dated June  23,        --
        1994  between Electrosource, Inc. and  Michael  G.
        Semmens  (filed as Exhibit 10.72 to Electrosource,
        Inc.  Annual  Report on Form 10-K for  the  period
        ended December 31, 1994 and incorporated herein by
        reference).

10.48   Director  Indemnification Agreement dated November        --
        2, 1994 between Electrosource, Inc. and Richard S.
        Williamson    (filed   as   Exhibit    10.73    to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1994   and
        incorporated herein by reference).

10.49   Director Indemnification Agreement dated June  22,        --
        1995 between Electrosource, Inc. and Nathan Morton
        (filed  as  Exhibit  10.2 to  Electrosource,  Inc.
        Quarterly  Report  on Form 10-Q  for  the  quarter
        ended  June  30, 1995 and incorporated  herein  by
        reference).

10.50   Director Indemnification Agreement dated June  22,        --
        1995  between Electrosource, Inc. and  William  R.
        Graham  (filed  as Exhibit 10.1 to  Electrosource,
        Inc. Quarterly Report on Form 10-Q for the quarter
        ended  June  30, 1995 and incorporated  herein  by
        reference).

10.51   Director Indemnification Agreement dated March  3,     E-173
        1997  between Electrosource, Inc. and  Richard  E.
        Balzhiser.

10.52   Director  Indemnification Agreement  dated  August     E-179
        26,  1997 between Electrosource, Inc. and Earl  E.
        Gjelde.

10.53   1987  Stock  Option  Plan of  Electrosource,  Inc.        --
        (filed   as   Annex  A,  pages   44   to   48   of
        Electrosource,  Inc. Information  Statement  filed
        October  16,  1987  and  incorporated  herein   by
        reference).

10.54   Amendment  No.  1  to 1987 Stock  Option  Plan  of        --
        Electrosource, Inc. dated February 19, 1992 (filed
        as Exhibit 4.3 to Electrosource, Inc. Registration
        Statement  [No. 33-49049] on Form S-8  filed  June
        30, 1992 and incorporated herein by reference).

10.55   Amendment  No.  2  to 1987 Stock  Option  Plan  of        --
        Electrosource,  Inc. (filed as  Exhibit  10.36  to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1992   and
        incorporated herein by reference).

10.56   1988   Non-Employee  Director   Option   Plan   of        --
        Electrosource,  Inc.  (filed  as  Exhibit  4.2  to
        Electrosource, Inc. Registration Statement [No. 33-
        22223]  on  Form  S-8  filed  June  7,  1988   and
        incorporated herein by reference).

10.57   Amendment  No.  1  to  1988 Non-Employee  Director        --
        Stock  Option  Plan  (filed  as  Exhibit  4.3   to
        Electrosource, Inc. Registration Statement [No. 33-
        35856]  on  Form  S-8  filed  July  12,  1990  and
        incorporated herein by reference).

10.58   Amendment  No.  2  to  1988 Non-Employee  Director        --
        Stock  Option  Plan  (filed  as  Exhibit  4.4   to
        Electrosource, Inc. Registration Statement [No. 33-
        49042]  on  Form  S-8  filed  June  30,  1992  and
        incorporated herein by reference).

10.59   Amendment  No.  3  to  1988 Non-Employee  Director        --
        Stock  Option  Plan  (filed  as  Exhibit  4.4   to
        Electrosource, Inc. Registration Statement [No. 33-
        64108]  on  Form  S-8  filed  June  9,  1993   and
        incorporated herein by reference).

10.60   1993 Non-Employee Consultant Stock Option Plan for        --
        Electrosource,  Inc.  (filed  as  Exhibit  4.2  to
        Electrosource, Inc. Registration Statement [No. 33-
        65386]  on  Form  S-8  filed  June  30,  1993  and
        incorporated herein by reference).

10.61   1994  Stock  Option  Plan of  Electrosource,  Inc.        --
        (filed  as  Exhibit  10.4 to  Electrosource,  Inc.
        Quarterly  Report  on Form 10-Q  for  the  quarter
        ended  June  30, 1995 and incorporated  herein  by
        reference).

10.62   1996  Stock  Option  Plan for Electrosource,  Inc.        --
        (filed  as  Exhibit 4.2 to Registration  Statement
        [No.  333-31101]  on  Form S-8   and  incorporated
        herein by reference).

10.63   Consulting  Agreement dated March 4, 1995  between        --
        Beacon  Advisors, Inc. (Langhorne Reid,  III)  and
        Electrosource,  Inc. (as filed Exhibit  10.117  to
        Electrosource, Inc. Annual Report on Form 10-K for
        the   period   ended   December   31,   1995   and
        incorporated herein by reference).

10.64   Consulting Agreement dated January 1, 1996 between        --
        Jack  J.  Guy  and Electrosource, Inc.  (as  filed
        Exhibit  10.118  to  Electrosource,  Inc.   Annual
        Report  on Form 10-K for the period ended December
        31, 1995 and incorporated herein by reference).

24.1    Consent of Ernst & Young LLP                           E-185

27.     Financial Data Schedule                                E-186



                                                           Exhibit 4.16

                                Date of Grant:  December 31, 1997

                       ELECTROSOURCE, INC.
                     STOCK OPTION AGREEMENT

     THIS   OPTION  HAS  NOT  BEEN  REGISTERED   UNDER   THE
     SECURITIES  ACT  OF 1933, AS AMENDED  (THE  OACTO),  OR
     UNDER  THE  SECURITIES  LAWS OF ANY  STATE  (OBLUE  SKY
     LAWSO),  AND  MAY  NOT BE SOLD OR  TRANSFERRED  IN  THE
     ABSENCE  OF  AN EFFECTIVE REGISTRATION STATEMENT  UNDER
     THE   ACT  OR  DELIVERY  TO  THE  COMPANY  OF  EVIDENCE
     SATISFACTORY  TO  THE COMPANY TO  THE  EFFECT  THAT  AN
     EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.

Corning Incorporated                                  No. W12-101
Corning, New York 14831                             20,000 Shares


      The  undersigned,  Electrosource, Inc. (the  "Company"),  a
Delaware corporation, for good and valuable consideration desires
to  grant  to  Corning Incorporated ("Corning"  or  "Holder")  an
option  to  acquire shares of Common Stock in the  Company.   The
option  covered hereby is granted pursuant to the  terms  of  the
Research    and   Development   Umbrella   Agreement   ("Umbrella
Agreement")  dated  as of July 1, 1997 between  the  Company  and
Corning,  and  all  provisions  of that  Umbrella  Agreement  are
incorporated herein by reference.  Defined terms shall  have  the
same meaning as in the Umbrella Agreement.

      1.    Option.  The Company does hereby grant to Corning the
exclusive option to purchase from the Company all or any part  of
an  aggregate  of Twenty Thousand (20,000) shares  ("shares")  of
Common  Stock of the Company.  The exercise price shall be  Seven
and  .125/100  Dollars  ($7.125) per share  for  Twenty  Thousand
(20,000) shares.

      2.   Term.  The Option shall be exercisable at any time  or
times  until the option expires or terminates in accordance  with
the  provisions hereof.  This Option shall in any event terminate
no  later  than 5:00 o'clock P.M., San Marcos, Texas  time  three
years after its date of grant.

     3.   Exercise.  To exercise this option or any part thereof,
Corning shall give written notice of such election to the Company
at  its Corporate Headquarters, Attention Corporate Secretary, so
as to be received by the Company within the period this option is
exercisable, which notice shall specify the number of  shares  to
be  purchased and be accompanied by payment in full.  Payment for
such  shares may be by check or wire transfer.  Exercise  of  the
option may be made in multiple parts, but in amounts of at  least
One   Hundred  Thousand  and  No/100  Dollars  ($100,000.00)  per
exercise.

      4.    Share  Issue.  Upon receipt by the Company of  proper
notice  of  exercise of this Option, the Company as  promptly  as
practicable  and subject to the other provisions in this  Option,
shall  deliver a certificate or certificates representing  shares
so  purchased,  and shall pay all original issuance  or  transfer
taxes  on  the  exercise of this Option, and all other  fees  and
expenses  necessarily  incurred  by  the  Company  in  connection
therewith.  Certificates evidencing such shares may have endorsed
thereon such language as may be deemed necessary or advisable  by
counsel  for the Company in order to ensure compliance  with  the
applicable  securities laws or regulations.  Registration  rights
shall be as set forth in the Umbrella Agreement.

      5.    Subdivision or Combination of Common Stock.   If  the
Company  at  any  time  subdivides (by  any  stock  split,  stock
dividend,  recapitalization or otherwise) its outstanding  shares
of  Common  Stock into a greater number of shares,  the  exercise
price  in  effect immediately prior to such subdivision  will  be
proportionately reduced, and if the Company at any time  combines
(by  reverse stock split or otherwise) its outstanding shares  of
Common Stock into a smaller number of shares, the exercise  price
in   effect  immediately  prior  to  such  combination  will   be
proportionately increased.

     6.   Reorganization, Reclassification, Consolidation, Merger
or  Sale.  Any  reorganization, reclassification,  consolidation,
merger  or  sale  of all or substantially all  of  the  CompanyOs
assets  to  another entity which is effected in such a  way  that
holders  of Common Stock are entitled to receive (either directly
or  upon  subsequent liquidation), stock, securities  or  amounts
with  respect to or in exchange for Common Stock is  referred  to
herein  as an OOrganic Change.O Prior to the consummation of  any
Organic Change, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holder of the outstanding
principal  amount of the Option then outstanding) to insure  that
the  holder  of the Option will thereafter (for so long  as  such
holder  has the right to exercise the Option) have the  right  to
receive, in lieu of or in addition to the shares of Common  Stock
immediately theretofore issuable upon the exercise of the Option,
such  shares of stock, securities or assets as such holder  would
have  received  in connection with such Organic  Change  if  such
holder had exercised the Option immediately prior to such Organic
Change.  In  any  such  case, the Company will  make  appropriate
provisions (in form and substance satisfactory to the  holder  of
the  Option)  to insure that the provisions of this part  6  will
thereafter (for so long as such holder has the right to  exercise
the Option) be applicable to the Option.

     IN WITNESS WHEREOF, the Parties have executed this Agreement
on the date first written above.

ELECTROSOURCE, INC.                CORNING INCORPORATED



By:    /s/ James M. Rosel          By:     /s/ David H. Fuller
  James M. Rosel
  Vice President Finance           Printed Name: David H. Fuller
  and General Counsel
                                   Its: Division VP & Director



                                                           Exhibit 4.17

                                Date of Grant:  December 31, 1997

                       ELECTROSOURCE, INC.
                     STOCK OPTION AGREEMENT

     THIS   OPTION  HAS  NOT  BEEN  REGISTERED   UNDER   THE
     SECURITIES  ACT  OF 1933, AS AMENDED  (THE  OACTO),  OR
     UNDER  THE  SECURITIES  LAWS OF ANY  STATE  (OBLUE  SKY
     LAWSO),  AND  MAY  NOT BE SOLD OR  TRANSFERRED  IN  THE
     ABSENCE  OF  AN EFFECTIVE REGISTRATION STATEMENT  UNDER
     THE   ACT  OR  DELIVERY  TO  THE  COMPANY  OF  EVIDENCE
     SATISFACTORY  TO  THE COMPANY TO  THE  EFFECT  THAT  AN
     EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.

Corning Incorporated                                 No. W12-102A
Corning, New York 14831                             70,000 Shares


          The undersigned, Electrosource, Inc. (the "Company"), a
Delaware corporation, for good and valuable consideration desires
to  grant  to  Corning Incorporated ("Corning"  or  "Holder")  an
option  to  acquire shares of Common Stock in the  Company.   The
option  covered hereby is granted pursuant to the  terms  of  the
Research    and   Development   Umbrella   Agreement   ("Umbrella
Agreement")  dated  as of July 1, 1997 between  the  Company  and
Corning,  and  all  provisions  of that  Umbrella  Agreement  are
incorporated herein by reference.  Defined terms shall  have  the
same meaning as in the Umbrella Agreement.

      1.    Option.  The Company does hereby grant to Corning the
exclusive option to purchase from the Company all or any part  of
an  aggregate  of Seventy Thousand (70,000) shares ("shares")  of
Common  Stock of the Company.  The exercise price shall be  Seven
and  .125/100  Dollars  ($7.125) per share for  Seventy  Thousand
(70,000) shares.

      2.   Term.  The Option shall be exercisable at any time  or
times  until the option expires or terminates in accordance  with
the  provisions hereof.  This Option shall in any event terminate
no  later  than 5:00 o'clock P.M., San Marcos, Texas  time  three
years after its date of grant.

     3.   Exercise.  To exercise this option or any part thereof,
Corning shall give written notice of such election to the Company
at  its Corporate Headquarters, Attention Corporate Secretary, so
as to be received by the Company within the period this option is
exercisable, which notice shall specify the number of  shares  to
be  purchased and be accompanied by payment in full.  Payment for
such  shares may be by check or wire transfer.  Exercise  of  the
option may be made in multiple parts, but in amounts of at  least
One   Hundred  Thousand  and  No/100  Dollars  ($100,000.00)  per
exercise.

      4.    Share  Issue.  Upon receipt by the Company of  proper
notice  of  exercise of this Option, the Company as  promptly  as
practicable  and subject to the other provisions in this  Option,
shall  deliver a certificate or certificates representing  shares
so  purchased,  and shall pay all original issuance  or  transfer
taxes  on  the  exercise of this Option, and all other  fees  and
expenses  necessarily  incurred  by  the  Company  in  connection
therewith.  Certificates evidencing such shares may have endorsed
thereon such language as may be deemed necessary or advisable  by
counsel  for the Company in order to ensure compliance  with  the
applicable  securities laws or regulations.  Registration  rights
shall be as set forth in the Umbrella Agreement.

      5.    Subdivision or Combination of Common Stock.   If  the
Company  at  any  time  subdivides (by  any  stock  split,  stock
dividend,  recapitalization or otherwise) its outstanding  shares
of  Common  Stock into a greater number of shares,  the  exercise
price  in  effect immediately prior to such subdivision  will  be
proportionately reduced, and if the Company at any time  combines
(by  reverse stock split or otherwise) its outstanding shares  of
Common Stock into a smaller number of shares, the exercise  price
in   effect  immediately  prior  to  such  combination  will   be
proportionately increased.

     6.   Reorganization, Reclassification, Consolidation, Merger
or  Sale.  Any  reorganization, reclassification,  consolidation,
merger  or  sale  of all or substantially all  of  the  CompanyOs
assets  to  another entity which is effected in such a  way  that
holders  of Common Stock are entitled to receive (either directly
or  upon  subsequent liquidation), stock, securities  or  amounts
with  respect to or in exchange for Common Stock is  referred  to
herein  as an OOrganic Change.O Prior to the consummation of  any
Organic Change, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holder of the outstanding
principal  amount of the Option then outstanding) to insure  that
the  holder  of the Option will thereafter (for so long  as  such
holder  has the right to exercise the Option) have the  right  to
receive, in lieu of or in addition to the shares of Common  Stock
immediately theretofore issuable upon the exercise of the Option,
such  shares of stock, securities or assets as such holder  would
have  received  in connection with such Organic  Change  if  such
holder had exercised the Option immediately prior to such Organic
Change.  In  any  such  case, the Company will  make  appropriate
provisions (in form and substance satisfactory to the  holder  of
the  Option)  to insure that the provisions of this part  6  will
thereafter (for so long as such holder has the right to  exercise
the Option) be applicable to the Option.

           IN  WITNESS  WHEREOF, the Parties have  executed  this
Agreement on the date first written above.

ELECTROSOURCE, INC.                CORNING INCORPORATED



By:    /s/ James M. Rosel          By:     /s/ David H. Fuller
  James M. Rosel
  Vice President Finance           Printed Name: David H. Fuller
  and General Counsel
                                   Its: Division VP & Director


                                                           Exhibit 4.18

                                Date of Grant:  December 31, 1997

                       ELECTROSOURCE, INC.
                     STOCK OPTION AGREEMENT

     THIS   OPTION  HAS  NOT  BEEN  REGISTERED   UNDER   THE
     SECURITIES  ACT  OF 1933, AS AMENDED  (THE  OACTO),  OR
     UNDER  THE  SECURITIES  LAWS OF ANY  STATE  (OBLUE  SKY
     LAWSO),  AND  MAY  NOT BE SOLD OR  TRANSFERRED  IN  THE
     ABSENCE  OF  AN EFFECTIVE REGISTRATION STATEMENT  UNDER
     THE   ACT  OR  DELIVERY  TO  THE  COMPANY  OF  EVIDENCE
     SATISFACTORY  TO  THE COMPANY TO  THE  EFFECT  THAT  AN
     EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.

Corning Incorporated                                 No. W12-103A
Corning, New York 14831                             70,000 Shares


          The undersigned, Electrosource, Inc. (the "Company"), a
Delaware corporation, for good and valuable consideration desires
to  grant  to  Corning Incorporated ("Corning"  or  "Holder")  an
option  to  acquire shares of Common Stock in the  Company.   The
option  covered hereby is granted pursuant to the  terms  of  the
Research    and   Development   Umbrella   Agreement   ("Umbrella
Agreement")  dated  as of July 1, 1997 between  the  Company  and
Corning,  and  all  provisions  of that  Umbrella  Agreement  are
incorporated herein by reference.  Defined terms shall  have  the
same meaning as in the Umbrella Agreement.

      1.    Option.  The Company does hereby grant to Corning the
exclusive option to purchase from the Company all or any part  of
an  aggregate  of Seventy Thousand (70,000) shares ("shares")  of
Common  Stock of the Company.  The exercise price shall be  Seven
and  .125/100  Dollars  ($7.125) per share for  Seventy  Thousand
(70,000) shares.

      2.   Term.  The Option shall be exercisable at any time  or
times  until the option expires or terminates in accordance  with
the  provisions hereof.  This Option shall in any event terminate
no  later  than 5:00 o'clock P.M., San Marcos, Texas  time  three
years after its date of grant.

     3.   Exercise.  To exercise this option or any part thereof,
Corning shall give written notice of such election to the Company
at  its Corporate Headquarters, Attention Corporate Secretary, so
as to be received by the Company within the period this option is
exercisable, which notice shall specify the number of  shares  to
be  purchased and be accompanied by payment in full.  Payment for
such  shares may be by check or wire transfer.  Exercise  of  the
option may be made in multiple parts, but in amounts of at  least
One   Hundred  Thousand  and  No/100  Dollars  ($100,000.00)  per
exercise.

      4.    Share  Issue.  Upon receipt by the Company of  proper
notice  of  exercise of this Option, the Company as  promptly  as
practicable  and subject to the other provisions in this  Option,
shall  deliver a certificate or certificates representing  shares
so  purchased,  and shall pay all original issuance  or  transfer
taxes  on  the  exercise of this Option, and all other  fees  and
expenses  necessarily  incurred  by  the  Company  in  connection
therewith.  Certificates evidencing such shares may have endorsed
thereon such language as may be deemed necessary or advisable  by
counsel  for the Company in order to ensure compliance  with  the
applicable  securities laws or regulations.  Registration  rights
shall be as set forth in the Umbrella Agreement.

      5.    Subdivision or Combination of Common Stock.   If  the
Company  at  any  time  subdivides (by  any  stock  split,  stock
dividend,  recapitalization or otherwise) its outstanding  shares
of  Common  Stock into a greater number of shares,  the  exercise
price  in  effect immediately prior to such subdivision  will  be
proportionately reduced, and if the Company at any time  combines
(by  reverse stock split or otherwise) its outstanding shares  of
Common Stock into a smaller number of shares, the exercise  price
in   effect  immediately  prior  to  such  combination  will   be
proportionately increased.

     6.   Reorganization, Reclassification, Consolidation, Merger
or  Sale.  Any  reorganization, reclassification,  consolidation,
merger  or  sale  of all or substantially all  of  the  CompanyOs
assets  to  another entity which is effected in such a  way  that
holders  of Common Stock are entitled to receive (either directly
or  upon  subsequent liquidation), stock, securities  or  amounts
with  respect to or in exchange for Common Stock is  referred  to
herein  as an OOrganic Change.O Prior to the consummation of  any
Organic Change, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holder of the outstanding
principal  amount of the Option then outstanding) to insure  that
the  holder  of the Option will thereafter (for so long  as  such
holder  has the right to exercise the Option) have the  right  to
receive, in lieu of or in addition to the shares of Common  Stock
immediately theretofore issuable upon the exercise of the Option,
such  shares of stock, securities or assets as such holder  would
have  received  in connection with such Organic  Change  if  such
holder had exercised the Option immediately prior to such Organic
Change.  In  any  such  case, the Company will  make  appropriate
provisions (in form and substance satisfactory to the  holder  of
the  Option)  to insure that the provisions of this part  6  will
thereafter (for so long as such holder has the right to  exercise
the Option) be applicable to the Option.

           IN  WITNESS  WHEREOF, the Parties have  executed  this
Agreement on the date first written above.

ELECTROSOURCE, INC.                CORNING INCORPORATED



By:    /s/ James M. Rosel          By:     /s/ David H. Fuller
  James M. Rosel
  Vice President Finance           Printed Name: David H. Fuller
  and General Counsel
                                   Its: Division VP & Director


                                                           Exhibit 10.13
                       SUBLEASE AGREEMENT


      This  Sublease is made this 24th day of February, 1997,  at
Travis County, Texas by and between ELECTROSOURCE, INC., (herein,
"Sublessor"),  and  MERIT PRINTING, INC.,  a  Texas  corporation,
(herein, "Sublessee").
     Sublessor is the Lessee under that certain Lease, (the "Main
Lease"),  by  and  between  AETNA  LIFE  INSURANCE  COMPANY,   as
Landlord, (herein "Lessor"), and ELECTROSOURCE, INC., as  Tenant,
(herein  "Sublessor"), executed on or about February 3, 1992,  as
amended,  for  the premises described in the Main Lease  at  3800
Drossett Drive, Austin, Texas, (herein "Leased Premises"), a true
and  correct  copy  of  which Main Lease is  attached  hereto  as
Exhibit "A" and incorporated herein by this reference.
      In  consideration of the mutual promises contained  herein,
Sublessor  hereby  subleases the Leased  Premises  to  Sublessee,
subject  to  the terms of the Main Lease, and subject further  to
the provisions of this Sublease Agreement as follows:
          1.    Sublessee hereby agrees to abide by  and  observe
          all  the  terms, covenants and conditions of  the  Main
          Lease.
          2.    The term of this Sublease shall be for a term  of
          24  months,  commencing on March 1,  1997,  and  ending
          February   28,  1999,  provided,  however,  that   this
          Sublease  shall  sooner terminate upon the  termination
          for any cause whatsoever of the Main Lease.
          3.   Insofar as the provisions of the Main Lease do not
          conflict  with the specific provisions of this Sublease
          Agreement, they and each of them are incorporated  into
          this  Sublease as if fully completely rewritten herein,
          and  Sublessee agrees to be bound to the  Sublessor  by
          all  the  terms of the Main Lease and to assume towards
          Sublessor   and   perform  all  the   obligations   and
          responsibilities  that Sublessor, by  the  Main  Lease,
          assumes  towards the Lessor, except for the payment  of
          rent  by  Sublessee to Sublessor, which is governed  by
          Paragraph  4  herein.   Sublessee  further  agrees   to
          indemnify and hold harmless Sublessor for any claim  or
          liability  (including reasonable attorneys' fees) under
          the  Main  Lease  for  actions or  failure  to  act  by
          Sublessee.   The  relationship  between  Sublessee  and
          Sublessor  shall be the same as that between  Sublessor
          and Lessor under the Main Lease.
          4.   Sublessee agrees to pay Sublessor, as rent for the
          Leased  Premises,  the  sum  of  Eleven  Thousand  Nine
          Hundred  Eighteen  and 40/100 Dollars ($11,918.40)  per
          month  from  March  1, 1997 through February  28,  1998
          (triple   net),  and  Thirteen  Thousand  Four  Hundred
          Thirteen and 40/100 Dollars ($13,413.40) per month from
          March  1, 1998 through February 28, 1999 (triple  net),
          payable  in  advance on the 1st day  of  each  calendar
          month during the term of this Sublease.
          5.    The following events shall be deemed to be events
          of default by Sublessee under this Sublease: any events
          of  default by Sublessee listed as events of default by
          Lessee  set forth in the Main Lease, or any default  in
          the  provisions of this Sublease agreement.   Upon  the
          occurrence  of  any  such events  of  default,  and  in
          addition  to  any other available remedies provided  by
          law  or  in  equity, Sublessor shall have all  remedies
          granted to Lessor in the Main Lease.
          6.    Upon execution of this Sublease, Sublessee  shall
          deposit  with  Sublessor the sum of  _____-0-__________
          Dollars  ($0.00), as a security deposit to be  held  by
          Sublessor pursuant to the provisions of the Main Lease.
          7.    Sublessee  shall be liable for its share  of  all
          operating expenses of the building as set forth in  the
          Main   Lease,   including,  without  limitation,   real
          property   taxes,   common  area  charges,   Landlord's
          insurance  and  similar charges for the  term  of  this
          Sublease.  Sublessee shall also be responsible for  its
          utilities,  trash  removal  and  janitorial   services.
          Annual  charges will be prorated in the  usual  manner.
          Sublessee shall not be liable under the Main Lease  for
          anything  that  occurred prior  to  the  term  of  this
          Sublease  or that should have reasonably have  occurred
          or been performed prior to the term of this Sublease.
          8.    Sublessor agrees to indemnify and hold  Sublessee
          harmless  from  any  claim, loss or  damage  (including
          reasonable   attorney   fees)   arising   related    to
          environmental   contamination  of  the   premises   and
          surrounding  ground resulting from Sublessor's  use  of
          premises   existing  at  the  time  this  Sublease   is
          executed.
          9.    Time is of the essence of this Sublease, and each
          and all of the terms hereof.
          10.   Any  notice  or other communication  required  or
          permitted to be given under this Sublease or under  the
          Main  Lease shall be in writing and shall be deemed  to
          be  delivered on the date it is hand delivered  to  the
          party to whom such notice is given, at the address  set
          forth  below, or if such notice is mailed, on the  date
          on  which  it  is deposited in the United States  mail,
          postage  prepaid, certified or registered mail,  return
          receipt requested, addressed to the party to whom  such
          notice is directed, at the address set forth below:

          If to Sublessor:
               Mr. James M. Rosel
               Vice President Finance and General Counsel
               Electrosource, Inc.
               2809 Interstate 35 South
               San Marcos, Texas 78666

          If to Sublessee:
                                         and,  if applicable,  to
Lessor,
               Mr. John T. Bender       Aetna Life Insurance Co.,
               Vice President           By and through its agent:
                Merit  Printing, Inc.     Trammell  Crow  Central
Texas
                3800-B  Drossett  Drive    301  Congress  Avenue,
Suite 1300
               Austin, Texas 78746      Austin, Texas 78701

          11.   Sublessee shall have no right to assign or sublet
          any  interest in this Sublease without first  obtaining
          the  written consent of the Lessor and Sublessor, which
          consent  may  or may not be granted by  the  Lessor  or
          Sublessor   in   their   sole  opinion,   judgment   or
          discretion.
          12.  Sublessor shall have no liability to Sublessee for
          any  wrongful action or default on the part  of  Lessor
          pursuant  to the terms of the Main Lease, and Sublessee
          hereby agrees to look solely to Lessor in event of  any
          such   default,   the  liability  and  obligations   of
          Sublessor  being  solely  pursuant  to  the  terms  and
          conditions of this Sublease Agreement.
          13.   Sublessor represents and warrants that  the  Main
          Lease  is  not in default at the time this Sublease  is
          signed by Sublessor.
          14.   In  the  event any one or more of the  provisions
          contained  in  this Sublease Agreement  shall  for  any
          reason  be  held invalid, illegal, or unenforceable  in
          any    respect,   such   invalidity,   illegality    or
          unenforceability shall not affect any  other  provision
          hereof and this Agreement shall be construed as if such
          invalid,  illegal or unenforceable provision had  never
          been contained herein.
          15.   This  Agreement constitutes  the  sole  and  only
          agreement  of  the  parties hereto and  supersedes  any
          prior  understanding  and written  or  oral  agreements
          between  the parties respecting the subject  matter  of
          this Sublease Agreement.

          EXECUTED on the day and year first above written.

ELECTROSOURCE, INC.                MERIT PRINTING, INC.



By:    /s/ James M. Rosel          By:    /s/ John T. Bender

Printed Name: James M. Rosel       Printed Name: John T. Bender

Its: Vice President Finance        Its: Vice President & General Manager
     and General Counsel


                        CONSENT BY LESSOR

      AETNA  LIFE INSURANCE COMPANY, Lessor under the Main  Lease
referred  to in this Sublease Agreement, hereby consents  to  the
foregoing Sublease Agreement.  Lessor further represents that the
Main  Lease  is  not  in  default at the  time  this  consent  is
executed.

                                   AETNA LIFE INSURANCE COMPANY


                                   By:  /s/ James G. Hughes

                                   Printed Name:  James G. Hughes

                                   Its:  Vice President



                                                           Exhibit 10.17

                         FIRST AMENDMENT
                                TO
             ASSET AND TECHNOLOGY LICENSE AGREEMENT


      This amendment ("Amendment") is made as of the 19th day  of
December, 1997 by and between BDM INTERNATIONAL, INC., a Delaware
corporation ("Technologies") and ELECTROSOURCE, INC., a  Delaware
corporation ("ELSI").
                           WITNESSETH:
      WHEREAS, BDM Technologies, (also "Technologies")  and  ELSI
entered  into that certain Asset and Technology License Agreement
dated as of January 31, 1995 (the "Agreement"); and
      WHEREAS, BDM Technologies was subsequently merged into  BDM
International, Inc. ("BDM"); and
      WHEREAS, BDM and ELSI have agreed upon a method of  payment
for past and future obligations under the Agreement; and
      WHEREAS,  BDM  and ELSI wish to amend the Agreement  to  so
modify the payment method and schedule;
      NOW,  THEREFORE, in consideration of the premises  and  the
covenants  of the parties herein contained, and intending  to  be
legally bound hereby, the parties hereto agree as follows:
             1.   Notwithstanding anything to the contrary in the
          Agreement, past due amounts under Section 3.04 and 3.05
          and amounts due in the future for equipment leases, all
          as  summarized  as of the date hereof on  Exhibit  "A,"
          which   is  attached  hereto,  shall  be  paid   in   a
          combination of cash and common stock as follows;
               A.    $100,000 cash to be paid by ELSI to BDM upon
               receipt  by ELSI of partial funding in the  amount
               $2  million on or before December 31, 1997.   Such
               funding  is to be supplied by sources unaffiliated
               with  BDM from a fund raising effort by ELSI  that
               is underway as of the date of this Amendment.
               B.    $300,000 cash to be paid by ELSI to BDM upon
               completion of additional funding in the amount  of
               $5 million which is anticipated to be completed by
               ELSI  on  or  before March 31, 1998  from  sources
               unaffiliated with BDM.  If the fundraising has not
               been successfully completed by March 31, 1998, BDM
               and  ELSI  shall meet in a good faith  attempt  to
               mutually agree upon an arrangement for payment  of
               such  amount.  In the event of a failure to agree,
               any  amounts then owed to BDM shall be  calculated
               based  on cash paid under paragraph 1.A.  and  B.,
               and  paid in accordance with procedures set  forth
               in paragraph 1.C.  Payment of such shares shall be
               made on April 15, 1998.
               C.    The  balance  shall be paid in  ELSI  common
               stock to be issued immediately to BDM with a value
               of  Seven Hundred Sixty-six Thousand Nine  Hundred
               Sixty-seven   and  No/100  Dollars   ($766,967.00)
               calculated  using  the  latest  available  closing
               price  for ELSI common stock as reported by NASDAQ
               prior  to  the  date of issue of the  stock.   The
               Seven  Hundred  Sixty-six  Thousand  Nine  Hundred
               Sixty-seven and No/100 Dollars ($766,967.00) value
               represents:
                    i)    the  sum  of past due rents  and  taxes
                    under   Sections  3.04  and   3.05   of   the
                    Agreement,

                    ii)   less the cash to be paid under A and  B
                    above, and

                    iii) plus, the amount of future payments  for
                    the  equipment leases in Schedule  6  of  the
                    Agreement, which is attached hereto.

               D.    ELSI shall from the date hereof pay directly
               to  the  Lessor the rental payments for  the  real
               property ("Facility") described in Schedule  6  to
               the  Agreement,  and  shall pay  directly  to  the
               taxing authorities all taxes for the Facility  and
               equipment.
               E.    ELSI  shall  also purchase the  Facility  or
               otherwise  remove BDM as a guarantor of the  lease
               for  the Facility by no later than April 1,  1998.
               In  the  event that ELSI shall not have  purchased
               the Facility or removed BDM as a guarantor by said
               date,  then  ELSI shall give notice to cancel  the
               Facility  lease effective September 30,  1998  (by
               providing  180  days  advance  written  notice  to
               Landlord  as provided in the "Lease Agreement"  of
               August 17, 1993).
               F.    In  the event that the cash and common stock
               delivered  hereunder by ELSI to BDM is  less  than
               the  amount of the past and future obligations set
               forth  in Exhibit "A" based on the actual proceeds
               of  the  sale of ELSI common stock by  BDM  (or  a
               credit  of  $1.00 per share, whichever is  higher)
               such  sales  to be completed within  a  reasonable
               period of time after a registration statement  for
               such common stock is effective or after the common
               stock  otherwise becomes available for sale  under
               an  exemption from registration, ELSI shall,  upon
               demand  from  BDM,  pay to BDM the  difference  in
               cash.  If such cash payment would cause a material
               adverse affect on the financial condition of ELSI,
               then  ELSI  may  pay the deficiency in  additional
               shares  of common stock valued at the then  market
               price  [if greater than $1.00 per share.   If  the
               market  value is less than $1.00 per  share,  ELSI
               shall  pay  the difference in cash.]   ELSI  shall
               provide to BDM one time demand registration rights
               under  the  terms of Section 7.04 of the Agreement
               for any such stock, such registration statement to
               be  filed within 45 days of notice of demand.   If
               the  proceeds  from  the sale of  such  additional
               shares  prove  inadequate  to  pay  the  remaining
               amounts   due,   Electrosource   will   pay   that
               deficiency in cash upon notice from BDM.
               G.   If there is a change in the number or kind of
               outstanding  shares of Common  Stock  of  ELSI  by
               reason   of   a   stock  dividend,  stock   split,
               recapitalization,      merger,      consolidation,
               combination  or  other similar event,  appropriate
               adjustments shall be made to the number  and  kind
               of   shares  to  be  paid  under  this  Agreement,
               including  an appropriate adjustment  to  the  par
               value thereof and the minimum credit of $1.00  per
               share   referenced  in  paragraph  1.F.  of   this
               Agreement.
          2.    Section  11.02 of the Agreement "Termination"  is
          amended  by adding a new part "(c)" at the end of  said
          Section as follows:
            "(c)  BDM  waives any defaults for non-payment  under
            the  Agreement  prior to the date of  this  Amendment
            and  waives  any right to terminate the Agreement  or
            seek  any other remedies based upon any such defaults
            for  so long as ELSI is not in material default under
            this  Amendment.  This waiver shall not apply to  any
            defaults  that may occur from and after the  date  of
            the First Amendment to the Agreement."

      The  Agreement is not otherwise amended or modified in  any
respect,  and all provisions thereof continue in full  force  and
effect except as specifically set forth herein.

      IN  WITNESS  WHEREOF, the parties hereto have  caused  this
First  Amendment to the Agreement to be executed and be effective
the date first above written.

ELECTROSOURCE, INC.                BDM INTERNATIONAL, INC.



By:  /s/ James M. Rosel       By:  /s/ C. Thomas Faulders III
  James M. Rosel
  Vice President Finance      Printed Name: C.Thomas Faulders III
  and General Counsel
                              Its:  EVP & CFO

                           EXHIBIT "A"
  to First Amendment to Asset and Technology License Agreement

                     BDM - SCHEDULE OF DEBTS

                 Amount due to December 15, 1997

                    Equipment      Facility    Property
                      Leases       Building    Taxes          Total
                                    Lease

Past Due Payments
10/15/97            $423,143       $186,999  $153,043       $763,185

Less Payments
through 10/15/97                                           (125,000)

Net  Past  Due  at                                          $638,185
10/15/97

Adjustments     to
12/15/97:

November, December
Payments @ $50,845                                          $101,690

Less      11/19/97                                          (25,000)
Payment

Balance        Due                                          $714,875
12/15/97

Less  Cash  To  Be                                         (400,000)
Paid

Net  Past  Due  at                                          $314,875
12/15/97

          Commitments to end of Leases as of 12/15/97:
                    Equipment Leases  Facility Building     Total
                                            Lease
Total    Additional
Payments to End  of          $557,877        $2,270,000   $2,827,877
Term at 9/30/97

Adjustments      to
12/31/97
(Oct.  Nov. &  Dec.        ($105,785)         ($46,750)   ($152,535)
Pmts. @ $50,845)

Total                        $452,092        $2,223,250   $2,675,342


                          Stock Payment
Net Past Due Amounts                                        $314,875

Plus Equipment payout                                       $452,092

Amount to be Paid  In                                       $766,967
Stock


                                                           Exhibit 10.31

                 5% CONVERTIBLE PROMISSORY NOTE

     THIS  NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
     ACT  OF  1933,  AS AMENDED (THE "ACT"),  OR  UNDER  THE
     SECURITIES LAWS OF ANY STATE (OBLUE SKY LAWSO), AND MAY
     NOT  BE  SOLD  OR  TRANSFERRED IN  THE  ABSENCE  OF  AN
     EFFECTIVE  REGISTRATION  STATEMENT  UNDER  THE  ACT  OR
     DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
     COMPANY   TO   THE   EFFECT  THAT  AN  EXEMPTION   FROM
     REGISTRATION THEREUNDER IS AVAILABLE.

Dated September 27, 1997                              $100,000.00

       FOR   VALUE  RECEIVED,  Electrosource,  Inc.,  a  Delaware
corporation (the "Company"), hereby promises to pay to the  order
of Corning Incorporated, a New York corporation ("Corning" or the
"original  holder"),  the principal sum of One  Hundred  Thousand
Dollars  ($100,000.00) together with interest thereon  calculated
from  the date hereof, in accordance with the provisions of  this
Note.

      This  Note  is  the  5%  Convertible Promissory  Note  (the
"September  1997  Note")  issued  for  payment  of  interest  due
pursuant  to  the 5% Convertible Promissory Note  (the  "Original
Note")  issued  pursuant to a Note Purchase and Option  Agreement
dated as of March 27, 1997, between the Company and Corning  (the
"Purchase  Agreement").  The Purchase  Agreement  contains  terms
governing  the  rights  and obligations of  the  holder  of  this
September 1997 Note, and all provisions of the Purchase Agreement
are  incorporated herein by reference. Unless otherwise indicated
herein, capitalized terms used in this September 1997 Note and in
the  Original  Note have the same meanings as set  forth  in  the
Purchase Agreement.

Part 1.   Payment of Interest

      lA.  Rate of Interest. Interest shall accrue at the rate of
five  percent  (5%) per annum on the unpaid principal  amount  of
this  September 1997 Note outstanding from time to time. Interest
shall  be  paid  in  cash or, at the option of  the  Company,  in
additional  Notes  having terms identical to  the  Original  Note
except  in  respect of principal amount, dated as of the  Payment
Date  (as  defined below) with respect to which such interest  is
payable  and  having a principal amount equal to  the  amount  of
interest accrued and unpaid as of that Payment Date.

      lB.   Payment  Dates.  On  March  27,  1998,  and  on  each
subsequent  September 27 and March 27 (each of which dates  shall
be a "Payment Date"), all unpaid interest that has accrued on the
unpaid principal amount of this September 1997 Note on and  prior
to such Payment Date or on any overdue interest on this September
1997 Note shall become due and payable.

      lC.   Payment  upon  Maturity or  Prepayment.  All  accrued
interest that has not theretofore been paid shall be paid in full
on  the  date  on  which the entire principal amount  outstanding
under   this  Note  is  paid,  whether  upon  maturity  or   upon
prepayment.  In the event that any portion less than  the  entire
outstanding  principal  amount of this  September  1997  Note  is
prepaid pursuant to paragraph 2B, the accrued interest applicable
to such portion prepaid shall be paid as of the effective date of
such partial prepayment.

      lD.  Saving Clause. All agreements and transactions between
the  Company and the holder of this September 1997 Note,  whether
now existing or hereafter arising, whether contained herein or in
any  other  instrument, and whether written or oral,  are  hereby
expressly  limited so that in no contingency or event whatsoever,
whether  by  reason  of  acceleration  of  the  maturity  hereof,
prepayment, demand for prepayment or otherwise, shall the  amount
contracted  for,  charged  or received  by  the  holder  of  this
September 1997 Note from the Company for the use, forbearance  or
detention of the principal indebtedness or interest hereof, which
remains  unpaid  from  time to time, exceed  the  maximum  amount
permissible  under  applicable law,  it  particularly  being  the
intention  of  the  parties hereto to  conform  strictly  to  the
applicable law of usury. Any interest payable hereunder or  under
any  other  instrument  relating to  the  indebtedness  evidenced
hereby  that  is in excess of the legal maximum,  shall,  in  the
event  of  acceleration  of  maturity,  prepayment,  demand   for
prepayment or otherwise, be automatically, as of the date of such
acceleration,  prepayment,  demand or  otherwise,  applied  to  a
reduction  of the principal indebtedness hereof and  not  to  the
payment  of  interest, or if such excessive interest exceeds  the
unpaid  balance of such principal, such excess shall be  refunded
to   the   Company.  To  the  extent  not  prohibited   by   law,
determination of the legal maximum rate of interest shall at  all
times  be made by amortizing, prorating, allocating and spreading
in  equal parts during the period of the full stated term of  the
indebtedness, all interest at any time contracted for, charged or
received from the Company in connection with the indebtedness, so
that  the actual rate of interest on account of such indebtedness
is uniform throughout the term hereof.

Part 2.   Payment of Principal

      2A.   Payment  upon Maturity. The entire  unpaid  principal
amount hereof shall be due and payable on March 27, 2002.

      2B.  Prepayment.  The Company may prepay all or any part of
this  Note  at any time in One Hundred Thousand Dollar ($100,000)
increments.   The  Company shall give not less than  thirty  (30)
days prior written notice of its intention to prepay this Note.

Part 3.   Registration of Transfer

      The  Company shall keep at its principal office a  register
for  the registration of Notes, which shall contain the name  and
address  of  the  registered holder (herein referred  to  as  the
holder)  of the Note and the principal and interest of the  Note.
No  transfer  of the Note or any right to receive payments  under
the  Note  shall  be  permitted unless made  upon  the  CompanyOs
register. Upon the surrender of any Note or Notes at such  place,
the  Company  shall, at the request of the holder of  such  Note,
execute  and  deliver (at the CompanyOs expense) a  new  Note  or
Notes  in  exchange  therefor representing in the  aggregate  the
principal  amount represented by the surrendered Note. Each  such
new  Note  shall  be registered in such name and shall  represent
such  principal amount of Note as is requested by the  holder  of
the surrendered Note and shall be substantially identical in form
to  the  surrendered Note, and interest shall accrue on such  new
Note  from the date to which interest has been fully paid on such
Note  represented by the surrendered Note; provided that, if  any
Note is to be registered in the name of a person or persons other
than  the holder of the Note, there has been compliance with  all
laws  applicable  to such change of registered holder,  including
but not limited to federal and state securities laws.

Part 4.   Replacement

      Upon  receipt  of evidence reasonably satisfactory  to  the
Company  of  the  ownership and the loss, theft,  destruction  or
mutilation  of any Note, and in the case of any such loss,  theft
or destruction, upon receipt of indemnity reasonably satisfactory
to  the  Company,  or,  in the case of any such  mutilation  upon
surrender  of  such  Note, the Company  shall  (at  its  expense)
execute and deliver in lieu of such Note, a new Note of like kind
representing  the  principal amount of Note represented  by  such
lost,  stolen, destroyed or mutilated Note and dated the date  of
such  lost,  stolen,  destroyed or mutilated Note,  and  interest
shall  accrue on the Note represented by such new Note  from  the
date  to which interest has been fully paid on such lost, stolen,
destroyed or mutilated Note.

Part 5.   Cancellation

     After all principal and accrued interest at any time owed on
this  September  1997 Note has been paid in full, this  September
1997  Note  shall be surrendered to the Company for  cancellation
and shall not be reissued.

Part 6.   Waiver of Notice, etc.

      The  Company  hereby  waives presentment,  demand,  notice,
protest  and all other demands and notice in connection with  the
delivery,  acceptance,  performance  and  enforcement   of   this
September  1997  Note, and assents to extension of  the  time  of
payment or forbearance or other indulgence without notice.

Part 7.   Events of Default

      7A.   Events  of  Default.  Each  of  the  following  shall
constitute an Event of Default:

           (i)  the Company fails to pay when due the full amount
of  any principal or interest on this September 1997 Note whether
at maturity or by acceleration or otherwise;

          (ii) the Company makes an assignment for the benefit of
creditors  or  admits in writing its inability to pay  its  debts
generally as they become due; or an order, judgment or decree  is
entered  adjudicating the Company bankrupt or insolvent;  or  the
Company  petitions or applies to any tribunal for the appointment
of  a  trustee, receiver or liquidator of the Company or  of  any
substantial  part of the assets of the Company, or commences  any
proceeding  under  any  bankruptcy, reorganization,  arrangement,
insolvency, readjustment of debt, dissolution or liquidation  law
of  any  jurisdiction;  or any such petition  or  application  is
filed,  or  any such proceeding is commenced against the  Company
and  either the Company takes any action indicating its  approval
thereof,  consent  thereto,  or  acquiescence  therein  or   such
petition,  application  or proceeding  is  not  dismissed  within
ninety (90) days;

          (iii)     the sale by the Company of a material part of
the  business or assets of the Company other than in the ordinary
course of business;

           (iv)  the  taking,  closing or  nationalization  of  a
material  part  of  the  business or assets  of  the  Company  by
governmental  or legal action.  A "material part of the  business
or  assets of the Company" means more than one-third of the gross
assets  of  the  Company as set forth in its most recent  audited
consolidated financial statements;

           (v)  any representation or warranty of the Company set
forth  in the Purchase Agreement is shown to be, or becomes false
or untrue as of the date of this September 1997 Note.

      7B.   Remedies. Upon the occurrence and continuance of  any
Event  or  Events  of default, the holders of a majority  of  the
combined  aggregate  principal  amount  outstanding  under   this
September  1997 Note and any Notes issued in payment  of  accrued
interest on Notes may, by written notice to the Company,  declare
all  or any part of the unpaid principal amount of the Notes then
outstanding  to be forthwith due and payable, and thereupon  such
unpaid  principal amount or part thereof, together with  interest
accrued   thereon,  shall  become  so  due  and  payable  without
presentation,   presentment,  protest,  notice   of   intent   to
accelerate, notice of acceleration, or further demand  or  notice
of  any kind, all of which are hereby expressly waived, and  such
holder  or holders may proceed to enforce payment of such  amount
or  part  thereof  in such manner as it or they  may  elect.  The
Company  hereby waives to the extent not prohibited by applicable
law  which cannot itself be waived (i) all presentments,  demands
for  performance, notices of nonperformance (except to the extent
required  by  the  provisions hereof), (ii)  any  requirement  of
diligence or promptness on the part of any holder of Notes in the
enforcement of its rights under the provisions of this  September
1997  Note,  and  (iii) any and all notices  of  every  kind  and
description which may be required to be given by any  statute  or
rule of law.

Part 8.   Conversion

     8A.  Conversion Procedure.

          (i)  The holder of this September 1997 Note may convert
all  or  any  portion of the outstanding principal amount  hereof
(plus  accrued  but unpaid interest on such principal  amount  or
portion  thereof) held by such holder into a number of shares  of
the  CompanyOs  Common Stock computed by dividing  the  principal
amount  of  this  September 1997 Note (plus  accrued  but  unpaid
interest  thereon) to be converted by the OConversion PriceO  (as
defined below in Part 8B).

           (ii)  Each  conversion will be  deemed  to  have  been
effected  as  of the close of business on the date on  which  the
instrument  representing  this  September  1997  Note  has   been
surrendered at the principal office of the Company. At such  time
as such conversion has been effected, the rights of the holder of
this September 1997 Note as such holder will cease and the person
or persons in whose name or names any certificate or certificates
for  shares of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record  of
the shares of Common Stock represented thereby.

           (iii)      As soon as possible after a conversion  has
been effected (but in any event within three (3) business days in
the case of subparagraph (a) below), the Company will deliver  to
the converting holder:

                (a)   a  certificate representing the  number  of
shares  of Common Stock issuable by reason of such conversion  in
such name or names and such denomination or denominations as  the
converting holder has specified (provided that, in the event that
the name specified by the converting holder is other than that of
the   converting  holder,  the  Company  has  received   evidence
satisfactory to Company counsel that the transfer of Common Stock
from  the  converting  holder  to the  person  specified  may  be
accomplished without violation of applicable law);

                (b)  a replacement Note having terms identical to
those  of  this  September  1997 Note other  than  the  principal
amount,  which shall be equal to portion of the principal  amount
of the original Note not converted; and

                (c)   the amount payable under subparagraph  (vi)
below with respect to fractional shares of Common Stock otherwise
issuable upon such conversion.

           (iv) The issuance of certificates for shares of Common
Stock  upon conversion of this September 1997 Note will  be  made
without charge to the holder of such Note for any issuance tax in
respect  thereof  or  other  cost  incurred  by  the  Company  in
connection  with  such  conversion and the  related  issuance  of
shares  of  Common Stock. Upon conversion of this September  1997
Note, the Company will take all such actions as are necessary  in
order  to  insure that the Common Stock issuable with respect  to
such   conversion  will  be  validly  issued,  fully   paid   and
nonassessable.

           (v)  The Company will not close its books against  the
transfer of this September 1997 Note or of Common Stock issued or
issuable  upon  conversion of this September  1997  Note  in  any
manner  which  interferes  with the  timely  conversion  of  this
September 1997 Note.

           (vi)  If any fractional interest in a share of  Common
Stock would, except for the provisions of this subparagraph (vi),
be  deliverable upon any conversion of this September 1997  Note,
the Company, in lieu of delivering the fractional share therefor,
may at its option pay a cash adjustment for such fractional share
equal  to such fraction times the fair market value per share  of
the  Common  Stock  at  the  close of business  on  the  date  of
conversion, as determined in good faith by the board of directors
of the Company.

           (vii)      The  provisions of this  part  8  shall  be
subject to the limitations imposed by section 2B hereof.

      8B.   Conversion Price. The Conversion Price shall be  Five
and  50/100 Dollars ($5.50).  In order to prevent dilution of the
conversion rights granted under this part 8, the Conversion Price
will  be subject to adjustment from time to time pursuant to this
part  8;  provided that the Conversion Price will in no event  be
less than One and No/100 Dollars ($1.00), the par value.

      8C.   Subdivision or Combination of Common  Stock.  If  the
Company  at  any  time  subdivides (by  any  stock  split,  stock
dividend,  recapitalization or otherwise) its outstanding  shares
of  Common  Stock into a greater number of shares, the Conversion
Price  in  effect immediately prior to such subdivision  will  be
proportionately reduced, and if the Company at any time  combines
(by  reverse stock split or otherwise) its outstanding shares  of
Common  Stock  into  a smaller number of shares,  the  Conversion
Price  in  effect immediately prior to such combination  will  be
proportionately increased.

     8D.  Reorganization, Reclassification, Consolidation, Merger
or  Sale.  Any  reorganization, reclassification,  consolidation,
merger  or  sale  of all or substantially all  of  the  CompanyOs
assets  to  another Person which is effected in such a  way  that
holders  of Common Stock are entitled to receive (either directly
or  upon  subsequent liquidation), stock, securities  or  amounts
with  respect to or in exchange for Common Stock is  referred  to
herein  as an OOrganic Change.O Prior to the consummation of  any
Organic Change, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holders of a majority  of
the  outstanding  principal amount of Notes then outstanding)  to
insure that each of the holders of Notes will thereafter (for  so
long  as  such  holders have the right to convert  the  Notes  as
provided in this part 8) have the right to receive, in lieu of or
in addition to the shares of Common Stock immediately theretofore
issuable upon the conversion of such holderOs Notes, such  shares
of stock, securities or assets as such holder would have received
in  connection  with  such  Organic Change  if  such  holder  had
converted his Notes immediately prior to such Organic Change.  In
any  such case, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holders of a majority  of
the  outstanding  principal amount of Notes then outstanding)  to
insure that the provisions of this part 8 will thereafter (for so
long  as  such  holders have the right to convert  the  Notes  as
provided in this part 8) be applicable to the Notes.

      8E.   Notices.  Until the maturity of this  September  1997
Note:

           (i)  Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to the holder
of this September 1997 Note.

          (ii) The Company will give written notice to the holder
of  this  September 1997 Note at least twenty (20) days prior  to
the  date on which the Company closes its books or takes a record
(a)  with  respect  to any dividend or distribution  upon  Common
Stock,  (b)  with respect to any pro rata subscription  offer  to
holders  of  Common Stock or (c) for determining rights  to  vote
with respect to any Organic Change, dissolution or liquidation.

           (iii)     The Company will also give written notice to
the  holder of this September 1997 Note at least thirty (30) days
prior to the date on which any Organic Change will take place.

Part 9.   Amendment and Waiver

      No  amendment, modification or waiver shall be  binding  or
effective with respect to any provision of this Note without  the
prior  written  consent of the holders of  at  least  sixty-seven
percent (67%) of the combined aggregate principal amount of  this
September 1997 Note and any additional Notes issued in payment of
accrued interest then outstanding.

Part 10.  Notices

        Except  as  otherwise  expressly  provided,  all  notices
referred  to  herein will be in writing and will be delivered  by
registered  or certified mail, return receipt requested,  postage
prepaid and will be deemed to have been given when so mailed  (i)
to  the  Company, at its principal executive offices and (ii)  to
any  holder of this September 1997 Note, at such holder's address
as it appears in the Note register maintained pursuant to part  3
hereof (unless otherwise indicated by any such holder).

      IN  WITNESS WHEREOF, the Company has executed and delivered
this Note as of September 27, 1997.

ELECTROSOURCE, INC.



By:    /s/ James M. Rosel
  James M. Rosel
  Vice President Finance
  and General Counsel


                                                           Exhibit 10.32

                 5% CONVERTIBLE PROMISSORY NOTE

     THIS  NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
     ACT  OF  1933,  AS AMENDED (THE "ACT"),  OR  UNDER  THE
     SECURITIES LAWS OF ANY STATE ("BLUE SKY LAWS"), AND MAY
     NOT  BE  SOLD  OR  TRANSFERRED IN  THE  ABSENCE  OF  AN
     EFFECTIVE  REGISTRATION  STATEMENT  UNDER  THE  ACT  OR
     DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
     COMPANY   TO   THE   EFFECT  THAT  AN  EXEMPTION   FROM
     REGISTRATION THEREUNDER IS AVAILABLE.

Dated March 27, 1998                                     $102,500

       FOR   VALUE  RECEIVED,  Electrosource,  Inc.,  a  Delaware
corporation (the "Company"), hereby promises to pay to the  order
of Corning Incorporated, a New York corporation ("Corning" or the
"original holder"), the principal sum of One Hundred Two Thousand
Five  Hundred  Dollars ($102,500) together with interest  thereon
calculated  from  the  date  hereof,  in  accordance   with   the
provisions of this Note.

      This Note is the 5% Convertible Promissory Note (the "March
1998  Note") issued for payment of interest due pursuant  to  (i)
the  5%  Convertible Promissory Note (the "Original Note") issued
pursuant  to  a Note Purchase and Option Agreement  dated  as  of
March  27,  1997, between the Company and Corning (the  "Purchase
Agreement"),  and  (ii) the 5% Convertible Promissory  Note  (the
"September 1997 Note") issued for the payment of interest on  the
Original  Note.  The Purchase Agreement contains terms  governing
the rights and obligations of the holder of this March 1998 Note,
and  all  provisions of the Purchase Agreement  are  incorporated
herein   by   reference.  Unless  otherwise   indicated   herein,
capitalized  terms  used  in this March  1998  Note  and  in  the
Original Note have the same meanings as set forth in the Purchase
Agreement.

Part 1.   Payment of Interest

      lA.  Rate of Interest. Interest shall accrue at the rate of
five  percent  (5%) per annum on the unpaid principal  amount  of
this  March  1998  Note outstanding from time to  time.  Interest
shall  be  paid  in  cash or, at the option of  the  Company,  in
additional  Notes  having terms identical to  the  Original  Note
except  in  respect of principal amount, dated as of the  Payment
Date  (as  defined below) with respect to which such interest  is
payable  and  having a principal amount equal to  the  amount  of
interest accrued and unpaid as of that Payment Date.

      lB.   Payment  Dates.  On  March  27,  1998,  and  on  each
subsequent  September 27 and March 27 (each of which dates  shall
be a OPayment DateO), all unpaid interest that has accrued on the
unpaid  principal amount of this March 1998 Note on and prior  to
such  Payment Date or on any overdue interest on this March  1998
Note shall become due and payable.

      lC.   Payment  upon  Maturity or  Prepayment.  All  accrued
interest that has not theretofore been paid shall be paid in full
on  the  date  on  which the entire principal amount  outstanding
under this March 1998 Note is paid, whether upon maturity or upon
prepayment.  In the event that any portion less than  the  entire
outstanding principal amount of this March 1998 Note  is  prepaid
pursuant to paragraph 2B, the accrued interest applicable to such
portion  prepaid shall be paid as of the effective date  of  such
partial prepayment.

      lD.  Saving Clause. All agreements and transactions between
the  Company and the holder of this March 1998 Note, whether  now
existing or hereafter arising, whether contained herein or in any
other  instrument,  and  whether  written  or  oral,  are  hereby
expressly  limited so that in no contingency or event whatsoever,
whether  by  reason  of  acceleration  of  the  maturity  hereof,
prepayment, demand for prepayment or otherwise, shall the  amount
contracted  for, charged or received by the holder of this  March
1998  Note from the Company for the use, forbearance or detention
of  the  principal indebtedness or interest hereof, which remains
unpaid  from  time to time, exceed the maximum amount permissible
under applicable law, it particularly being the intention of  the
parties  hereto  to  conform strictly to the  applicable  law  of
usury.  Any  interest  payable  hereunder  or  under  any   other
instrument relating to the indebtedness evidenced hereby that  is
in   excess  of  the  legal  maximum,  shall,  in  the  event  of
acceleration  of maturity, prepayment, demand for  prepayment  or
otherwise, be automatically, as of the date of such acceleration,
prepayment,  demand or otherwise, applied to a reduction  of  the
principal indebtedness hereof and not to the payment of interest,
or  if such excessive interest exceeds the unpaid balance of such
principal, such excess shall be refunded to the Company.  To  the
extent  not prohibited by law, determination of the legal maximum
rate  of  interest  shall  at all times be  made  by  amortizing,
prorating,  allocating and spreading in equal  parts  during  the
period  of the full stated term of the indebtedness, all interest
at  any time contracted for, charged or received from the Company
in  connection with the indebtedness, so that the actual rate  of
interest  on  account of such indebtedness is uniform  throughout
the term hereof.

Part 2.   Payment of Principal

      2A.   Payment  upon Maturity. The entire  unpaid  principal
amount hereof shall be due and payable on March 27, 2002.

      2B.  Prepayment.  The Company may prepay all or any part of
this  March  1998 Note at any time.  The Company shall  give  not
less  than thirty (30) days prior written notice of its intention
to prepay this March 1998 Note.

Part 3.   Registration of Transfer

      The  Company shall keep at its principal office a  register
for  the registration of Notes, which shall contain the name  and
address  of  the  registered holder (herein referred  to  as  the
Holder)  of the Note and the principal and interest of the  Note.
No  transfer  of the Note or any right to receive payments  under
the  Note  shall  be  permitted unless made  upon  the  CompanyOs
register. Upon the surrender of any Note or Notes at such  place,
the  Company  shall, at the request of the Holder of  such  Note,
execute  and  deliver (at the CompanyOs expense) a  new  Note  or
Notes  in  exchange  therefor representing in the  aggregate  the
principal  amount represented by the surrendered Note. Each  such
new  Note  shall  be registered in such name and shall  represent
such  principal amount of Note as is requested by the  Holder  of
the surrendered Note and shall be substantially identical in form
to  the  surrendered Note, and interest shall accrue on such  new
Note  from the date to which interest has been fully paid on such
Note  represented by the surrendered Note; provided that, if  any
Note is to be registered in the name of a person or persons other
than  the Holder of the Note, there has been compliance with  all
laws  applicable  to such change of registered holder,  including
but not limited to federal and state securities laws.

Part 4.   Replacement

      Upon  receipt  of evidence reasonably satisfactory  to  the
Company  of  the  ownership and the loss, theft,  destruction  or
mutilation  of any Note, and in the case of any such loss,  theft
or destruction, upon receipt of indemnity reasonably satisfactory
to  the  Company,  or,  in the case of any such  mutilation  upon
surrender  of  such  Note, the Company  shall  (at  its  expense)
execute and deliver in lieu of such Note, a new Note of like kind
representing  the  principal amount of Note represented  by  such
lost,  stolen, destroyed or mutilated Note and dated the date  of
such  lost,  stolen,  destroyed or mutilated Note,  and  interest
shall  accrue on the Note represented by such new Note  from  the
date  to which interest has been fully paid on such lost, stolen,
destroyed or mutilated Note.

Part 5.   Cancellation

     After all principal and accrued interest at any time owed on
this  March 1998 Note has been paid in full, this March 1998 Note
shall  be  surrendered to the Company for cancellation and  shall
not be reissued.

Part 6.   Waiver of Notice, etc.

      The  Company  hereby  waives presentment,  demand,  notice,
protest  and all other demands and notice in connection with  the
delivery,  acceptance, performance and enforcement of this  March
1998  Note,  and assents to extension of the time of  payment  or
forbearance or other indulgence without notice.

Part 7.   Events of Default

      7A.   Events  of  Default.  Each  of  the  following  shall
constitute an Event of Default:

           (i)  the Company fails to pay when due the full amount
of  any principal or interest on this March 1998 Note whether  at
maturity or by acceleration or otherwise;

          (ii) the Company makes an assignment for the benefit of
creditors  or  admits in writing its inability to pay  its  debts
generally as they become due; or an order, judgment or decree  is
entered  adjudicating the Company bankrupt or insolvent;  or  the
Company  petitions or applies to any tribunal for the appointment
of  a  trustee, receiver or liquidator of the Company or  of  any
substantial  part of the assets of the Company, or commences  any
proceeding  under  any  bankruptcy, reorganization,  arrangement,
insolvency, readjustment of debt, dissolution or liquidation  law
of  any  jurisdiction;  or any such petition  or  application  is
filed,  or  any such proceeding is commenced against the  Company
and  either the Company takes any action indicating its  approval
thereof,  consent  thereto,  or  acquiescence  therein  or   such
petition,  application  or proceeding  is  not  dismissed  within
ninety (90) days;

          (iii)     the sale by the Company of a material part of
the  business or assets of the Company other than in the ordinary
course of business;

           (iv)  the  taking,  closing or  nationalization  of  a
material  part  of  the  business or assets  of  the  Company  by
governmental  or legal action.  A "material part of the  business
or  assets of the Company" means more than one-third of the gross
assets  of  the  Company as set forth in its most recent  audited
consolidated financial statements;

           (v)  any representation or warranty of the Company set
forth  in the Purchase Agreement is shown to be, or becomes false
or untrue as of the date of this March 1998 Note.

      7B.   Remedies. Upon the occurrence and continuance of  any
Event  or  Events  of default, the holders of a majority  of  the
combined aggregate principal amount outstanding under this  March
1998 Note and any Notes issued in payment of accrued interest  on
Notes  may, by written notice to the Company, declare all or  any
part of the unpaid principal amount of the Notes then outstanding
to  be  forthwith  due  and payable, and  thereupon  such  unpaid
principal amount or part thereof, together with interest  accrued
thereon,  shall  become so due and payable without  presentation,
presentment, protest, notice of intent to accelerate,  notice  of
acceleration,  or further demand or notice of any  kind,  all  of
which are hereby expressly waived, and such holder or holders may
proceed to enforce payment of such amount or part thereof in such
manner as it or they may elect. The Company hereby waives to  the
extent  not prohibited by applicable law which cannot  itself  be
waived (i) all presentments, demands for performance, notices  of
nonperformance  (except to the extent required by the  provisions
hereof), (ii) any requirement of diligence or promptness  on  the
part  of  any  holder of Notes in the enforcement of  its  rights
under  the provisions of this March 1998 Note, and (iii) any  and
all  notices of every kind and description which may be  required
to be given by any statute or rule of law.

Part 8.   Conversion

     8A.  Conversion Procedure.

          (i)  The holder of this March 1998 Note may convert all
or  any portion of the outstanding principal amount hereof  (plus
accrued  but unpaid interest on such principal amount or  portion
thereof)  held  by  such holder into a number of  shares  of  the
CompanyOs Common Stock computed by dividing the principal  amount
of  this  March  1998  Note  (plus accrued  but  unpaid  interest
thereon)  to  be converted by the OConversion PriceO (as  defined
below in Part 8B).

           (ii)  Each  conversion will be  deemed  to  have  been
effected  as  of the close of business on the date on  which  the
instrument representing this March 1998 Note has been surrendered
at  the  principal office of the Company. At such  time  as  such
conversion  has been effected, the rights of the holder  of  this
March  1998  Note  as such holder will cease and  the  person  or
persons  in  whose name or names any certificate or  certificates
for  shares of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record  of
the shares of Common Stock represented thereby.

           (iii)      As soon as possible after a conversion  has
been effected (but in any event within three (3) business days in
the case of subparagraph (a) below), the Company will deliver  to
the converting holder:

                (a)   a  certificate representing the  number  of
shares  of Common Stock issuable by reason of such conversion  in
such name or names and such denomination or denominations as  the
converting holder has specified (provided that, in the event that
the name specified by the converting holder is other than that of
the   converting  holder,  the  Company  has  received   evidence
satisfactory to Company counsel that the transfer of Common Stock
from  the  converting  holder  to the  person  specified  may  be
accomplished without violation of applicable law);

                (b)  a replacement Note having terms identical to
those  of  this March 1998 Note other than the principal  amount,
which  shall be equal to portion of the principal amount  of  the
original Note not converted; and

                (c)   the amount payable under subparagraph  (vi)
below with respect to fractional shares of Common Stock otherwise
issuable upon such conversion.

           (iv) The issuance of certificates for shares of Common
Stock  upon  conversion  of this March 1998  Note  will  be  made
without charge to the holder of such Note for any issuance tax in
respect  thereof  or  other  cost  incurred  by  the  Company  in
connection  with  such  conversion and the  related  issuance  of
shares of Common Stock. Upon conversion of this March 1998  Note,
the  Company will take all such actions as are necessary in order
to  insure  that the Common Stock issuable with respect  to  such
conversion will be validly issued, fully paid and nonassessable.

           (v)  The Company will not close its books against  the
transfer  of  this March 1998 Note or of Common Stock  issued  or
issuable  upon conversion of this March 1998 Note in  any  manner
which  interferes with the timely conversion of this  March  1998
Note.

           (vi)  If any fractional interest in a share of  Common
Stock would, except for the provisions of this subparagraph (vi),
be  deliverable upon any conversion of this March 1998 Note,  the
Company,  in  lieu of delivering the fractional share  therefore,
may at its option pay a cash adjustment for such fractional share
equal  to such fraction times the fair market value per share  of
the  Common  Stock  at  the  close of business  on  the  date  of
conversion, as determined in good faith by the board of directors
of the Company.

           (vii)      The  provisions of this  part  8  shall  be
subject to the limitations imposed by section 2B hereof.

      8B.   Conversion Price. The Conversion Price shall be  Five
and  50/100 Dollars ($5.50).  In order to prevent dilution of the
conversion rights granted under this part 8, the Conversion Price
will  be subject to adjustment from time to time pursuant to this
part  8;  provided that the Conversion Price will in no event  be
less than One and No/100 Dollars ($1.00), the par value.

      8C.   Subdivision or Combination of Common  Stock.  If  the
Company  at  any  time  subdivides (by  any  stock  split,  stock
dividend,  recapitalization or otherwise) its outstanding  shares
of  Common  Stock into a greater number of shares, the Conversion
Price  in  effect immediately prior to such subdivision  will  be
proportionately reduced, and if the Company at any time  combines
(by  reverse stock split or otherwise) its outstanding shares  of
Common  Stock  into  a smaller number of shares,  the  Conversion
Price  in  effect immediately prior to such combination  will  be
proportionately increased.

     8D.  Reorganization, Reclassification, Consolidation, Merger
or  Sale.  Any  reorganization, reclassification,  consolidation,
merger  or  sale  of all or substantially all  of  the  CompanyOs
assets  to  another Person which is effected in such a  way  that
holders  of Common Stock are entitled to receive (either directly
or  upon  subsequent liquidation), stock, securities  or  amounts
with  respect to or in exchange for Common Stock is  referred  to
herein  as an OOrganic Change.O Prior to the consummation of  any
Organic Change, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holders of a majority  of
the  outstanding  principal amount of Notes then outstanding)  to
insure that each of the holders of Notes will thereafter (for  so
long  as  such  holders have the right to convert  the  Notes  as
provided in this part 8) have the right to receive, in lieu of or
in addition to the shares of Common Stock immediately theretofore
issuable upon the conversion of such holderOs Notes, such  shares
of stock, securities or assets as such holder would have received
in  connection  with  such  Organic Change  if  such  holder  had
converted his Notes immediately prior to such Organic Change.  In
any  such case, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holders of a majority  of
the  outstanding  principal amount of Notes then outstanding)  to
insure that the provisions of this part 8 will thereafter (for so
long  as  such  holders have the right to convert  the  Notes  as
provided in this part 8) be applicable to the Notes.

     8E.  Notices. Until the maturity of this March 1998 Note:

           (i)  Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to the holder
of this March 1998 Note.

          (ii) The Company will give written notice to the holder
of  this March 1998 Note at least twenty (20) days prior  to  the
date on which the Company closes its books or takes a record  (a)
with  respect to any dividend or distribution upon Common  Stock,
(b) with respect to any pro rata subscription offer to holders of
Common  Stock or (c) for determining rights to vote with  respect
to any Organic Change, dissolution or liquidation.

           (iii)     The Company will also give written notice to
the  holder  of  this March 1998 Note at least thirty  (30)  days
prior to the date on which any Organic Change will take place.

Part 9.   Amendment and Waiver

      No  amendment, modification or waiver shall be  binding  or
effective  with respect to any provision of this March 1998  Note
without  the  prior written consent of the holders  of  at  least
sixty-seven  percent  (67%) of the combined  aggregate  principal
amount of this March 1998 Note and any additional Notes issued in
payment of accrued interest then outstanding.

Part 10.  Notices

        Except  as  otherwise  expressly  provided,  all  notices
referred  to  herein will be in writing and will be delivered  by
registered  or certified mail, return receipt requested,  postage
prepaid and will be deemed to have been given when so mailed  (i)
to  the  Company, at its principal executive offices and (ii)  to
any  holder of this March 1998 Note, at such holderOs address  as
it  appears in the Note register maintained pursuant  to  part  3
hereof (unless otherwise indicated by any such holder).

      IN  WITNESS WHEREOF, the Company has executed and delivered
this March 1998 Note as of March 27, 1998.

ELECTROSOURCE, INC.



By:    /s/ Michael G. Semmens
  Michael G. Semmens
  President and CEO

                                                           Exhibit 10.33

                         AMENDMENT NO. 1
                               TO
                       ELECTROSOURCE, INC.
                     STOCK OPTION AGREEMENT
                      DATED MARCH 27, 1997
                 GRANTED TO CORNING INCORPORATED


      On  or  about  March  27,  1997, Electrosource,  Inc.  (the
"Company"),   a   Delaware  corporation,   granted   to   Corning
Incorporated  ("Corning")  an  option  to  acquire  Five  Hundred
Thousand  (500,000)  shares of the Company's  Common  Stock,  the
exercise  price  of which was $7.00 per share for 275,000  shares
and $9.00 per share for 225,000 shares (the "Options").

      On  December 19, 1997, the Company and Corning entered into
that certain Note Purchase Agreement whereby, among other things,
the  exercise  price of the Options was agreed to be  reduced  to
$4.00  per  share  for  275,000 shares and $6.00  per  share  for
225,000 shares.

      The  exercise  price  of the Options  is  therefore  hereby
amended to $4.00 per share for 275,000 shares and $6.00 per share
for 225,000 shares.

     All other terms and conditions of the Stock Option Agreement
remain  in full force and effect and are not amended or  modified
except as specifically set forth herein.

     IN WITNESS WHEREOF, the Parties have executed this Amendment
as of this 22nd day of December, 1997.

ELECTROSOURCE, INC.                CORNING INCORPORATED



By:  /s/ James M. Rosel            By:   /s/ David H. Fuller
  James M. Rosel
  Vice President Finance           Printed Name:  David H. Fuller
  and General Counsel
                                   Its:  Division VP & Director


                                                           Exhibit 10.34

                                            EXECUTION VERSION

           Research and Development Umbrella Agreement


     This RESEARCH AND DEVELOPMENT UMBRELLA AGREEMENT is dated as
of July 1, 1997, between CORNING INCORPORATED, a New York
corporation ("Corning"), and ELECTROSOURCE, INC., a Delaware
corporation ("Electrosource").

                      W I T N E S S E T H:

     WHEREAS, Electrosource designs, manufactures and markets
proprietary advanced energy storage technologies and systems,
including deep discharge lead-acid batteries; and

     WHEREAS, Corning creates leading-edge technologies and
produces advanced materials for the scientific and environmental
markets; and

     WHEREAS, the parties have entered into a Note Purchase and
Option Agreement, dated as of March 27, 1997 (the "Note Purchase
Agreement"), and a Stock Option Agreement dated as of March 27,
1997 (the "Stock Option Agreement"), whereby Corning may purchase
up to 1,227,273 shares of common stock of Electrosource; and

     WHEREAS, Corning has loaned to Electrosource $4,000,000 in
consideration of Electrosource issuing to Corning a 5%
Convertible Promissory Note of equivalent face value, dated March
27, 1997 (the "5% Convertible Note").

     WHEREAS, the parties believe that it would be in the best
interests of each other to jointly conduct and coordinate certain
projects that may involve research, development and transfers of
technology relating to the design, development arid manufacture
of deep discharge lead-acid batteries (the "Projects"); and

     WHEREAS, the parties desire to enter into this Research and
Development Umbrella Agreement to define certain terms and
conditions relating to Lhe joint conduct and coordination of such
Projects (this Research and Development UmbreiJa Agreement,
including any and a]] Project Annexes (as hereinafter defined)
that may be attached hereto from time to time, is referred to
herein as the "Agreement").

     NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants and undertakings contained herein, and
subject to and on the terms and conditions set forth herein, the
parties agree as follows:

1.    Projects. (a) From time to time Electrosource shall develop
and present to Corning various Projects. With respect to each
such Project, Electrosource shall present a written proposal to
Corning defining the technical and business goals of such
Project, the tasks involved and the milestones identified for
successfiil completion of such Project, the suggested involvement
and contributions of each of Electrosource and Corning, and the
period during which the Project shall be completed (each a
"Project Period"). Corning shall review such Project proposal and
decide whether it is in the best interests of Corning to
participate. Within a reasonable time after Electrosource has
presented to Corning such Project proposal, Coming shall notif~
Electrosource whether it elects to participate or not, the terms
on which it shall participate and any suggestions that Coming may
have towards the successfiil conduct and completion of such
Project. Any such Project on which the parties elect to jointly
participate shall be governed by the terms and conditions of this
Agreement, but shall be more particularly defined in an Annex to
be attached hereto, substantially in the form attached hereto as
Exhibit A (each a "Project Annex"), that includes a definition
and goals of such project, a definition of the involvement and
contributions of each of the parties, a schedule of performance,
milestones, payment details, and such other terms and conditions
as the parties shall mutually agree. These Project Annexes shall
be executed and dated by an authorized officer of each party and
shall for all purposes hereof and thereof be an integral part of
this Agreement.

     (b) Periodically, representatives of Coming and
Electrosource will meet to identi~ new areas for cooperation and
assistance that may lead to new Projects and to review progress
on any existing Projects, including the monitoring of costs and
expenses related to particular Projects.

     2.    Project Committees. (a) Each Project shall be governed
by a committee (each a "Project Comrnittee") consisting of two
managers, one designated by Corning and one designated by
Electrosource. The initial Project Committee members shall be
defined in the respective Project Annex. Each member of such
Project Committee shall serve at the pleasure of the party which
designated that Project Committee member and in the event of a
vacancy, a replacement shall be named prior to the next scheduled
Project Committee meeting by the party entitled to fill said
position.

     (b) The flinctions, authority and tasks of each such Project
Committee shall be: to provide overall technical, commercial and
financial guidance and control over the respective Project; to
designate a Project Leader (as defined in Section 3); to
initiate, approve (or disapprove) of significant changes to the
schedule ofperformance; to review, amend, disapprove or approve
any significant changes proposed by the Project Leader which
relate to tasks or activities assigned or being performed under
the Project; to review and audit whether Project milestones and
schedules are being met by each party as agreed; to redirect
resources where required in order to meet Project milestones and
schedules; to analyze how and to what extent technology can be
implemented and utilized in products; to ensure that tests are
conducted to use and test such products prior to the end of
respective Project Period; and to decide whether any patent
application(s) (domestic or foreign) should be filed on any
invention(s) created during the course of a Project, the subject
matter and jurisdiction of any patent such applications, and
whether any such patent applications shall be filed, prosecuted
and paid for jointly or by an individual party.

(c) Each Project Committee shall meet as often as necessary to
ensure the success~l oversight and completion of the Project, but
in any case not less frequently that quarterly during the term of
the respective Project Period. Such meetings shall be at mutually
agreed upon times and at equally convenient locations. The host
party shall bear the expenses of providing the meeting
facilities, but each party shall bear all other cost related to
its attendance.

     (d)  Except as otherwise agreed herein, all decisions of a
Project Committee shall be by unanimous vote.

     3.    Project Leader Emniovees. (a) Each Project Committee
shall, by unanimous vote, designate a project leader who shall,
unless otherwise agreed unanimously by such Project Committee, be
an employee of Corning (the ~~Project Leader"), and who shall
have the task and responsibility to manage and administer the
Project during the Project Period. Any removal or replacement of
the individual serving as Project Leader shall be subject to the
prior approval of; and be in the discretion of; such Project
Committee. The Project Leader shall be responsible for and shall
report to the Project Committee regarding all significant matters
arising in the course of; or affecting his coordination of; the
activities to be conducted under, and implementation of the
Project in accordance with, this Agreement and the respective
Project Annex.

     (b) The Project Leader shall have sufficient authority to
carry out his or her responsibility to administer his assigned
Project and meet the schedule of performance to completion,
including the authority to require that either or both parties
make available or delegate certain personnel of each who have the
expertise or experience necessary to perform the scheduled
activities under the Project. Such Project Leader shall also have
the authority to make changes in the Project schedules as may be
beneficial and necessary from time to time (but only if any such
change does not materially change the overall Project schedule of
performance, milestones, scope, goals, or timing). Any changes
made by the Project Leader which are of a magnitude so as to
constitute a significant revision or change of the overall
Project schedule of performance, milestones, scope, goals or
timing shall require the Project Committee's prior written
approval. The Project Leader shall report to the Project
Committee as often as necessary to si'ccessftilly accomplish the
Project in accordance with the Project schedule of performance,
but in any case not less frequently than quarterly. The research
and technical personnel of either party assigned to work on the
Project by the party shall be subject to the direction of the
Project Leader with respect to Project tasks assigned or assumed
and being performed by such party.

     (c) Each party agrees that as deemed necessary by the
Project Leader and for the success of the Project, each person
assigned tasks or performing work under this Agreement and the
respective Project Annex will, whenever reasonably possible,
either work solely on the Project during the period he has been
assigned to the Project or be allowed sufficient hours and
facilities so as to accomplish his tasks with respect to the
Project in a timely manner and in accordance with the schedules
and milestones of the Project.

     (d)  Each party agrees to require its employees to observe
all confidentiality, security, and safety rules and regulations
in effect at the other party's site as a condition of their
admittance to and presence at the other party's site.

     (e) Nothing in this Agreement shall entail an obligation
restricting or limiting in any way the assignment or reassignment
of Electrosource employees within Electrosource, or Corning
employees within the group of companies affiliated with Corning,
including (by way of clarification) the Project Leader.

     4.    Confidential Information. (a) Corning and
Electrosource recognize that in order to carry out the intent of
this Agreement and any particular Project Annex, the exchange of
certain commercial and technical information will be required and
that such commercial and technical information may constitute
proprietary information of the party fiirnishing the same.
"Confidential Information" shall mean all information received by
one party from the other party pursuant to this Agreement or a
Project Annex relating to a Project, whether flirnished in
writing or orally or visually. Such information which is provided
in written, encoded, graphic or other tangible form shall be
deemed to be Confidential Information only if it is clearly so
marked as being confidential or proprietary.

     (b) Until the expiration of five (5) years after the
termination or expiration of this Agreement (including by reason
of any early termination), all Confidential Information (i) shall
be maintained in confidence by the receiving party, (ii) shall
not, unless required by law or after prior written consent of the
disclosing party, be disclosed to any third party, other than
directors, employees, representatives, agents and affiliates of
the receiving party, or consultants that are bound by
confidentiality obligations consistent herewith, and having a
reasonable need for access to such information in order to
flilfill such party's obli~ations under this Agreement, and (iii)
shall be protected with the same degree of care as the receiving
party normally uses in the protection of its own confidential and
proprietary information, but in any event with no less than
reasonable care.

     (c) The restrictions herein provided shall not apply with
respect to any Confidential Information which:

          (i)  is already known by the receiving party at the
     time of receipt from the disclosing party as shown by such
     party's documents dated prior to such date of receipt;
          (ii) is or becomes a part of the public domain without
     breach of this Agreement by the receiving party;
          (iii) is obtained by the receiving party from a third
     party under conditions permitting its disclosure to others;
          (iv) is independently developed by the receiving party
     without reference to any Confidential Information; or
          (v)  is disclosed pursuant to valid order or demand of
     a court or other governmental body, provided that the
     receiving party sh~Lll have first given notice to the
     disclosing party and been allowed to make an effort to
     obtain a protective order or agreement requiring that the
     Confidential Information be used only for the governmental
     purposes for which the order or demand was issued.

      (d) Following the period of confidentiality under this
Section 4, no obligation is assumed by, or is to be implied
against, either receiving party with respect to disclosure of any
Confidential Information received hereunder.

     (e)  The receiving party shall limit disclosure of
Confidential Information only to those employees of the receiving
party who have a need to know such Confidential Information.

     (f) Prior to receiving Confidential Information, all
employees of the receiving party having access to Confidential
Information shall sign (if they have not already signed
agreements (including labor or employment contracts)) individual
confidential information non-disclosure agreements with their
respective employer, agreeing to maintain in confidence any and
all confidential information received as a result of their
employment. Each party agrees to enforce such confidential
information non-disclosure agreements with respect to the
Confidential Information received from the other party.

     5.    Intellectual Property Rights in Back~ound Technology.
(a) "Previously Existing Technology" shall mean any and all know-
how, processes, computer programs, technical data, prototypes,
inventions, discoveries, techniques, improvements, modifications,
technical information and all patents, patent applications,
copyrights, trade secrets and proprietary rights related thereto
that exist prior to the date of any Project Annex.

     (b) Subject to obligations to third parties existing as of
the date of each Project Annex, each party hereby grants to the
other party a nonexclusive, royalty-free, revocable license to
use Previously Existing Technology, but only to the extent
necessary for such other party to perform its obligations
(including perfoimance through additional related parties as a
particular Project Committee may determine) under this Agreement.
The licenses granted under this paragraph shall automatically
terminate at the end of the respective Project Period for which
such license is necessary or, in any case, no later than the
expiration or termination of this Agreement.

     6.    Project Technolo~v. (a) "Project Technology" shall
mean any and all know-how, processes, computer programs,
technical data, prototypes, inventions, discoveries, techniques,
improvements, modifications, technical information and all
patents, patent applications, copyrights, trade secrets and
proprietary rights related thereto which, in whole or in part,
are conceived by either or both of the parties in connection with
a Project.

(b) Project Technology that is conceived by either party during
the term of this Agreement in the course of work on a Project
shall be owned exclusively and controlled by the party that
conceived such Project Technology. Project Technology that is
jointly conceived by the parties during the term of this
Agreement in the course of work on a Project shall be jointly
owned by the parties and each party shall have the right to: (i)
unilaterally practice such Project Technology in or outside the
field of deep discharge lead-acid batteries (the "Field) without
consideration to, or approval from, the other party; and (ii)
~icense such party's rights in such Project Technology (A)
without consideration to, or consent from, the other party if
such licensee is not a competitor (and may not reasonably be
considered a potential competitor) of such other party or (B)
with the prior written consent of the other party if such
licensee is a competitor (or may reasonably be considered a
potential competitor) of such other party.

     (c) Electrosource may not at any time (except as
specifically provided herein) grant, assign, or transfer any
right, title, or interest in or under Project Technology owned
exclusively by Corning, including any licenses in whole or in
part, directly or indirectly, to any third party without the
prior written consent and approval of Corning.

     (d) Corning may not at any time (except as specifically
provided herein) grant, assign, or transfer any right, title, or
interest in or under Project Technology owned exclusively by
Electrosource, including any licenses in whole or in part,
directly or indirectly, within the field of deep discharge lead-
acid batteries to any third party without the prior written
consent and approval of Electro source.

     (e) Corning hereby grants to Electrosource a non-exclu~ve
and royalty free worldwide license in respect of Project
Technology owned exclusively by Corning to make, have made, use,
offer to sell or sell deep discharge lead-acid batteries.
Electrosource hereby grants to Corning a non-exclusive and
royalty free worldwide license in respect ofProject Technology
owned exclusively by Electrosource to make, have made, use, offer
to sell or sell products other than deep discharge lead-acid
batteries. Under each such license:

          (i) the licensee shall have the right to modit~ or
          enhance the licensed Project
          Technology, but the licensor shall receive a royalty
     free non-exclusive license to
          use such modifications or enhancements conceived during
     the term of this
          Agreement;

          (ii)the licensee shall have no right to sublicense the
          licensed Project Technology; provided, however, that
          in the event that either party desired to license the
          manufacture of products to manufacturer(s) located
          outside of the United States and such manufacture
          required the use of Project Technology owned by the
          other party, the party owning such Project Technology
          would grant to the other party the right to sublicense
          such Project Technology to such foreign licensee(s)
          solely for the manufacture outside the United States
          of such products to be sold exclusively outside of the
          United States, all in exchange for reasonable royalty
          payments as shall be negotiated; and

          (iii)     any and all licensed Project Technology
          shall be treated as Confidential Information in
          accordance with the terms hereof

The parties shall enter into a license agreement regarding the
licensed Project Technology including the terms set forth herein
and any other appropriate terms and conditions mutually agreed
upon by the parties. As appropriate, the licensor shall provide
to the licensee technical assistance, on terms and conditions to
be agreed to between the parties, to implement the use of the
licensed Project Technology.

     (f) In the event that certain licensed Project Technology
(other than patents and patent applications) shall become part of
the public domain without breach of this Agreement by the
licensee thereof; the licenses referred to in paragraph (e) of
this Section 4 in respect of such Project Technology shall
terminate and each party shall be free to use and apply such
Project Technology without restriction.

     (g) In the event that a Project Committee decides to file a
joint patent application in respect of Project Technology,
Corning shall have the right of first reftisal to tile and
prosecute such patent application for and on behalf of both
parties. In the event that a Project Committee decides not to
file a joint patent application in respect of Proj ect
Technology, the inventing party may initiate and prosecute
application(s) for patent(s) arising in connection with a
Project, in any jurisdiction, and shall have sole ownership and
control in respect of any such applications and patents;
provided, however, that if any inventing party shall fail or
reflise to initiate or prosecute within a reasonable time or
shall discontinue prosecution of the same in any jurisdiction,
the other party may elect to initiate or prosecute the same. Both
parties shall share all expenses incurred in applying for,
prosecuting, and securing joint patents (provided the relevant
Project Committee has approved such expenditures) and both
parties shall be named as and shall be joint and equal owners
thereof. Both parties shall share equally all maintenance and any
other fees and costs relating to the maintenance of such jointly
owned patents.

     (h) In the event of any third party infringement of any
patents, copyrights, trade secrets, or registration rights
hereunder which are jointly owned by the parties, both parties
(or either party in the event that the other party elects not to
participate) may elect in its or their discretion to initiate and
conduct appropriate action or legal proceedings; provided,
however, that (i) in the event that both parties hereto
participate in such action or proceedings, any and all sums
recovered as a result of such action or proceedings shall first
be used to reimburse such party or parties costs and expenses
incurred to recover the same, and any sums remaining or
obligations owed thereafter shall be shared equally between the
parties and (ii) in the event that oniy one party hereto elects
to participate in such action or proceedings, such party shall
bear all costs and expenses associated therewith and shall retain
all sums recovered and shall be solely responsible for all
obligations owed as result of such action or proceedings.

     7.   Results of Projects. (a) Each Project Leader shall
cause to be delivered to each member of the relevant Project
Committee prior to each quarterly meeting a technical and
commercial report containing the following:

     (i)  a complete detailed description of all activities of
     the Project undertaken by each party (and by any third
     party) during that quarter and results, including a
     description of any material technology developments and any
     areas in respect of which patent filings should be
     considered;

     (ii) a report of any material commercial transactions
     undertaken in connection with the Project; such report
     shall include a report on amounts paid out or approved for
     payment by the Project Leader for services performed during
     such quarter pursuant to the schedule of performance or
     otherwise; amounts due and payable by the parties as
     adjustments or otherwise and unpaid; any monies received
     and the sources and reasons for such.

     (b) Each party shall be required to keep accurate technical
records with respect to all activities undertaken pursuant to
this Agreement (including with respect to third party contracts).
Such records shall be maintained at the site where the work was
done of the respective party. Each party shall have access to the
records of the other party during normal business hours, from
time to time, upon written request of the other party, but in no
event less than quarterly each year.

     (c) Not later than three (3) months after the end of each
Project Period (or from time to time during each Project Period,
if feasible, and subject to any analyses and assessments by the
relevant Project Committee), the parties shall finalize their
analyses and assessments and analyze which Project Technology can
be exploited and utilized to manufacture products, and the
possible markets for such products. During or at the end of each
Project Period the parties shall use their best efforts to
produce or market all of the proprietary information embodied in
the corresponding Project results.

     8.    Pavments. (a) Corning shail receive payment for
participation in any Project on a monthly basis, in the amounts
and on the dates specified in the corresponding Project Annex.
Corning compensation shall be in the form of options ("Options")
to purchase Electro source common stock ("Common Stock").

     (b) All Options shall be issued on the relevant payment
dates as set forth in the respective Project Annexes. Each Option
issued shall bear an exercise price and be deemed for purposes
hereof and thereof to have a value on the issue date as follows:

             Issue Date
     Subsequent to  On or prior to Exercise Price  Value
     July 1,1997    June 30, 1998     $7.125       $2.50
     July 1,1998    June30, 1999      $8.000       $3.00
     July 1,1999    June 30, 2000     $9.000       $3.50

     (c) On the relevant payment dates as defined in each Project
Annex, Electrosource shall deliver to Comi~g an agreement or
certificate(s) representing that number of options set forth in
such Project Annex or, if no specific number is set forth, that
number of options calculated by dividing the U.S. dollar value of
the payment then due by the option value deemed to apply
according to the provisions of Section 8(b). Each such agreement
or certificate shall confirm or extend the applicability to such
Options of the representations, warranties and covenants of the
parties made in respect of the options granted under the Note
Purchase Agreement.

      (d) Performance hereunder, including the issuance to
Corning of options or the conversion of such options into Common
Stock, shall in no way modi~, supersede or prejudice the rights
and obligations of the parties under the Note Purchase Agreement,
the Stock Option Agreement, the 5% Convertible Note or any
agreements related thereto.

     9.    Re~istration Ri~hts. In respect of any shares of
Common Stock issued upon conversion of any options issued
hereunder, Coming shall have the registration rights provided
under the provisions of Part 6 of the Note Purchase Agreement,
which provisions are hereby incorporated by reference herein,
provided, however, that (a) in such provisions where there is
reference to a ~'Note" or the '~purchase of' a Note or a similar
reference to a Note, such provision and the construction thereof
shall, for purposes of this Agreement, be interpreted as applying
to the Options granted hereunder and (b) Corning shall exercise
such rights only in combination with the exercise thereunder in
respect of the Notes issued thereunder or, in the alternative, no
more frequently than once during any twelve (12) month period.

     10.  Costs. Except as otherwise expressly provided herein or
in a Project Annex, each of Corning and Electrosource shall
perform its respective obligations under this Agreement at its
own costs without charge to the other.

     11.  Conflict of Law. This Agreement shall be subject to and
governed by the substantive laws of the State of New York without
regard to any conflict of laws principles that would lead to a
different result.

     12.   Publicity. No public releases or advertisements by
either Corning or Electro source relating to the subject of this
Agreement shall be made without the agreement of both parties
except to the extent that either party is advised by its counsel
that disclosure of such subject is required by law.

     13.  Notices. All notices required to be given hereunder
shall be in writing and shall be given by first class mail,
postage prepaid, addressed to the parties as follows:

          To Corning:Corning Incorporated
               One Riverfront Plaza
                 Corning,NY 14831
                          Attn:    David H. Fuller

          cc:  Corning Incorporated
               One Riverfront Plaza
                 Coming,NY 14831
                         Attn.: Corporate Secretary

        To Electrosource:     Electrosource, Inc.
                    2809 Interstate 35 South
                    San Marcos, TX 78666

                         Attn. President
          cc:            Bret Van Earp
                         Attorney-at-Law
                         100 Congress Avenue, Suite 1800
                         Austin, TX 78701


Either party shall have the right to change the address to which
notices are to be sent by the giving of not less than ten (10)
days written notice to the other party.

     14.  Relationship. The relationship of the parties hereto
shall be that of independent contractors and nothing herein
contained shall be deemed to create any relationship of agency,
partnership or joint venturers.

     15.   Entire A~reement. This Agreement constitutes the
entire agreement between the parties regarding the Projects and
supersedes any and all other prior agreements and understandings
whether written, verbal or implied, relating to the subject
matter hereof No changes, alterations, or modifications to this
Agreement shall be effective unless in writing and signed by the
parties hereto.

     16.   Term and Termination. The term of this Agreement shall
commence as of the date hereof and extend through the date that
is the earlier of (i) three years from the date hereof or (ii)
the date on which all amounts payable (hereunder or otherwise)
from Electrosource to Corning shall have been paid in Ilill and
Corning no longer holds any shares of the common stock of
Electrosource or instmments convertible into such common stock.
Notwithstanding the foregoing sentence, this Agreement may be
terminated by either party at any time and may be extended upon
the mutual written consent of the parties. Upon any termination
of this Agreement, the provisions of Sections 4, 8, 9, 11, 12,
13, 14, 15, 18 and 19 shall survive as provided therein, or if no
date is provided therein then indefinitely.

     17.   Other Development Activities. Either party hereto,
subject to its obligations hereunder in connection with the other
party's confidential information, may pursue development activity
not related to deep discharge lead-acid batteries, with o~hers or
independently, provided such activity does not otherwise violate
or materially interfere with a party's obligations hereunder.

18.  Disclaimer. It is understood and agreed that (i) each party
makes no representation or warranty of any kind (whether express
or implied, written or oral, or otherwise) as to the
participation or continued participation by such party in any
Project or the results or success of any Project undertaken
hereunder, and (ii) each party shall not be responsible or liable
in any way for any failure to meet any levels of expectation or
ar~omplishment with respect to goals that the parties jointly or
severally may consider desirable.

     19.  indemnification. Except to the extent caused by the
negligence or willfbl misconduct of Corning or its affiliates,
directors, employees or agents, Corning shall not be liable for
any third party claims or charges related to or arising out of:

          (a)  the infringement or alleged infringement of
     proprietary rights, including but not limited to any
     infringement or alleged infringement of patents, patent
     applications, copyrights, mask work rights, or trade secret
     or know-how rights, related to the performance of work in
     connection with a Project or Projects or the design,
     development, manufacture, production, distribution, sale,
     use, misuse, handling, storage or disposal of products or
     services arising from or related to a Project or Projects;
     or

          (b)  the performance of work in connection with a
     Project or Projects or the design, development, manufacture,
     production, distribution, sale, use, misuse, handling,
     storage or disposal of products or services arising Out of
     or related to a Project or Projects, including in any case,
     but not limited to, any direct, indirect, special or
     consequential damages such as the loss of capital, use,
     production, profits, or claims of Electrosource customers.

Electrosource agrees to defend, indemni~ and hold harmless
Corning and Corning's affiliates, directors, employees and agents
(the "Indemnified Parties") against all claims, suits, costs,
damages, judgments and or penalties incurred, claimed or
sustained by third parties, whether for infringement, personal
injury, property damage or otherwise, arising out of or related
to the performance of work in connection with a Project or
Projects or the design, development, manufacture, production,
distribution, sale, use, misuse, handling, storage or disposal of
products or services arising from or related to a Project or
Projects.

     IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.

                             CORNING INCORPORATED


                             By    /s/ David H. Fuller

                             ELECTROSOURCE, INC.


                             By    /s/ Michael G. Semmens


       Annex A
                             Form of
                          Project Annex

     1.    The Prolect. The definition and goals of the Project;
the involvement and
contributions of the parties; and the schedule of performance,
the milestones and the Project
Period in respect of the Project each shall be as described in
sections ___ through - of the
Project Proposal attached hereto as Exhibit 1, which such
sections ____ through ___ of such
Project Proposal are hereby incorporated by reference herein.

     2.   The Project Committee. The initial Project Committee
members shall be _____________________ who is hereby so
designated by Corning, and
who is hereby so designated by Electrosource.

     3.   Payments. Payments to Corning shall be as follow:

          Date                Payment Amount




Accepted and agreed this    day of___________ ____

CORNING INCORPORATED               ELECTROSOURCE, INC.


By                                 By
Name:                              Name:
Title:                             Title:
Date:                              Date:



                                                           Exhibit 10.35

                          Project Annex
                             to the
Research and Development Umbrella Agreement, dated as of July 1, 1997
                         by and between
          Corning Incorporated and Electrosource, Inc.

     1.   The Project. The definition and goals of the Project;
the involvement and contributions of the parties; and the
schedule of performance, the milestones and the Project Period in
respect of the Project each shall be as described in sections 1
through 5 of the Project Proposal attached hereto as Exhibit 1,
which such sections 1 through 5 of such Project Proposal are
hereby incorporated by reference herein.

     2.   The Project Committee, The initial Project Committee
members shall be David H. Fuller, who is hereby so designated by
Corning, and Michael G. Semmens, who is hereby so designated by
Electrosource.

     3.   Pavments. Payments to Coming shall be as follow:
          Date         Payment Amount
          December 31, 1997$50,000.00


Accepted and agreed this 20th day of October, 1997.

CORNING INCORPORATED          ELECTROSOURCE, INC.


By    /s/ David H. Fuller          By   /s/ James M. Rosel
Name: David H. Fuller              Name: James M. Rosel
Title: Division VP & Director      Title: Vice President Finance
  Energy & Technology Development        and General Counsel


                            Exhibit 1
                        Project Proposal
  Physical and Chemical Description of Battery Electrode "Moss"


     1.   Definition of Project: The Project shall involve the
attempt to identif' the source (i.e., the root cause) of"mossing"
in the Electrosource Horizon battery that leads to premature end-
of-life.

     2.   Goals of the Project: The goal of the Project is the
development of a final report that (i) details Corning's findings
as to the characterization of battery electrode "moss" in end-of-
life batteries and (ii) recommends future experiments to
determine the ability to control the "mossing" problem.

     3.   Involvement of the Parties: (a) Electrosource will
provide appropriate samples of 12V, 5a hr C-MAT batteries to
Corning.

     (b)  Corning will perform analysis at Cl (constant current
one hour discharge) with a C1ICV charge with initial inrush
currents equal to C3 (5 amps), one-half C3 (2.5 amps) and one-
quarter C3 (1.25 amps). Corning will develop the characterization
protocols and perform all chemical and physical testing on
battery electrode "moss." Characterization methods that could be
used are: wet chemistry, SEM, x-ray diffraction, etc. It is
anticipated that "spark" (XRD), organic, and inorganic tests will
be performed by Corning.

     (c)  Corning and Electrosource will hold appropn.c'Lte
review meetings to assess the data as it becomes available and to
revise the experimental plan as necessary.

     4.   Schedule of Performance. The Project is expected to
last six (6) months. The Project Period shall be the six (6)
month period, commencing as of the date of the executed Project
Annex relating to this Project.

     5.   Deliverables. The parties will conduct weekly
conferences by phone or video conference and quarterly review
meetings at the location and on the dates chosen by the parties.
Corning will deliver monthly written test summary reports. It is
not intended that such meetings or reports will overlap, but
rather yield to Lhe more major or less frequently held meeting or
report (e.g., the quarterly meeting and report would displace
either the weekly or monthly meeting or report scheduled to occur
on the same date). Corning will deliver a final written report
that (i) details Corning's findings as to the characterization of
battery electrode "moss" in end-of-life batteries and (ii)
recommends future experiments to determine the ability to
control the "mossing" problem.


                                                           Exhibit 10.36

                          Project Annex
                             to the
Research and Development Umbrella Agreement, dated as of July 1, 1997
                         by and between
          Corning Incorporated and Electrosource, Inc.

     1.   The Proiect. The definition and goals of the Project;
the involvement and contributions of the parties; and the
schedule of performance, the milestones and the Project Period in
respect of the Project each shall be as described in sections l
through 4 of the Project Proposal attached hereto as Exhibit 1,
which such sections l through 4 of such Project Proposal are
hereby incorporated by reference herein

     2.   The Project Committee, The initial Project Committee
members shall be David H. Fuller, who is hereby so designated by
Corning, and Michael G. Semmens who is hereby so designated by
Electrosource.
    3,    Payments. Payments to Coming shall be as follow:

          Date              Payment Amount
          December 31, 1997     $175,000.00
          June30, 1998          $225,000.00



Accepted and agreed this 20th day of October, 1997.

CORNING INCORPORATED          ELECTROSOURCE, INC.


By    /s/ David H. Fuller          By   /s/ James M. Rosel
Name: David H. Fuller              Name: James M. Rosel
Title: Division VP & Director      Title: Vice President Finance
    Energy & Technology Development    and General Counsel


                            Exhibit 1

                        Project Proposal
                      Engineering Resources


     1.   Definition of Project: The Project shall involve
certain engineering support provided by Corning Incorporated to
Electrosource, Inc.

     2.   Goals of the Proiect: The goal of the Project is for
Corning to provide engineering support to work towards increased
manufacturing capacity, reduced production costs and to assist in
the transition from a development/prototype operation to a high
volume manufacturing operation.

     3 Involvement of the Parties: (a) El ectro source shall
provide necessary and adequate facilities, equipment, tooling,
and office and administration support for Coming provided
personnel.

     (b)  Corning wi!l provide the following engineering
resources over a period commencing as of the date of the Project
Annex relating to this Project and ending on June30, 1998:

       (i) Two (2) full-time mechanical/automation engineers
       (ii) Two (2) full-time process engineers
       (iii) One (1) or more engineers with specialization in
       heat treat engineering, industrial engineering, and
       controls system engineering, each of such engineers to be
       provided on a part-time basis at times and for hours
       collectively to represent one (1) full-time engineer

(c)  The Corning provided personnel shalt have the primary
Ilinction of assisting in increased throughput and cost
reduction, particularly as it pertains to labor reduction.
Additional activity ~ill include (i) assistance in the
understanding of current processes to define product and process
parameters; (ii) assistance in the development of production
scale-up criteria; (iii) assistance in production scale-up and
design for projected production levels; (iv) assistance in the
validation of process design concepts for scale-up; and (v) other
design, build, install and startup assistance as needed. Coming
provided process engineers shall focus initially on (i) in-line
sulfation and drying, both for immediate impact and fliture needs
and (ii) increasing the speed of the plate making process.
Corning provided mechanical engineers shall work on those
activities that are projected to have immediate throughput
results and labor cost reductions, such as: completing the 12N85
Terminal Cast process; addressing the flexibility needs for robot
stacking; implementing the Aircraft and Helicopter preparation
program as outlined in C. Morris' memo dated July 14, 1997;
addressing capacity increase needs in the filling process;
completing installation of 2-head coextruder; speeding up Dornier
weaver; developing an automation plan; installing additional
robots as needed; converting existing 12N95 autocast to helo,
aircraft and B&D; and developing material handling solutions.

     4.   Schedule of Performance. The Project is expected to
last through the end of 1998. The Project Period shall be the period
commencing as of the date of the executed Project Annex relating to this
Project and ending on June 30, 1998.


                                                           Exhibit 10.37

                          Project Annex
                             to the
Research and Development Umbrella Agreement, dated as of July 1, 1997
                         by and between
          Corning Incorporated and Electrosource, Inc.

     1.   The Project. The definition and goals of the Project;
the involvement and contributions of the parties; and the
schedule of performance, the milestones and the Project Period in
respect of the Project each shall be as described in sections 1
through 5 of the Project Proposal attached hereto as Exhibit 1,
which such sections lthrough 5 of such Project Proposal are
hereby incorporated by reference herein.

     2.   The Project Committee. The initial Project Committee
members shall be David H. Fuller ,who is hereby so designated by
Corning, and Michael G. Semmens, who is hereby so designated by
Electrosource.

     3.   Pavments. Payments to Corning shall be as follow:

          Date              Payment Amount
          December 31, 1997     $175,000.00
          June 30, 1998         $175,000.00


Accepted and agreed this 20th day of October, 1997.

CORNING INCORPORATED          ELECTROSOURCE, INC.


By    /s/ David H. Fuller          By   /s/ James M. Rosel
Name: David H. Fuller              Name: James M. Rosel
Title: Division VP & Director      Title: Vice President Finance
    Energy & Technology Development
and General Counsel


                            Exhibit 1

                        Project Proposal
     Characterization of Electrode Materials and Collector Grid
     Materials


     1.   Definition of Project: The Project shall involve the
characterization of the physical and chemical changes in
electrode and grid materials as Electrosource 12N85 production
modules are cycled.

     2.   Goals of the Project: The goal of the Project is the
development of a final report that details the physical and
chemical property characterization of the modules at different
periods in the module cycle life, and a recommendation of ft~ture
action to modiiy the material changes.

     3.   Involvement of the Parties: (a) Electrosource will
build and cycle model 12N85 production modules. It is intended
that twenty-four (24) of such modules will be tested, but a total
of 30 modules will be cycled, 15 modules to a string, to allow
for extra modules that may be used for additional testing or to
replace early failures, Prior to the commencement of cycling, and
at the end of every 50 cycles, Electrosource will ship the
modules to Corning for characterization. Modules will be tested
in strings of 12 modules using formation circuits such that all
modules are cycled under similar conditions. Four (4) modules
will be removed from test at 0/50/100/150/200/250 cycles and
shipped to Corning, two fi~iJy charged with charge inrush
currents of 44 amps and 15 amps respectively, and two (2) Ililly
discharged with discharge currents of 44 amps and 15 amps
respectively. Upon the failure of a module to continue cycling,
the module or plates from such module will be sent to Corning for
analysis.

     The cycling and analysis matrix is summarized below.

CYCLE NUMBER     STATE OF CHARGE         CHARGE CURRENT
                                             INRUSH
                                          (STEP CHARGE)
               CHARGED   DISCHARGED  44 AMPS    15 AMPS
Dry Plates     N/A       N/A         Several    Several for
                                     for        baseline
                                     baseline
0              X                     1          1
                         X           1          1
50             X                     1          1
                         X           1          1
100            X                     1          1
                         X           1          1
150            X                     1          1
                         X           1          1
200            X                     1          1
                         X           1          1
250            X                     1          1
                         X           1          1
TOTAL                                12         12



     (b)  Corning will develop characterization protocols and
perform characterization at the beginning of usable life and at
the end of every 50 cycles or when end-of-life is reached.
Characterization methods that could be used are: wet chemistry,
SEM, x-ray diffraction, etc.

     (c)  Corning and Electrosource will hold appropriate review
meetings to assess the data to date and revise the experimental
plan as necessary.

     4.   Schedule of Performance. The Project is expected to
last twelve (12) months. The Project Period shall be the twelve
(12) month period, commencing as of the date of the executed
Project Annex relating to this Project.

     5.   Deliverables. The parties will conduct weekly
conferences by phone or video conference and quarterly review
meetings at the location and on the dates chosen by the parties.
Corning will deliver monthly written test summary reports. It is
not intended that such meetings or reports will overlap, but
rather yield to the more major or less frequently held meeting or
report (e.g., the quarterly meeting and report would displace
either the weekly or monthly meeting or report scheduled to occur
on the same date). Corning will deliver a final written report
that details the physical and chemical property characterization
of the batteries at different periods in the battery cycle life,
and recommends future actions or modifications.


                                                           Exhibit 10.38


     The following form of Severance Agreement was executed on or about
August 25, 1997 for the below listed officers and key employees:

   Michael G. Semmens      President, CEO and Chairman
   William F. Griffin      Executive Vice President Marketing
   James M. Rosel          Vice President Finance and General Counsel
   Mary Beth Koenig        Treasurer and Controller
   Charles L. Mathews      Chief Engineer
   Chris Morris            Chief Engineer
   Benny E. Jay            Chief Scientist
   Ajoy Datta              Technical Vice President


                        SEVERANCE AGREEMENT

      THIS  SEVERANCE  AGREEMENT  (the  "Agreement"),  dated  and
effective  August 25, 1997, is made by and between ELECTROSOURCE,
INC.,    a    Delaware   corporation   (the    "Company"),    and
____________________________ (the "Executive").
      WHEREAS, the Company considers it in the best interests  of
its  stockholders  to  foster  the continued  employment  of  key
management personnel; and
     WHEREAS, the Board recognizes that, as is the case with many
publicly  held  corporations, the  possibility  of  a  Change  in
Control exists and that such possibility and the uncertainty  and
questions which it may raise among management may result  in  the
departure or distraction of management personnel to the detriment
of the Company and its stockholders; and
      WHEREAS,  the  Board has determined that appropriate  steps
should   be  taken  to  reinforce  and  encourage  the  continued
attention  and dedication of members of the Company's management,
including  the  Executive,  to  their  assigned  duties   without
distraction  in the face of potentially disturbing  circumstances
arising  from  the  possibility of a Change in  Control  and  has
adopted  a  resolution authorizing the Company to  enter  into  a
severance  contract  in  the  form of  this  Agreement  with  the
Executive;
      NOW,  THEREFORE, in consideration of the premises  and  the
mutual  covenants herein contained, the Company and the Executive
hereby agree as follows:

     1.   Defined Terms.

                For  purposes  of this Agreement,  the  following
          terms shall have the meanings indicated below:
                     (A)  "Affiliate" shall have the meaning  set
               forth  in Rule 12b-2 promulgated under Section  12
               of the Exchange Act.
                      (B)   "Beneficial  Owner"  shall  have  the
               meaning set forth in Rule 13d-3 under the Exchange
               Act.
                      (C)   "Board"  shall  mean  the  Board   of
               Directors of the Company.
                          (D)  "Cause" shall mean termination  by
                    the  Company  of  the Executive's  employment
                    after a Change of Control based upon,
                               (i)   the failure by the Executive
                    to  satisfactorily  perform  the  Executive's
                    duties  with  the Company as  detailed  in  a
                    written  notice  to  the Executive  from  the
                    Board,  which demand specifically  identifies
                    the  manner in which the Board believes  that
                    the    Executive   has   not   satisfactorily
                    performed his/her duties, except for,
                                         (a)   any  such  failure
                         resulting     from    the    Executive's
                         incapacity  due  to physical  or  mental
                         illness,
                                         (b)  any such actual  or
                         anticipated  failure after the  issuance
                         of  a  Notice  of Termination  for  Good
                         Reason by the Executive pursuant to this
                         Agreement, or
                                        (c)  the Company's active
                         or    passive   obstruction    of    the
                         performance  of  the Executive's  duties
                         and responsibilities, or
                               (ii) the engaging by the Executive
                    in   conduct   which   is  demonstrably   and
                    materially  injurious to the Company  or  its
                    subsidiaries monetarily or otherwise after  a
                    written  explanation from the Board detailing
                    the  conduct  and the injury is delivered  to
                    the Executive.
                     (E)   "Change  in Control"  shall  mean  the
               occurrence of any of the following events:
                               (i)  any Person is or becomes  the
                    Beneficial Owner, directly or indirectly,  of
                    voting securities of the Company representing
                    thirty  percent (30%) or more of the combined
                    voting   power   of   the   Company's    then
                    outstanding securities, excluding any  Person
                    who  becomes  such  a  Beneficial  Owner   in
                    connection  with  a merger  or  consolidation
                    described in Section 1(E)(iii)(a) hereof; or
                               (ii)  the individuals who  on  the
                    date hereof constitute the Board and any  new
                    director  nominated  or  appointed   by   the
                    approval of the Board cease for any reason to
                    constitute  a  majority  of  the  number   of
                    directors then serving; or
                              (iii)     a merger or consolidation
                    of  the Company with any other corporation is
                    consummated, except for
                                           (a)    a   merger   or
                         consolidation which would result in  the
                         voting   securities   of   the   Company
                         outstanding  immediately prior  to  such
                         merger  or  consolidation continuing  to
                         represent     (either    by    remaining
                         outstanding  or by being converted  into
                         voting   securities  of  the   surviving
                         entity or any parent thereof), at  least
                         fifty  percent  (50%)  of  the  combined
                         voting  power of the securities  of  the
                         Company or such surviving entity or  any
                         parent  thereof outstanding  immediately
                         after such merger or consolidation, or
                                           (b)    a   merger   or
                         consolidation  effected to  implement  a
                         recapitalization  of  the  Company   (or
                         similar transaction) in which no  Person
                         is  or  becomes  the  Beneficial  Owner,
                         directly or indirectly, of securities of
                         the  Company representing thirty percent
                         (30%)  or  more  of the combined  voting
                         power  of the Company's then outstanding
                         securities; or
                                (iv)  the  stockholders  of   the
                    Company  approve  a  plan  for  the  sale  or
                    disposition  by  the  Company   of   all   or
                    substantially  all  of the Company's  assets,
                    other  than  a  sale  or disposition  by  the
                    Company  of all or substantially all  of  the
                    Company's  assets  to  an  entity  at   least
                    seventy-five  percent (75%) of  the  combined
                    voting  power  of  the voting  securities  of
                    which  are  owned  by  stockholders  of   the
                    company in substantially the same proportions
                    as their ownership of the Company immediately
                    prior to such sale.  "The sale or disposition
                    by the Company of all or substantially all of
                    the  Company's assets" shall mean a  sale  or
                    other  disposition transaction or  series  of
                    related transactions involving assets of  the
                    Company   or   of  any  direct  or   indirect
                    subsidiary  of  the  Company  (including  the
                    stock of any direct or indirect subsidiary of
                    the Company) in which the value of the assets
                    or  stock being sold or otherwise disposed of
                    (as measured by the purchase price being paid
                    therefor or by such other method as the Board
                    determines  is appropriate in  a  case  where
                    there  is  no readily ascertainable  purchase
                    price) constitutes more than two-thirds (2/3)
                    of the fair market value of the Company.  For
                    purposes of the preceding sentence, the "fair
                    market value of the Company" shall be the sum
                    of   the   aggregate  market  value  of   the
                    outstanding Common Stock (on a fully  diluted
                    basis) plus the aggregate market value of the
                    Company's     other    outstanding     equity
                    securities,  if  any.  The  aggregate  market
                    value of the Common Stock shall be determined
                    by multiplying the number of shares of Common
                    Stock  (on a fully diluted basis) outstanding
                    on  the date of the execution and delivery of
                    a  definitive agreement with respect  to  the
                    sale or disposition by the Company of all  or
                    substantially all of the Company's assets  by
                    the  average  closing price  for  the  Common
                    Stock  for  the ten (10) consecutive  trading
                    days  immediately preceding such  date.   The
                    aggregate  market value of any  other  equity
                    securities of the Company shall be determined
                    in a manner similar to that prescribed in the
                    immediately     preceding    sentence     for
                    determining the aggregate market value of the
                    Common Stock (or by such other method as  the
                    Board shall determine as appropriate).
                     (F)   "Committee" shall mean the individuals
               (not  fewer than three (3) in number) who, on  the
               date just prior to a Change in Control, constitute
               the Compensation Committee of the Board and if  no
               Change  in  Control  has occurred,  the  Committee
               shall  be the Compensation Committee of the Board,
               as constituted from time to time.
                     (G)   "Common Stock" shall mean  the  common
               stock of the Company, par value $1.00 per share.
                     (H)   "Company"  shall  mean  Electrosource,
               Inc.,  a  Delaware  corporation,  and,  except  in
               determining whether or not any Change  in  Control
               of  the  Company has occurred, shall  include  any
               successor  to  its  business and/or  assets  which
               assumes  and agrees to perform this Agreement,  by
               operation of law or otherwise.
                     (I)   "Date of Termination" with respect  to
               any   purported  termination  of  the  Executive's
               employment  after a Change in Control  and  during
               the Term, shall mean, except as otherwise provided
               in   Section  7.2  hereof  regarding   a   dispute
               concerning Termination,
                               (i)  if the Executive's employment
                    is terminated for Disability, the date thirty
                    (30)  days  after  Notice of  Termination  is
                    given (provided that the Executive shall  not
                    have returned to the full-time performance of
                    the  Executive's  duties during  such  thirty
                    (30) day period), and
                               (ii) if the Executive's employment
                    is  terminated for any other reason, the date
                    specified in the Notice of Termination which,
                    in  the case of a termination by the Company,
                    shall  not  be  less than thirty  (30)  days,
                    except  in  the  case of  a  termination  for
                    Cause,  nor  more than sixty (60) days  after
                    the  date of such Notice of Termination  and,
                    in   the   case  of  a  termination  by   the
                    Executive, such date shall not be  less  than
                    fifteen  (15) days nor more than  sixty  (60)
                    days  after  the  date  of  such  Notice   of
                    Termination.
                     (J)  "Disability" shall be deemed the reason
               for   the  termination  by  the  Company  of   the
               Executive's  employment, if, as a  result  of  the
               Executive's incapacity due to physical  or  mental
               illness, the Executive shall have been absent from
               the   full-time  performance  of  the  Executive's
               duties with the Company for a period of three  (3)
               consecutive  months, and the  Company  shall  have
               given  the  Executive a Notice of Termination  for
               Disability, provided that, within thirty (30) days
               after  such  Notice of Termination is  given,  the
               Executive shall not have returned to the full-time
               performance of the Executive's duties.
                    (K)  "Exchange Act" shall mean the Securities
               Exchange  Act  of 1934, as amended  from  time  to
               time.
                     (L)   "Executive" shall mean the  individual
               named in the first paragraph of this Agreement.
                     (M)   "Good Reason" for termination  by  the
               Executive of the Executive's employment shall mean
               the  occurrence  within  twenty-four  (24)  months
               following the date of a Change in Control  of  any
               one of the following events:
                               (i)  the assignment by the Company
                    to   the   Executive  of  duties   that   are
                    materially  inconsistent with the Executive's
                    office  with Company prior to the  Change  in
                    Control,  or the removal by the Company  from
                    the  Executive of a material portion  of  the
                    Executive's  duties usually  appertaining  to
                    the  Executive's office with the  Company  at
                    the time of such removal;
                               (ii) a material, adverse change by
                    the  Company,  without the Executive's  prior
                    written  consent, in the nature or status  of
                    the   Executive's  responsibilities  to   the
                    Company just prior to a Change in Control;
                                (iii)      any  removal  of   the
                    Executive from, or any failure to reelect  or
                    to  reappoint  the Executive to,  the  office
                    held as of the date just prior to a Change in
                    Control hereof;
                               (iv) a reduction by the Company in
                    the  amount  of the Executive's  base  salary
                    below the highest level in effect during  the
                    six  (6)  months  prior  to  the  Change   in
                    Control.
                               (v)   the discontinuance,  without
                    comparable replacement, or material reduction
                    by    the    Company   of   the   Executive's
                    participation in any bonus or other  employee
                    benefit  arrangement, in which the  Executive
                    is  a  participant as in effect on  the  date
                    hereof  or  as may be improved from  time  to
                    time hereafter;
                               (vi) the moving by the Company  of
                    the   Executive's  principal  office   space,
                    related  facilities,  or  support  personnel,
                    from   the   Company's  principal   operating
                    offices  or  other  office  location  of  the
                    Executive as existing just prior to a  Change
                    in  Control.  (This provision shall not apply
                    to   moving   of  the  Executive's  principal
                    offices    from   the   Company's   principal
                    operating offices if the Executive  does  not
                    live   within  100  miles  of  the  Company's
                    principal operating offices just prior  to  a
                    Change in Control.);
                               (vii)      the relocation, without
                    the Executive's prior written consent, of the
                    Company's  principal operating offices  to  a
                    location  outside the county  in  which  such
                    offices  are  located  at  the  time  of  the
                    signing  of this Agreement.  (This  provision
                    shall  not apply if the Executive's principal
                    residence  is  not within 100  miles  of  the
                    Company's  principal operating  offices  just
                    prior to a change in control);
                                (viii)      in  the   event   the
                    Executive  consents to a  relocation  of  the
                    Company's  principal operating  offices,  the
                    failure of the Company to,
                                        (a)  pay or reimburse the
                         Executive on an after-tax basis for  all
                         reasonable  moving expenses incurred  by
                         the  Executive in connection  with  such
                         relocation or
                                        (b)  pay the Executive on
                         an  after-tax  basis  against  any  loss
                         realized by the Executive on the sale of
                         his  principal  residence in  connection
                         with such relocation;
                               (ix) the failure of the Company to
                    continue to provide the Executive with office
                    space,   related   facilities   and   support
                    personnel   (including,  without  limitation,
                    administrative  and  secretarial  assistance)
                    that  are  commensurate with the  Executive's
                    responsibilities  to and  position  with  the
                    Company;
                               (x)  the failure by the Company to
                    promptly  reimburse  the  Executive  for  the
                    reasonable business expenses incurred by  the
                    Executive   in   the   performance   of   the
                    Executive's duties for the Company; or
                              (xi) any other breach by Company of
                    its  obligations  to Executive  hereunder  or
                    under applicable law.
                          The Executive's right to terminate  the
               Executive's employment for Good Reason  shall  not
               be  affected by the Executive's incapacity due  to
               physical   or  mental  illness.   The  Executive's
               continued employment shall not constitute  consent
               to, or a waiver of rights with respect to, any act
               or   failure  to  act  constituting  Good   Reason
               hereunder.
                           For   purposes   of  a   determination
               regarding the existence of Good Reason, any  claim
               by  the Executive that Good Reason exists shall be
               presumed   to   be  correct  unless  the   Company
               establishes   to  the  Committee  by   clear   and
               convincing  evidence  that Good  Reason  does  not
               exist.
                     (N)  "New Incentive Program" shall mean  any
               incentive  compensation, deferred compensation  or
               other  type  of  bonus program instituted  by  the
               Company  after  the  date  hereof,  in  which  the
               Executive  is either a participant or eligible  to
               be a participant.
                     (O)   "Notice of Termination" shall  mean  a
               written  notice which shall indicate the  specific
               termination  provision  in this  Agreement  relied
               upon and shall set forth in reasonable detail  the
               facts and circumstances claimed to provide a basis
               for  termination  of  the  Executive's  employment
               under  the  provision  so indicated.   Further,  a
               Notice  of  Termination for Cause is  required  to
               include a copy of a resolution duly adopted by the
               affirmative vote of the Board at a meeting of  the
               Board which was called and held for the purpose of
               considering  such  termination  (after  reasonable
               notice to the Executive and an opportunity for the
               Executive  to  be heard before the Board)  finding
               that, in the good faith opinion of the Board,  the
               Executive was guilty of conduct set forth  in  the
               definition  of  Cause herein, and  specifying  the
               particulars thereof.
                      (P)    "Options"  shall  mean   outstanding
               options,   whether   or   not   then   vested   or
               exercisable,  granted to the Executive  under  the
               Company's stock option plans.
                    (Q)  "Person" shall have the meaning given in
               Section  3(a)(9) of the Exchange Act, except  that
               such term shall not include
                               (i)   the  Company or any  of  its
                    subsidiaries, or
                               (ii)  an  underwriter  temporarily
                    holding securities pursuant to an offering of
                    such securities.
                     (R)  "Retirement" shall mean the termination
               by  the Executive of the Executive's employment if
               such  employment is terminated in accordance  with
               the Company's retirement policy.
                     (S)   "Severance Payments"  shall  mean  the
               payments  and benefits provided for in  Section  6
               hereof.
                     (T)   "Stock Option Plans" shall  mean  such
               stock option plans as are in effect by the Company
               from time to time.
                     (U)   "Term" shall mean the period  of  time
               described  in  Section  2  hereof  including   any
               extension,  continuation or termination  described
               herein.
                     (V)  "Total Payments" shall mean any payment
               or  benefit  (including  the  Severance  Payments)
               received  or  to be received by the  Executive  in
               connection  with  a  Change  in  Control  or   the
               termination of the Executive's employment  whether
               pursuant  to  the terms of this Agreement  or  any
               other  plan,  arrangement or  agreement  with  the
               Company.

     2.   Term of Agreement.

                The Term of this Agreement shall commence on  the
          date hereof and shall continue in effect to January  1,
          2000; provided, however, that:
                     (A)  commencing on January 1, 2000, and each
               January 1 thereafter, the Term shall automatically
               be  extended  for one additional year unless,  not
               later than September 30 of the preceding year, the
               Company  or the Executive shall have given  notice
               not to extend the Term;
                     (B)   if  a  Change  in Control  shall  have
               occurred during the Term, the Term shall expire no
               earlier  than twenty-four (24) months  beyond  the
               month in which such Change in Control occurred;
                     (C)   any rights or obligations which accrue
               during the Term may be asserted and enforced by or
               against the Company or the Executive, as the  case
               may  be, for a period of sixty (60) days following
               the  end of the Term and any dispute arising  from
               such assertion or enforcement may continue until a
               final settlement or resolution; and
                     (D)  the decision of the Company prior to  a
               Change  of  Control  not to  extend  the  Term  in
               accordance   with  this  Section   2   shall   not
               constitute Good Reason.

     3.   Company's Covenants Summarized.

                     (A)   In  order to induce the  Executive  to
               remain  in  the  employ  of  the  Company  and  in
               consideration  of  the Executive's  covenants  set
               forth  in  Section 4 hereof, the  Company  agrees,
               under the conditions described herein, to pay  the
               Executive  the  Severance Payments and  the  other
               payments   and  benefits  described  herein.    No
               Severance  Payments  shall be payable  under  this
               Agreement   unless  there  shall   have   been   a
               termination  of  the Executive's  employment  with
               the  Company during the period of twenty-four (24)
               months  following a Change in Control  and  during
               the Term.
                    (B)  This Agreement shall not be construed as
               creating   an  express  or  implied  contract   of
               employment and, except as may otherwise be  agreed
               in  writing between the Executive and the Company,
               the  Executive  shall not have  any  right  to  be
               retained in the employ of the Company.

     4.   The Executive's Covenants.

                The  Executive agrees that, subject to the  terms
          and  conditions  of this Agreement, the Executive  will
          remain  in the employ of the Company until the  earlier
          of,
                    (A)  the date of a Change in Control,
                    (B)  the date of termination by the Executive
               of  the Executive's employment for Good Reason  or
               by reason of death, Disability or Retirement, or
                     (C)   the termination by the Company of  the
               Executive's employment for any reason.
                The  Executive hereby acknowledges and  reaffirms
          the  "Memorandum  of  Employee's Agreement"  previously
          entered  into  with the Company (a  copy  of  which  is
          attached hereto as Exhibit "A").

     5.   Compensation Other Than Severance Payments.

                    5.1  Following a Change in Control and during
               the  Term,  during any period that  the  Executive
               fails  to perform the Executive's full-time duties
               with the Company as a result of incapacity due  to
               physical or mental illness, the Company shall  pay
               the  Executive's full salary, less any  disability
               insurance benefits paid, to the Executive  at  the
               rate  in  effect at the commencement of  any  such
               period   until   the  Executive's  employment   is
               terminated by the Company for Disability, together
               with all compensation and benefits payable to  the
               Executive   under   the   terms   of   any   other
               compensation   or   benefit   plan,   program   or
               arrangement maintained by the Company during  such
               period.
                     5.2  If the Executive's employment shall  be
               terminated  for any reason following a  Change  in
               Control and during the Term, the Company shall pay
               the  Executive's full salary through the  Date  of
               Termination  at  the  rate in  effect  immediately
               prior  to  the Date of Termination or, if  higher,
               the  rate in effect immediately prior to the first
               occurrence    of   any   event   or   circumstance
               constituting  Good  Reason,  together   with   all
               compensation and benefits otherwise payable to the
               Executive  through  the Date of Termination  under
               the   terms  of  the  Company's  compensation  and
               benefit  plans,  programs or  arrangements  as  in
               effect   immediately  prior   to   the   Date   of
               Termination   or,   if  more  favorable   to   the
               Executive, as in effect immediately prior  to  the
               first  occurrence  of  an  event  or  circumstance
               constituting Good Reason.

     6.   Severance Payments.

                          6.1  (A)  If the Executive's employment
                    is  terminated by the Company within  twenty-
                    four  (24)  months  following  a  Change   in
                    Control  that  occurred during the  Term  for
                    reasons other than,
                                        (i)  Cause, or
                                          (ii)   for   death   or
                         disability; or
                                           (iii)        if    the
                         Executive  terminates employment  during
                         such  period without Good Reason (except
                         as provided in 6.2(B) below);
                                   then the Company shall pay the
                    Executive   the  amounts  and   provide   the
                    Executive  the benefits described in  Section
                    6.2(A) below in addition to any payments  and
                    benefits  to which the Executive is otherwise
                    entitled  under Section 5.  In the event  the
                    Executive's employment is terminated  by  the
                    Company for Cause, for death or disability or
                    if  employment is terminated by the Executive
                    other  than for Good Reason, then the Company
                    shall only be obligated to make payments  and
                    provide  benefits to the extent then owed  by
                    the   Company  to  the  Executive  under  its
                    existing compensation and benefit plans.
                                (B)    For   purposes   of   this
                    Agreement,  the Executive's employment  shall
                    be   also  deemed  to  have  been  terminated
                    following a Change in Control by the  Company
                    without  Cause or by the Executive with  Good
                    Reason, if
                                          (i)    the  Executive's
                         employment is terminated by the  Company
                         without  Cause  prior  to  a  Change  in
                         Control  (whether or  nor  a  Change  in
                         Control    ever   occurs)    and    such
                         termination  was  at  the   request   or
                         direction  of a Person who  has  entered
                         into  an agreement with the Company  the
                         consummation of which would constitute a
                         Change in Control, or
                                           (ii)   the   Executive
                         terminates  his  employment   for   Good
                         Reason  prior  to  a Change  in  Control
                         (whether or not a Change in Control ever
                         occurs)  and  such  termination  or  the
                         circumstances or event which constitutes
                         Good  Reason  occurs at the  request  or
                         direction  of a Person who  has  entered
                         into  an agreement with the Company  the
                         consummation of which would constitute a
                         Change in Control.
                           6.2    (A)   In  the  event   of   the
                    termination of the Executive's employment  as
                    specified   in  Section  6.1(A)  above,   the
                    Company shall pay to the Executive a lump sum
                    amount,  in cash, equal to two (2) times  the
                    higher of,
                                          (i)    the  Executive's
                         annual base salary in effect immediately
                         prior to the Date of Termination, or
                                         (ii)  the highest annual
                         base salary paid to the Executive during
                         the twenty-four (24) months prior to the
                         Change in Control,
                                    plus  two (2) times any  cash
                    bonus paid to the Executive during the twelve
                    (12)  months ending on the date of the Change
                    in Control;
                              (B)  In the event of termination of
                    employment  by  the  Executive  without  Good
                    Reason  within  the thirty  (30)  day  period
                    commencing  upon the first anniversary  of  a
                    Change  in Control, the Company shall pay  to
                    the  Executive  a lump sum amount,  in  cash,
                    equal  to  one(1) year of annual base  salary
                    and  bonus  paid,  if any, during  the  prior
                    twelve  (12)  months, at the base  salary  in
                    effect  immediately  prior  to  the  Date  of
                    Termination  or  as in effect  prior  to  the
                    Change in Control, whichever is higher,  plus
                    any   payments  and  benefits  to  which  the
                    Executive is otherwise entitled under Section
                    5.
                     6.3   In  the event of payment under Section
               6.2(A)  or (B) above, the Executive shall also  be
               permitted  to  exercise in full any stock  options
               previously   granted   to   the   Executive    and
               outstanding   as  of  the  Date  of   Termination,
               notwithstanding  any other vesting  provisions  in
               the option grant(s), provided such option grant(s)
               have  been made at least six (6) months  prior  to
               the Date of Termination.
                     6.4   The  Company  also shall  pay  to  the
               Executive all legal fees and expenses incurred  by
               the Executive in,
                               (A)   disputing in good faith  any
                    issue  hereunder relating to the  termination
                    of the Executive's employment, or
                               (B)   seeking  in  good  faith  to
                    obtain  or  enforce  any  benefit  or   right
                    provided by this Agreement.
                          Such payments shall be made within  ten
               (10)   business   days  after  delivery   of   the
               Executive's    written   requests   for    payment
               accompanied  with  such  evidence  of   fees   and
               expenses  incurred as the Company  reasonably  may
               require.

     7.   Termination Procedures and Compensation During Dispute.

                    7.1  Notice of Termination.
                         After a Change in Control and during the
               Term, any purported termination of the Executive's
               employment  (other than by reason of death)  shall
               be  communicated by Notice of Termination from one
               party   hereto  to  the  other  party  hereto   in
               accordance with Section 10 hereof.


                    7.2  Dispute Concerning Termination.
                          If  within fifteen (15) days after  any
               Notice  of  Termination is given,  or,  if  later,
               prior  to  the Date of Termination (as  determined
               without  regard  to this Section 7.2),  the  party
               receiving such Notice of Termination notifies  the
               other  party that a dispute exists concerning  the
               effect  of  the  termination under this  Agreement
               either  due  to the Company's assertion  that  the
               termination was for Cause or due to the  Company's
               denial  of  Good  Reason, the Date of  Termination
               shall  be  extended until the date  on  which  the
               dispute is finally resolved,
                                (A)   either  by  mutual  written
                    agreement of the parties, or
                               (B)  by a final judgment, order or
                    decree   of  an  arbitrator  (which  is   not
                    appealable or with respect to which the  time
                    for  appeal  therefrom  has  expired  and  no
                    appeal  has been perfected) adjudicating  the
                    rights  and obligations of the Executive  and
                    the Company under this Agreement with respect
                    to  the  termination; provided, however,  the
                    Date  of Termination shall be extended  by  a
                    notice of dispute given by the Executive only
                    if such notice is given in good faith and the
                    executive  pursues  the  resolution  of  such
                    dispute with reasonable diligence.
                    7.3  Compensation During Dispute.
                           If   a  purported  termination  occurs
               following a Change in Control and during the  Term
               and  the  Date  of  Termination  is  extended   in
               accordance  with Section 7.2 hereof,  the  Company
               shall  continue  to  pay the  Executive  the  full
               compensation in effect when the notice giving rise
               to  the  dispute  was  given (including,  but  not
               limited to, salary) and continue the Executive  as
               a  participant  in all compensation,  benefit  and
               insurance   plans  in  which  the  Executive   was
               participating when the notice giving rise  to  the
               dispute  was given, until the Date of Termination,
               as  determined  in  accordance  with  Section  7.2
               hereof.   Amounts paid under this Section 7.3  are
               in  addition to all other amounts due  under  this
               Agreement  and  shall  not be  offset  against  or
               reduce any other amounts due under this Agreement.
                    7.4  Release of Claims.
                           Notwithstanding  any  other  provision
               contained  in  this Agreement, the  Company  shall
               require,  as a condition precedent to the  payment
               of  the Severance Payments to the Executive,  that
               the  Executive execute a release and  covenant  in
               favor   of   the  Company  and  its  stockholders,
               officers, employees, directors and affiliates,  of
               all claims, whether known or unknown, in such form
               as the Company shall deem, in its sole discretion,
               reasonable  and  appropriate.   If  the  Executive
               fails to provide the required release and covenant
               and  the  Company has not alleged Cause or  denied
               Good  Reason  in  connection with  the  Notice  of
               Termination, the sole obligation of the Company to
               the  Executive under this Agreement shall  be  the
               payment  of  one  twenty-sixth  (1/26th)  of   the
               Executive's salary as of the Date of Termination.

     8.   No Mitigation.

                The  Company  agrees  that,  if  the  Executive's
          employment with the Company terminates during the Term,
          the  Executive is not required to seek other employment
          or  to attempt in any way to reduce any amounts payable
          to  the  Executive  by  the Company  pursuant  to  this
          Agreement.   Further,  the amount  of  any  payment  or
          benefit  provided for in this Agreement  shall  not  be
          reduced by any compensation earned by the Executive  as
          a   result  of  employment  by  another  employer,   by
          retirement  benefits,  by  offset  against  any  amount
          claimed to be owed by the Executive to the Company,  or
          otherwise.




     9.   Successors; Binding Agreement.

                     9.1   In addition to any obligations imposed
               by  law  upon  any successor to the  Company,  the
               Company will require any successor (whether direct
               or indirect, by purchase, merger, consolidation or
               otherwise)  to  all or substantially  all  of  the
               business and/or assets of the Company expressly to
               assume and agree to perform this Agreement in  the
               same  manner  and  to  the same  extent  that  the
               Company would be required to perform it if no such
               succession  had  taken  place.   Failure  of   the
               Company  to  obtain such assumption and  agreement
               prior  to the effectiveness of any such succession
               shall constitute Good Reason.
                     9.2   This  Agreement  shall  inure  to  the
               benefit  of  and be enforceable by the Executive's
               personal   or  legal  representatives,  executors,
               administrators,  successors, heirs,  distributees,
               devises and legatees.  If the Executive shall  die
               while  any  amount would still be payable  to  the
               Executive hereunder (other than amounts which,  by
               their  terms,  terminate upon  the  death  of  the
               Executive) if the Executive had continued to live,
               all   such   amounts,  unless  otherwise  provided
               herein, shall be paid in accordance with the terms
               of  this  Agreement  to  the  executors,  personal
               representatives   or   administrators    of    the
               Executive's estate.

     10.  Notices.

                For  the purposes of this Agreement, notices  and
          all  other communications provided for in the Agreement
          shall  be  in writing and shall be deemed to have  been
          duly  given  when delivered or mailed by United  States
          registered  mail,  return  receipt  requested,  postage
          prepaid, addressed, if to the Executive, to the address
          inserted  below the Executive's signature on the  final
          page hereof and, if to the Company, to the address  set
          forth  below, or to such other address as either  party
          may   have  furnished  to  the  other  in  writing   in
          accordance  herewith, except that notice of  change  of
          address shall be effective only upon actual receipt:

          COMPANY:                      EXECUTIVE:

          Electrosource, Inc.           (Name)
          2809 Interstate 35 South      (Address)
          San Marcos, Texas 78666


     11.  Miscellaneous.

                     11.1  No provision in this Agreement may  be
               modified, waived or discharged unless such waiver,
               modification or discharge is agreed to in  writing
               and  signed  by the Executive and such officer  as
               may  be specifically designated by the Board.   No
               waiver  by either party hereto at any time of  any
               breach  by  the other party hereto of, or  of  any
               lack   of   compliance  with,  any  condition   or
               provision  of  this Agreement to be  performed  by
               such  other  party  shall be deemed  a  waiver  of
               similar or dissimilar provisions or conditions  at
               the same or at any prior or subsequent time.
                     11.2  This  Agreement supersedes  any  other
               agreements  or representations, oral or otherwise,
               express  or  implied, with respect to the  subject
               matter  hereof  which  have been  made  by  either
               party;  provided,  however,  that  this  Agreement
               shall  supersede any agreement setting  forth  the
               terms and conditions of the Executive's employment
               with  the  Company  only in  the  event  that  the
               Executive's   employment  with  the   Company   is
               terminated  on  or following a Change  in  Control
               without Cause or by the Executive for Good Reason.
                       11.3    The    validity,   interpretation,
               construction  and  performance of  this  Agreement
               shall  be  governed by the laws of  the  State  of
               Texas.
                     11.4  All  references  to  sections  of  the
               Exchange Act shall be deemed also to refer to  any
               successor provisions to such sections.
                     11.5  Any  payments provided  for  hereunder
               shall  be  paid net of any applicable  withholding
               required under federal, state or local law and any
               additional withholding to which the Executive  has
               agreed.
                     11.6 The obligations of the Company and  the
               Executive  under  this Agreement  which  by  their
               nature  may  require partial or total  performance
               after  the  expiration of the Term  shall  survive
               such expiration.

     12.  Validity.

                 The   invalidity  or  unenforceability  of   any
          provision  of  this  Agreement  shall  not  affect  the
          validity  or  enforceability of any other provision  of
          this  Agreement, which shall remain in full  force  and
          effect.

     13.  Indemnification.

                     13.1 The Company shall pay, on behalf of the
               Executive      and     Executive's      executors,
               administrators  or assigns, any amount  which  the
               Executive is or becomes legally obligated  to  pay
               as  a  result of any claim or claims made  against
               the Executive by reason of the Executive's service
               as   an  employee,  director  or  officer  of  the
               Company,  as  the case may be.  The payments  that
               the  Company  will  be  obligated  to  make  shall
               include,  without limitation, damages,  judgments,
               settlements,  costs and expense of  investigation,
               costs  and expenses for defense of legal  actions,
               claims and proceedings and appeals therefrom,  and
               costs  of  attachment and similar bonds; provided,
               however,  that the Company shall not be  obligated
               to  pay fines or other obligations or fees imposed
               by law or otherwise that the Company is prohibited
               by  applicable law, or for any other reason,  from
               paying as indemnity.
                     13.2  Costs and expenses (including, without
               limitation,  attorneys'  fees)  incurred  by   the
               Executive   in  defending  or  investigating   any
               action,  suit, proceeding or claims shall be  paid
               by  the  Company in advance of the disposition  of
               such  matter upon receipt of a written undertaking
               by or on behalf of the Executive to repay any such
               amounts  if it is ultimately determined  that  the
               Executive is not entitled to indemnification under
               this Section 13.
                     13.3 If a claim under this Section 13 is not
               paid  by or on behalf of the Company within ninety
               (90) days after written claim has been received by
               the   Company,  the  Executive  may  at  any  time
               thereafter proceed under Section 15 hereof against
               the  Company to recover the unpaid amount  of  the
               claim and, if successful in respect of one or more
               material issues, shall also been titled to be paid
               the   expenses,  including  attorneys'  fees,   of
               prosecuting such claim.
                     13.4  In  the  event of payment  under  this
               Section 13, the Company shall be subrogated to the
               extent  of  such payment to all of the  rights  of
               recovery  of the Executive, who shall execute  all
               documents  required and shall do  everything  that
               may  be necessary to secure such rights, including
               the  execution  of  such  documents  necessary  to
               enable  the Company effectively to bring  suit  to
               enforce such rights.
                     13.5  The Company shall not be liable  under
               this  Section 13 to make any payment in connection
               with any claim made against the Executive:
                               (A)  for which payment is actually
                    made  to  the  Executive under  an  insurance
                    policy  maintained by the Company, except  in
                    respect  of any excess beyond the  amount  of
                    payment under such insurance;
                               (B)   for  which the Executive  is
                    indemnified  by  the Company  otherwise  than
                    pursuant to this Section 13.
                               (C)  based upon or attributable to
                    the  Executive's gaining in fact any personal
                    profit  or  advantage to which the  Executive
                    was not legally entitled;
                               (D)   for an accounting of profits
                    made  from  the  purchase  or  sale  by   the
                    Executive of securities of the Company within
                    the  meaning of Section 16(b) of the Exchange
                    Act; or
                               (E)   brought about or contributed
                    to by the dishonesty of the Executive;
                          provided, however, that notwithstanding
               the  foregoing, the Executive shall  be  protected
               under  this Section 13 as to any claims upon which
               suit  may  be brought alleging dishonesty  on  the
               part  of the Executive, unless a judgment or other
               final   adjudication  thereof   adverse   to   the
               Executive   shall  establish  that  the  Executive
               committed acts of active and deliberate dishonesty
               with  actual  dishonest purpose and intent,  which
               acts  were  material  to the cause  of  action  so
               adjudicated.
                     13.6 The Executive, as a condition precedent
               to  the Executive's right to be indemnified  under
               this  Section 13, shall give to the Company notice
               as  soon  as practicable of any claim made against
               the Executive for which indemnity will or could be
               sought under this Section 13.  The Executive shall
               give  the Company such information and cooperation
               as  it  may  reasonably require and  as  shall  be
               within the Executive's power.
                     13.7  Nothing  herein  shall  be  deemed  to
               diminish  or  otherwise restrict  the  Executive's
               right  to  indemnification under any provision  of
               the  Certificate of Incorporation or Bylaws of the
               Company,  under  Delaware law or pursuant  to  any
               indemnification contract or agreement between  the
               Executive and the Company.

     14.  Counterparts.

                 This   Agreement  may  be  executed  in  several
          counterparts, each of which shall be deemed  to  be  an
          original but all of which together will constitute  one
          and the same instrument.


     15.  Resolution of Disputes; Arbitration.

                    15.1 All claims by the Executive for benefits
               under  this  Agreement shall be  directed  to  and
               determined  by  the  Committee  and  shall  be  in
               writing.  Any denial by the Committee of  a  claim
               for   benefits  under  this  Agreement  shall   be
               delivered  to the Executive in writing  and  shall
               set  forth the specific reasons for the denial and
               the  specific provisions of this Agreement  relied
               upon.   The  committee shall afford  a  reasonable
               opportunity to the Executive for a review  of  the
               decision  denying a claim and shall further  allow
               the  Executive  to  appeal  to  the  Committee   a
               decision  of the Committee within sixty (60)  days
               after  notification  by  the  Committee  that  the
               Executive's claim has been denied.
                     15.2  Any  further  dispute  or  controversy
               arising under or in connection with this Agreement
               shall    be   settled   exclusively   by   binding
               arbitration  in  Austin, Texas in accordance  with
               the  rules of the American Arbitration Association
               then  in effect.  Judgment may be entered  on  the
               arbitrator's    award   in   any   court    having
               jurisdiction.   Notwithstanding any  provision  of
               this  Agreement  to  the contrary,  the  Executive
               shall be entitled to seek specific performance  of
               the Executive's right to be paid until the Date of
               Termination during the pendency of any dispute  or
               controversy  arising under or in  connection  with
               this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement
this _____ day of August, 1997.

ELECTROSOURCE, INC.                EXECUTIVE
(Company)


By:                                By:
Printed Name:                      Printed Name:
Its:


                                                           Exhibit 10.39

                     NOTE PURCHASE AGREEMENT

      This Note Purchase Agreement (the "Agreement") is made  and
entered into as of December 19, 1997, by and among Electrosource,
Inc.,   a  Delaware  corporation  (the  "Company"),  and  Corning
Incorporated, a corporation organized under the laws of the State
of New York (the "Purchaser").

      WHEREAS,  Purchaser  wishes to purchase  a  note  from  the
Company  with the option to convert the note in to either  common
stock of the Company or 5% cumulative convertible preferred stock
of the Company;

     NOW, THEREFORE, the parties hereto agree as follows:

     1.   Purchase and Sale of Notes.

           A.    Notes.   The  Company  agrees  to  sell  to  the
Purchaser  and,  subject to the terms and  conditions  set  forth
herein,  the Purchaser agrees to purchase from the Company  a  5%
Convertible Promissory Notes (the "Notes") in the total principal
amount   of   Two   Million  Dollars  ($2,000,000.00)   for   the
consideration of Two Million Dollars ($2,000,000.00), payable  as
set  forth in Section 2.  The Notes shall be for a one  (1)  year
term, bearing interest at 5% per annum, payable in cash or,  upon
prior  written  approval of the Investor, in  kind  and  will  be
convertible, in whole or in part, on or before payment in full of
the  outstanding principal and accrued interest into common stock
("Common  Stock") of the Company at a conversion price per  share
equal  to  the  closing price of the Company's  common  stock  as
reported  by NASDAQ on December 19, 1997, plus $1.00, subject  to
adjustment of the conversion price as provided in the  Notes,  or
exchangeable,  in  whole  or  in  part,  for  the  Company's   5%
cumulative  convertible preferred stock ("Preferred  Stock"),  as
provided  in  the Notes.  The form of the Notes is set  forth  in
Exhibit  "A,"  the  "5% Convertible Promissory  Notes,"  attached
hereto  and incorporated herein by reference.  The terms  of  the
Preferred  Stock  are set forth in Exhibit "B,"  the  "Securities
Purchase  Agreement" with attachments, which is  attached  hereto
and  incorporated  herein by reference,  to  the  extent  not  in
conflict herewith.

           B.    Amendment of Stock Option Agreement.  In further
consideration  of the purchase of the Notes herein,  the  Company
and  Investor  hereby amend that certain Stock  Option  Agreement
dated March 27, 1997 ("Option Agreement") under the Note Purchase
and  Option  Agreement  of March 27, 1997 to  modify  the  option
exercise  prices.  The exercise prices are amended  to  Four  and
No/100  Dollars  ($4.00) per share for Two  Hundred  Seventy-five
Thousand (275,000) shares (the previous exercise price was  Seven
and  No/100 Dollars ($7.00) per share for such shares) and to Six
and  No/100 Dollars ($6.00) per share for Two Hundred Twenty-five
Thousand  (225,000) shares (the previous exercise price was  Nine
and  No/100 Dollars ($9.00) per share for such shares).  The said
Option  Agreement is not otherwise amended and  remains  in  full
force and effect.

     2.   Closing

           The closing of the purchase and sale of the Notes (the
"Closing") will take place in installments of One Million Dollars
($1,000,000)  on  or  before  December  24,  1997;  Five  Hundred
Thousand  Dollars ($500,000) on or before January 24,  1998,  and
Five  Hundred  Thousand Dollars ($500,000) on or before  February
24,  1998.   Closing may be held by mail or as  the  Parties  may
otherwise  agree.  At each Closing, the Company will  deliver  to
the  Purchaser  a  Note in the requisite amount upon  payment  by
Purchaser  of the respective purchase price.  The purchase  price
shall  be  paid in the form of a check or by a wire  transfer  of
funds to an account designated by the Company.

     3.   Covenants

           The Company covenants and agrees with the Purchaser as
follows:

           3A.  Financial Statements and Other Information.   The
Company will deliver to Purchaser so long as such Purchaser holds
the  Notes  or  any  Notes issued in payment of accrued  interest
thereon (sometimes referred to herein collectively with the Notes
as the "Notes") copies of all reports required to be filed by the
Company pursuant to sections 13 and 14 of the Securities Exchange
Act of 1934.

           3B.  Reservation of Common Stock.  The Company will at
all  times  reserve and keep available out of its authorized  but
unissued shares of Common Stock, for the purpose of issuance upon
the  conversion  of the Notes, such number of  shares  of  Common
Stock  as  are  issuable upon the conversion of the  Notes.   All
shares  of Common Stock which are so issuable will, when  issued,
be  duly  and  validly issued, fully paid and non-assessable  and
free  from  all taxes, liens and charges.  The Company will  take
all  such  actions as may be necessary to assure  that  all  such
shares of Common Stock may be so issued without violation of  any
applicable law or governmental regulation or any requirements  of
any  domestic  securities exchange upon which  shares  of  Common
Stock may be listed.

           3C.  Authorization of Preferred Stock.  Upon Purchaser
electing to exercise its right to exchange each of the Notes into
Preferred Stock, the Company will authorize the issuance  of  Two
Hundred  Thousand (200,000) shares of Preferred Stock at Ten  and
No/100  Dollars  ($10.00) per share to  the  Purchaser  with  the
rights, designations and preferences set forth in Exhibit "B."

          3D.  Ranking of Notes.  The Company's obligations under
the  Notes  will rank at least pari passu in priority of  payment
and  in all other respects with all other unsecured loans,  debts
or obligations of the Company entered into after the date hereof.
The  Company  shall  not, while any amount of the  Notes  remains
outstanding, offer to borrow funds from any third party on  terms
more  favorable to the third party lender than those extended  to
Purchaser  for the Notes with respect to security for the  Notes,
financial covenants or negative pledges of the Company  in  favor
of  such  third  party,  repayment terms,  or  other  significant
matters, without offering such terms to Purchaser in writing.

     4.   Representations and Warranties

            4A.    Representations   by  Company.   The   Company
represents, warrants and agrees as follows:

                (i)  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of  Delaware and is in good standing as a foreign corporation  in
each jurisdiction where the properties owned, leased or operated,
or  the  business  conducted  by it require  such  qualification,
except  for  such  failure  to so qualify  or  be  in  such  good
standing,  which,  when  taken  together  with  all  other   such
failures,  is  not  reasonably likely to have a material  adverse
effect  on  the  financial  condition,  properties,  business  or
results  of  operations  of  the  Company  or  the  interest   of
shareholders  in the Company (a "Material Adverse  Effect").  The
Company has the requisite corporate power and authority to  carry
on its business as it is now being conducted.

                (ii)  The authorized capital stock of the Company
as  of  the  date  hereof consists of Fifty Million  (50,000,000)
shares of $1.00 par value Common Stock, of which Four Million Two
Hundred Thirty Thousand Five Hundred One (4,230,501) shares  were
issued and outstanding as of December 5, 1997, none of which  are
held  in  treasury,  and  Ten  Million  (10,000,000)  shares   of
Preferred  Stock, par value $1.00 per share ("Preferred  Stock"),
of which no shares are issued and outstanding on the date hereof.
All  of  the  outstanding shares of Common Stock have  been  duly
authorized  and are validly issued, fully paid and nonassessable.
As  of  December 5, 1997, there were reservations for outstanding
options,  warrants and agreements to purchase up to an  aggregate
of  approximately  Two  Million Nine Hundred  One  Thousand  Four
Hundred Forty-four (2,901,444) shares of Common Stock, at  prices
ranging  from  Five and 25/100 Dollars ($5.25) to Fifty-five  and
No/100 Dollars ($55.00) per share.

               (iii)     The Notes when issued in compliance with
the  provisions  of this Agreement, will be duly  authorized  and
validly issued. The issuance of the Notes will not be subject  to
any  preemptive rights or rights of first refusal created by  the
Company.  The shares of Common Stock or Preferred Stock  issuable
upon conversion of the Notes have been duly and validly reserved.
The  shares  of  Common Stock and Preferred Stock  issuable  upon
conversion of the Notes are not subject to any preemptive  rights
or  rights  of  first refusal created by the  Company,  and  upon
conversion  and  cancellation of the Notes and  exercise  of  the
Option  will be duly authorized, validly issued, fully  paid  and
nonassessable.

               (iv) The Company has the requisite corporate power
and  authority  and has taken all corporate action  necessary  in
order  to  authorize, execute and deliver this Agreement  and  to
consummate  the transactions contemplated hereby and  to  perform
the acts contemplated on its part hereunder. This Agreement is  a
valid  and  legally binding agreement of the Company  enforceable
against  the Company in accordance with its terms except as  such
enforcement may be limited by bankruptcy, insolvency,  moratorium
or other similar laws affecting creditors' rights generally or by
equitable principles.

               (v)  The offer, sale and issuance of the Notes and
the  Preferred  Stock  or Common Stock issuable  upon  conversion
thereof  as  contemplated by this Agreement are exempt  from  the
registration  requirements  of the Securities  Act  of  1933,  as
amended  (the  "Securities  Act") and from  the  registration  or
qualification requirements of the laws of any applicable state or
other  jurisdiction.  Except as the same shall have been made  or
obtained  at or prior to the Closing, and except for Form  D  and
related  state  securities law filings with  the  Securities  and
Exchange Commission and applicable state securities boards to  be
made  following the Closing, no notices, reports or other filings
are  required  to  be  made  by the Company  with,  nor  are  any
consents,  registrations,  approvals, permits  or  authorizations
required to be obtained by the Company from, any governmental  or
regulatory authority, agency, commission, court or other  entity,
domestic  or foreign ("Governmental Entity"), in connection  with
the  execution and delivery of this Agreement by the Company, the
consummation  by  the  Company of the  transactions  contemplated
hereby  and the performance of the acts contemplated on the  part
of the Company hereunder.

                (vi) The Company is not in violation of any  term
of its Certificate of Incorporation or By-Laws.  Except as may be
disclosed in Exhibit "C" hereto, the Company has, to the best  of
its  knowledge, information and belief, complied in all  material
respects  with  all material leases, contracts, notes,  mortgage,
indentures,  arrangements  or other obligations  and  commitments
("Contracts")  to which the Company is a party or  by  which  the
Company  or its assets are bound or subject, and there  does  not
currently exist any event of default under any such agreement  or
any  event  which, after notice or lapse of time or  both,  would
constitute  an  event  of  default under  such  agreement,  plan,
arrangement or commitment, in each case to the extent  that  such
failure  to  comply,  event  of  default  or  event  which  would
constitute an event of default would result in a Material Adverse
Effect  to  the  Company.  The execution  and  delivery  of  this
Agreement  by  the  Company do not, and the consummation  by  the
Company   of  the  transactions  contemplated  hereby   and   the
performance  of the acts contemplated on the part of the  Company
hereunder  will  not, constitute or result in  (A)  a  breach  or
violation   of,   or   a  default  under,  the   Certificate   of
Incorporation  or  By-Laws  of the  Company,  or  (B)  a  breach,
violation  or event triggering a right of termination  of,  or  a
default under, or the acceleration of or the creation of a  lien,
pledge, security interest or other encumbrance on assets (with or
without  the  giving  of notice or the lapse  of  time  or  both)
pursuant  to  any provisions of any Contract or  any  law,  rule,
ordinance  or  regulation,  agreement,  instrument  or  judgment,
decree,  order  or award to which the Company is subject  or  any
governmental   or   non-governmental   authorization,    consent,
approval, registration, franchise, license or permit under  which
the Company conducts its business.

                (vii)      No investment banker, broker or finder
is  entitled to any financial advisory, brokerage or finder's fee
or other similar payment from either the Purchaser or the Company
based  on  agreements, arrangements or undertakings made  by  the
Company  or  any  of  its  directors, officers  or  employees  in
connection with the transactions and acts contemplated hereby.

                (viii)     In furnishing information to Purchaser
for  purposes  of  this Agreement, it has  not  made  any  untrue
statements of a material fact to Purchaser or omitted to state  a
material fact necessary to make such statements not misleading to
Purchaser  in  light of the circumstances under which  they  were
made.

                (ix)   The  Company possess all  patents,  patent
rights, trademarks, service marks, trademark rights, service mark
rights,  trade names, trade name rights, copyrights, mask  works,
trade  secrets,  proprietary  software,  proprietary  rights  and
process necessary to conduct its business as now conducted and as
planned  to  be conducted, without, to the best of the  Company's
knowledge, conflict with or infringement upon any valid rights of
others,  the lack of which could have a Material Adverse  Effect,
and  has not received any notice of infringement upon or conflict
with the asserted rights of others.  The Company has all permits,
licenses and other similar authority necessary for the conduct of
its  business  as  now  being conducted  and  as  planned  to  be
conducted,  the  lack  of  which could have  a  Material  Adverse
Effect,  and  it is not in default in any material respect  under
any of such permits, licenses or other similar authority.

                (x)  The Company has heretofore delivered or made
available  to  the Investor complete and correct  copies  of  all
reports  and  other  filings filed by The Company  with  the  SEC
pursuant to the Securities Exchange Act of 1934, as amended  (the
"Exchange  Act"), since January 1, 1994, through the date  hereof
(such  reports  and  other filings are collectively  referred  to
herein  as  the "Company Exchange Act Filings").  Except  as  set
forth  in  Exhibit "D" hereto, as of their respective dates,  the
Company  Exchange  Act  Filings  substantially  complied  in  all
material respects with the published rules and regulations of the
SEC with respect thereto and did not contain any untrue statement
of  a material fact or omit to state a material fact required  to
be stated therein or necessary to make the statements therein, in
light  of  the  circumstances under which  they  were  made,  not
misleading.  The audited consolidated financial statements of the
Company  included  in the Company Exchange Act Filings  (i)  were
prepared  from  the books and records of the Company,  (ii)  were
prepared   in  accordance  with  generally  accepted   accounting
principles, except as otherwise permitted under the Exchange  Act
and the rules and regulations thereunder and (iii) present fairly
in all material respects the financial position of the Company as
at  the dates thereof and the results of its operations and  cash
flows  for  the periods then ended, subject to the qualifications
set  forth  in  the  respective Reports of  Independent  Auditors
thereto.    The   unaudited  consolidated  financial   statements
included  in  the  Exchange Act Filings comply  in  all  material
respects with the published rules and regulations of the SEC with
respect   thereto;  and  such  unaudited  consolidated  financial
statements  (i) were prepared from the books and records  of  the
Company, (ii) were prepared in accordance with generally accepted
accounting  principles, except as otherwise permitted  under  the
Exchange Act and the rules and regulations thereunder, applied on
a  consistent basis (except as may be expressly indicated therein
or  in  the notes thereto) and (iii) present fairly the financial
position  of the Company as at the dates thereof and the  results
of  its  operations  and cash flows for the periods  then  ended,
subject  to  the same qualifications as set forth in the  audited
financial  statements  in the respective Reports  of  Independent
Auditors, and subject to normal year-end adjustments which  would
not  have a material adverse effect on the Company and any  other
adjustments expressly described therein or in the notes thereto.

                (xi)  The Company has no outstanding indebtedness
for   borrowed  money  except  as  reflected  in  the   Financial
Statements  and  the  notes thereto and is  not  a  guarantor  or
otherwise   contingently  liable  for   any   such   indebtedness
(including,  without limitation, liability by way  of  agreement,
contingent or otherwise, to purchase, provide funds for  payment,
supply  funds  or otherwise invest in any debtor or otherwise  to
insure  any  creditor  against loss).   The  Company  is  not  in
material   default  under  the  provisions  of   any   instrument
evidencing  any  indebtedness of the  Company  or  any  agreement
relating thereto.

                (xii)  The Company maintains insurance to protect
the  Company  and  its  financial  condition  against  the  risks
involved  in the business conducted by the Company to the  extent
and  in  the manner customary for companies in similar businesses
similarly situated.

                (xiii)   There  is no litigation,  action,  suit,
proceeding  or  investigation pending or  threatened  against  or
affecting the Company before any court or before any governmental
or  administrative agency which contests the Company's  right  to
own,  produce,  manufacture, update, maintain, sell  or  use  any
product, database, software, process, method, substance, part  or
other  material  presently  or planned  to  be  owned,  produced,
manufactured, updated, maintained, sold or used by the Company in
connection  with the operations of the Company.  The Company  has
no actual knowledge or belief that (I) there presently exists, or
there  is  pending  or  planned, any patent,  invention,  device,
application  or  any statute, rule, law regulation,  standard  or
code which would have a Material Adverse Effect or (ii) there  is
any  other  factor (other than fire, flood, earthquake, accident,
act of war or civil commotion, or any other cause or event beyond
the control of the Company) which may Materially Adversely Effect
the  condition (financial or otherwise), prospects or  operations
of the Company.

                (xiv)   Since  the latest date of  the  Financial
Statements,  the  Company  has conducted  business  only  in  the
ordinary  and  usual  course  of  business  and,  other  than  as
specifically or generally reflected on the Financial  Statements,
there has not been any event or condition of any character which,
alone  or in combination, is a Material Adverse Effect, including
but not limited to:

                     (a)   any  material adverse  change  in  the
condition,  prospects, assets, liabilities  or  business  of  the
Company from that reflected in the Financial Statements;

                     (b)  any damage, destruction or loss of  any
of  the  properties  or  assets of the Company  (whether  or  not
covered  by insurance) materially adversely affecting the assets,
properties, financial conditions, operations, prospects, business
or plans of the Company;

                      (c)    any   material  adverse  change   or
amendments  to a contract or arrangement by which the Company  or
any of its assets is bound or subject;

                      (d)   any  declaration,  setting  aside  or
payment  or other distribution in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase  or
other acquisition of any such stock by the Company;

                     (e)  any waiver by the Company of a valuable
right or material debt owed to it;

                     (f)   any  labor trouble, or  any  event  or
condition  of  any character, materially adversely affecting  the
business or plans of the Company.

                (xv)   The  Company  has filed  within  the  time
prescribed by law (including extensions of time approved  by  the
appropriate  taxing  authority)  all  tax  returns  and   reports
required  to  be  filed with the United States  Internal  Revenue
Service and with the State of Delaware and (except to the  extent
that  the  failure  to  file would not have  a  Material  Adverse
Effect)  with  all  other  jurisdictions  where  such  filing  is
required  by  law;  and the Company has paid,  or  made  adequate
provision  in  the Financial Statements for the payment  of,  all
taxes, interest, penalties, assessments or deficiencies shown  to
be  due or claimed to be due on or in respect of such tax returns
and  reports.  The Company knows of (i) no unpaid assessment  for
additional taxes for any fiscal period or any basis therefor  and
(ii)  no  other tax returns or reports which are required  to  be
filed which have not been so filed.

          4B.  Representations by Purchaser

                The Purchaser represents, warrants and agrees  as
follows:

               (i)  Purchaser is purchasing the Notes for its own
account for the purpose of investment and not with a view  toward
the  redistribution or resale of any part thereof. Purchaser  has
no   present   arrangement,  understanding   or   agreement   for
transferring or disposing of the Notes;

                (ii) Purchaser is aware that the purchase of  the
Notes represent speculative investments;

                 (iii)       Before  executing  this   Agreement,
representatives of Purchaser were furnished all information  with
respect to the Company that they requested and representatives of
Purchaser  were  given the opportunity to ask Company  executives
all questions that such representatives had;

                (iv) Purchaser confirms that it is an "Accredited
Purchaser,"  as such term is defined in Rule 501 of Regulation  D
promulgated under the Securities Act;

                (v)   Purchaser confirms that it is able to  bear
the economic risk inherent in its investment and understands that
there  currently  is  no, and that there may  not  ever  be  any,
private  or  public  market  for the  Notes  in  the  event  that
Purchaser needs to liquidate its investment;

                (vi)  Purchaser agrees that it will not offer  or
sell  the Notes or any of the shares of Common Stock or Preferred
Stock  into which the Notes is convertible or which are  issuable
upon  exercise of the Option unless the Notes or such  shares  of
Common  Stock  or  Preferred  Stock  are  registered  under   the
Securities  Act  and under all applicable state securities  laws,
unless  Purchaser has established to the reasonable  satisfaction
of the Company that no such registration is required;

                 (vii)       Purchaser  agrees  that  appropriate
restrictive  endorsements  will  be  placed  on  the   instrument
evidencing  the  Notes and on the certificate(s)  evidencing  the
shares  of  Common Stock or Preferred Stock into which the  Notes
are convertible or which are issuable upon exercise of the Option
to   reflect  the  foregoing  and  that  the  Company  will  give
appropriate stop transfer instructions to the person in charge of
the  transfer of its securities, including the Notes, the  Common
Stock  and  the Preferred Stock.  Upon request of the  holder  of
such Notes or certificates, the Company shall give an instruction
to  the  transfer agent to process the transfer if (i) with  such
request, the Company shall have received either (A) an opinion of
legal   counsel,   addressed  to  the  Company   and   reasonably
satisfactory in form and substance to the Company, to the  effect
that  the  proposed transfer of such securities may  be  effected
without  registration under the Securities Act,  or  (B)  a  "no-
action"  letter from the Securities and Exchange Commission  (the
"Commission")  to  the  effect  that  the  distribution  of  such
securities   without   registration  will   not   result   in   a
recommendation  by  the staff of the Commission  that  action  be
taken  with  respect thereto, or (ii) such holder is eligible  to
utilize paragraph (k) of Rule 144 (or any successor rule) as then
in effect under the Securities Act;

     5.   Registration Rights

           5A.   The  Purchaser shall have the  following  demand
registration rights:

                (i)   Upon  purchase of the Notes, the  Purchaser
shall  have  the  right, by written notice  to  the  Company,  to
require  the Company to use its best reasonable efforts  to  file
within  thirty  (30)  days  thereafter a  Form  S-3  registration
statement for all shares of Common Stock issued or issuable  upon
conversion  of  the  Notes owned by the Purchaser  (also  "Demand
Covered  Shares").  If a Form S-3 is not available,  the  Company
will attempt to use a Form S-2 or other Form as appropriate.

               (ii) The Company shall be entitled to defer filing
any such registration statement for a period of up to ninety (90)
days  after  such notice upon a good faith determination  by  the
Company's  management that the filing of a registration statement
at  such  time  would be detrimental to the Company  due  to  the
pendency  of  a material acquisition or financing  or  for  other
reasonable cause. Purchaser may request that the Company withdraw
any  such  registration  statement  at  any  time  prior  to  its
effectiveness;  provided  that, any such  withdrawn  registration
statement shall be treated as a completed registration fulfilling
the  obligations of the Company pursuant to this  section  unless
the  Purchaser  shall  reimburse  the  Company  for  all  of  the
Company's  costs  and expenses incurred in connection  with  such
withdrawn  registration within thirty days following the  request
to withdraw.

                 (iii)      The  Purchaser  may  elect  to   have
conversion of the Notes contingent upon a registration  statement
hereunder being declared effective.

               (iv) In the event a registration statement on Form
S-3 (or on another form at the Company's discretion) has not been
declared effective within one hundred fifty (150) days of demand,
then  for  each  thirty  (30)  day  period  thereafter  until   a
registration  statement becomes effective, the Company  shall  be
required to issue to Purchaser an additional two percent (2%)  of
the shares issuable upon conversion of such Notes.

            5B.    The  Purchaser  shall  also  have  "piggyback"
registration rights.  If the Company proposes to sell  shares  of
Common Stock for its own account and to register the sale of such
shares  under the Securities Act, or if the Company  proposes  to
register  the sale of shares of Common Stock to be sold  for  the
account of any other shareholder, it shall give written notice of
such  proposed registration to Purchaser as promptly as  possible
and  shall use its reasonable efforts to include in the  offering
such  number of shares of Common Stock received by Purchaser upon
conversion  of the Notes ("Piggyback Covered Shares") then  owned
by  Purchaser as Purchaser shall request, within twenty-five (25)
days after the giving of such notice such offering to be upon the
same  terms  (including method of distribution) as the securities
being sold by the Company or any selling shareholder pursuant  to
any such offering.  The Company's obligation to include Piggyback
Covered  Shares owned by Purchaser in any offering shall  in  all
cases be subject to the following limitations and qualifications:

                (i)   The Company shall not be required  to  give
notice   to  Purchaser  or  include  such  shares  in  any   such
registration  if the proposed registration is (A) a  registration
of  a stock option or compensation plan or of Common Stock issued
or  issuable  pursuant to any such plan, (B)  a  registration  of
Common Stock proposed to be issued in exchange for securities  or
assets of, or in connection with a merger or consolidation  with,
another  corporation,  or (C) to be on  a  form  of  registration
statement  for  which  the  Piggyback  Covered  Shares  are   not
eligible;

                (ii)  The Company may require that the number  of
Piggyback  Covered  Shares  requested  to  be  included  in  such
registration be reduced, or that all such shares be excluded from
any  such  registration,  if  it is advised  in  writing  by  its
managing  underwriter (or, if the offering is  not  underwritten,
upon  a  good  faith  determination by  the  Company's  board  of
directors) that such reduction or exclusion, as the case may  be,
is  necessary to avoid materially adversely affecting the  public
offering of the securities being offered by the Company.  If  the
Company shall require such a reduction, Purchaser shall have  the
right to withdraw from the offering;

                (iii)      In the event that the number of shares
of  Common  Stock included in any registration is to  be  reduced
pursuant to Section 6B(ii):

                     (A)  If the registration in question is  one
initiated  by  the Company in order to allow the sale  of  Common
Stock  for the account of the Company, then any reduction in  the
number of shares to be included in such registration shall  first
affect only shares other than the shares the Company proposes  to
sell for its own account.

                     (B)  If the registration in question is  one
initiated  by  any  person  or persons  other  than  the  Company
exercising demand registration rights in order to allow the  sale
of  Common Stock for the account of such person or persons,  then
any  reduction  in  the number of shares to be included  in  such
registration shall first affect only shares other than the shares
of  Common Stock requested to be included by the person or person
initiating   the   registration  by  the   exercise   of   demand
registration  rights requested to be included in the registration
by Holders; and

                     (C)   Subject to subparagraphs (A)  and  (B)
above, in the event that the Company requires that the number  of
shares  to  be  included  in  a  registration  be  reduced,  such
reduction  shall  be  applied pro rata among all  parties  having
registration  rights  in  proportion  to  the  number  of  shares
requested to be registered by each.

                (iv) The Company shall not be required to include
any  Piggyback Covered Shares in any registration to  the  extent
that  the  inclusion thereof would result in a reduction  in  the
number of shares requested to be included in the registration  by
the  person  or  persons (including the Company)  initiating  the
registration in question or would reduce the per share  price  of
the offering.

                (v)  The Company may, in its sole discretion  and
without  the  consent  of Purchaser, withdraw  such  registration
statement  and  abandon the proposed offering in which  Purchaser
had requested to participate.

           5C.   In  connection  with a registration  of  Covered
Shares  undertaken by the Company pursuant to this  Part  6,  the
Company shall:

                (i)   prepare  and file with the Commission  such
amendments and supplements to such registration statement and the
prospectus  used in connection therewith as may be  necessary  to
keep such registration statement current as long as is reasonably
possible  as  Purchaser  shall request and  to  comply  with  the
provisions of the Securities Act with respect to the sale of  all
Covered Shares covered by such registration statement during such
period;

               (ii) provide Purchaser a reasonable opportunity to
review  prior to filing any registration statement filed  by  the
Company  in connection with a registration in which Purchaser  is
participating, any amendments or supplements to such registration
statement and any prospectus used in connection therewith;

                (iii)      furnish  to Purchaser such  number  of
conformed copies of such registration statement and of each  such
amendment  and  supplement thereto (in each  case  including  all
exhibits),  such number of copies of the prospectus  included  in
such  registration statement, in conformity with the requirements
of  the Securities Act, and such other documents as Purchaser may
reasonably request in order to facilitate the sale of the Covered
Shares covered by such registration statement;

                (iv)  use its best efforts to register or qualify
the  Covered Shares covered by such registration statement  under
such  other securities or blue sky laws of such jurisdictions  as
Purchaser shall reasonably request, and do any and all other acts
and  things  which may be reasonably necessary  or  advisable  to
enable Purchaser to consummate the sale in such jurisdictions  of
such  shares;  provided that the Company shall not for  any  such
purpose  be  required to register or qualify the  covered  shares
covered  by  such  registration statement in any jurisdiction  in
which  the Common Stock is not then qualified for public trading,
to  qualify generally to do business as a foreign corporation  in
any jurisdiction wherein it would not but for the requirements of
this  section be obligated to be so qualified, to subject  itself
to  taxation  in any such jurisdiction or to consent  to  general
service of process in any such jurisdiction;

                 (v)   notify  Purchaser  at  any  time  when   a
prospectus  relating  to  the  Covered  Shares  covered  by  such
registration  statement  is required to be  delivered  under  the
Securities  Act,  of  the  Company's  becoming  aware  that   the
prospectus  included in such registration statement, as  then  in
effect, includes an untrue statement of a material fact or  omits
to  state  any  material fact required to be  stated  therein  or
necessary to make the statements therein not misleading in  light
of  the  circumstances  then existing,  and  at  the  request  of
Purchaser  promptly prepare and furnish to Purchaser a reasonable
number of copies of a prospectus supplemented or amended so that,
as  thereafter delivered to the purchasers of such  shares,  such
prospectus  shall not include an untrue statement of  a  material
fact  or  omit  to state a material fact required  to  be  stated
therein   or  necessary  to  make  the  statements  therein   not
misleading in light of the circumstances then existing;

                (vi)  use  its best efforts to cause all  of  the
Covered  Shares  included in such registration  statement  to  be
listed  on  each securities exchange on which securities  of  the
same  class  issued by the Company are then listed or,  if  there
shall  then  be no such listing, to be accepted for quotation  on
NASDAQ;

                (vii)      provide a transfer agent and registrar
for the Covered Shares covered by such registration statement not
later than the effective date of such registration statement; and

           5D.   For as long as Purchaser shall continue to  hold
any  Covered Shares, the Company shall use reasonable efforts  to
file,  on a timely basis, all annual, quarterly and other reports
required  to  be filed by it under Sections 13 and 15(d)  of  the
Exchange  Act,  and the rules and regulations of  the  Commission
thereunder,  as amended from time to time. In the  event  of  any
proposed sale of Covered Shares by Purchaser pursuant to Rule 144
(or  any  successor rule) under the Securities Act,  the  Company
shall  cooperate with Purchaser so as to enable such sales to  be
made  in  accordance with applicable laws, rules and regulations,
the  requirements  of  the  Company's transfer  agents,  and  the
reasonable requirements of the broker through which the sales are
proposed to be executed.

           5E.   The  costs  and  expenses  of  any  registration
effected  pursuant to this Part 6 shall be allocated as  provided
in this Section 6E:

                 (i)   "Registration  Expenses"  shall  mean  all
expenses incurred by the Company in complying with this  Part  6,
including,  without  limitation, all registration,  qualification
and filing fees, printing expenses, escrow fees, transfer agents'
and  registrars' fees, fees and disbursements of counsel for  the
Company,  blue  sky  fees  and  expenses,  and  the  expense  the
Company's  accountants, including the cost of any special  audits
incident  to or required by any such registration (but  excluding
the  compensation of regular employees of the Company which shall
be paid in any event by the Company);

                 (ii)   "Selling   Expenses"   shall   mean   all
underwriting discounts and selling commissions applicable to  the
sale and all fees and disbursements of counsel for any holder;

                (iii)      In  connection with  any  registration
pursuant  to  Section 6A, the company shall pay all  Registration
Expenses and Purchaser shall pay all Selling Expenses;

               (iv) In connection with any registration initiated
by  the  Company  in  which  Purchaser participates  pursuant  to
Section   6B,   the  Company  or  other  person  initiating   the
registration  shall pay all Registration Expenses, and  Purchaser
shall  pay all Selling Expenses attributable to the inclusion  in
the offering of the Covered Shares being sold by Purchaser.

           5F.   In the case of the registration effected by  the
Company  pursuant to this part, the Company agrees  to  indemnify
and  hold  harmless Purchaser, each underwriter  of  the  Covered
Shares  so  registered  and each person  who  controls  any  such
underwriter  within the meaning of Section 15 of  the  Securities
Act,  against any and all losses, claims, damages or  liabilities
to  which  they  or  any  of them may become  subject  under  the
Securities Act or any other statute or common law, including  any
amount  paid  in  settlement  of  any  litigation,  commenced  or
threatened,  if  such  settlement is effected  with  the  written
consent  of the Company, and to reimburse them for any  legal  or
other  expenses incurred by them in connection with investigating
any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions arise out of or are based
upon  (i) any untrue statement or alleged untrue statement  of  a
material fact contained in the registration statement relating to
the  sale  of the Covered Shares, or any post-effective amendment
thereto,  or the omission or alleged omission to state therein  a
material fact required to be stated therein or necessary to  make
the  statements  therein  not  misleading,  or  (ii)  any  untrue
statement  or  alleged  untrue  statement  of  a  material   fact
contained  in  any preliminary prospectus, if used prior  to  the
effective  date of such registration statement, or  contained  in
the  final prospectus (as amended or supplemented if the  Company
shall  have  filed with the Commission any amendment  thereof  or
supplement  thereto) if used within the period during  which  the
Company  is required to keep the registration statement to  which
such  prospectus  relates  current, or the  omission  or  alleged
omission  to state therein (if so used) a material fact necessary
in  order  to  make  the  statements therein,  in  light  of  the
circumstances  under  which  they  were  made,  not   misleading;
provided,  however, that the indemnification agreement  contained
in  this  section  shall not (x) apply to  such  losses,  claims,
damages,  liabilities or actions arising out of, or  based  upon,
any  such  untrue statement or alleged untrue statement,  or  any
such  omission or alleged omission, if such statement or omission
was  made  in  reliance upon and in conformity  with  information
furnished  in  writing  to  the  Company  by  Purchaser  or  such
underwriter  for  use in connection with the preparation  of  the
registration  statement,  any  preliminary  prospectus  or  final
prospectus  contained  in  the  registration  statement,  or  any
amendment  or supplement thereto, or (y) inure to the benefit  of
any  underwriter  or any person controlling such underwriter,  if
such  underwriter  failed to send or give a  copy  of  the  final
prospectus to the person asserting the claim at or prior  to  the
delivery  of  certificates  representing  Covered  Shares  or  of
written confirmation of the sale of Covered Shares to such person
and  if  the  untrue  statement or omission  concerned  had  been
corrected in such final prospectus.

           5G.   In  the case of a registration effected  by  the
Company pursuant to this part, Purchaser and each underwriter  of
the  Covered  Shares to be registered shall  agree  in  the  same
manner and to the same extent as set forth above to indemnify and
hold  harmless the Company, each person who controls the Company,
the  directors of the Company and those of its officers who shall
have signed any such registration statement, with respect to  any
untrue  statement or alleged untrue statement in, or omission  or
alleged  omission from, such registration statement or any  post-
effective  amendment  thereto or any  preliminary  prospectus  or
final  prospectus (as amended or as supplemented, if  amended  or
supplemented   as  aforesaid)  contained  in  such   registration
statement,  if  such statement or omission was made  in  reliance
upon  and in conformity with information furnished in writing  to
the  Company  by  Purchaser or any such underwriter  for  use  in
connection with the preparation of such registration statement or
any  preliminary prospectus or final prospectus contained in such
registration  statement  or  any  such  amendment  or  supplement
thereto.

           5H.   Each  indemnified party shall,  with  reasonable
promptness   after  its  receipt  of  written   notice   of   the
commencement  of  any  action against such indemnified  party  in
respect  of  which indemnity may be sought from  an  indemnifying
party  on  account  of an indemnity agreement contained  in  this
part,   notify   the  indemnifying  party  in  writing   of   the
commencement  thereof. In case any such action shall  be  brought
against  any  indemnified  party  and  it  shall  so  notify   an
indemnifying  party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent
it  may wish, jointly with any other indemnifying party similarly
notified,  to assume the defense thereof with counsel  reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its  election  so
to  assume the defense thereof, the indemnifying party shall  not
be liable to such indemnified party under this part for any legal
or other expenses subsequently incurred by such indemnified party
in  connection  with  the defense thereof other  than  reasonable
costs  of  investigation. The indemnity agreements in  this  part
shall  be  in  addition to any liabilities that the  indemnifying
parties may have pursuant to law.

           5I.   If the indemnification provided for in this part
shall  be  unavailable to or insufficient  to  hold  harmless  an
indemnified party under sections above in respect of any  losses,
claims,  damages  or liabilities (or actions in respect  thereof)
referred   to  therein,  then  the  indemnifying  parties   shall
contribute  to  the  amount paid or payable by  such  indemnified
party  as a result of such losses, claims, damages or liabilities
(or  actions  in  respect  thereof) in such  proportions  as  are
appropriate to reflect to the relative benefits received  by  the
respective indemnifying parties from the offering of the  Covered
Shares.  If,  however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, or if  the
indemnified  party  failed  to give  the  notice  required  under
section  6H  above, then each indemnifying party shall contribute
to  such  amount paid by or payable by such indemnified party  in
such  proportion  as  is  appropriate to reflect  not  only  such
relative benefits but also the relative fault of the indemnifying
parties  in  connection with the statements  or  omissions  which
resulted  in  such  losses, claims, damages  or  liabilities  (or
actions  in  respect  thereof) as  well  as  any  other  relevant
equitable considerations. The relative benefits received  by  the
indemnifying parties shall be deemed to be in the same proportion
as  the  net  proceeds to any such party bear to  the  total  net
proceeds  from  the  offering  before  deducting  expenses.   The
relative  fault shall be determined by reference to, among  other
things,  whether  the  untrue or alleged untrue  statement  of  a
material  fact  or the omission or alleged omission  to  state  a
material  fact relates to information supplied by the  respective
indemnifying  party and the parties' relative intent,  knowledge,
access to information and opportunity to correct or prevent  such
statement  or  omission.  Provided in no event shall  Purchaser's
liability pursuant to these indemnity provisions be greater  than
the  amount  paid  for  the  Notes and  shares  of  Common  Stock
purchased pursuant to this Agreement and the Exhibits.

     6.   Miscellaneous

           6A.   Successors  and  Assigns.  Except  as  otherwise
expressly provided herein, all covenants and agreements contained
in  this  Agreement by or on behalf of any of the parties  hereto
will  bind  and inure to the benefit of the respective successors
and  assigns of the parties hereto whether so expressed  or  not;
provided  that, the registration rights granted to the  Purchaser
shall  not be transferred or assigned by Purchaser other than  to
an entity wholly owned by Investor.

           6B.   Severability.  Whenever possible, each provision
of  this  Agreement will be interpreted in such manner as  to  be
effective and valid under applicable law, but if any provision of
this  Agreement  is  held to be prohibited by  or  invalid  under
applicable  law, such provision will be ineffective only  to  the
extent  of  such prohibition or invalidity, without  invalidating
the remainder of this Agreement.

           6C.   Counterparts.  This Agreement  may  be  executed
simultaneously in two or more counterparts, any one of which need
not  contain the signatures of more than one party, but all  such
counterparts  taken together will constitute  one  and  the  same
Agreement.

          6D.  Descriptive Headings.  The descriptive headings of
this  Agreement  are inserted for convenience  only  and  do  not
constitute a part of this Agreement.

           6E.   Governing  Law;  Venue.  The  corporate  law  of
Delaware will govern all issues concerning the relative rights of
the  Company and its stockholders. All other questions concerning
the  construction, validity and interpretation of this  Agreement
and  the  exhibits, including the Notes and Option, and schedules
hereto  will be governed by the internal law, and not the law  of
conflicts,  of Delaware. It is the intention of the parties  that
proper  venue for any action, suit or proceeding arising pursuant
to   this  Agreement  or  in  connection  with  the  transactions
contemplated herein shall be in Delaware.  Each party agrees that
any  such  action, suit or proceeding shall be brought  before  a
state  or  federal  court sitting in the State  of  Delaware  and
waives  any  objection to venue in such court. Each party  waives
the  right  to  demand a jury in any action, suit  or  proceeding
arising pursuant to this Agreement.

            6F.    Notices.   All  notices,  demands   or   other
communications to be given or delivered under or by reason of the
provisions  of this Agreement (other than notice of a  telephonic
meeting  of the Company's board of directors, which may be  given
by  telephone) will be in writing and will be deemed to have been
given either when delivered personally or three (3) business days
after  having been mailed by certified or registered mail, return
receipt  requested  and postage prepaid, to the  recipient.  Such
notices,  demands and other communications will be  sent  to  the
Purchaser and to the Company at the address indicated below:

If to the Company:

Electrosource, Inc.
2809 Interstate 35 South
San Marcos, Texas 78666
Attention:  President

With a copy to:

Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, Texas 78701


If to the Purchaser:

Corning Incorporated
Attn:  Corporate Secretary
One Riverfront Plaza
Corning, New York 14831

or to such other address or to the attention of such other person
as  the recipient party has specified by prior written notice  to
the sending party.

      IN  WITNESS WHEREOF, the parties hereto have executed  this
Agreement on the date first written above.


ELECTROSOURCE, INC.                CORNING INCORPORATED



By:  /s/ Michael G. Semmens        By:   /s/ David H. Fuller
  Michael G. Semmens
  President, CEO and               Printed Name:  David H. Fuller
  Chairman of the Board
                                   Its:  Division VP & Director

                           EXHIBIT "A"
                               TO
                     NOTE PURCHASE AGREEMENT
                     DATED DECEMBER 19, 1997

                 5% CONVERTIBLE PROMISSORY NOTE

     THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
     ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
     SECURITIES LAWS OF ANY STATE ("BLUE SKY LAWS"), AND MAY
     NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
     EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
     DELIVERY TO THE COMPANY OF EVIDENCE SATISFACTORY TO THE
     COMPANY TO THE EFFECT THAT AN EXEMPTION FROM
     REGISTRATION THEREUNDER IS AVAILABLE.

Dated __________                                $________________

       FOR   VALUE  RECEIVED,  Electrosource,  Inc.,  a  Delaware
corporation (the "Company"), hereby promises to pay to the  order
of Corning Incorporated, a New York corporation ("Corning" or the
"original  holder"), the principal sum of _______________________
($__________) together with interest thereon calculated from  the
date hereof, in accordance with the provisions of this Note.
     This Note is one of the 5% Convertible Promissory Notes (the
"Note") issued pursuant to a Note Purchase Agreement dated as  of
December  ___,  1997,  between  the  Company  and  Corning   (the
"Purchase  Agreement").  The Purchase  Agreement  contains  terms
governing the rights and obligations of the holder of this  Note,
and  all  provisions of the Purchase Agreement  are  incorporated
herein   by   reference.  Unless  otherwise   indicated   herein,
capitalized terms used in this Note have the same meanings as set
forth in the Purchase Agreement.
Part 1.   Payment of Interest
      lA.  Rate of Interest. Interest shall accrue at the rate of
five  percent  (5%) per annum on the unpaid principal  amount  of
this  Note outstanding from time to time. Interest shall be  paid
in  cash or, upon prior written consent of Corning, in additional
Notes  having terms identical to this Note except in  respect  of
principal amount, dated as of the Payment Date (as defined below)
with  respect  to  which such interest is payable  and  having  a
principal  amount  equal to the amount of  interest  accrued  and
unpaid as of that Payment Date.
      lB.  Payment Dates. On June 19, 1998, and December 19, 1998
(each  of  which  dates shall be a "Payment  Date"),  all  unpaid
interest that has accrued on the unpaid principal amount of  this
Note on and prior to such Payment Date or on any overdue interest
on this Note shall become due and payable.
      lC.   Payment  upon  Maturity or  Prepayment.  All  accrued
interest that has not theretofore been paid shall be paid in full
on  the  date  on  which the entire principal amount  outstanding
under   this  Note  is  paid,  whether  upon  maturity  or   upon
prepayment.  In the event that any portion less than  the  entire
outstanding principal amount of this Note is prepaid pursuant  to
paragraph  2B,  the accrued interest applicable to  such  portion
prepaid  shall be paid as of the effective date of  such  partial
prepayment.
      lD.  Saving Clause. All agreements and transactions between
the Company and the holder of this Note, whether now existing  or
hereafter  arising,  whether contained herein  or  in  any  other
instrument,  and  whether written or oral, are  hereby  expressly
limited so that in no contingency or event whatsoever, whether by
reason of acceleration of the maturity hereof, prepayment, demand
for  prepayment  or otherwise, shall the amount  contracted  for,
charged  or received by the holder of this Note from the  Company
for   the   use,  forbearance  or  detention  of  the   principal
indebtedness or interest hereof, which remains unpaid  from  time
to  time,  exceed the maximum amount permissible under applicable
law, it particularly being the intention of the parties hereto to
conform  strictly  to the applicable law of usury.  Any  interest
payable hereunder or under any other instrument relating  to  the
indebtedness  evidenced hereby that is in  excess  of  the  legal
maximum,  shall,  in  the  event  of  acceleration  of  maturity,
prepayment, demand for prepayment or otherwise, be automatically,
as  of  the  date  of  such acceleration, prepayment,  demand  or
otherwise,  applied to a reduction of the principal  indebtedness
hereof  and not to the payment of interest, or if such  excessive
interest  exceeds  the  unpaid balance of  such  principal,  such
excess  shall  be  refunded to the Company.  To  the  extent  not
prohibited  by  law, determination of the legal maximum  rate  of
interest  shall  at  all times be made by amortizing,  prorating,
allocating and spreading in equal parts during the period of  the
full  stated term of the indebtedness, all interest at  any  time
contracted   for,  charged  or  received  from  the  Company   in
connection  with  the indebtedness, so that the  actual  rate  of
interest  on  account of such indebtedness is uniform  throughout
the term hereof.
Part 2.   Payment of Principal
      2A.   Payment  upon Maturity. The entire  unpaid  principal
amount hereof shall be due and payable on December 19, 1998.
      2B.  Prepayment.  The Company may prepay all or any part of
this  Note  at any time in One Hundred Thousand Dollar ($100,000)
increments.   The  Company shall give not less than  thirty  (30)
days prior written notice of its intention to prepay this Note.
Part 3.   Registration of Transfer
      The  Company shall keep at its principal office a  register
for  the registration of Notes, which shall contain the name  and
address  of  the  registered holder (herein referred  to  as  the
holder)  of the Note and the principal and interest of the  Note.
No  transfer  of the Note or any right to receive payments  under
the  Note  shall  be  permitted unless made  upon  the  Company's
register. Upon the surrender of any Note or Notes at such  place,
the  Company  shall, at the request of the holder of  such  Note,
execute  and  deliver (at the Company's expense) a  new  Note  or
Notes  in  exchange  therefor representing in the  aggregate  the
principal  amount represented by the surrendered Note. Each  such
new  Note  shall  be registered in such name and shall  represent
such  principal amount of Note as is requested by the  holder  of
the surrendered Note and shall be substantially identical in form
to  the  surrendered Note, and interest shall accrue on such  new
Note  from the date to which interest has been fully paid on such
Note  represented by the surrendered Note; provided that, if  any
Note is to be registered in the name of a person or persons other
than  the holder of the Note, there has been compliance with  all
laws  applicable  to such change of registered holder,  including
but not limited to federal and state securities laws.
Part 4.   Replacement
      Upon  receipt  of evidence reasonably satisfactory  to  the
Company  of  the  ownership and the loss, theft,  destruction  or
mutilation  of any Note, and in the case of any such loss,  theft
or destruction, upon receipt of indemnity reasonably satisfactory
to  the  Company,  or,  in the case of any such  mutilation  upon
surrender  of  such  Note, the Company  shall  (at  its  expense)
execute and deliver in lieu of such Note, a new Note of like kind
representing  the  principal amount of Note represented  by  such
lost,  stolen, destroyed or mutilated Note and dated the date  of
such  lost,  stolen,  destroyed or mutilated Note,  and  interest
shall  accrue on the Note represented by such new Note  from  the
date  to which interest has been fully paid on such lost, stolen,
destroyed or mutilated Note.
Part 5.   Cancellation
     After all principal and accrued interest at any time owed on
this  Note  has been paid in full, this Note shall be surrendered
to the Company for cancellation and shall not be reissued.
Part 6.   Waiver of Notice, etc.
      The  Company  hereby  waives presentment,  demand,  notice,
protest  and all other demands and notice in connection with  the
delivery,  acceptance, performance and enforcement of this  Note,
and assents to extension of the time of payment or forbearance or
other indulgence without notice.
Part 7.   Events of Default
      7A.   Events  of  Default.  Each  of  the  following  shall
constitute an Event of Default:
           (i)  the Company fails to pay when due the full amount
of  any principal or interest on this Note whether at maturity or
by acceleration or otherwise;
          (ii) the Company makes an assignment for the benefit of
creditors  or  admits in writing its inability to pay  its  debts
generally as they become due; or an order, judgment or decree  is
entered  adjudicating the Company bankrupt or insolvent;  or  the
Company  petitions or applies to any tribunal for the appointment
of  a  trustee, receiver or liquidator of the Company or  of  any
substantial  part of the assets of the Company, or commences  any
proceeding  under  any  bankruptcy, reorganization,  arrangement,
insolvency, readjustment of debt, dissolution or liquidation  law
of  any  jurisdiction;  or any such petition  or  application  is
filed,  or  any such proceeding is commenced against the  Company
and  either the Company takes any action indicating its  approval
thereof,  consent  thereto,  or  acquiescence  therein  or   such
petition,  application  or proceeding  is  not  dismissed  within
ninety (90) days;
          (iii)     the sale by the Company of a material part of
the  business or assets of the Company other than in the ordinary
course of business;
           (iv)  the  taking,  closing or  nationalization  of  a
material  part  of  the  business or assets  of  the  Company  by
governmental  or legal action.  A "material part of the  business
or  assets of the Company" means more than one-third of the gross
assets  of  the  Company as set forth in its most recent  audited
consolidated financial statements;
           (v)  any representation or warranty of the Company set
forth  in the Purchase Agreement is shown to be, or becomes false
or untrue as of the date of this Note.
      7B.   Remedies. Upon the occurrence and continuance of  any
Event  or  Events  of default, the holders of a majority  of  the
combined  aggregate principal amount outstanding under this  Note
and any Notes issued in payment of accrued interest on Notes may,
by  written notice to the Company, declare all or any part of the
unpaid  principal  amount of the Notes  then  outstanding  to  be
forthwith  due  and payable, and thereupon such unpaid  principal
amount  or part thereof, together with interest accrued  thereon,
shall   become   so   due   and  payable  without   presentation,
presentment, protest, notice of intent to accelerate,  notice  of
acceleration,  or further demand or notice of any  kind,  all  of
which are hereby expressly waived, and such holder or holders may
proceed to enforce payment of such amount or part thereof in such
manner as it or they may elect. The Company hereby waives to  the
extent  not prohibited by applicable law which cannot  itself  be
waived (i) all presentments, demands for performance, notices  of
nonperformance  (except to the extent required by the  provisions
hereof), (ii) any requirement of diligence or promptness  on  the
part  of  any  holder of Notes in the enforcement of  its  rights
under  the provisions of this Note, and (iii) any and all notices
of  every kind and description which may be required to be  given
by any statute or rule of law.
Part 8.   Conversion into Common Stock
     8A.  Conversion Procedure.
           (i)   At any time on or before payment in full of  the
principal and accrued interest outstanding hereunder, the  holder
of  this  Note may convert all or any portion of the  outstanding
principal amount hereof (plus accrued but unpaid interest on such
principal amount or portion thereof) held by such holder  into  a
number  of  shares  of  the Company's Common  Stock  computed  by
dividing  the  principal amount of this Note  (plus  accrued  but
unpaid  interest  thereon)  to be converted  by  the  "Conversion
Price" (as defined below in Part 8B).
           (ii)  Each  conversion will be  deemed  to  have  been
effected  as  of the close of business on the date on  which  the
instrument  representing this Note has been  surrendered  at  the
principal  office of the Company. At such time as such conversion
has  been effected, the rights of the holder of this Note as such
holder  will  cease and the person or persons in  whose  name  or
names  any certificate or certificates for shares of Common Stock
are  to  be  issued upon such conversion will be deemed  to  have
become  the holder or holders of record of the shares  of  Common
Stock represented thereby.
           (iii)      As soon as possible after a conversion  has
been effected (but in any event within three (3) business days in
the case of subparagraph (a) below), the Company will deliver  to
the converting holder:
                (a)   a  certificate representing the  number  of
shares  of Common Stock issuable by reason of such conversion  in
such name or names and such denomination or denominations as  the
converting holder has specified (provided that, in the event that
the name specified by the converting holder is other than that of
the   converting  holder,  the  Company  has  received   evidence
satisfactory to Company counsel that the transfer of Common Stock
from  the  converting  holder  to the  person  specified  may  be
accomplished without violation of applicable law);
                (b)  a replacement Note having terms identical to
those  of this Note other than the principal amount, which  shall
be  equal to portion of the principal amount of the original Note
not converted; and
                (c)   the amount payable under subparagraph  (vi)
below with respect to fractional shares of Common Stock otherwise
issuable upon such conversion.
           (iv) The issuance of certificates for shares of Common
Stock upon conversion of this Note will be made without charge to
the  holder of such Note for any issuance tax in respect  thereof
or  other  cost incurred by the Company in connection  with  such
conversion  and the related issuance of shares of  Common  Stock.
Upon  conversion  of this Note, the Company will  take  all  such
actions as are necessary in order to insure that the Common Stock
issuable with respect to such conversion will be validly  issued,
fully paid and nonassessable.
           (v)  The Company will not close its books against  the
transfer of this Note or of Common Stock issued or issuable  upon
conversion of this Note in any manner which interferes  with  the
timely conversion of this Note.
           (vi)  If any fractional interest in a share of  Common
Stock would, except for the provisions of this subparagraph (vi),
be  deliverable upon any conversion of this Note, the Company, in
lieu  of  delivering the fractional share therefor,  may  at  its
option  pay a cash adjustment for such fractional share equal  to
such fraction times the fair market value per share of the Common
Stock  at  the  close of business on the date of  conversion,  as
determined  in  good  faith  by the board  of  directors  of  the
Company.
           (vii)      The  provisions of this  part  8  shall  be
subject to the limitations imposed by section 2B hereof.
      8B.   Conversion Price. The Conversion Price shall be equal
to the closing price of the Company's common stock as reported by
NASDAQ  on  December 19, 1997, plus $1.00.  In order  to  prevent
dilution of the conversion rights granted under this part 8,  the
Conversion Price will be subject to adjustment from time to  time
pursuant to this part 8; provided that the Conversion Price  will
in  no event be less than One and No/100 Dollars ($1.00), the par
value.
      8C.   Subdivision or Combination of Common  Stock.  If  the
Company  at  any  time  subdivides (by  any  stock  split,  stock
dividend,  recapitalization or otherwise) its outstanding  shares
of  Common  Stock into a greater number of shares, the Conversion
Price  in  effect immediately prior to such subdivision  will  be
proportionately reduced, and if the Company at any time  combines
(by  reverse stock split or otherwise) its outstanding shares  of
Common  Stock  into  a smaller number of shares,  the  Conversion
Price  in  effect immediately prior to such combination  will  be
proportionately increased.
     8D.  Reorganization, Reclassification, Consolidation, Merger
or  Sale.  Any  reorganization, reclassification,  consolidation,
merger  or  sale  of all or substantially all  of  the  Company's
assets  to  another Person which is effected in such a  way  that
holders  of Common Stock are entitled to receive (either directly
or  upon  subsequent liquidation), stock, securities  or  amounts
with  respect to or in exchange for Common Stock is  referred  to
herein  as an "Organic Change." Prior to the consummation of  any
Organic Change, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holders of a majority  of
the  outstanding  principal amount of Notes then outstanding)  to
insure that each of the holders of Notes will thereafter (for  so
long  as  such  holders have the right to convert  the  Notes  as
provided in this part 8) have the right to receive, in lieu of or
in addition to the shares of Common Stock immediately theretofore
issuable upon the conversion of such holder's Notes, such  shares
of stock, securities or assets as such holder would have received
in  connection  with  such  Organic Change  if  such  holder  had
converted his Notes immediately prior to such Organic Change.  In
any  such case, the Company will make appropriate provisions  (in
form  and substance satisfactory to the holders of a majority  of
the  outstanding  principal amount of Notes then outstanding)  to
insure that the provisions of this part 8 will thereafter (for so
long  as  such  holders have the right to convert  the  Notes  as
provided in this part 8) be applicable to the Notes.
     8E.  Notices. Until the maturity of this Note:
           (i)  Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to the holder
of this Note.
          (ii) The Company will give written notice to the holder
of this Note at least twenty (20) days prior to the date on which
the  Company closes its books or takes a record (a) with  respect
to  any  dividend  or distribution upon Common  Stock,  (b)  with
respect  to any pro rata subscription offer to holders of  Common
Stock  or (c) for determining rights to vote with respect to  any
Organic Change, dissolution or liquidation.
           (iii)     The Company will also give written notice to
the  holder of this Note at least thirty (30) days prior  to  the
date on which any Organic Change will take place.
Part 9.   Conversion into Preferred Stock.
     9A.  Conversion Procedure.
           At  any  time  on or before payment  in  full  of  the
principal and accrued interest outstanding hereunder, the  holder
of  the  Note  may  apply  the  principal  and  accrued  interest
outstanding hereunder against the purchase price of 5% Cumulative
Convertible  Preferred Stock as provided in Exhibit  "B"  hereto,
the "Securities Purchase Agreement."
Part 10.  Amendment and Waiver
      No  amendment, modification or waiver shall be  binding  or
effective with respect to any provision of this Note without  the
prior  written  consent of the holders of  at  least  sixty-seven
percent (67%) of the combined aggregate principal amount of  this
Note  and  any  additional Notes issued  in  payment  of  accrued
interest then outstanding.
Part 11.  Notices
        Except  as  otherwise  expressly  provided,  all  notices
referred  to  herein will be in writing and will be delivered  by
registered  or certified mail, return receipt requested,  postage
prepaid and will be deemed to have been given when so mailed  (i)
to  the  Company, at its principal executive offices and (ii)  to
any  holder of this Note, at such holder's address as it  appears
in the Note register maintained pursuant to part 3 hereof (unless
otherwise indicated by any such holder).

      IN  WITNESS WHEREOF, the Company has executed and delivered
this Note on __________.

ELECTROSOURCE, INC.


By:
Printed Name:
Its:


                           EXHIBIT "B"
                               TO
                     NOTE PURCHASE AGREEMENT
                     DATED DECEMBER 19, 1997

                  SECURITIES PURCHASE AGREEMENT

   This  Securities Purchase Agreement (the "Agreement") is  made
and   entered  into  as  of  December  __,  1997,  by  and  among
Electrosource, Inc., a Delaware corporation (the "Company"),  and
Corning  Incorporated, a New York corporation  (the  "Investor").
The parties hereto agree as follows:

   1.  Authorization  and  Terms  of  5%  Cumulative  Convertible
Preferred Stock. The Company will authorize the issuance and sale
to  the Investor of 200,000 shares of the Company's 5% Cumulative
Convertible  Preferred  Stock par  value  $1.00  per  share  ("5%
Cumulative Convertible Preferred Stock") having the designations,
rights and preferences set forth in the Company's Certificate  of
Designation attached hereto as Exhibit "A."

   2.  Purchase  and Sale of 5% Cumulative Convertible  Preferred
Stock.  At the Closing (as defined in part 3), the Investor  will
purchase  200,000  shares of 5% Cumulative Convertible  Preferred
Stock  for  an aggregate consideration of Two Million Dollars  ($
2,000,000.00).   The initial conversion price  per  common  share
shall be equal to the closing price of the Company's common stock
as  reported  by  NASDAQ on December 19, 1997, plus  $1.50.   The
Investor  will  deliver the consideration for the  5%  Cumulative
Convertible Preferred Stock at the Closing in the form of  (i)  a
certified, cashier's or other check acceptable to the Company  or
by wire transfer of funds to an account designated by the Company
or  (ii) the Notes issued pursuant to the Note Purchase Agreement
dated  December 19, 1997, marked "paid in full," or  (iii)  by  a
combination  thereof, in any case by mail or as the  parties  may
otherwise  agree.  Delivery of the Notes marked  "paid  in  full"
shall  result in a credit to the Investor of an amount  equal  to
the  principal  and accrued interest outstanding thereunder;  any
credit  balance due to the investor shall be paid to the investor
at  the  Closing in the form of a certified, cashier's  or  other
check acceptable to the Investor or by wire transfer of funds  to
an account designated by the Investor.

   3.  Closing. The closing of the purchase and sale  of  the  5%
Cumulative Convertible Preferred Stock (the "Closing") will  take
place  by  mail  or as the parties may otherwise agree.   At  the
Closing,  the Company will deliver to the Investor a  certificate
evidencing  the 5% Cumulative Convertible Preferred Stock  to  be
purchased by the Investor, registered in the name of Investor  or
its  nominee,  upon  payment  of the  consideration  for  the  5%
Cumulative  Convertible Preferred Stock purchased at the  Closing
in  the form and amount described above. The Closing will be held
on  or  before  December  19, 1998, or at  such  other  time  and
location as may be mutually agreed upon by the parties.

   4. Closing Documents. At the Closing, the Company will deliver
to the Investor all of the following documents:

        (i)  certified copies of the resolutions duly adopted  by
     the  Company's board of directors authorizing the execution,
     delivery and performance of this Agreement, the issuance and
     sale  of  the 5% Cumulative Convertible Preferred Stock  and
     the  consummation of all other transactions contemplated  by
     this Agreement;

        (ii)  copies of the Certificate of Incorporation and  the
     Company's  By-Laws, each certified by the Secretary  of  the
     Company as in effect at the Closing;

       (iii) a certificate, executed by an officer of the Company
     on  its  behalf,  certifying that  the  representations  and
     warranties  of  the Company contained herein  are  true  and
     correct in all material respects as of the Closing; and

        (iv)   such  other documents relating to the transactions
     contemplated   by  this  Agreement  as  the   Investor   may
     reasonably request.

   5.  Covenants.  The  Company covenants  and  agrees  with  the
Investor as follows:

   5A.  Financial Statements and Other Information.  The  Company
will deliver to the Investor (so long as such Investor holds  any
5%  Cumulative Convertible Preferred Stock) copies of all reports
required to be filed by the Company pursuant to sections  13  and
14 of the Securities Exchange Act of 1934.

   5B. Reservation of Common Stock. The Company will at all times
reserve  and  keep available out of its authorized  but  unissued
shares  of Common Stock, solely for the purpose of issuance  upon
the  conversion of the 5% Cumulative Convertible Preferred Stock,
such  number of shares of Common Stock as are issuable  upon  the
conversion of the 5% Cumulative Convertible Preferred Stock.  All
shares  of Common Stock which are so issuable will, when  issued,
be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges. The Company will take all such
actions  as  may be necessary to assure that all such  shares  of
Common Stock may be so issued without violation of any applicable
law  or  governmental  regulation  or  any  requirements  of  any
domestic  securities exchange upon which shares of  Common  Stock
may  be listed (except for official notice of issuance which will
be immediately transmitted by the Company upon issuance).

   5C. Investor's Option to Require More Favorable Terms. If  the
Company   enters  into  any  agreement  (or  series  of   related
agreements)  involving  the  sale of  5%  Cumulative  Convertible
Preferred  Stock or of any other class or series of the Company's
Preferred  Stock, $1.00 par value ("Preferred Stock"), having  an
aggregate  purchase  price  of  at least  Five  Hundred  Thousand
Dollars  ($500,000) within two years after the execution of  this
Agreement  by  the Company and the Investor, the  Investor  shall
have  the  right, at its option and upon written  notice  to  the
Company:

        (i)  if  the security issued or to be issued pursuant  to
     such  agreement  or series of agreements  is  5%  Cumulative
     Convertible  Preferred Stock, to require that the  terms  of
     this   Agreement  be  amended  to  provide,  to  the  extent
     reasonably  practicable, the same terms  and  conditions  as
     those  contained in such subsequent agreement or  series  of
     agreements,  provided that the aggregate investment  in  the
     Company  by the Investor pursuant to such revised  agreement
     shall not be less than Two Million Dollars ($2,000,000);

         (ii)   to  the  extent  permitted  by  applicable   laws
     (including  without limitation laws pertaining  to  unlawful
     distributions  and fraudulent conveyance), to  rescind  this
     Agreement,  and  to  enter  into a  new  agreement  for  the
     purchase of securities having an aggregate purchase price of
     Two Million Dollars ($2,000,000) on the terms and conditions
     offered  pursuant to such subsequent agreement or series  of
     agreements, provided that the Company shall not be  required
     to  pay  any  amount  to  the Investor  in  respect  of  the
     rescission  of this Agreement, but shall instead be  allowed
     to  retain  the purchase price paid hereunder as payment  of
     the  purchase  price  under the substituted  agreement.  The
     provisions of this subparagraph (ii) shall not apply  unless
     the  rescission and purchase can be effected pursuant to the
     exemption  from  registration  provided  by  Rule   506   of
     Regulation D of the Securities and Exchange Commission.

      5D. Company's Option to Require Dividend Reinvestment.  The
Company  shall pay any regular semiannual dividend  payable  upon
the  5% Cumulative Convertible Preferred Stock in cash; provided,
however, that the Company may elect when and if the same  may  be
declared,  but only in accordance with the actual declaration  of
such  dividend, to require the Investor to reinvest  all  or  any
portion  of such cash dividends toward the purchase of additional
newly issued shares of 5% Cumulative Convertible Preferred Stock,
at a purchase price per share equal to the Liquidation Value.  If
the  Company elects to require any such reinvestment, the Company
shall  give notice of such election to the Investor within  three
(3)  business days after such dividend is declared,  stating  the
total  amount of the dividend and the portion thereof as to which
the  Company  has  elected  to require  such  reinvestment.   The
Company  shall  deliver to the Investor a certificate  evidencing
the  additional  shares  of 5% Cumulative  Convertible  Preferred
Stock  so  issued within five (5) business days after the  record
date  in  respect of such dividend.  Any shares of 5%  Cumulative
Convertible Preferred Stock issued pursuant to this paragraph  5D
shall   be   duly   authorized,  validly  issued,   fully   paid,
nonassessable  and subject to and participating  in  all  rights,
privileges,  preferences  and priorities  provided  for  in  this
Agreement.   The  Company may, as a condition to  the  Investor's
right  to  transfer  any  shares  of  5%  Cumulative  Convertible
Preferred  Stock,  require  that the  transferee  enter  into  an
agreement to be bound by the provisions of this Section 5D.


   5E.  The  Company  agrees to indemnify and hold  harmless  the
Investor  and  each  of  its  directors,  employees,  agents  and
representatives against all losses, damages, claims and  expenses
(including reasonable attorneys' fees) arising from the assertion
of  claims  against the Investor related to the sale  to  parties
other  than  the Investor of 5% Cumulative Convertible  Preferred
Stock, or securities having similar terms and conditions, however
arising  including,  without  limitation,  from  representations,
warranties,  agreements or other conversations or documents  such
as  the Private Placement Memorandum of the Company dated October
1997, or any similar memorandum, prospectus or offering circular,
that  have  been or may be issued or communicated in  respect  of
such  securities,  as  any  such of the  above  may  be  amended,
restated or otherwise modified.

  6. Representations and Warranties.

    6A.  Representations  by  Company.  The  Company  represents,
warrants and agrees as follows:

        (i)  The Company is a corporation duly organized, validly
     existing and in good standing under the laws of the State of
     Delaware and is in good standing as a foreign corporation in
     each  jurisdiction  where the properties  owned,  leased  or
     operated,  or  the business conducted, by  it  require  such
     qualification, except for such failure to so qualify  or  be
     in  such good standing, which, when taken together with  all
     other  such  failures, is not reasonably likely  to  have  a
     material   adverse   effect  on  the  financial   condition,
     properties, business or results of operations of the Company
     or  the interest of shareholders in the Company (a "Material
     Adverse  Effect").  The Company has the requisite  corporate
     power  and authority to carry on its businesses as they  are
     now being conducted.

        (ii)   The authorized capital stock of the Company as  of
     the  date  hereof  consists of 50,000,000 shares  of  Common
     Stock, of which 4,230,501 were issued and outstanding as  of
     the  date  hereof,  and  none were  held  in  treasury,  and
     10,000,000  shares of Preferred Stock, par value  $1.00  per
     share ("Preferred Stock"), of which 0 shares were issued and
     outstanding  on  the  date hereof. All  of  the  outstanding
     shares  of  Common Stock have been duly authorized  and  are
     validly  issued, fully paid and nonassessable. As  the  date
     hereof,  there  were  outstanding options  and  warrants  to
     purchase an aggregate of 3,107,738 shares of Common Stock.

        (iii) The 5% Cumulative Convertible Preferred Stock,  and
     any   5%   Cumulative  Convertible  Preferred  Stock  issued
     pursuant  to  paragraph 5D above, when issued in  compliance
     with   the  provisions  of  this  Agreement,  will  be  duly
     authorized  and  validly  issued. The  issuance  of  the  5%
     Cumulative Convertible Preferred Stock and any additional 5%
     Cumulative  Convertible Preferred Stock issued  pursuant  to
     paragraph  5D  above will not be subject to  any  preemptive
     rights  or  rights of first refusal created by the  Company.
     The  shares of Common Stock issuable upon conversion of  the
     5%  Cumulative  Convertible Preferred Stock have  been  duly
     authorized and validly reserved. The shares of Common  Stock
     issuable  upon  conversion of the 5% Cumulative  Convertible
     Preferred Stock are not subject to any preemptive rights  or
     rights  of  first refusal created by the Company,  and  upon
     conversion and cancellation of the 5% Cumulative Convertible
     Preferred  Stock  will be duly authorized,  validly  issued,
     fully  paid and nonassessable and will be free of any  liens
     and encumbrances created by the Company.

        (iv)   The Company has the requisite corporate power  and
     authority  and has taken all corporate action  necessary  in
     order  to authorize, execute and deliver this Agreement  and
     to  consummate the transactions contemplated hereby  and  to
     perform  the  acts contemplated on its part hereunder.  This
     Agreement  is a valid and legally binding agreement  of  the
     Company  enforceable against the Company in accordance  with
     its  terms  except  as such enforcement may  be  limited  by
     bankruptcy,  insolvency, moratorium or  other  similar  laws
     affecting   creditors'  rights  generally  or  by  equitable
     principles.

        (v)  The  offer, sale and issuance of the  5%  Cumulative
     Convertible  Preferred Stock and the shares of Common  Stock
     issuable  upon  conversion thereof as contemplated  by  this
     Agreement  are exempt from the registration requirements  of
     the  Securities  Act  of 1933, as amended  (the  "Securities
     Act"),   and   from   the  registration   or   qualification
     requirement  of  the laws of any applicable state  or  other
     jurisdiction.  Except as the same shall have  been  made  or
     obtained at or prior to the Closing, and except for  Form  D
     and related state securities law filings with the Securities
     and  Exchange  Commission  and applicable  state  securities
     boards to be made following the Closing, no notices, reports
     or  other  filings are required to be made  by  the  Company
     with,   nor  are  any  consents,  registrations,  approvals,
     permits  or  authorizations required to be obtained  by  the
     Company  from,  any  governmental or  regulatory  authority,
     agency,  commission,  court  or other  entity,  domestic  or
     foreign  ("Governmental  Entity"), in  connection  with  the
     execution and delivery of this Agreement by the Company, the
     consummation by the Company of the transactions contemplated
     hereby  and the performance of the acts contemplated on  the
     part of the Company hereunder.

        (vi)  The Company is not in violation of any term of  its
     Certificate of Incorporation or By-Laws.  Except as  may  be
     disclosed  in Exhibit "B" hereto, the Company  has,  to  the
     best  of its knowledge, information and belief, complied  in
     all  material respects with all material leases,  contracts,
     notes,   mortgage,   indentures,   arrangements   or   other
     obligations  and  commitments  ("Contracts")  to  which  the
     Company is a party or by which the Company or its assets are
     bound  or  subject, and there does not currently  exist  any
     event  of  default  under any such agreement  or  any  event
     which,  after  notice  or  lapse  of  time  or  both,  would
     constitute  an event of default under such agreement,  plan,
     arrangement  or commitment, in each case to the extent  that
     such  failure  to comply, event of default  or  event  which
     would  constitute  an event of default  would  result  in  a
     Material  Adverse Effect to the Company.  The execution  and
     delivery  of this Agreement by the Company do not,  and  the
     consummation by the Company of the transactions contemplated
     hereby  and the performance of the acts contemplated on  the
     part of the Company hereunder will not, constitute or result
     in  (A)  a  breach or violation of, or a default under,  the
     Certificate  of Incorporation or By-Laws of the Company,  or
     (B)  a  breach,  violation or event triggering  a  right  of
     termination  of, or a default under, or the acceleration  of
     or  the  creation  of a lien, pledge, security  interest  or
     other  encumbrance on assets (with or without the giving  of
     notice  or  the  lapse  of time or  both)  pursuant  to  any
     provisions  of any Contract or any law, rule,  ordinance  or
     regulation, agreement, instrument or judgment, decree, order
     or award to which the Company or its assets are bound or any
     governmental  or  non-governmental  authorization,  consent,
     approval,  registration, franchise, license or permit  under
     which the Company conducts its business.

        (vii)  No investment banker, broker or finder is entitled
     to  any  financial advisory, brokerage or  finder's  fee  or
     other  similar  payment  from either  the  Investor  or  the
     Company  based  on agreements, arrangements or  undertakings
     made  by  the  Company or any of its directors, officers  or
     employees  in  connection  with the  transactions  and  acts
     contemplated  hereby except as may be disclosed  in  Exhibit
     "C" hereto.

        (viii)   In  furnishing information to the  Investor  for
     purposes  of  this Agreement, the Company has not  made  any
     untrue  statement of material fact or omitted to  state  any
     material  fact necessary to make the statements therein,  in
     the  light of the circumstances under which they were  made,
     not misleading.

        (ix)   The  Company possess all patents,  patent  rights,
     trademarks,  service marks, trademark rights,  service  mark
     rights,  trade  names, trade name rights,  copyrights,  mask
     works,  trade  secrets,  proprietary  software,  proprietary
     rights and process necessary to conduct its business as  now
     conducted  and as planned to be conducted, without,  to  the
     best   of   the  Company's  knowledge,  conflict   with   or
     infringement upon any valid rights of others,  the  lack  of
     which  could  have a Material Adverse Effect,  and  has  not
     received  any  notice of infringement upon or conflict  with
     the asserted rights of others.  The Company has all permits,
     licenses  and  other  similar authority  necessary  for  the
     conduct  of  its  business as now  being  conducted  and  as
     planned  to  be conducted, the lack of which  could  have  a
     Material  Adverse Effect, and it is not in  default  in  any
     material  respect  under any of such  permits,  licenses  or
     other similar authority.

         (x)   The  Company  has  heretofore  delivered  or  made
     available to the Investor complete and correct copies of all
     reports and other filings filed by The Company with the  SEC
     pursuant to the Securities Exchange Act of 1934, as  amended
     (the  "Exchange  Act"), since January 1, 1994,  through  the
     date hereof (such reports and other filings are collectively
     referred  to herein as the "Company Exchange Act  Filings").
     Except  as  set  forth  in Exhibit C  hereto,  as  of  their
     respective   dates,   the  Company  Exchange   Act   Filings
     substantially  complied in all material  respects  with  the
     published  rules  and regulations of the  SEC  with  respect
     thereto  and  did  not  contain any untrue  statement  of  a
     material  fact or omit to state a material fact required  to
     be  stated  therein  or  necessary to  make  the  statements
     therein, in light of the circumstances under which they were
     made,  not  misleading.  The audited consolidated  financial
     statements  of the Company included in the Company  Exchange
     Act Filings (i) were prepared from the books and records  of
     the Company, (ii) were prepared in accordance with generally
     accepted   accounting   principles,  except   as   otherwise
     permitted   under  the  Exchange  Act  and  the  rules   and
     regulations  thereunder  and (iii)  present  fairly  in  all
     material  respects the financial position of the Company  as
     at  the dates thereof and the results of its operations  and
     cash  flows  for  the  periods then ended,  subject  to  the
     qualifications  set  forth  in  the  respective  Reports  of
     Independent  Auditors  thereto.  The unaudited  consolidated
     financial  statements included in the Exchange  Act  Filings
     comply in all material respects with the published rules and
     regulations  of  the  SEC  with respect  thereto;  and  such
     unaudited   consolidated  financial  statements   (i)   were
     prepared  from  the books and records of the  Company,  (ii)
     were   prepared   in  accordance  with  generally   accepted
     accounting  principles, except as otherwise permitted  under
     the  Exchange Act and the rules and regulations  thereunder,
     applied  on  a consistent basis (except as may be  expressly
     indicated therein or in the notes thereto) and (iii) present
     fairly the financial position of the Company as at the dates
     thereof and the results of its operations and cash flows for
     the  periods  then ended, subject to the same qualifications
     as  set  forth  in the audited financial statements  in  the
     respective  Reports of Independent Auditors, and subject  to
     normal  year-end adjustments which would not have a material
     adverse  effect  on  the Company and any  other  adjustments
     expressly described therein or in the notes thereto.

        (xi)   The  Private Placement Memorandum of the  Company,
     dated  October  1997 as updated or replaced, and  all  other
     documents,  certificates, schedules  or  written  statements
     furnished to the Investor by or on behalf of the Company  in
     connection with the transactions contemplated hereby  as  of
     the  date thereof did not contain any untrue statement of  a
     material  fact  and do not omit to state any  material  fact
     necessary in order to make the statements contained  therein
     or  herein  not misleading in the light of the circumstances
     under which they were made.

        (xii)   The  Company has no outstanding indebtedness  for
     borrowed   money  except  as  reflected  in  the   Financial
     Statements  and the notes thereto and is not a guarantor  or
     otherwise  contingently  liable for  any  such  indebtedness
     (including,  without  limitation,  liability   by   way   of
     agreement,  contingent or otherwise,  to  purchase,  provide
     funds  for payment, supply funds or otherwise invest in  any
     debtor  or  otherwise to insure any creditor against  loss).
     Except  as  set forth in Exhibit B, the Company  is  not  in
     default  under  the provisions of any instrument  evidencing
     any  indebtedness  of the Company or any agreement  relating
     thereto.

        (xiii)   The  Company maintains insurance to protect  the
     Company  and  its  financial  condition  against  the  risks
     involved  in  the business conducted by the Company  to  the
     extent  and in the manner customary for companies in similar
     businesses similarly situated.

       (xiv)  There is no litigation, action, suit, proceeding or
     investigation pending or threatened against or affecting the
     Company  before  any  court or before  any  governmental  or
     administrative agency which contests the Company's right  to
     own, produce, manufacture, update, maintain, sell or use any
     product,  database,  software, process,  method,  substance,
     part  or  other material presently or planned to  be  owned,
     produced, manufactured, updated, maintained, sold or used by
     the  Company  in  connection  with  the  operations  of  the
     Company.  The Company has no actual knowledge or belief that
     (I)  there presently exists, or there is pending or planned,
     any  patent, invention, device, application or any  statute,
     rule,  law regulation, standard or code which would  have  a
     Material  Adverse Effect or (ii) there is any  other  factor
     (other than fire, flood, earthquake, accident, act of war or
     civil  commotion,  or any other cause or  event  beyond  the
     control  of  the  Company)  which may  Materially  Adversely
     Effect the condition (financial or otherwise), prospects  or
     operations of the Company.

        (xv)   Since the latest date of the Financial Statements,
     the  Company has conducted business only in the ordinary and
     usual course of business and, other than as specifically  or
     generally  reflected on the Financial Statements, there  has
     not  been  any  event or condition of any  character  which,
     alone  or  in  combination,  is a Material  Adverse  Effect,
     including but not limited to:

           (a)   any  material adverse change in  the  condition,
     prospects,  assets, liabilities or business of  the  Company
     from that reflected in the Financial Statements;

           (b)   any  damage, destruction or loss of any  of  the
     properties or assets of the Company (whether or not  covered
     by  insurance)  materially adversely affecting  the  assets,
     properties,  financial  conditions,  operations,  prospects,
     business or plans of the Company;

           (c)   any material adverse change or amendments  to  a
     contract or arrangement by which the Company or any  of  its
     assets is bound or subject;

          (d)  any declaration, setting aside or payment or other
     distribution  in  respect of any of  the  Company's  capital
     stock,  or  any direct or indirect redemption,  purchase  or
     other acquisition of any such stock by the Company;

           (e)  any waiver by the Company of a valuable right  or
     material debt owed to it;

           (f)   any labor trouble, or any event or condition  of
     any  character, materially adversely affecting the  business
     or plans of the Company.


       (xvi)  The Company has filed within the time prescribed by
     law   (including   extensions  of  time  approved   by   the
     appropriate  taxing authority) all tax returns  and  reports
     required to be filed with the United States Internal Revenue
     Service  and with the State of Delaware and (except  to  the
     extent  that the failure to file would not have  a  Material
     Adverse  Effect)  with  all other jurisdictions  where  such
     filing is required by law; and the Company has paid, or made
     adequate  provision  in  the Financial  Statements  for  the
     payment  of, all taxes, interest, penalties, assessments  or
     deficiencies shown to be due or claimed to be due on  or  in
     respect of such tax returns and reports.  The Company  knows
     of  (i)  no unpaid assessment for additional taxes  for  any
     fiscal  period or any basis therefor and (ii) no  other  tax
     returns or reports which are required to be filed which have
     not been so filed.

   6B.  Representations  by  Investor. The  Investor  represents,
warrants and agrees as follows:

        (i)  Investor is purchasing the 5% Cumulative Convertible
     Preferred  Stock  for its own account  for  the  purpose  of
     investment and not with a view toward the redistribution  or
     resale  of  any  thereof. Investor is not  a  party  to  any
     arrangement, understanding or agreement for transferring  or
     disposing of the 5% Cumulative Convertible Preferred Stock;

        (ii)   Investor  is  aware that the purchase  of  the  5%
     Cumulative   Convertible  Preferred   Stock   represents   a
     speculative investment;

        (iii) Before executing this Agreement, representatives of
     Investor were furnished all information with respect to  the
     Company  that they requested and representatives of Investor
     were  given  the  opportunity to ask Company executives  all
     questions that such representatives had;

         (iv)   Investor  confirms  that  it  is  an  "Accredited
     Investor", as such term is defined in Rule 501 of Regulation
     D promulgated under the Securities Act;

       (v) Investor confirms that it is able to bear the economic
     risk  inherent in its investment and understands that  there
     currently is no, and that there may not ever be any, private
     or public market for the 5% Cumulative Convertible Preferred
     Stock  in  the  event that Investor needs to  liquidate  its
     investment;

        (vi)  Investor agrees that it will not offer or sell  the
     5%  Cumulative  Convertible Preferred Stock or  any  of  the
     shares   of  Common  Stock  into  which  the  5%  Cumulative
     Convertible  Preferred Stock are convertible unless  the  5%
     Cumulative  Convertible Preferred Stock or  such  shares  of
     Common  Stock  are registered under the Securities  Act  and
     under  all applicable state securities laws, unless Investor
     has  established  to  the  reasonable  satisfaction  of  the
     Company that no such registration is required;

         (vii)   Investor  agrees  that  appropriate  restrictive
     endorsements will be placed on the certificate(s) evidencing
     the  5%  Cumulative Convertible Preferred Stock and  on  the
     certificate(s)  evidencing the shares of Common  Stock  into
     which  the  5%  Cumulative Convertible  Preferred  Stock  is
     convertible  to reflect the foregoing and that  the  Company
     will  give  appropriate stop transfer  instructions  to  the
     person   in  charge  of  the  transfer  of  its  securities,
     including the 5% Cumulative Convertible Preferred Stock  and
     the  Common  Stock.   Upon request of  the  holder  of  such
     certificate(s), the Company shall give an instruction to the
     transfer  agent  to process the transfer if  (i)  with  such
     request,  the  Company  shall have received  either  (A)  an
     opinion  of  legal  counsel, addressed to  the  Company  and
     reasonably  satisfactory  in  form  and  substance  to   the
     Company,  to the effect that the proposed transfer  of  such
     securities  may be effected without registration  under  the
     Securities  Act,  or  (B)  a  "no-action"  letter  from  the
     Securities and Exchange Commission (the "Commission") to the
     effect  that  the  distribution of such  securities  without
     registration  will  not  result in a recommendation  by  the
     staff  of  the Commission that action be taken with  respect
     thereto,  or  (ii)  such  holder  is  eligible  to   utilize
     paragraph (k) of Rule 144 (or any successor rule) as then in
     effect under the Securities Act.

       (viii)  No investment banker, broker or finder is entitled
     to  any  financial advisory, brokerage or  finder's  fee  or
     other  similar  payment  from either  the  Investor  or  the
     Company  based  on agreements, arrangements or  undertakings
     made  by  the Investor or any of its directors, officers  or
     employees  in  connection  with the  transactions  and  acts
     contemplated hereby.

  7. Registration Rights.

   7A.  The Investor shall have the registration rights set forth
in this section 7A(i) and (ii).

         (i)  From  and  after  the  first  anniversary  of  this
     Agreement,  the  Investor shall have the right,  by  written
     notice  to  the Company, to require the Company to  use  its
     best  reasonable  efforts to register  the  sale  under  the
     Securities Act of 1933, as amended (the "Securities Act") on
     up  to  two occasions all or any shares of the Common  Stock
     issued  or  issuable upon conversion of  the  5%  Cumulative
     Convertible  Preferred Stock owned by the Investor  ("Demand
     Covered  Shares") representing at least one percent (1%)  of
     the  shares  of Common Stock outstanding. The Company  shall
     have  no  obligation with respect to the  selection  by  the
     Investor  of  any underwriter to be used in connection  with
     such  sale,  but  shall  have  the  right  to  approve  such
     selection, which approval shall not be unreasonably withheld
     or delayed.  The Company shall be entitled to sell shares of
     Common  Stock  (to be newly issued or from  shares  held  in
     treasury)  and/or  have other shareholders  sell  shares  of
     Common Stock pursuant to such demand registration unless the
     Investor's underwriters believe, or if the offering  is  not
     underwritten,  upon  a  good  faith  determination  by   the
     Investor's  Board of Directors or a committee  thereof  that
     such  inclusion  would adversely affect the success  of  the
     proposed  offering  by the Investor. The  Company  shall  be
     entitled  to  defer filing any registration  statement  with
     respect  to  such demand registration (A) for  a  reasonable
     period  in order to insure that such filing would not result
     in an effective registration statement within six (6) months
     of an underwritten offering by the Company of its securities
     for its own account or (B) for a period of up to ninety (90)
     days  upon  a  good  faith determination  by  the  Company's
     management  that the filing of a registration  statement  at
     such  time  would be detrimental to the Company due  to  the
     pendency of a material acquisition or financing or for other
     reasonable  cause.  Investor may request  that  the  Company
     withdraw  any such registration statement at any time  prior
     to  its  effectiveness; provided that,  any  such  withdrawn
     registration  statement  shall be  treated  as  a  completed
     registration  fulfilling  the  obligations  of  the  Company
     pursuant  to  this section 7A(i) unless the  Investor  shall
     reimburse  the  Company for all of the Company's  costs  and
     expenses  incurred  in  connection  with  such  registration
     within  thirty days following the request to  withdraw.   In
     the event a registration statement has not been filed within
     one  hundred eighty (180) days of demand because of the lack
     of  good faith efforts by the Company, then for each  thirty
     (30)  day  period thereafter until a registration  statement
     has  been  filed, the Company shall be required to issue  to
     Investor  an  additional  one percent  (1%)  of  the  shares
     requested to be registered.

        (ii)   If  the Company proposes to sell shares of  Common
     Stock  for its own account and to register the sale of  such
     shares  under the Securities Act, or if the Company proposes
     to  register the sale of shares of Common Stock to  be  sold
     for  the  account of any shareholder, it shall give  written
     notice of such proposed registration to Investor as promptly
     as  possible and shall, subject in all cases to section  7B,
     use  its reasonable efforts to include in the offering  such
     number  of shares of Common Stock received by Investor  upon
     conversion of the 5% Cumulative Convertible Preferred  Stock
     then  owned  by  Investor as Investor shall  request  to  be
     included  ("Piggyback  Covered  Shares"  and  together  with
     Demand  Covered Shares, "Covered Shares") within twenty-five
     (25) days after the giving of such notice, such offering  to
     be upon the same terms (including method of distribution) as
     the  securities  being sold by the Company  or  any  selling
     shareholder pursuant to any such offering.

   7B.  The  Company's  obligation to include  Piggyback  Covered
Shares  owned  by  Investor in any offering pursuant  to  section
7A(ii) shall in all cases be subject to the following limitations
and qualifications:

        (i)  The Company shall not be required to give notice  to
     Investor or include such shares in any such registration  if
     the  proposed registration is (A) a registration of a  stock
     option  or  compensation plan or of Common Stock  issued  or
     issuable  pursuant to any such plan, (B) a  registration  of
     Common   Stock  proposed  to  be  issued  in  exchange   for
     securities or assets of, or in connection with a  merger  or
     consolidation with, another corporation, or (C) to be  on  a
     form  of  registration  statement for  which  the  Piggyback
     Covered Shares are not eligible;

       (ii)  The Company may require that the number of Piggyback
     Covered Shares requested to be included in such registration
     be  reduced,  or that all such shares be excluded  from  any
     such  registration,  if  it is advised  in  writing  by  its
     managing   underwriter  (or,  if   the   offering   is   not
     underwritten,  upon  a  good  faith  determination  by   the
     Company's  board  of  directors)  that  such  reduction   or
     exclusion,  as  the  case  may be,  is  necessary  to  avoid
     materially  adversely affecting the public offering  of  the
     securities  being  offered by the Company.  If  the  Company
     shall  require  such a reduction, Investor  shall  have  the
     right to withdraw from the offering;

        (iii)  In  the event that the number of shares of  Common
     Stock included in any registration is to be reduced pursuant
     to section 7B(ii):

            (A)  If the registration in question is one initiated
          by  any  person  or  persons  other  than  the  Company
          exercising demand registration rights in order to allow
          the sale of Common Stock for the account of such person
          or  persons, then any reduction in the number of shares
          to  be included in such registration shall first affect
          only  shares  other  than the shares  of  Common  Stock
          requested  to  be  included by the  person  or  persons
          initiating the registration; and

            (B)  Subject to subparagraphs 7B(iii)(A) and (B),  in
          the event that the Company requires that the number  of
          shares  to be included in such registration be reduced,
          such  reduction  shall be applied pro  rata  among  all
          parties having registration rights in proportion to the
          number of shares requested to be registered by each.

        (iv)   The  Company shall not be required to include  any
     Piggyback  Covered Shares in any registration to the  extent
     that  the  inclusion thereof would result in a reduction  in
     the  number  of shares included in the registration  by  the
     person  or  persons (including the Company)  initiating  the
     registration in question or would reduce the per share price
     of the offering.

        (v)  The Company may, in its sole discretion and  without
     the   consent   of  Investor,  withdraw  such   registration
     statement  and  abandon  the  proposed  offering  in   which
     Investor had requested to participate.

   7C  In  connection  with any registration  of  Covered  Shares
undertaken  by the Company pursuant to this part 7,  the  Company
shall:

        (i)  prepare  and file with the Securities  and  Exchange
     Commission (the "Commission") a registration statement  with
     respect  to  such shares and use its best efforts  to  cause
     such registration statement to become effective;

       (ii)  prepare and file with the Commission such amendments
     and  supplements  to  such registration  statement  and  the
     prospectus used in connection therewith as may be  necessary
     to  keep such registration statement current for such period
     not  to  exceed  180 days as Investor shall request  and  to
     comply  with  the  provisions of  the  Securities  Act  with
     respect  to the sale of all Covered Shares covered  by  such
     registration statement during such period;

        (iii) provide Investor a reasonable opportunity to review
     prior to filing (A) any registration statement filed by  the
     Company  in connection with a registration in which Investor
     is  participating  pursuant to this  part  7,  and  (B)  any
     amendments or supplements to such registration statement and
     any prospectus used in connection therewith;

        (iv)  furnish to Investor such number of conformed copies
     of  such  registration statement and of each such  amendment
     and   supplement  thereto  (in  each  case   including   all
     exhibits), such number of copies of the prospectus  included
     in  such  registration statement (including each preliminary
     prospectus  and  prospectus supplement), in conformity  with
     the  requirements  of  the Securities Act,  and  such  other
     documents  as Investor may reasonably request  in  order  to
     facilitate  the sale of the Covered Shares covered  by  such
     registration statement;

        (v)  use  its  best efforts to register  or  qualify  the
     Covered Shares covered by such registration statement  under
     such other securities or blue sky laws of such jurisdictions
     as  Investor  shall reasonably request, and do any  and  all
     other  acts and things which may be reasonably necessary  or
     advisable to enable Investor to consummate the sale in  such
     jurisdictions  of  such shares; provided  that  the  Company
     shall  not  for any such purpose be required to register  or
     qualify  the  covered  shares covered by  such  registration
     statement in any jurisdiction in which the Common  Stock  is
     not  then qualified for public trading, to qualify generally
     to  do business as a foreign corporation in any jurisdiction
     wherein  it  would  not  but for the  requirements  of  this
     section  7C(v) be obligated to be so qualified,  to  subject
     itself to taxation in any such jurisdiction or to consent to
     general  service  of process in any such  jurisdiction,  and
     provided  further  that,  in  the  case  of  a  registration
     pursuant  to section 7A(ii), in the event that the  Investor
     proposes  to sell such shares in any jurisdiction  in  which
     the  Company or any selling shareholder other than  Investor
     does  not  propose  to  sell shares  being  registered,  the
     expense  of  registration  or  qualification  in  any   such
     additional  jurisdictions other  than  those  in  which  the
     Company  or  any  selling shareholder  other  than  Investor
     proposes  to  sell,  including all legal  fees  incurred  in
     connection    with   such   additional   registrations    or
     qualifications, shall be borne by Investor;

        (vi)   notify  Investor  at any time  when  a  prospectus
     relating  to the Covered Shares covered by such registration
     statement  is required to be delivered under the  Securities
     Act,  of  the  Company's becoming aware that the  prospectus
     included in such registration statement, as then in  effect,
     includes an untrue statement of a material fact or omits  to
     state  any  material fact required to be stated  therein  or
     necessary  to make the statements therein not misleading  in
     light of the circumstances then existing, and at the request
     of  Investor  promptly  prepare and furnish  to  Investor  a
     reasonable number of copies of a prospectus supplemented  or
     amended  so  that, as thereafter delivered to the purchasers
     of  such shares, such prospectus shall not include an untrue
     statement  of  a material fact or omit to state  a  material
     fact required to be stated therein or necessary to make  the
     statements   therein  not  misleading  in   light   of   the
     circumstances then existing;

        (vii)  use  its best efforts to cause all of the  Covered
     Shares  included in such registration statement to be listed
     on  each securities exchange on which securities of the same
     class  issued  by the Company are then listed or,  if  there
     shall  then be no such listing, to be accepted for quotation
     on NASDAQ; and

        (viii)   provide a transfer agent and registrar  for  the
     Covered  Shares covered by such registration  statement  not
     later   than   the  effective  date  of  such   registration
     statement; and

   7D. For as long as Investor shall continue to hold any Covered
Shares,  the Company shall use reasonable efforts to file,  on  a
timely basis, all annual, quarterly and other reports required to
be  filed by it under Sections 13 and 15(d) of the Exchange  Act,
and  the  rules and regulations of the Commission thereunder,  as
amended  from time to time. In the event of any proposed sale  of
Covered Shares by Investor pursuant to Rule 144 (or any successor
rule) under the Securities Act, the Company shall cooperate  with
Investor so as to enable such sales to be made in accordance with
applicable laws, rules and regulations, the requirements  of  the
Company's transfer agents, and the reasonable requirements of the
broker through which the sales are proposed to be executed.

   7E.  The  costs  and  expenses of  any  registration  effected
pursuant  to this part 7 shall be allocated as provided  in  this
section 7E:

        (i)  "Registration  Expenses"  shall  mean  all  expenses
     incurred  by  the  Company in complying with  this  part  7,
     including,    without    limitation,    all    registration,
     qualification  and  filing fees, printing  expenses,  escrow
     fees,  transfer  agents'  and  registrars'  fees,  fees  and
     disbursements of counsel for the Company, blue sky fees  and
     expenses,   and  the  expense  the  Company's   accountants,
     including  the  cost of any special audits  incident  to  or
     required  by  any  such  registration  (but  excluding   the
     compensation of regular employees of the Company which shall
     be paid in any event by the Company).

        (ii)   "Selling  Expenses" shall  mean  all  underwriting
     discounts and selling commissions applicable to the sale and
     all fees and disbursements of counsel for any holder.

        (iii)  In  connection with any registration  pursuant  to
     section  7A(i),  the  Company  shall  pay  all  Registration
     Expenses,  and  Investor  shall pay  all  Selling  Expenses;
     provided  that, in the event that the Company or  any  other
     person  shall  include  shares  of  Common  Stock  in   such
     registration,   Selling  Expenses  (other  than   fees   and
     disbursements of counsel to any such person) shall be shared
     among all such persons including shares pro rata based  upon
     the number of Common Shares included in the registration  by
     each such person.

       (iv)  In connection with any registration initiated by the
     Company  in which Investor participates pursuant to  section
     7A(ii), the Company shall pay all Registration Expenses, and
     Investor shall pay all Selling Expenses attributable to  the
     inclusion  in the offering of the Covered Shares being  sold
     by Investor.

        (v) In connection with any registration initiated by  any
     person  other  than  the Company or the  Investor  in  which
     Investor  participates  pursuant  to  section  7A(ii),   the
     Company  or such person shall pay all Registration Expenses,
     as  may  be  provided by the agreement granting registration
     rights  to  such person, and Investor shall pay all  Selling
     Expenses  attributable to the inclusion in the  offering  of
     the Covered Shares being sold by Investor.

   7F.  In  the case of each registration effected by the Company
pursuant to this part 7, the Company agrees to indemnify and hold
harmless  Investor, each person who controls  the  Investor,  the
directors  and  employees of Investor, each  underwriter  of  the
Covered  Shares  so registered and each person who  controls  any
such  underwriter  within  the  meaning  of  Section  15  of  the
Securities  Act, against any and all losses, claims,  damages  or
liabilities to which they or any of them may become subject under
the  Securities Act or any other statute or common law, including
any  amount  paid in settlement of any litigation,  commenced  or
threatened,  if  such  settlement is effected  with  the  written
consent  of the Company, and to reimburse them for any  legal  or
other  expenses incurred by them in connection with investigating
any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions arise out of or are based
upon  (i) any untrue statement or alleged untrue statement  of  a
material fact contained in the registration statement relating to
the  sale  of the Covered Shares, or any post-effective amendment
thereto,  or the omission or alleged omission to state therein  a
material fact required to be stated therein or necessary to  make
the  statements  therein  not  misleading,  or  (ii)  any  untrue
statement  or  alleged  untrue  statement  of  a  material   fact
contained  in  any preliminary prospectus, if used prior  to  the
effective  date of such registration statement, or  contained  in
the  final prospectus (as amended or supplemented if the  Company
shall  have  filed with the Commission any amendment  thereof  or
supplement  thereto) if used within the period during  which  the
Company  is required to keep the registration statement to  which
such  prospectus  relates  current, or the  omission  or  alleged
omission  to state therein (if so used) a material fact necessary
in  order  to  make  the  statements therein,  in  light  of  the
circumstances  under  which  they  were  made,  not   misleading;
provided,  however, that the indemnification agreement  contained
in  this  section 7F shall not (x) apply to such losses,  claims,
damages,  liabilities or actions arising out of, or  based  upon,
any  such  untrue statement or alleged untrue statement,  or  any
such  omission or alleged omission, if such statement or omission
was  made  in  reliance upon and in conformity  with  information
furnished  in  writing  to  the  Company  by  Investor  or   such
underwriter  for  use in connection with the preparation  of  the
registration  statement,  any  preliminary  prospectus  or  final
prospectus  contained  in  the  registration  statement,  or  any
amendment  or supplement thereto, or (y) inure to the benefit  of
any  underwriter  or any person controlling such underwriter,  if
such  underwriter  failed to send or give a  copy  of  the  final
prospectus to the person asserting the claim at or prior  to  the
delivery  of  certificates  representing  Covered  Shares  or  of
written confirmation of the sale of Covered Shares to such person
and  if  the  untrue  statement or omission  concerned  had  been
corrected in such final prospectus.

   7G.  In  the  case of a registration effected by  the  Company
pursuant  to  this part 7, Investor and each underwriter  of  the
Covered  Shares to be registered shall agree in the  same  manner
and  to  the same extent as set forth in section 7F to  indemnify
and  hold  harmless  the Company, each person  who  controls  the
Company,  the directors of the Company and those of its  officers
who  shall  have  signed  any such registration  statement,  with
respect  to any untrue statement or alleged untrue statement  in,
or omission or alleged omission from, such registration statement
or  any  post-effective  amendment  thereto  or  any  preliminary
prospectus or final prospectus (as amended or as supplemented, if
amended   or  supplemented  as  aforesaid)  contained   in   such
registration statement, if such statement or omission was made in
reliance  upon  and in conformity with information  furnished  in
writing  to  the Company by Investor or any such underwriter  for
use  in  connection  with the preparation  of  such  registration
statement  or  any  preliminary prospectus  or  final  prospectus
contained in such registration statement or any such amendment or
supplement thereto.

   7H.  Each  indemnified party shall, with reasonable promptness
after  its receipt of written notice of the commencement  of  any
action  against  such  indemnified  party  in  respect  of  which
indemnity may be sought from an indemnifying party on account  of
an  indemnity  agreement contained in this  part  7,  notify  the
indemnifying  party  in writing of the commencement  thereof.  In
case  any  such  action shall be brought against any  indemnified
party  and  it  shall  so  notify an indemnifying  party  of  the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent it may wish, jointly  with
any  other  indemnifying party similarly notified, to assume  the
defense  thereof  with  counsel reasonably satisfactory  to  such
indemnified  party, and after notice from the indemnifying  party
to  such  indemnified  party of its election  so  to  assume  the
defense  thereof, the indemnifying party shall not be  liable  to
such  indemnified party under this part 7 for any legal or  other
expenses  subsequently  incurred by  such  indemnified  party  in
connection  with the defense thereof other than reasonable  costs
of  investigation. The indemnity agreements in this part 7  shall
be  in  addition to any liabilities that the indemnifying parties
may have pursuant to law.

   7I.   If the indemnification provided for in this part 7 shall
be unavailable to or insufficient to hold harmless an indemnified
party  under  sections 7F or 7G above in respect of  any  losses,
claims,  damages  or liabilities (or actions in respect  thereof)
referred   to  therein,  then  the  indemnifying  parties   shall
contribute  to  the  amount paid or payable by  such  indemnified
party  as a result of such losses, claims, damages or liabilities
(or  actions  in  respect  thereof) in such  proportions  as  are
appropriate to reflect to the relative benefits received  by  the
respective indemnifying parties from the offering of the  Covered
Shares.  If,  however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, or if  the
indemnified  party  failed  to give  the  notice  required  under
section  7H  above, then each indemnifying party shall contribute
to  such  amount paid by or payable by such indemnified party  in
such  proportion  as  is  appropriate to reflect  not  only  such
relative benefits but also the relative fault of the indemnifying
parties  in  connection with the statements  or  omissions  which
resulted  in  such  losses, claims, damages  or  liabilities  (or
actions  in  respect  thereof) as  well  as  any  other  relevant
equitable considerations. The relative benefits received  by  the
indemnifying parties shall be deemed to be in the same proportion
as  the  net  proceeds to any such party bear to  the  total  net
proceeds  from  the  offering  before  deducting  expenses.   The
relative  fault shall be determined by reference to, among  other
things,  whether  the  untrue or alleged untrue  statement  of  a
material  fact  or the omission or alleged omission  to  state  a
material  fact relates to information supplied by the  respective
indemnifying  party and the parties' relative intent,  knowledge,
access to information and opportunity to correct or prevent  such
statement or omission.

   7J.  The registration rights granted pursuant to this  part  7
shall  not  be available with respect to covered shares  if  such
Covered Shares then held by the Investor may be sold pursuant  to
Rule  144  (or any successor rule) during the three month  period
immediately  succeeding Investor's notice or request pursuant  to
Section 7A.

  8. Miscellaneous.

   8A.  Successors  and  Assigns. Except as  otherwise  expressly
provided herein, all covenants and agreements contained  in  this
Agreement by or on behalf of any of the parties hereto will  bind
and inure to the benefit of the respective successors and assigns
of the parties hereto whether so expressed or not; provided that,
the  rights  granted to the Investor pursuant to  part  7  hereof
shall not be transferred or assigned by Investor other than to an
entity wholly owned by Investor.

   8B.  Severability. Whenever possible, each provision  of  this
Agreement  will be interpreted in such manner as to be  effective
and  valid  under  applicable law, but if any provision  of  this
Agreement is held to be prohibited by or invalid under applicable
law,  such  provision will be ineffective only to the  extent  of
such   prohibition   or  invalidity,  without  invalidating   the
remainder of this Agreement.

  8C. Counterparts. This Agreement may be executed simultaneously
in  two  or more counterparts, any one of which need not  contain
the  signatures of more than one party, but all such counterparts
taken together will constitute one and the same Agreement.

   8D.  Descriptive  Headings. The descriptive headings  of  this
Agreement are inserted for convenience only and do not constitute
a part of this Agreement.

   8E.  Governing Law; Venue The corporate law of  Delaware  will
govern  all issues concerning the relative rights of the  Company
and   its  stockholders.  All  other  questions  concerning   the
construction,  validity and interpretation of this Agreement  and
the  exhibits  and  schedules hereto  will  be  governed  by  the
internal  law, and not the law of conflicts, of Delaware.  It  is
the  intention of the parties that proper venue for  any  action,
suit  or  proceeding  arising pursuant to this  Agreement  or  in
connection with the transactions contemplated herein shall be  in
Travis  County,  Texas. Each party agrees that any  such  action,
suit  or  proceeding shall be brought before a state  or  federal
court  sitting  in the City of Austin, Travis County,  Texas  and
waives  any  objection to venue in such court. Each party  waives
the  right  to  demand a jury in any action, suit  or  proceeding
arising pursuant to this Agreement.

  8F. Notices. All notices, demands or other communications to be
given  or delivered under or by reason of the provisions of  this
Agreement  (other  than  notice of a telephonic  meeting  of  the
Company's  board of directors, which may be given  by  telephone)
will  be in writing and will be deemed to have been given  either
when  delivered  personally or three business days  after  having
been  mailed  by  certified or registered  mail,  return  receipt
requested  and  postage prepaid, to the recipient. Such  notices,
demands and other communications will be sent to the Investor and
to the Company at the address indicated below:

If to the Company:

Electrosource, Inc.
2809 IH 35 South
San Marcos, Texas 78666
Attention: Michael G. Semmens

With a copy to:

Bret Van Earp
Attorney-at-Law
100 Congress Avenue, Suite 1800
Austin, Texas 78701

If to the Investor:

Corning Incorporated
Attn: Corporate Secretary
One Riverfront Plaza
Corning, New York 14831

or to such other address or to the attention of such other person
as  the recipient party has specified by prior written notice  to
the sending party.
   IN  WITNESS  WHEREOF, the parties hereto  have  executed  this
Agreement on the date first written above.

ELECTROSOURCE, INC.                CORNING INCORPORATED


By:                                By:
Printed Name:                      Printed Name:
Title:                             Title:
                           EXHIBIT "A"
                TO SECURITIES PURCHASE AGREEMENT
                    DATED _____________, 1998

                   CERTIFICATE OF DESIGNATION

                       ELECTROSOURCE, INC.

           5% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
  $1.00 PAR VALUE ("5% CUMULATIVE CONVERTIBLE PREFERRED STOCK")

    Pursuant to Section 151 of the General Corporation Law of the
State of Delaware and Article Four of its Restated Certificate of
Incorporation, Electrosource, Inc., a corporation  organized  and
existing   under  the  laws  of  the  State  of   Delaware   (the
"Corporation"),

    DOES  HEREBY CERTIFY that pursuant to the authority conferred
upon  the  Board of Directors of the Corporation by the  Restated
Certificate  of  Incorporation of  the  Corporation  and  by  the
General  Corporation Law of the State of Delaware, said Board  of
Directors,  at  a  meeting duly called and held on  December  19,
1997,  adopted a resolution providing for the creation of  a  new
series  of  Preferred  Stock,  to  be  designated  5%  Cumulative
Convertible  Preferred  Stock,  consisting  of  not   more   than
1,000,000  shares,  which resolution reads  in  its  entirety  as
follows:

    RESOLVED,  that  pursuant to the authority  provided  in  the
Corporation's Restated Certificate of Incorporation and expressly
granted  to  and  vested  in  the  Board  of  Directors  of   the
Corporation, this Board of Directors hereby creates  out  of  the
Preferred  Stock,  $1.00 par value per share,  a  new  series  of
Preferred  Stock  to  be  designated  5%  Cumulative  Convertible
Preferred  Stock, consisting of 1,000,000 shares, and this  Board
of  Directors  hereby  fixes  the  designation  and  the  powers,
preferences  and rights, and the qualifications, limitations  and
restrictions thereof, to the extent not otherwise provided in the
Corporation's Restated Certificate of Incorporation, as follows:

Designation of Series

    The  designation of the new series of Preferred Stock created
by  this resolution shall be "5% Cumulative Convertible Preferred
Stock."   The   powers,   preferences   and   rights,   and   the
qualifications,  limitations  and restrictions  thereof,  to  the
extent  not  otherwise  provided in  the  Corporation's  Restated
Certificate of Incorporation, shall be as follows:

Part 1.   Dividends.

    1A.  Cumulative Dividends. Dividends shall accrue on  the  5%
Cumulative  Convertible Preferred Stock at a rate per  annum  per
share equal to five percent (5%) of the Liquidation Value of each
share of 5% Cumulative Convertible Preferred Stock, and shall  be
payable  when  and  as declared by the Board of  Directors.   All
dividends  declared upon the 5% Cumulative Convertible  Preferred
Stock shall be payable semiannually on June 30 and December 31 of
each year. Dividends upon the 5% Cumulative Convertible Preferred
Stock  shall be cumulative, and no dividend or distribution shall
be  made upon the Common Stock or any Junior Securities until all
dividends  accrued with respect to the 5% Cumulative  Convertible
Preferred Stock, whether or not declared, have been paid.

Part 2.   Liquidation.

    2A. Liquidation Preference. Upon any liquidation, dissolution
or   winding   up  of  the  Corporation,  whether  voluntary   or
involuntary, the holders of outstanding 5% Cumulative Convertible
Preferred  Stock  will  be  entitled  to  be  paid,  before   any
distribution  or payment is made upon any Junior  Securities,  an
amount in cash equal to the aggregate Liquidation Value of all 5%
Cumulative Convertible Preferred Stock outstanding. If, upon  any
such  liquidation, dissolution or winding up of the  Corporation,
the  Corporation's assets to be distributed among the holders  of
the 5% Cumulative Convertible Preferred Stock are insufficient to
permit payment to such holders of the aggregate amount that  they
are entitled to be paid, then the entire assets to be distributed
will  be distributed ratably among such holders in proportion  to
the  full  respective  preferential amounts  to  which  they  are
entitled.    Written  notice  of  any  voluntary  or  involuntary
liquidation,  dissolution  or  winding  up  of  the  Corporation,
stating  the payment date or dates when, and the place or  places
where,  the  amounts distributable to holders  of  5%  Cumulative
Convertible  Preferred  Stock  in  such  circumstances  shall  be
payable,  shall  be given by first-class mail,  postage  prepaid,
mailed not less than twenty days prior to any payment date stated
therein,  to  the holders of 5% Cumulative Convertible  Preferred
Stock,  at  the address shown on the books of the Corporation  or
the  transfer  agent for the 5% Cumulative Convertible  Preferred
Stock.

Part 3.   Redemptions.

    3A. Redemption at Option of Corporation. No shares of the  5%
Cumulative  Convertible Preferred Stock may be  redeemed  without
the  consent  of the holder of such shares prior  to  January  1,
2000.   From  and  after [January 1, 2000], the  Corporation  may
redeem from time to time and at such times as it may appoint, all
or  any part of the shares of 5% Cumulative Convertible Preferred
Stock  outstanding.  For  each Preferred  Share  that  is  to  be
redeemed  pursuant  to  this  part 3,  the  Corporation  will  be
obligated on the redemption date to pay the holder thereof  (upon
surrender by such holder at the Corporation's principal office of
the  certificate representing such Preferred Share) an amount  in
immediately  available  funds  equal  to  the  Liquidation  Value
thereof.   In the case of a redemption of a part only of  the  5%
Cumulative Convertible Preferred Stock, the shares to be redeemed
shall be selected by lot or in such other manner as the Board  of
Directors  may determine. Notwithstanding the foregoing,  if  the
Corporation is in default with respect to any dividend payable on
or  any  sinking  or  other purchase fund  or  other  requirement
relating  to  shares  of Preferred Stock of the  Corporation,  it
shall   not  redeem  any  shares  of  5%  Cumulative  Convertible
Preferred  Stock except pro rata pursuant to offers of sale  made
by holders of the all series of Preferred Stock in response to an
invitation for tenders given simultaneously by the Corporation by
mail  to  the holders of all shares of the Preferred  Stock  then
outstanding.

    3B.   Notices.  Unless otherwise required by law,  notice  of
redemption  will be sent to holders of 5% Cumulative  Convertible
Preferred  Stock  at  the  address shown  on  the  books  of  the
Corporation   or  any  transfer  agent  for  the  5%   Cumulative
Convertible Preferred Stock by first-class mail, postage prepaid,
mailed  not less than twenty, nor more than sixty days  prior  to
the  redemption  date.  Each such notice shall  state:   (i)  the
redemption date; (ii) the total number of shares of 5% Cumulative
Convertible Preferred Stock to be redeemed and, if fewer than all
the shares held by such holder are to be redeemed, the number  of
such shares to be redeemed from such holder; (iii) the redemption
price;  (iv)  the  place  or places where certificates  for  such
shares are to be surrendered for payment of the redemption price;
and  (v) the conversion rights of the shares to be redeemed,  the
period  within which conversion rights may be exercised, and  the
Conversion  Price and number of shares of Common  Stock  issuable
upon conversion of a share of 5% Cumulative Convertible Preferred
Stock on the date such notice is sent.

    3C.  Redeemed or Otherwise Acquired 5% Cumulative Convertible
Preferred   Stock.  Any  shares  of  5%  Cumulative   Convertible
Preferred  Stock that are redeemed or otherwise acquired  by  the
Corporation  will be canceled and will not be reissued,  sold  or
transferred.

Part 4.   Voting Rights

   4A. General. Except as required by the General Corporation Law
of  Delaware  and  Section 4B hereof, holders  of  5%  Cumulative
Convertible Preferred Shares shall not be entitled to  vote  with
respect to such 5% Cumulative Convertible Preferred Shares on any
matter to be voted upon by the Corporation's shareholders.

    4B.   So  long  as  any  shares of 5% Cumulative  Convertible
Preferred Stock are outstanding, the consent of the holders of at
least  a  majority  of the outstanding shares  of  5%  Cumulative
Convertible Preferred Stock, given in person or by proxy,  either
at  a  regular  meeting or at a special meeting called  for  that
purpose,  at  which  the  holders of  5%  Cumulative  Convertible
Preferred  Stock  shall vote separately as  a  series,  shall  be
necessary  for effecting, validating or authorizing  any  one  or
more of the following:

      (i)   the  amendment, alteration or repeal of  any  of  the
   provisions  of the Certificate of Incorporation,  as  amended,
   of  the  Corporation  or any amendment thereto  or  any  other
   certificate  filed  pursuant  to  law  (including   any   such
   alteration,  amendment or repeal effected  by  any  merger  or
   consolidation to which the Corporation is a party) that  would
   adversely  change any of the rights, powers or preferences  of
   outstanding  shares  of  5% Cumulative  Convertible  Preferred
   Stock; or

      (ii) any merger or consolidation with or into, or any sale,
   transfer,  exchange  or lease of all or substantially  all  of
   the  assets  of the Corporation to, any other corporation,  in
   either  case  that would adversely change any of  the  rights,
   powers  or  preferences of outstanding shares of 5% Cumulative
   Convertible Preferred Stock.

Part 5.   Conversion.

   5A. Conversion Procedure.

     (i)  Any holder of 5% Cumulative Convertible Preferred Stock
     may  convert  all  or  any  portion  of  the  shares  of  5%
     Cumulative  Convertible Preferred Stock held by such  holder
     into  a  number of shares of the Corporation's Common  Stock
     computed  by  multiplying  the  number  of  shares   of   5%
     Cumulative  Convertible Preferred Stock to be  converted  by
     $10.00 and dividing the result by the "Conversion Price" (as
     defined below) then in effect.

     (ii)  Each conversion of 5% Cumulative Convertible Preferred
     Stock  will be deemed to have been effected as of the  close
     of  business  on  the  date  on  which  the  certificate  or
     certificates  representing  the  shares  of  5%   Cumulative
     Convertible  Preferred  Stock  to  be  converted  have  been
     surrendered at the principal office of the Corporation  duly
     assigned  or  endorsed for transfer to the  Corporation  (or
     accompanied by duly executed stock powers relating  thereto)
     together  with  a  notice of conversion specifying  (i)  the
     number  of  shares  of  5% Cumulative Convertible  Preferred
     Stock  to  be converted and the name or names in which  such
     holder  wishes  the certificate or certificates  for  Common
     Stock  and  for  any  shares  of 5%  Cumulative  Convertible
     Preferred  Stock  not  to  be  so  converted  to  be  issued
     (together  with an opinion of counsel that the transfer  may
     be  made without registration if the name is different  than
     that  of  the  holder) and (ii) the address  to  which  such
     holder  wishes delivery to be made of such new  certificates
     to  be  issued upon such conversion.  At such time  as  such
     conversion  has been effected, the rights of the  holder  of
     such  5%  Cumulative  Convertible Preferred  Stock  as  such
     holder will cease and the Person or Persons in whose name or
     names  any certificate or certificates for shares of  Common
     Stock  are to be issued upon such conversion will be  deemed
     to have become the holder or holders of record of the shares
     of Common Stock represented thereby.

     (iii)      As  soon as possible after a conversion has  been
     effected (but in any event within five business days in  the
     case  of  subparagraph  (a)  below),  the  Corporation  will
     deliver to the converting holder:

             (a)  a certificate representing the number of shares
          of  Common  Stock issuable by reason of such conversion
          in   such  name  or  names  and  such  denomination  or
          denominations as the converting holder has specified;

             (b) the amount payable under subparagraph (vi) below
          with  respect  to  fractional shares  of  Common  Stock
          otherwise issuable upon such conversion; and

             (c)  a  certificate representing any  shares  of  5%
          Cumulative  Convertible  Preferred  Stock  which   were
          represented   by   the  certificate   or   certificates
          delivered  to the Corporation in connection  with  such
          conversion but which were not converted.

     (iv) The issuance of certificates for shares of Common Stock
     upon conversion of 5% Cumulative Convertible Preferred Stock
     will  be  made  without charge to the  holders  of  such  5%
     Cumulative Convertible Preferred Stock for any issuance  tax
     in respect thereof or other cost incurred by the Corporation
     in  connection with such conversion and the related issuance
     of  shares of Common Stock. Upon conversion of each share of
     5%  Cumulative Convertible Preferred Stock, the  Corporation
     will  take  all such actions as are necessary  in  order  to
     insure  that the Common Stock issuable with respect to  such
     conversion  will be duly authorized, validly  issued,  fully
     paid and nonassessable.

     (v)   The  Corporation will not close its books against  the
     transfer of 5% Cumulative Convertible Preferred Stock or  of
     Common  Stock  issued  or issuable  upon  conversion  of  5%
     Cumulative  Convertible Preferred Stock in any manner  which
     interferes  with  the  timely conversion  of  5%  Cumulative
     Convertible Preferred Stock.

     (vi)  If any fractional interest in a share of Common  Stock
     would, except for the provisions of this subparagraph  (vi),
     be   deliverable  upon  any  conversion  of  5%   Cumulative
     Convertible  Preferred Stock, the Corporation,  in  lieu  of
     delivering the fractional share therefor, may at its  option
     pay  a  cash adjustment for such fraction equal to the  same
     fraction of the greater of (i) the Liquidation Value divided
     by  the  number  of shares of Common Stock into  which  each
     share  of  5%  Cumulative  Convertible  Preferred  Stock  is
     convertible and (ii) the fair market value per share of  the
     5%  Cumulative Convertible Preferred Stock at the  close  of
     business  on the date of conversion, as determined  in  good
     faith by the board of directors of the Corporation.

     (vii)       The   Corporation  shall  make  no  payment   or
     adjustment on account of any dividends accrued on the shares
     of 5% Cumulative Convertible Preferred Stock surrendered for
     conversion except that all dividends accrued and  unpaid  on
     such  shares  up  to the dividend payment  date  immediately
     preceding  such surrender for conversion shall constitute  a
     debt  of  the  Corporation payable without interest  to  the
     converting shareholder, and no dividend shall be declared or
     paid  in  respect of shares of Common Stock until such  debt
     shall  be fully paid or sufficient funds set apart  for  the
     payment thereof.

    5B.  Conversion Price. The initial Conversion Price for  each
share  of 5% Cumulative Convertible Preferred Stock will be equal
to  _____________ ($____), on the date of closing.  In  order  to
prevent dilution of the conversion rights granted under this part
5,  the Conversion Price will be subject to adjustment from  time
to  time  pursuant to this part 5; provided that  the  Conversion
Price  will  in  no  event  be  less than  the  aggregate  amount
necessary  to  equal the par value of the shares of Common  Stock
into  which a share of 5% Cumulative Convertible Preferred  Stock
is convertible.

    5C.  Subdivision  or  Combination of  Common  Stock.  If  the
Corporation   subdivides  (by  any  stock  split,  common   stock
dividend,  recapitalization or otherwise) its outstanding  shares
of  Common  Stock into a greater number of shares, the Conversion
Price  in  effect immediately prior to such subdivision shall  be
proportionately  reduced,  and if the  Corporation  at  any  time
combines  (by  reverse stock split or otherwise) its  outstanding
shares  of  Common  Stock into a smaller number  of  shares,  the
Conversion  Price in effect immediately prior to such combination
will be proportionately increased.

   5D. Reorganization, Reclassification, Consolidation, Merger or
Sale.   In  the  event that the Corporation shall consummate  any
Organic  Change, outstanding shares of 5% Cumulative  Convertible
Preferred  Stock  shall, without any action on the  part  of  the
Corporation or any holder thereof, be automatically converted  by
virtue  of such transaction immediately prior to the consummation
thereof into the number of share of Common Stock into which  such
shares  of  5% Cumulative Convertible Preferred Stock could  have
been  converted at such time so that each share of 5%  Cumulative
Convertible  Preferred Stock shall, by virtue of such transaction
and on the same terms as apply to the holders of Common Stock, be
converted  into or exchanged for the aggregate amount  of  stock,
securities,  cash  or  other  property  (payable  in  like  kind)
receivable  by a holder of the number of shares of  Common  Stock
into  which  such  shares of 5% Cumulative Convertible  Preferred
Stock  could  have  been  converted  immediately  prior  to  such
transaction if such holder of Common Stock failed to exercise any
rights of election as to the kind or amount of stock, securities,
cash or other property receivable upon such transaction (provided
that,  if the kind or amount of stock, securities, cash or  other
property  receivable upon such transaction is not  the  same  for
each  non-electing  share, then the kind  and  amount  of  stock,
securities,   cash  or  other  property  receivable   upon   such
transaction  for each non-electing share shall be  the  kind  and
amount so receivable per share by a plurality of the non-electing
shares).

   5E.  Anti-dilution Adjustments.

       (i)   In  the event the Corporation shall, at any time  or
from  time  to  time after December 19, 1997, while  any  of  the
shares  of  the  5%  Cumulative Convertible Preferred  Stock  are
outstanding, (a) pay a dividend or make a distribution in respect
of  the  Common  Stock,  to  the extent  that  such  dividend  or
distribution  consists of shares of Common Stock,  (b)  subdivide
the  outstanding  shares  of Common Stock,  or  (c)  combine  the
outstanding  shares  of Common Stock into  a  smaller  number  of
shares,  in  each  case  whether by reclassification  of  shares,
recapitalization of the Corporation (excluding a recapitalization
effected  by a merger or consolidation to which Section 8  hereof
applies) or otherwise, the Conversion Price in effect immediately
prior  to  such  action  shall be adjusted  by  multiplying  such
Conversion  Price by a fraction the numerator of which  shall  be
the  number  of  shares  of Common Stock outstanding  immediately
before  such  event  and the denominator of which  shall  be  the
number  of  shares of Common Stock outstanding immediately  after
such  event.  An adjustment made pursuant to this paragraph 5E(i)
shall  be  given  effect, upon payment  of  such  a  dividend  or
distribution,  as  of  the record date for the  determination  of
holders  of  Common Stock entitled to receive  such  dividend  or
distribution  (on  a retroactive basis) and  in  the  case  of  a
subdivision or combination shall become effective immediately  as
of the effective date thereof.

       (ii)  In the event that the Corporation shall, at any time
or  from  time  to time while any of the shares of 5%  Cumulative
Convertible Preferred Stock are outstanding, issue to holders  of
shares  of  Common Stock as a dividend or distribution, including
by  way of a reclassification of shares or a recapitalization  of
the  Corporation,  any  right or warrant to  purchase  shares  of
Common  Stock,  such right or warrant by its terms  enabling  the
holder  thereof to acquire shares of Common Stock at  a  purchase
price  per  share less than the Fair Market Value (as hereinafter
defined)  of  a share of Common Stock on the date of issuance  of
such  right  or  warrant,  then, subject  to  the  provisions  of
paragraphs (v) and (vi) of this Section 5E, the Conversion  Price
shall  be  adjusted  by multiplying such Conversion  Price  by  a
fraction the numerator of which shall be the number of shares  of
Common  Stock  outstanding plus Common Stock  Deemed  Outstanding
immediately before such issuance of rights or warrants  plus  the
number  of shares of Common Stock that could be purchased at  the
Fair  Market Value of a share of Common Stock at the time of such
issuance  for  the maximum aggregate consideration  payable  upon
exercise  in  full  of  all  such  rights  or  warrants  and  the
denominator  of  which shall be the number of  shares  of  Common
Stock   outstanding   plus   Common  Stock   Deemed   Outstanding
immediately before such issuance of rights or warrants  plus  the
maximum  number of shares of Common Stock that could be  acquired
upon  exercise in full of all such rights and warrants.  If  such
rights  or  warrants  expire unexercised,  the  conversion  price
adjustment  will be recalculated to eliminate the effect  of  any
adjustment made to the conversion price in respect of such rights
or warrants.

   (iii)  In the event the Corporation shall, at any time or from
time to time while any of the shares of 5% Cumulative Convertible
Preferred  Stock are outstanding, issue, sell or exchange  shares
of  Common Stock (other than pursuant to any employee or director
incentive   or   benefit  plan  or  arrangement,  including   any
employment, severance or consulting agreement, of the Corporation
or  any  subsidiary  of the Corporation heretofore  or  hereafter
adopted)  for a consideration having a Fair Market Value  on  the
date of such issuance, sale or exchange less than the Fair Market
Value  of  such  shares  on the date of such  issuance,  sale  or
exchange, then, subject to the provisions of paragraphs  (v)  and
(vi)  of  this Section 5E, the Conversion Price shall be adjusted
by  multiplying such Conversion Price by a fraction the numerator
of which shall be the sum of (a) the Fair Market Value of all the
shares  of  Common  Stock outstanding plus  Common  Stock  Deemed
Outstanding  on  the day immediately preceding the  first  public
announcement of such issuance, sale or exchange plus (b) the Fair
Market Value of the consideration received by the Corporation  in
respect  of such issuance, sale or exchange of shares  of  Common
Stock,  and the denominator of which shall be the product of  (I)
the  Fair  Market  Value of a share of Common Stock  on  the  day
immediately  preceding  the  first public  announcement  of  such
issuance,  sale  or exchange multiplied by (II) the  sum  of  the
number  of  shares of Common Stock outstanding plus Common  Stock
Deemed  Outstanding  on such day plus the  number  of  shares  of
Common Stock so issued, sold or exchanged by the Corporation.  In
the  event  the Corporation shall, at any time or  from  time  to
time,  while  any  shares of 5% Cumulative Convertible  Preferred
Stock  are  outstanding, issue, sell or  exchange  any  right  or
warrant  to purchase or acquire shares of Common Stock (including
as  such  a  right  or warrant any security convertible  into  or
exchangeable  for shares of Common Stock), other  than  any  such
issuance  to  holders of shares of Common Stock as a dividend  or
distribution (including by way of a reclassification of shares or
a recapitalization of the Corporation) and other than pursuant to
any employee or director incentive or benefit plan or arrangement
(including any employment, severance or consulting agreement)  of
the  Corporation or any subsidiary of the Corporation  heretofore
or  hereafter adopted, such right or warrant being issued  for  a
consideration  having a Fair Market Value, on the  date  of  such
issuance, sale or exchange, less than the Non-dilutive Amount (as
hereinafter   defined),  then,  subject  to  the  provisions   of
paragraphs (v) and (vi) of this Section 5E, the Conversion  Price
shall  be  adjusted  by multiplying such Conversion  Price  by  a
fraction, the numerator of which shall be the sum of (a) the Fair
Market  Value of all the shares of Common Stock outstanding  plus
Common  Stock Deemed Outstanding on the day immediately preceding
the  first public announcement of such issuance, sale or exchange
plus  (b) the Fair Market Value of the consideration received  by
the Corporation in respect of such issuance, sale or exchange  of
such  right or warrant plus (c) the Fair Market Value at the time
of  such issuance of the consideration that the Corporation would
receive upon exercise in full of all such rights or warrants, and
the  denominator of which shall be the product of  (i)  the  Fair
Market  Value  of a share of Common Stock on the day  immediately
preceding the first public announcement of such issuance, sale or
exchange  multiplied by (ii) the sum of the number of  shares  of
Common Stock outstanding plus Common Stock Deemed Outstanding  on
such  day plus the maximum number of shares of Common Stock  that
could be acquired pursuant to such rights or warrants at the time
of  issuance,  sale  or  exchange  of  such  rights  or  warrants
(assuming  shares of Common Stock could be acquired  pursuant  to
such  rights  or warrants at such time).  If such convertible  or
exchangeable  rights  expire unexercised,  the  conversion  price
adjustment  will be recalculated to eliminate the effect  of  any
adjustment  made  to  the conversion price  in  respect  of  such
convertible or exchangeable rights.

    (iv)  In the event the Corporation shall, at any time or from
time   to  time,  while  any  of  the  shares  of  5%  Cumulative
Convertible   Preferred   Stock   are   outstanding,   make    an
Extraordinary Distribution (as hereinafter defined) in respect of
the    Common   Stock,   whether   by   dividend,   distribution,
reclassification of shares or recapitalization of the Corporation
(excluding a recapitalization or reclassification effected  by  a
merger  or  consolidation to which Section 5D hereof applies)  or
effect  a Pro Rata Repurchase (as hereinafter defined) of  Common
Stock, the Conversion Price in effect immediately following  such
Extraordinary Distribution or Pro Rata Repurchase shall,  subject
to  paragraphs  (v) and (vi) of this Section 5E, be  adjusted  by
multiplying such Conversion Price by a fraction the numerator  of
which is the difference between (a) the product of (I) the number
of  shares  of Common Stock outstanding plus Common Stock  Deemed
Outstanding immediately preceding such Extraordinary Distribution
or  Pro Rata Repurchase multiplied by (II) the Fair Market  Value
of  a share of Common Stock on the record date with respect to an
Extraordinary Distribution, or on the applicable expiration  date
(including  all  extensions  thereof)  of  any  tender  offer  or
exchange offer that is a Pro Rata Repurchase, or on the  date  of
purchase  with respect to any Pro Rata Repurchase that is  not  a
tender offer or exchange offer, as the case may be, minus (b) the
Fair  Market  Value  of  the Extraordinary  Distribution  or  the
aggregate purchase price of the Pro Rata Repurchase, as the  case
may  be, and the denominator of which shall be the product of (a)
the  number  of  shares of Common Stock and Common  Stock  Deemed
Outstanding  outstanding immediately preceding such Extraordinary
Dividend or Pro Rata Repurchase minus, in the case of a Pro  Rata
Repurchase,  the number of shares of Common Stock repurchased  by
the Corporation multiplied by (b) the Fair Market Value of  share
of  the  Corporation  on  the record  date  with  respect  to  an
Extraordinary  Distribution or on the applicable expiration  date
(including  all  extensions  thereof)  of  any  tender  offer  or
exchange  offer that is a Pro Rata Repurchase or on the  date  of
purchase  with respect to any Pro Rata Repurchase that is  not  a
tender  offer  or  exchange offer,  as  the  case  may  be.   The
Corporation  shall send each holder of 5% Cumulative  Convertible
Preferred Stock (a) notice of its intent to make any dividend  or
distribution  and (b) notice of any offer by the  Corporation  to
make a Pro Rata Repurchase, in each case at the same time as,  or
as  soon  as  practicable after, such offer is first communicated
(including  by  announcement of a record date in accordance  with
the  rules  of  any stock exchange on which the Common  Stock  is
listed or admitted to trading) to holders of Common Stock.   Such
notice shall indicate the intended record date and the amount and
nature  of such dividend or distribution, or the number of shares
subject  to such offer for a Pro Rata Repurchase and the purchase
price payable by the Corporation pursuant to such offer, as  well
as  the Conversion Price and the number of shares of Common Stock
into  which a share of 5% Cumulative Convertible Preferred  Stock
may be converted at such time.

    (v)  Notwithstanding any other provisions of this Section 5E,
the  Corporation shall not be required to make any adjustment  to
the  Conversion  Price  unless and until  such  adjustment  would
require  an increase or decrease of at least two percent  in  the
Conversion Price.  Any lesser adjustment shall be carried forward
and  shall be made no later than the time of, and together  with,
the next subsequent adjustment that, together with any adjustment
or adjustments so carried forward, shall amount to an increase or
decrease  of at least one percent in the Conversion  Price.   All
adjustments shall be made to the nearest one hundredth of a share
and the nearest cent.

    (vi)   For  the  purposes of this Section 5E,  the  following
definitions shall apply:

    "Common Stock Deemed Outstanding" shall mean in the event the
Company at any time or from time to time has issued or after  the
date  hereof  shall  issue any rights  to  subscribe  for  or  to
purchase, or any options for the purchase of, Common Stock or any
stock or other securities (including debt securities) convertible
into  or  exchangeable for Common Stock (such rights  or  options
being   herein   called   "Options"  and  such   convertible   or
exchangeable stock or securities being herein called "Convertible
Securities") or shall fix a record date for the determination  of
holders  of any class of securities then entitled to receive  any
such  Options or Convertible Securities, then the maximum  number
of  shares  (as  set  forth  in the instrument  relating  thereto
without  regard to any provisions contained therein  designed  to
protect  against  dilution) of Common  Stock  issuable  upon  the
exercise   of  such  Options  or,  in  the  case  of  Convertible
Securities  and Options therefor, the conversion or  exchange  of
such  Convertible  Securities, shall be deemed to  be  additional
shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of
business  on  such record date. For purposes of the  antidilution
adjustments  contained in this Section 5E, "Common  Stock  Deemed
Outstanding" shall mean all of such additional shares  of  Common
Stock  other  than additional shares of Common Stock issuable  on
conversion, exercise or exchange of any security the issuance  of
which is the cause of the antidilution adjustment in question.

    "Business  Day"  shall mean each day other than  a  Saturday,
Sunday  or  a  day on which state or federally chartered  banking
institutions  in Dallas, Texas are authorized or required  to  be
closed.

    "Extraordinary Distribution" shall mean any dividend or other
distribution to the holders of Common Stock (effected  while  any
of  the  shares of 5% Cumulative Convertible Preferred Stock  are
outstanding) (a) of cash, where the aggregate amount of such cash
dividend  or distribution, together with the amount of  all  cash
dividends  and distributions made during the preceding period  of
12  months,  when combined with the aggregate amount of  all  Pro
Rata  Repurchases (for this purpose, including only that  portion
of  the aggregate purchase price of such pro Rata Repurchase that
is  in  excess  of  the  Fair Market Value of  the  Common  Stock
repurchased  as  determined  on the  applicable  expiration  date
(including  all  extensions  thereof)  of  any  tender  offer  or
exchange  offer  that  is a Pro Rata Purchase,  or  the  date  of
purchase  with respect to any other Pro Rata Repurchase  that  is
not  a  tender offer or exchange offer made during such  period),
exceeds 12-1/2 percent of the aggregate Fair Market Value of  all
shares  of  Common  Stock  outstanding on  the  record  date  for
determining   the   stockholders   entitled   to   receive   such
Extraordinary Distribution and (b) of any shares of capital stock
of  the  Corporation (other than shares of Common  Stock),  other
securities of the Corporation (other than securities of the  type
referred  to  in  paragraph (ii) or (iii) of  this  Section  5E),
evidences of indebtedness of the Corporation or any other  person
or  any other property (including shares of any subsidiary of the
Corporation), or any combination thereof.  The Fair Market  Value
of  an Extraordinary Distribution for purposes of paragraph  (iv)
of  this Section 5E shall be equal to the sum of the Fair  Market
Value  of such Extraordinary Distribution plus the amount of  any
cash  dividends  that  are not Extraordinary  Distributions  made
during  such  twelve month period and not previously included  in
the  calculation of any adjustment pursuant to paragraph (iv)  of
this Section 5E.

    "Fair Market Value" shall mean, as to shares of Common  Stock
or  any  other  class  of  capital stock  or  securities  of  the
Corporation  or  any other issuer that are publicly  traded,  the
average of the Current Market Prices (as hereinafter defined)  of
such  shares or securities for each day of the Adjustment  Period
(as  hereinafter  defined).  "Current Market Price"  of  publicly
traded shares of Common Stock or any other class of capital stock
or  other security of the Corporation or any other issuer  for  a
given day shall mean the last reported sales price, regular  way,
or,  in case no sale takes place on such day, the average of  the
reported  closing bid and asked prices, regular  way,  in  either
case  as  reported on the New York Stock Exchange Composite  Tape
or,  if such security is not listed or admitted to trading on the
New  York  Stock  Exchange, on the principal national  securities
exchange on which such security is listed or admitted to  trading
or,  if  not  listed   or  admitted to trading  on  any  national
securities exchange, on the NASDAQ National Market System or,  if
such  security is not quoted on such National Market System,  the
average  of  the closing bid and asked price on such day  in  the
over-the  counter market as reported by NASDAQ  or,  if  bid  and
asked  prices for such security on each such day shall  not  have
been  reported through NASDAQ, the average of the bid  and  asked
prices  for such day shall not have been reported through NASDAQ,
the average of the bid and asked prices for such day as furnished
by  any  New York Stock Exchange member firm regularly  making  a
market in such security selected for such purpose by the Board of
Directors  of  the  Corporation or a committee  thereof  on  each
trading  day  during the Adjustment Period.  "Adjustment  Period"
shall  mean the period of five consecutive trading days, selected
by  the  Board  of Directors of the Corporation  or  a  committee
thereof, during the 20 days preceding, and including, the date as
of which the Fair Market Value of a security is to be determined.
The  "Fair  Market Value" of any security that  is  not  publicly
traded or any other property shall mean the fair value thereof as
determined by an independent investment banking or appraisal firm
experienced  in  the  valuation of such  securities  or  property
selected  in  good  faith  by  the  Board  of  Directors  of  the
Corporation   or  a committee thereof, or, if no such  investment
banking or appraisal firm is, in the good faith judgment  of  the
Board  of  Directors or such committee, available  to  make  such
determination,  as  determined in good  faith  by  the  Board  of
Directors of the Corporation or such committee.

    "Non-dilutive  Amount" in respect of  an  issuance,  sale  or
exchange  by the Corporation of any right or warrant to  purchase
or  acquire  shares  of  Common  Stock  (including  any  security
convertible  into  or exchangeable for shares  of  Common  Stock)
shall  mean  the difference between (a) the product of  the  Fair
Market Value of a share of Common Stock on the day preceding  the
first   public  announcement  (whether  by  the  Corporation   or
otherwise) of such issuance, sale or exchange multiplied  by  the
maximum  number of shares of Common Stock that could be  acquired
on  such  date  upon  the exercise in full  of  such  rights  and
warrants  (including upon the conversion or exchange of all  such
convertible   or   exchangeable  securities),  whether   or   not
exercisable (or convertible or exchangeable) at such date,  minus
(b)  the aggregate amount payable to the Corporation pursuant  to
such  right or warrant to purchase or acquire such maximum number
of  shares of Common Stock; provided, however, that in  no  event
shall the Non-dilutive Amount be less than zero.  For purposes of
the  foregoing  sentence, in the case of a  security  convertible
into  or  exchangeable  for shares of Common  Stock,  the  amount
payable  pursuant  to a right or warrant to purchase  or  acquire
shares  of  Common Stock shall be the Fair Market Value  of  such
security  on the date of the issuance, sale or exchange  of  such
security by the Corporation.

    "Pro  Rata Repurchase" shall mean any purchase of  shares  of
Common  Stock  by  the  Corporation or  any  subsidiary  thereof,
whether  for  cash, shares of capital stock of  the  Corporation,
other securities of the Corporation, evidences of indebtedness of
the  Corporation  or  any  other person  or  any  other  property
(including  shares  of a subsidiary of the Corporation),  or  any
combination  thereof, effected while any  of  the  shares  of  5%
Cumulative  Convertible Preferred Stock are outstanding  pursuant
to any tender offer or exchange offer subject to Section 13(e) of
the  Exchange Act or any successor provision of law, or  pursuant
to  any  other  offer available to substantially all  holders  of
Common  Stock; provided, however, that no purchase of  shares  by
the  Corporation or any subsidiary thereof made  in  open  market
transactions shall be deemed a Pro Rata Repurchase.  For purposes
of  this  paragraph 5E(vii), shares shall be deemed to have  been
purchased by the Corporation or any subsidiary thereof  "in  open
market transactions" if they have been purchased substantially in
accordance  with the requirements of Rule 10b-18  promulgated  by
the Securities and Exchange Commission under the Exchange Act, on
the  date shares of the 5% Cumulative Convertible Preferred Stock
are  initially issued by the Corporation or on such  other  terms
and conditions as the Board of Directors of the Corporation or  a
committee  thereof shall have determined are reasonably  designed
to  prevent such purchases from having a material effect  on  the
trading market for Common Stock.


    (vii)  Whenever an adjustment to the Conversion Price and the
related  voting rights of the 5% Cumulative Convertible Preferred
Stock  is required pursuant to this paragraph 5E, the Corporation
shall  forthwith place on file with the transfer  agent  for  the
Common  Stock and the 5% Cumulative Convertible Preferred  Stock,
if  there  be  one, and with the Secretary of the Corporation,  a
statement signed by two officers of the Corporation, stating  the
adjusted Conversion Price determined as provided herein  and  the
resulting   conversion   ratio,  and  the   voting   rights   (as
appropriately   adjusted)  of  the  5%   Cumulative   Convertible
Preferred  Stock.  Such statement shall set forth  in  reasonable
detail  such facts as shall be necessary to show the  reason  and
the   manner   of   computing  such  adjustment,  including   any
determination of Fair Market Value involved in such  computation.
Promptly  after each adjustment to the Conversion Price  and  the
related  voting rights of the 5% Cumulative Convertible Preferred
Stock,  the  Corporation shall mail a notice thereof and  of  the
then-prevailing  Conversion Price (and the  resulting  conversion
ratio)  to each holder of shares of the 5% Cumulative Convertible
Preferred Stock.

    (viii)  Whenever a conversion price adjustment has been  made
due  to  the  issuance of Options or Convertible  Securities,  no
further adjustment will be made upon the issuance of Common Stock
as  a  result  of  the exercise, conversion or exchange  of  such
options or Convertible Securities.

     5F.  Certain  Events.  If  any  event  occurs  of  the  type
contemplated  by the provisions of this part 5 but not  expressly
provided for by such provisions, then the Corporation's Board  of
Directors  will make an appropriate adjustment in the  Conversion
Price so as to protect the rights of the holders of 5% Cumulative
Convertible Preferred Stock.

   5G. Notices.

     (i)   Upon  any  adjustment  of the  Conversion  Price,  the
     Corporation will promptly give written notice thereof to all
     holders of 5% Cumulative Convertible Preferred Stock.

     (ii) The Corporation will give written notice to all holders
     of  5%  Cumulative Convertible Preferred Stock at  least  20
     days  prior to the date on which the Corporation closes  its
     books or takes a record (a) with respect to any dividend  or
     distribution upon Common Stock, (b) with respect to any  pro
     rata  subscription offer to holders of Common Stock (c) with
     respect   to   any  proposed  redemption  of  5%  Cumulative
     Convertible  Preferred Stock (such  notice  to  be  in  form
     provided  for in Section 3B), or (d) for determining  rights
     to  vote with respect to any Organic Change, dissolution  or
     liquidation.

     (iii)      The Corporation will also give written notice  to
     the holders of 5% Cumulative Convertible Preferred Stock  at
     least  30 days prior to the date on which any Organic Change
     will take place.

Part 6.   Registration of Transfer.

    The  Corporation will keep at its principal office a register
for  the  registration  of  5% Cumulative  Convertible  Preferred
Stock.  Subject to compliance with applicable law, including  but
not  limited  to  federal  and state securities  laws,  upon  the
surrender   of   any  certificate  representing   5%   Cumulative
Convertible Preferred Stock at such place, the Corporation  will,
at  the request of the record holder of such certificate, execute
and  deliver (at the Corporation's expense) a new certificate  or
certificates  in exchange therefor representing in the  aggregate
the number of shares of 5% Cumulative Convertible Preferred Stock
represented  by  the  surrendered  certificate.  Each  such   new
certificate  will be registered in such name and  will  represent
such  number of 5% Cumulative Convertible Preferred Stock  as  is
requested by the holder of the surrendered certificate  and  will
be   substantially   identical  in  form   to   the   surrendered
certificate,  and  dividends will accrue  on  the  5%  Cumulative
Convertible  Preferred Stock represented by such new  certificate
from the date to which dividends have been fully paid on such  5%
Cumulative  Convertible  Preferred  Stock  represented   by   the
surrendered certificate.

Part 7.   Replacement.

    Upon  receipt  of  evidence reasonably  satisfactory  to  the
Corporation  (an  affidavit  of the  registered  holder  will  be
satisfactory)  of the ownership and the loss, theft,  destruction
or   mutilation  of  any  certificate  evidencing  5%  Cumulative
Convertible  Preferred Stock, and in the case of any  such  loss,
theft  or  destruction,  upon  receipt  of  indemnity  reasonably
satisfactory to the Corporation (provided that if the  holder  is
an   institutional   investor   its   own   agreement   will   be
satisfactory),  or,  in  the case of  any  such  mutilation  upon
surrender  of  such  certificate, the Corporation  will  (at  its
expense)  execute and deliver in lieu of such certificate  a  new
certificate of like kind representing the number of shares of  5%
Cumulative Convertible Preferred Stock represented by such  lost,
stolen, destroyed or mutilated certificate and dated the date  of
such  lost,  stolen,  destroyed  or  mutilated  certificate,  and
dividends  will accrue on the 5% Cumulative Convertible Preferred
Stock  represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.

Part 8.   Definitions.

    "Common Stock" means, collectively, the Corporation's  Common
Stock,  par  value $.10 per share, provided that if  there  is  a
change  such that the securities issuable upon conversion of  the
5% Cumulative Convertible Preferred Stock are issued by an entity
other  than the Corporation or there is a change in the class  of
securities  so issuable, then the term "Common Stock"  will  mean
the  security  issuable  upon conversion  of  the  5%  Cumulative
Convertible Preferred Stock.

     "Corporation"   means  Electrosource,   Inc.,   a   Delaware
corporation.

    "Junior  Securities"  means any class  or  series  of  equity
securities  of the Corporation having a preference in liquidation
or  right  to  dividends junior to the 5% Cumulative  Convertible
Preferred Stock, which shall include without limitation any class
or  series  of common stock and any class or series of  preferred
stock  that  does not expressly provide that it ranks pari  passu
with the 5% Cumulative Convertible Preferred Stock.

   "Liquidation Value" of any 5% Cumulative Convertible Preferred
Stock  as  of  any particular date will be equal  to  $10.00  per
share.

    "Organic  Change"  means any reorganization reclassification,
consolidation, merger or sale of all or substantially all of  the
Corporation's assets to another Person which is effected in  such
a  way  that  holders  of Common Stock are  entitled  to  receive
(either   directly   or  upon  subsequent  liquidation),   stock,
securities,  cash or other property or assets, or any combination
thereof with respect to or in exchange for Common Stock.

   "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture,  an
unincorporated  organization and a  governmental  entity  or  any
department, agency or political subdivision thereof.

   "Preferred Stock" means the Corporation's Preferred Stock, par
value  $1.00  per  share,  including without  limitation  the  5%
Cumulative Convertible Preferred Stock.



     "5%  Cumulative  Convertible  Preferred  Stock"  means   the
Corporation's  5%  Cumulative Convertible  Preferred  Stock,  par
value $1.00 per share.

    "Subsidiary"  means any corporation of which  the  shares  of
stock  having a majority of the general voting power in  electing
the  board  of  directors  are, at  the  time  as  of  which  any
determination  is  being  made, owned by the  Corporation  either
directly or indirectly through Subsidiaries.

    IN  WITNESS WHEREOF, the Corporation has caused its corporate
seal  to  be affixed hereunto and this Certificate of Designation
to  be  signed by its President and Secretary this  ____  day  of
____________, 199__.

ELECTROSOURCE, INC.                ATTEST:



By:                                By:
  Michael G. Semmens, President        Audrey T. Dearing, Secretary


                           EXHIBIT "C"
                               TO
                     NOTE PURCHASE AGREEMENT
                     DATED DECEMBER 19, 1997


      1.   BDM.   BDM  Technologies, Inc.  ("BDM")  entered  into
essentially  a 50/50 joint venture with the Company  in  1993  to
perfect  the  battery manufacturing process  and  to  license  or
commercialize  the  Electrosource technology  world-wide.   Under
this agreement, BDM arranged for and guaranteed the lease of  the
Company's  plant and certain equipment in San Marcos,  Texas  and
paid essentially all of the San Marcos operational costs.  In mid-
1994,  BDM determined to discontinue its interest in the venture,
and  an interim arrangement for payment of costs was entered into
whereby  the Company had the option of reimbursing BDM  for  real
and  personal property lease payments and property taxes in stock
or  cash.   The  Company  and  BDM subsequently  entered  into  a
detailed  Asset  and  Technology License Agreement  and  a  Stock
Purchase  Agreement (for BDM's 50% of the joint venture  company)
on  January 31, 1995 that provided for monthly reimbursements  by
the  Company to BDM in cash only.  The Company has since deferred
a  number  of  such  payments  to BDM,  which  are  disclosed  as
liabilities on the Company financial statements.  The Company has
not  received  a notice of default from BDM for such  non-payment
and  is  in discussions with BDM regarding satisfaction  of  such
liabilities.  The Company and BDM entered into a First  Amendment
to  Asset  and Technology License Agreement on December 19,  1997
wherein  BDM,  among other things, waives default and  rights  to
terminate for past non-payment

      2.   Development  Contracts.  The Company  is  involved  in
approximately fifteen development contracts and programs  at  the
present  time, all but a few of which have been ongoing for  many
months.  Most of these programs involve contractual research  and
development  of prototype batteries for specific customers.   Due
to  the  nature of this work, successful prototyping often  takes
longer  and  may  be  more  expensive than  originally  forecast.
Initial  versions of prototypes often lack all of  the  specified
performance   and  reliability  characteristics   necessary   for
commercial  use.  Subsequent development attempts to improve  the
different  areas while maintaining the acceptable specifications.
This  work has met with various degrees of success.  As a  matter
of  general course, the Company maintains close contact with  the
customers  to  discuss  progress on  the  programs  and  to  seek
customer  understanding and acceptance of any delays or  failures
to   achieve  all  specifications.   The  Company  maintains  and
regularly  updates  a  schedule summarizing  the  status  of  the
programs  and  projects.   While the  Company  believes  it  will
ultimately be successful in most or all of these programs,  there
is  no assurance of success.  It is possible at any point in time
for  any  one  of these programs, such as SMH, Fiat  or  Black  &
Decker, to terminate or be concluded on an unsatisfactory  basis.
Day  to day changes occur in the work under these contracts,  and
it  is  not  certain  at  this time how  or  when  they  will  be
concluded.

                           EXHIBIT "D"
                               TO
                     NOTE PURCHASE AGREEMENT
                     DATED DECEMBER 19, 1997


      Certain Exchange Act filings by the Company or its officers
and  directors were or could have been deemed to be  filed  late.
Various Form 3 and 4 filings, which are the responsibility of the
respective officers and directors, were late, as reported in  the
Company's  Proxy  Statements.  Several Form C filings  for  prior
years  were filed late.  Forms 10C were required for 5% increases
in  shares  outstanding,  however, such  reports  are  no  longer
required  by  the SEC.  The Company may be deemed  to  have  late
filed its definitive proxy statement for the Annual Meeting  held
on  May  22,  1997, in that mailing of proxy materials  commenced
several  days  prior  to  filing  of  the  definitive  proxy.   A
preliminary  proxy had previously been filed, and the  definitive
proxy  was filed within 120 days of year end.  This could  result
in  the Company not being eligible to use a Form S-3 Registration
Statement  for  the one year period from the  date  of  the  late
filing, unless an exemption is granted by the SEC.



                                                           Exhibit 10.40
                                                    (Contract in Italian)

                         Fiat Auto

Direzione Acquisti
Politiche di Acquisto
Ccy~j (3. A~n~li. 20C - 10135 or~~o
To ~ -Cdse.2POSt~6 1202
TO!c-.~~arnmi Fi~t~~jto - o.iro
TOex 212280 - Fia-ej

Fidi Ail S p.A
Cj'rso (3 Agr~el  200-19135 Tori~c Cepi~:e So~ieIe I   .2.000
m~Iiardi
~ b. Thr~~o 2387 - GCIAA Th~in~ 545573 Com~. Esie-c - ~oS'.2
CCIAA T0004175 C&d. F s~aie/PIVA 02285320012
                                  I
Electrosource, Inc.
3800 - B Drosset Drive
AUSTIN - TEXAS 78744
1131  USA
                  for the attention of Mr. B.E. JAY
       ~sf i23.757/96     Torino, 30 LugIlo 1996

     HORI~ON BATTERIES PACK DEVELOPME~T PROGRAM

     Ci  nfenamo  alla Vostra offerta del 15 Marzo  1996  ed
     ate successive intese intercorse con ii Vostro mg.
     Gnesutta  per confermarVi Itincarico descritto al
     successivo punto I




     1. OGGETTO

     1.1      La Vostra Societa Si irnpegna ad eseguire in
        favore di  FIAT  AUTO  le  attivita'  riportate
        neI~AIIegato  I (HORIZON  PACK  DEVELOPMENT PROGRAM)
        per Ia progettazione produzione, assemblaggio1 prove e
        succeS~iva fornitura di n.  ~  pacchi (Packs) composto
        ciascuno da 18  moduli  di batterie  12  F  72 con
        sistema di controllo  (BMS)  (nel prosieguo denominate
        BATTERIE).

     1.2     La Vostra Societa' Si impegna inoltre a fornire
        alta FIAT  AUTO  n.  2 set di sistemi di controllo
        (BMS)  con relativo equipaggiamento gia' assemblati e
        testati.

     1.3      Le  batterie in oggetto, finalizzate a! sistema
        di trazione  del  veicolo elettrico FIAT  SElCENTO
        dovranno essere   realizzate  ne!  rispetto  delIa
        specifica   di prndotto  (AlIegato  2  ) elaborata
        dalla  FIAT  AUTO  DIREZIONE  TECNICA  -  PIATTAFORMA
        VEICOLI   A   MINIMO fMPATTO AM8IENTALE (\(AMIA)7 gia'
        a Vostre mani, pertanto Ia Vostra Societa' garantisce
        che le BATTERIE che saranno fornite a FIAT AUTO saranno
        conformi a detta specif~ca di prodotto.


                                                            I carta ~cicIata

a
   100%
2. TEMPISTICHE

  NeII'Allegato 1 sono descritte le diverse fasi in cul 51
  articola ii programma di sviluppo e sono correlativamente
  fissate le tempistiche di completamento delle singole
  attivita ~ di consegna della documentazione tecnica e delle
  BATTERIE, pertanto le stesse dovranno essere completate e
  consegnate entro I termini delle suddette tempistiche.
3. DATI TECNICl. PRESTAZIONI DI COMPETENZA ~IAT AUTO

3.1     La piattaforma VAM IA a disponibile a forn ire alla
   Vostra Societa tutti 911 ulteriori dat e informazioni a Vol
   necessari per l'esecuzione del presente incarico.

3.2     Nell1esecuzlone delle prestazioni oggetto del presente
   incarico Ia Vostra Societ~ Si atterm' alle indicazioni I
   istruzioni che saranno fomite dal nostri tecnici per
   garantire II rispetto degli obiettivi ~he FIAT AUTO ha
   fissato per Ia rea~izzazione del sistema di traziorie del
   veicolo elettrico FIAT SEICENTO e per l4alimentazione,
   tramite DC/DC Converter , della batteria ausiliaria e
   limpianto a 12 V.




4. CONTROLLI E ACCETTAZIONE

  il   semplice ricevimento da parte della FIAT AUTO della
  documentazione tecnica (vedi elenco nell'art. 7.1
  successivo), del le BATTERIE e dei 2 set BMS Si intende quale
  accettazione solo dopo esame ed approvazione da parte del
  Tecnici FIAT AUTO della piattaforma VAMIA.


5. GARA~IA

5.1     La Vostra Societ~ garantisce che:

   a)     La documentazione tecnica, le BATTERIE e I sistemi di
     controllo BMS da Vol eseguiti in esecuzione del presente
     incarico saranno esenti da ~izi, difetti 0 incompletezze,
     nonche' conform alla specifica tecnica ed a parametri
     tecnico - economici stabiliti;


   b)     Ia produzione l'uso a Ia commercializzazione in
     Italia a aII'estero della BATTERIE, non comportano
     violazione di diritti di proprieta' industrial~ di terzi.



                                                           2
5.21n  Aflegato 3 sono riportati i termini di garanzia
applicati
   da~a Vostra Socleta sulle BATTERIE.



6. CONFIOENZIALITA'

  Le   Parti  51  obbligano  a  trattare  come  confidenziale
  ii conferimento  del  presente  incarico  ed  ii  contenuto
  della presente lettera.

  Le  Parti  Si  obbligano altresi a trattare come
  confidenziali tutti   i   dati  e  te  informazioni  di
  carattere   tecnico, commerciale,  organizzativo e di altra
  natura che  Si  potranno scambiare  0  di  cui siano ~omunque
  venuti  a  conoscenza   in retazione   aII'esecuzione     del
  presente     incarico;
  conseguentemente  Si obbligano a non rivelame  ii  contenuto
  a terzi,  direttamente 0 anche indirettamente, e cio' anche
  dopo Ia  cessazione  del  presente incarico. A tal  fine,  le
  Parti adotteranno  tutte  le  opp~rtune  cautele  nei
  confronti  del propno  personale e Si renderarino
  responsabili  nel  confronti delI'altra  parte  per  le
  conseguenze delta  divulgazione  dei suddetti dati e
  informazioni.




7. REMUNERAZiONE E MODALiTA' Dl PAGAMENTO

7.1      A  fronte  dell'esecuzione delle attivit~  descritte

   al punto  1.1  e  della f~rnitura di n. 5 Packs di

   BATTERIE,  Ia nostra  Societ~  Vi  riconoscera' Iii~po~~  di

   US  $  460.000 (Dollari USA quattrocentossentamila) che

   saranno fatturati  at completamento delle seguenti fasi.

a) Preliminary Design Pkg

US $ 32.250

 b)  Syste~ Detail Design Pkg           US$ 66.230

c) Prototype lnspsction Report

US $ 226.500

 d)  Production Inspection Report       USs 86.920

e) Delivery of Batteries for five each Seicentos

US$ 48.100

                                        US $ 460.000
7.2Per Ia realizzazione, assemblaggio e tests e fornitura
  relativo equipaggiamento di cul al punto 1.2 Ia
  n.conoscer~ I'importo     di      US  $   27.500
  ventisettemilacinquecento)

di N. 2 ~MS sets e nostra Societ~ Vi
  (Dollad   USA





               3
7.31 prezzi  dl fornitura delle Ginque Batterie devono
     intendersi FO~ S.
  MARCOS TEXAS.

  Gil iniporti di cul BI punto 7.1 saranno pagati da FIAT AUTO
  a 60  gg.f.m.data  fattura che Ia Vostra Socleta'  provveder~
  ad emettere   al  comp~etamento  delle  relative  fasi  e
  previo benestare                      del    nostri   Enti
  Tecnlcl   preposti    sulla
  documentazione  dl riferimento comprovante l'attivita'  da
  Vol eseguita,  documentazione  che dovr~  da  Vol  essercl
  inviata
  prima di ogni singola fatturazione.
B OPZIONE DI ACQUISTO

  Qualora   Ia  FIAT  AUTO  decida  di  adottare  nella
  propria produzione  di serie le BATTERIE oggetto del presente
  Incarico di  sviluppo  Ia  Vostra  Societa'  riconosce  alla
  FIAT  AUTO medesima, ora per allora, l'opzione di acqulstare
  dalla  Vostra Socleta'  Ia  produzione di serle ne~Ie
  quantita' che  Ia  FIAT AUTO  VI  potr~ richiedere alle
  condizioni di acquisto standard applicate  da FIAT AUTO. A
  questo proposito Ia Vostra  Socleta' SI  Impegna  a far
  pervenire a FIAT AUTO un'offerta  di  prezzo per  Ia
  fomltura  iri ragione dl 100 - 500 - 1000  BATTERIE  I anno.



g ALLEGATI

Tutti  gil  Allegati  ella presente lettera  ne  formano  parte
  integrante a tutti gIl effetti.



10. MODtFPCH~

  Qualunque  modifica  agli  accordi  contenuti  nella
  preBente lettera   ser~  valida  solo  se  apportata  per
  iscritto   e debitamente sottoscritta dalle due Parti.




Se  quanto  sopra corrisponde al Vostro accordo, VI preghlamo
di trascrivere   questa   nostra  su  Vostra   carta
Intestata   e rimettercela   debitamente   sottoscrltta   dal
Vostro  legale
rappresentante per accettazione.

Cordlali saluti.
                                                       1 Flat AutoA.p.A.
                                     ~ezIodI~I
                                          A. Tafuri
                                                           4
                 Teak Nun~e
                              Start Da~
                                           ALLEGATO N. 1





                                      End OsIl  Tetal Co.' (~C)
HORIZON PACK DEVELOPMENT pROr~RAM

~~.ign and Tooling FIAT Bttu~ Pack Req uIrem~riti
 ~
   FIAT h~~_12UB5 m~~e BIn~ MN rl.~um#nt$~ern~PkGt~ -Therm~I
   Mana
        I.   -I.ati~iy Com~wrlm~ts. el e~
    ~ and Cab~~
    IGiIM.n~~3
 'Pfearn~nary De~ig~ Review 'Ollall OeuI~n  I 2UBS ~
   FIAT H~ri:on
    'BaIIwy Co m~en~z ~
      Coiy'~ei~n cue (e~~ heni
       Ice~ ~
       ~
           herd
 1TCmiI,iiI ceetlAg "icldi - herd
       ~
       ITwmw~n~ CA3hnp moAl ~
      'Centedvi., eftd~CtdvCr ~henl

       ~
        P~a;ute Rei~ VeE~~ - herd PMSi#y N~ VI~


      Prld~ttd~ Cell Itode
      ~ P?*d~LICti~ Yid~ed~ Bitter~ Manig~menl Syttem~~'  -
    Rede~~~ Puckag. ~FjAT pich
         T Ca~ Him e$i ~ Co~10II
    i~~?1 IAtwdtec, ~W~AT Mu~ COn~Irn~~r
    D~IIQn Intedaca wlF~AT ~
   The'~~M~anegmen1 Syitum
                C~g~SysI~

    ~3~n. #~'w~8rd 8ay A m~dae 'D.a,gn: ~ Bay: 5  imoduder
    ~ Bay: 4 moduias
        Cabli i,~ Conne~,:
        ace Man~dp
~CcK ~yU5nl Fl~~Catiofl and Aluombly Fib
9aItI~~Compm~ente,
 hu~eee, ii~inIVOId
   ~Pacd' Cej~a~Iei (PD) I - 10
 Fab  BG::'Co~D.Cc.8~ ~ 10 aech cef
                   lach
   aU~,1ei Ia, P~Ck OCth~.ribI~e to
 .ChepgerIPowg~ Supp~ TeII and Integratlan CIdI,Q9rf~Owmu Su~
                              (5)
  integretion mati Tett
~ack Syatum Teat (PST Stationci' Teala
   'I[arwvv.i9m~heck
   IFST I t.OLp~~Ofl & Glounding PST 2 W~ter immera~ ~SI ~.
   Cherie' Conr~ 4 Seftery Iti~e~ernent
   PST4 The,meIAA.n~erneni PST S Er~~~Qeflcy ()I3cOh~e(~I
Proof Teet New Ben evy Design leat II Cich IIIAl 2UI~ IlodulCi
   ODen CirCuft ~ I eacr~MocluIeI O~en C~rcuIL Sienp ve 'emp a
   ..~ ~oduiee -
Teat II CCc~IA~# 12U88 Modulel Vih'it~ ena $~Ock ~e eqs 4 ee~ ~
  Menufecqun~n1 ?e~I $Upe~1eIOn~~   - -
I

I

I
I



i.

II


5 B

p.

I
ii
I
4




I8
II
I'

I-.

8
is
I,.

is

15
Is.
'8
'8

ji
II
IIU
~,9.-I.


 3,I

 3J1~
311dd
y1jg
3,1~

 411'i


 "-dl,'..


 "WI


4,','
 "WI



41.-".-


4,','i

 111119




4~11~
4/f IA'

4~I1A
4/t1~
U114

w'j'

 5,2,'
$2,'
5,21'
~'30'I
13011
9-Iso,.'
li-,1s-,'-


5114,91
at i4'~E
9jIIuIIt
g.,Ig'g~
1Q(?I~
 1,A,gl
10'7ItlI

OliwIE
 a '18,95
ii
1,11/sd
1,28"E

'20,,5
8128111
$I1-j~i-
 4ii~ij
1'2i~ii
3'2IleE
 ~'2119I





'123,Ij
"28,1~
7~OIlI
 711t..i



  4",.
 diul O~i 4'f
  -VI, 'fl"i
 7,1~
 -I
 idli,
 SdIaeSIl7~d


7,7~~9'gj
I
i
$475,628.00
$332,204.10

   $32,282.00
   5473100
    '4.14000
    82.080.001
   $IC.498 00
   *8.73800
    *1.7.0.00
   110.000 DO
  8218,8 '2.01
  1254.512.00
   *284,3?2.00
   8I5,42~.O



   5140000

   841 ,?2.O
    *5.47200
   838.000 Do
     553,IeO.~
    sillo 80
   *11.000.80

   5171000
    33$00000
   s.e.es,.e

   8)0,48000
   5144Q00
   51000.00
   *8.18000
   *10.08000
   la.400.00
    *8.400.00
   31.240.00
   *2.400.00
   *2.40000
   *2.40000
   *1.080.00
    *980.00
, zir wiN I72~5OO.00
    sti.oo.oc
  1/2711'  s1~.000.oc
          1f0.00000
          *3.000.00
         820.Dao.oo
 121,,'Es23,s".ol
         3I1.500.0C
 12/WIl        812.000.001
~~I18"E
   1111 WIlE 123.780.001 ~'2'/9E        81.poo00
                       Io,~I
 8538000
          '4.000001
 1I-,i',E Si.720.00
 lillS/tIl     35.a00 001
 Io,I~  82.48002
5112,91$47,162.00
-- 'jiziel     85,000.00
 1'/2~1 ~   18.0001 001 I,'/I.~         I~e In, AA
                                                      ALLFGA
                                                      TO N.
                                                      I



4.   Propo~ed deliverables and invoicing schedule
    The Table be~ow sho'~~s the proposed deliverables and
     invoic-ng schedule.
     4. Production Inspection Rep~rt  27        50,922
     L~ 8atteries for five each Seicentos       48,500
                  TotaF                     $454,426.00
                                                               .
I
                                                                  .
t


+
              SPECIFICA DI PRODOTTO   ALLEGATO N. 2







                         PROGETTO: SEIC~



















































               J
C OMPONENTE FORNITORE


E
T
RCE


~NE HORIZON

EDIZIONE                 DATA        DESCRIZIONE
1.                   21/05/96        EDIZIONE ORIGINALE
                                INDICE

1. DESCRIZIONE GENERALE DEL SISTEMA
1.1     DESCRIZIONE DEL SISTEMA
1.2     DIAGRA~~ A BLOCCHI DEL SISThMA
1.3     STRUTTURA DEL COMPONENTE E LIMITI DELLA
FORNITURA

2. SPECIFICIIE AMBIENTALI
2.1     SITO INSTALLATWO
2.2     TEMPERATURA
2.3     UMIDITA~ PRESSIONE ED ALTRI
PARAMP'IRI
2.4     VIBRAZIONI

3. SPECIFICIIE ELETTRICIIE
3.1     SICUREZZA ELETTRICA

4. SPECIFICHE FUNZIONALI DEL COMPONENTE
4.1     DESCRIZIONE DETTAGLIATA
4.2     PRESTAZIONi
4.3     PROFILO DI MISSIONE
4.4     PROTEZIONI
4.5     MANUThNZIONE

5. SPECIFICHE FISICHE E COSTRUTT]lVE
5.] DIMENSIONI
5.2     PESO
5.3     CARATTERISTICHE DEL CONThNITORE
5.4     DURATA
5.5     MARCATURA

6. ALTRE SPECIFICRE
6.1     RICICLABILITA
6.2     PRESCRIZIOM PER LA MOVIMENTAZIONE

7. NORME APPLICABILI




                                  2
1. DESCRIZIONE GENERALE DEL SISTEMA

Di seguito e riportata Ia specifica della batteria di
trazione Horizon per ii sistema di trazione del veicolo
elettrico SEICENTO.


1.1     DESCRIZIONE DEL SISTEMA

La batteria di trazione fa parte del sistema di accumulo dcl
veicolo elettrico, che e' formato dai
seguenti componenti:
-    Monoblocchi
-    Dispositivo di controllo isolamento
-    Teleruttore principale
-    Sezionatori e fbsibili
-    Dispositivo di precarica/scarica dei condensatori
-    Sistema di condizionamento
-    Sistema di ventilazione
- Battery Management Unit (13MU)

La batteria di trazione fornisce I'energia per Ia trazione



elettrica del sistema e per alimentare, trarnite DC/DC



converter, Ia batteria ausiliaria e I'impianto a 12 V.































                               3
       1.2 DIAGRAMMA A BLOCCHI DEL SISTEMA DI AC CUMULO



                                                  BMU

                                               f
BATTER IA                           trEpRLiENRcUIF~REE  I
                         SEZIONATOREI
   DI                                SISTEMA Dl
TRAZIONE            LLzfflIBIU
t~ARlcAiScARi~

- ~ - m 'V
SENSORI
CORRENTE


     216V
     12V
     CANNAN
     Bus
     Linee di
     segnale
     220V

     Diagnostica
- - -. - - - -  connessione alla scocca
I
FwLiEMADlF;~MADI F~~V\~0

L~loNELZ~LiFjo~NT_'2z2IENTO
m
       I-
       U
-       -
E
      1.3 STRUTTURA DEL COMPONENTE E LIMITI DELLA FORNITURA
La batteria di trazione e' composta da 18 moduli a 12 V con


le relative BMU (Connettori + Master controller) e tappetini


riscaldanti

















                              4
2. SPECIFICHE AMBIENTALI

Per le prove climatico-ambientali e meccaniche fare
riferimento al capitolato FIAT 9.90110.


2.1     SITO INSTALLATIVO
La batteria di trazione e' installata nel relativi
contenitori.


2.2 TEMPERAThRA

Temperatura di ftinzionamento
Temperatura di stoccagglo
Temperatura ottimale per Ia ricarica

-10 ~C + 50 0C 25 0C+85
30 0C


2.3 uMDITA, PRESSIONE ED ALTRI PARAMETRI

Ii componente deve soddisfare le specifiche del capitolato
FIAT 9.90110.


2.4 VIBRAZIONI
Capitolato FIAT 9.90110 classi V2 e V3, Capitolato batteria



trazione (in stesura) e norma DIN 'EC 6S parti



























                                5
3. SPECIFICHE ELETTRICHE



3.1     SICUREZZA ELETTRICA

Entrambe le polarita' della batteria di trazione devono essere
galvanicamente isolate dai circuiti ausiliari a 12 V del veicolo
e dalla carcassa del veicolo.

Protezioni da corto circuiti accidentali mediante apposito
copripolo sul polo positivo 0 sistema di isolamento elettrico,
di
ogni monoblocco. Le connessioni devono soddisfare le norme CEI
445 relative alla sicurezza del cablaggi 95/5 4/CE aggiornata al
31 Ottobre 1995, Ia norma WP29/R 710 (28/08/95) e Ia norma DIN
VDE 0100, parte 410/11.83, paragrafo 5.2.










                               6
            4. SPECIFICHE FUNZIONALI DEL COMPONENTE

4.1     DESCRIZIONE DETFAGLIATA

La  batteria  di  trazi one e' costituita da  18  monoblocchi
al piombo  sigillati  con tensione nominaTe dii 2  V,
collegati  in serie.  Essa  fornisce  energia per  Ia  trazione
elettrica  del veicolo  e  per alimentare servizi tramite Ia
batteria ausiliaria (attraverso ii DC/DC converter).
Gil   accumulatori  da  installarsi  sul  veicolo  devono
essere totalmente  sigillati, senza emissioni di  gas
neII'ambiente  in condizioni operative standard
(ricarica/scarica), con valvola  di massima  pressione  su ogni
singolo elemento.  I  morsetti  ed  i terininali devono essere
realizzati con To stesso materiale,  per evitare
I'allentamento del serragglo e del contatto elettrico  a causa
di surriscaldamenti (ii coefficiente di dijatazione termica
varia da materiale a materiale).
II contatto tra ii terminaTe ed ii morsetto deve essere
garantito per  tutta  Ia vita del pacco batterie, superando le
varie  prove vibrazionali e di crash.
Si deve prevedere su singolo monoblocco ii collegamento
elettrico per i cavi della BMU.

4.2     PRESTAZIONI

Per ogni monoblocco sono richieste le seguenti prestazioni:
Descrizione                              Valore       Unita' di
                                                        misura
Tensione nominale                        12                V
Dimensioni (Lx W x H)                    <271,5x166x191,5 mm
Peso                                     <195              kg
Capacita' C5 (a T=300 C)                 ~72               Ah
Energia Specifica (Secondo ciclo ECE fornito da FIAT)    > 33
Wh'kg
Energia specifica C5                     >~36           Wh/kg
Potenza specifica (80% DOD su ciclo SAE 3227)           ~ 150
WIkg
Picco di Potenza (30 sec - 80% DOD - 2/3 OCV)           > 140
W/kg
Tempo di ricarica normale                <~8               h
Tempo di ricarica equalizzata            <~12              h
Potenza max da assorbire da rete         < 3              kW

4.3     PROFILO DI MISSIONE

Vedere  allegato  ciclo  ECE  (da  definire  con  FIAT)  e
EUCAR PARAMETER TEST (Settembre 1995 e successive edizioni).
4.4     PROTEZIONI
Valvole  di  sicurezza per evitare condizioni  di
sovrapressioni interne e conseguenti scoppi. Si deve prevedere
sul polo positivo Un  copripolo  per  evitare  archi  elettrici
e  corto  circuiti accidentali.
4.5     MANUTENZIONE
II sistema deve essere esente da manutenzione.




                               7
 .4



    5. SPECIFICHE FISICHE E COSTRUTTIVE

     5.1     DIMENSIONI

     Dipendono daT layout dei monoblocchi aIJ'interno del
    contenitore.

     5.2     PESO
    Peso (comprensivo delle corinessioni)~356Kg


     5.3     CARATTERI~CHE DEL CONTEMTORE DEL MONOBLOCCO

    Ii   contenitore deve soddisfare ii Norma materiali FIAT
    55246 e deve presentare classe dimensionale secondo norma
    DIN.

     5.4     DURATA

    Cicli dinarnici (ciclo ECE 15):

     5.5     MARCATURA
                              900

    La marcatura deve essere effettuata su ogni batteria
    secondo Te norme FIAT 19310 e 19310/01 con colori descritti
    su norma 00167 e sul cassone con I~ aggiunta del segnale di
    alta tensione sec ondo norma ISO 3864 e IEC4I7K standard
    comprese nelle norme CEI 44-5. Le etichette devono superare
    le prove descritte sul capitolato FIAT 9.03117/01. Vale
    Inoltre Ta norma 07416 relativa alla marcatura per ii
    riciclaggio e Ia norma WP29/R 710 (28/08/95).





                              8
6. ALTRE SPECIFICHE

6.1     RICICLABILITA

Conforme alla norma DIN 6120 e 07416.


6.2     PRESCRIZIONI PER LA MOVIMENTAZIONE

I contenitori di ogni singolo monoblocco devono essere


prowisti di maniglie 0 sirnili per Ia presa manuale.









































                                9
7. NORME APPLICABILI

Norme Fiat

0.00013
07412
             Marcatura della data di fabbricazione
             Marcatura delle parti. Norma di comportamento

Requisiti elettrici
9.91111
9.91191
9.91220

Requisiti climatici
7.G2100
7.G2110
7.G21 15
7.G2120
7.G21 50
7.G2170
7.G2175
7.G2200
7.G2210
50180


Altre norme

IEC 529
'EC 69-783
CEI 64-8

CEI2I-5
CEI 44-5
DIN VDE 0122
DIN VDE 0510

DIN 43-539

Cavi unipolari per alta tensione
Capicorda per accumulatori e relativa guinzioni con i
cavi Particolari isolanti per protezione impianto
elettrico

                          e ambientali
Prove climatiche e ambientali - generalitA
Prova al caldo umido permanente
Prova al caldo urnido alternato
Prova al caldo secco
Prova a bassa temperatura
Prova ai cicli di temperatura
Prova ai cicli rapidi di temperatura
Prova di resistenza ai prodotti di
condensazione Prova di resistenza agli urti
per caduta libera Resistenza alla nebbia sauna



 Classification of degrees of protection provided by
enclosures
 Wiring and connectors for electric road vehicles
   Impi anti elettrici utilizzatori a tensione nominale non
                            superi
 ore a 1000
 Vin ca. e iSOOVin cc..
 Batterie al piombo per t?azione: prescrizioni generali
 Equipaggiamenti elettrici di macchine industriali
  Ecjuipaggiamenti elettrici di veicoli su strada a trazione
 elettrica
 Accumulatori ed impianti a batterie per I' azionamento di
 veicoli a
 trazione elettrica
 Accumulatori al piombo- elementi e batterie per autotrazione













                     I0
                                               ALLEGATG N. 3
P!2~~WA'iranAy for ~ and assocl~ted eauIpme~t~

Re~~rdi~g the warrarty on these n~w~y developed it~m~ we
propose tho fottowin~:

Al~  Electrosourc9  products  will be  replaced  for  defect~
in ma+~eri~ls and wQ4manship fro~ of char~e (o~cept for
shipptn~ and handIn~)  for a period of ~ix months from dellvcry
to ~lAT  Auto. Damage  ~~u~ed  in  shipment w~~l be the
re~ponsibiIity  of  the shipping a~ent. Repla~ment cost of
products which fail after  the first sIx months of testing up
to a limit of 300 cycles will  b~e sha~ed nq~aIIy by
Electrosourco Inc and FIAT Auto. This ~~rr~nty i~ ~ubject to
the followin~ ~xc1us~ons.






     Tne  battery pack is to be tn~aU~d lnt~9rLit~d ~nd ~sed
     with the   Ele~ro5Q~rce  or  otner  approved  battery
     mana~ement systen~ ~ ~ ~lec;t~r~s~uecC ~pprove~ ch~rgor.

     The  wa(ranty covers only on smooth road L~sts; th~re is
     no warranty for use over un~a~ied sjrtaces

     There  is  no  warranty coverage for the bat+~ey
     ~ontai~er, pack  or individ~~l modulo~ for crash, ~
     vibration or  other structural  te~t~  Furi~~er~ore
     E~~Ot~~source  essu~~s   no h'~biM~  for  ccnsequen~i~~I
     dam~gos  Ii~  th~  ~vE~!~t  of $(rLictural (6llufes to the
     beUeiy
     con~g,'~er  c~us~d by crash, o2h~r accid~nts or
     mishar~dring of the rest vehicle

     T~ere  is no warranty coverage (or water irnrn~rsl.on,
     rai~ conderisation, or other m~I.sture te~~

There  are  no other warranties of any kind expressed or
implied, including, without limitation, mechantability, or
fitness for  a particular purpose other than those stated.

                                                           Exhibit 10.41

                  FRAME-DEVELOPMENT CONTRACT
                            between


                      SMH AUTOMOBILE S.A.1
                        Rue des Pr~s 149 CH-
                       2500 Biel-Bienne
                  (hereinafter called (< SHM)))
               -in its capacity as the
               Principal-

                               and
                       ELECTROSOURCE INC.,
                        2809 IH 35 South USA-
                   San Marcos, Texas 78666
             (hereinafter called <(

              ELECIROSQURCE) - in its capacity

              as the Contractor-





PREAMBLE

SMH is developing, among other functions, alternative propulsion
systems for cars. In this context, SMH intends to develop an
optimized electric and/or hybrid electric vehicle for on the
road automotive use (hereinafter (<the Automobile).
ELECTROSOURCE is experienced in the fields of engineering
design, development and manufacturing of advanced valve
regulated lead acid batteries, known as the Horizon battery
SMH desires to avail itself of the expertise and know-how of
ELECTROSOURCE in developing a new Battery Module and Pack based
on the Horizon technology (hereinafter  the Battery)>),
specifically suited for the application of a small, light and
notexpensive car specified by SMH.

Therefore, ELECTROSOURCE offers SMH its technical support to
jointly develop the Battery for the hybrid electric vehicle.
                                                               2
'C
                                                   I In consideration
thereof the parties agree to the following:
ART. I  SUBJECT OF THE CONTRACT
The subject of the contract is the development of a new Horizon
battery n ~dule and
Pack, control system and vehicle interface according to the
description in A~~endix I
(hereinafter (<the Development).

ART. 2  IMPI ~M~MTATlON

2.1.     The Development of the new Battery and the production
    of Test  Packs  will  occur in 3 successive  development
    phases called  A, B and C generation, according to the
    timetable  in AD~endix 2. These phases are:

    -         phase  A:  Development  of 3  Packs  of  9
adapted
              batteries (24 Volt each)

    -         phase  Bi:  Design of a new Horizon battery
module
               prototype and its associated Pack

    -         phase  B2: Development and delivery of 4  Packs
of
              new  Horizon battery module prototypes as
              designed in phase B(i)

    -         phase  C:  Manufacturing tools and material  for  a
              production pilot line.

    The  Results  of  the different Development phases  shall
    be presented at the dates reflected in Appendix 2.

    The  completion  of  one or more phases  of  the
    Development shall  be  designated  as <( Milestones)>  in
    the  timetable before  the signing of the Contract. This
    means that at  that point  the  parties  will  jointly
    revise  and  refine
    the
    Appendices  and  from  that point  onwards  the  new
    written revised Appendices shall be attached to and
    considered to  be elements of the Contract.

    SMH  can  terminate  agreement at such point  without
    notice period nor consequence.

    Parties   will  define  additional  Milestones   during
the
    Development.

    ELECTROSOURCE may initiate the next phase of the
    Development following the Milestone only with SMH's written
    consent.

    If  agreement  cannot be reached concerning the  revision
    of the  Appendices,  both  parties may  terminate  the
    Contract forthwith  without  a notice period. In  this
    case  Art.  11 shall   apply   irrespective  of  the  lack
    of   notice
    of
    termination.
                                                                3


    The dates for supplying the interim results must be
    explicitly stated in the timetables and ELECTROSOURCE shall
    deliver them accordingly.

2.2.      ELECTROSOURCE will perform the Development for  SMH
    in close  contact  with SMH to the best of its  ability  on
    the basis of its latest scientific knowledge and state of
    the art technology as well as to the applicable norms as
    listed in Ap pendix  I  and  by  applying its own existing
    knowledge  and experience acquired during the term of the
    Contract.

2.3.      ELECTROSOURCE and SMH shall provide each other in
    time with  all  data  and information required for
    performing  the Development.

    Any  documents, objects or other aids which the  parties
    may provide to each
    other  for performing the Development shall be made
    available on  loan and remain their property. They shall be
    used solely for   performing  the  Development  and  shall
    be   returned immediately  upon  termination of the
    Contract.  Special  ref erence  is made to the
    applicability of Art. 5 if. hereof  in this respect.

2.4.      Upon  request and upon prior notification
    ELECTROSOURCE shall at reasonable times allow SMH to
    inspect the results of the   Development  available  from
    time  to  time,   provide reasonable other information
    required by SMH and, after prior
    notification,  allow  SMH's agents  or  employees
    reasonable access during normal working-hours to the
    premises where  the Development is being carried
    on.
2.5.     The parties shall agree on a jointly prepared project
    structure until          (project management, members,
    areas of responsibility), this shall be attached hereto as
    an A~Dendix 3, to be defined in due time, and may be
    amended only with SMH's written consent.
    The project manager shall sign all relevant documents
    concerning the Development. He shall keep informed and
    documented SMH on all relevant information of the
    Development, on a weekly basis.
2.6.     ELECTROSOURCE may place orders for individual elements
    of the Development with third parties, subject to SMH's
    prior written consent, which may not be unreasonably
    withheld or refused. ELECTROSOURCE's obligations towards
    SMH shall remain unimpaired.
    That consent may not be refused by SMH without a serious
    reason. A serious reason is particularly but not
    exclusively competition between the third party and a
    Company of the SMH Group.
  In such cases, subcontractors' secrecy shall be ensured by
     means of a confidentiality agreement (cf. Art. 5.4).

2.7.     Upon completion of the Development in accordance with
    the specifications, ELECTROSOURCE shall present the
    Development to SMH for acceptance in accordance with the
    specifications. The complete Development should be ac
                                                                4
    cepted by SMH within 4 weeks. Partial acceptances are
    possible at any time. Acceptance will not be unreasonably
    withheld or refused.
ART. 3  REMUNERATION

3.1.     ELECTROSOURCE shall receive:

    - US$ 310,000.-- as payment for the Development and supply
      of the p Packs of 9 adapted batteries, 24 Volt each).
                                                         ~ase A
                                                         (3

    - US$ 160'000.- as payment for the Development and supply
      of the phase BI (Design of a new Horizon battery module
      prototype and its associated Pack).

    - US$ 480'000.- as payment for the Development and supply
      of the phase B2 (4 Packs of new Horizon battery module
      prototypes).

  - US$ between  504'000.- and 580'000.-}>, as referenced to
      in page 2 of the proposal of December 181996 for the
      Development and supply of the phase C, conditions to be
      finalized by April 14,1997.

    Pavment schedule

                                A
                         Start Sto~
                         3/17/97 7/14/97
                                $
                                           B1
                                           $
                                  Start
                                  Sto~
                                 3/17/97
    7/17/97 1. Signature of contract501000
    50'000 2. On completion audit501000
    501000
      (3/30/97)

    3.     Delivery of
      I pack 5/30/97      100000
      2 packs 6/30/97     110000
    4.     Completion Design
      Phase B~ 5/31/97                  60'000
    5.   Delivery of
      1 pack B2 7/15/97
      3packs B2
                         3101000        160000
    CQuotes $503'719
            $ 5801000

    to be finalized by April 14
                              B2
                                                     Start Sto~
                         4/14/97 8/14/97
                               $

                            501000







                              ioa

                            1001000
                            230'000

                            480000
                              II(
                              )00
3.2.     The agreed payment is binding and may be increased
    only with SMH'~ written agreement.
                                                                5
                             prior

3.3.     ELECTROSOURCE shall constantly monitor the costs and
  ensure that they are not exceeded. SMH must immediately be
    informed if events affecting the costs occur or are
    foreseeable.

3.4.     If increased costs are unavoidable because of SMH's
wish
    for modifications or additions1 ELECTROSOURCE shall
    calculate the anticipated extra costs and notify SMH
    thereof for its written approval, which will not be
    unreasonably refuses or delayed.

3.5.     Payments shall be made by wire transfer as directed by
    ELECTROSOURCE.
Art. 4  _________

4.1.     For the term of this Contract ELECTROSOURCE shall not
    carry out similar or identical developments of the Horizon
    battery technology for itself1 its successors, or for other
    principals, for use in hybrid electric cars that could
    compete with SMH hybrid cars. Are automatically considered
    competing batteries those for micro passenger cars with
    hybrid power and four wheels.
        EXCLUSIVITY

4.2.     If the result of the Development is used by SMH for
its
    products) ELECTROSOURCE shall not carry out similar or
    identical developments of the Horizon battery for other
    principals.

   This exclusivity shall last as long as ELECTROSOURCE can
    deliver to SMH
    100'000 batteries per every time period of 2 years.
    However, if for technical1 marketing or other reasons
    independent of its will, SMH is not able to order 100'000
    batteries per 2 years, the parties shall discuss the
    conditions of exclu sivity before ELECTROSOURCE will work
    with other principals. SMH intents to order the supply of
    said batteries with ELECTROSOURCE, provided they are
    delivered in competitive conditions regarding the quality,
    quantity, delivery terms and price (see also Art. 10
    hereafter).

4.3.     A ban on competition with the same effect shall be
    imposed upon ELECTROSOURCE's employees with due
    consideration to the statutory regulations applicable in
    each individual case.
Art.5   SECRECY

5.1.     During the term of the Contract and after termination
of
    the contractual relationship each party shall neither
    exploit nor inform other parties of business or trade
    secrets of the other party which have been entrusted to it
    or which have become known to it as such during the co-
    operation.
                                                                6
5.2.     ELECTROSOURCE shall employ solely for the Development
    any technical information and especially intentions,
    experience, knowledge or designs which become accessible to
    it on SMH's premises as part of the contractual cooperation
    or which ELECTROSOURCE receives from SMH and it shall treat
    it as strictly confidential and in no way make it
    accessible to third parties even after the termination of
    the Contract.

    SMH undertakes to treat as confidential the information and
    knowledge acquired on ELECTROSOURCE's premises or which SMH
    receives from ELECTROSOURCE and which are not directly
    related with this Contract. Such information shall in no
    way be made accessible to third parties even after
    termination of the Contract.
  Neither secrecy undertaking shall apply to information and
    documents which demonstrably:

    a) were already known to the recipient before the

    conclusion of the Contract; b) are lawfully received by the

    recipient from third parties;





    c)     were already in the public domain upon conclusion of
      the Contract or subsequently entered the public domain
      without infringement of the undertakings contained in
      this Contract.


5.3.     All and every Publication in the fields of this
    Development requires SMH5s prior written consent which will
    not be unreasonably withheld or delayed.


5.4.     The parties undertake to impose corresponding
    undertakings upon their employees and any subcontractors in
    relation to business and trade secrets and technical
    information.
Art. 6  RESULTS AND COPYRIGHTS

6.1.     ELECTROSOURCE shall without additional charge assign
    to SMH the results of the entire Development, including the
drawings, computer programs (with regard to both hardware and
software) together with commented source codes and other
technical documents, etc. which have been created in the course
of the Development. SMH shall pay the cost of transfer.

    If legal restrictions should affect the assignment of the
    results, SMH shall be granted exclusive free rights of use,
    worldwide and unlimited in time and purview, for all forms
    of use without restriction of production and sales areas in
    relation to the entire results of the Development,
    including the drawings, computer programs together with
    commented source codes and other technical documents.

6.2.     If legal assignment requires other formal acts,
    ELECTROSOURCE undertakes to perform them and also to give
    power of attorney therefor.

7
6.3.
SMH shall receive the right to exclusive use of the Development
for all nicro passenger cars with hybrid power and four wheels,
to the exclusion of all third parties and ELECTROSOURCE.
                               r

6.4.     SMH may assign the right of use and may grant rights
    of use to third parties.

    ELECTROSOURCE shall grant SMH the right to revise and
    modify the work or to allow such revision and modification
    by third parties.

6.5.     If, during or when exploiting the Development, it
    becomes necessary to use rights and/or inventions which
    had been made or acquired by ELECTROSOURCE before the
    conclusion of this Contract or patents applied for or
    granted in relation thereto (hereafter ,,background know-
    how"), SMH shall receive an irrevocable, world-wide
    license, unlimited in time and with Authority to issue sub-
    license, restricted to the use of this background know-how
    for micro passenger cars with hybrid power and four
    wheels, under the following conditions, payment to
    ELECTROSOURCE on at least a quarterly basis, of:
    - 5% on the first 200'000 batteries
    -4% on the following 200'000 batteries
    -3% on the batteries exceeding 400'000 units.

    These royalties are based on the selling price of the
    batteries and the I umber of sold batteries is cumulative.
    The royalties shall be paid only during 8 (eight) years
    beginning with the first delivery. After that period, the
    use of the background know-how according to this Contract
    shall be free.

6.6.     The rights in the inventions, patents and patent
    applications and generally in know-how contained in the
    Development are determined by Art. 7.


ART. 7  RESULTS OF THE DEVELOPMENT AND OTHER RIGHTS

7.1.     When working on the Development, ELECTROSOURCE shall
    endeavor to achieve a result unencumbered by third parties1
    rights (cf. Art. 9.3).

7.2.     If ELECTROSOURCE knows of third parties' rights which
conflict with the Development, SMH shall be informed of those
rights and the names of the third parties as soon as they
become known and SMH's written decision on their exploitation
or non-exploitation must be obtained. Should this not be
possible, then ELECTROSOURCE shall attempt to do a
reengineering or obtain a license.
    Inventions and all other intellectual property rights made
    or acquired by ELECTROSOURCE before the conclusion of this
    Contract and patents applied for or granted in relation
    thereto shall also be disclosed in so far as they could be
    applied in the course of the Development (see also Art.
    6.5. and Art. 7.3.).
7.3.     If, during or when exploiting the Development, it
    becomes necessary to use rights and/or inventions which had
    been made or acquired by ELECTRO

8 ir
    SOURCE before the conclusion of this Contract or patents
    appi led for C granted in relation thereto (hereafter
    ,,background know-how"), SMH shall receive an irrevocable,
    world-wide license, unlimited in time and with Authority to
    issue sub-license, restricted to the use of this background
    know-how for micro passenger cars with hybrid power and
    four wheels, under the following conditions:

    -5% on the first 200'000 batteries
    - 4% on the following 200'000 batteries
    - 3% on the batteries exceeding 400'000 units.

    These royalties are based on the selling price of the
    batteries and the r ~mber of sold batteries is cumulative.
    The royalties shall be paid only during 8 (eight) years
    beginning with the first delivery. After that period, the
    use of the background know-how according to this Contract
    shall be free.
                              IL
7.4.     If, in SMH's opinion and as part of the development
    work, it is necessary to use rights and/or inventions which
    have been acquired or made by SMH before the conclusion of
    this Contract or patents which have been applied for or
issued therefor, ELECTROSOURCE shall receive a simple limited
free license, restricted to the term of this Contract, for the
use of those rights, inventions and patents as part of the
development work. Sub-licenses may be issued only with SMH's
written permission.
7.5.     If inventions or patents are created under this
    Contract or if other rights are established which originate
    solely from ELECTROSOURCE's employees, ELECTROSOURCE shall
    immediately inform SMH.
  The following procedure shall be adopted in relation to all
    such rights:
a)  Application and registration of such rights shall be
    effected by SMH and both the rights themselves and all
    other rights resulting therefrom shall belong in their
    entirety to SMH, as limited by this Contract.
    ELECTROSOURCE shall deliver to SMH the documents required
    for the application and registration, such documents being
    provided in the required quality, at SMH's cost.
b)  If SMH waives the application for and registration of such
    rights, ELECTROSOURCE may itself effect the application and
    registration.
    At SMH's request, however, SMH shall receive a free
    unlimited and world-wide exclusive license for a term of 5
    years calculated from the date of the 1 St priority
    application. SMH shall make that request in writing within
    30 days from ELECTROSOURCE's notification. In such cases,
    SMH shall bear all costs incurred by ELECTROSOURCE during
    that period for the application for, registration and
    maintenance of the rights.
  During the five-year exclusivity, SMH shall have the right
    to grant sub-licenses for the aforesaid rights.
                                                                9

7.6.
If, within those 5 years, ELECTROSOURCE intends to use for its
own ~urposes those rights which are exclusively enjoyed by SMH,
SMH's prior written consent must be obtained. If SMH agrees,
ELECTROSOURCE shall reimburse a reasonable proportion of the
development costs paid pursuant to Art. 3.

After 5 years or before when not requested, SMH shall receive a
simple free world-wide license, unlimited in time, to exploit
those patents. SMH shall also receive the right to grant
appropriate sub-licenses.
SMH and ELECTROSOURCE shall immediately inform each other of
development results which appear patentable and in which
employees of both parties are involved. SMH shall have the
right to use those results and arrange protection in its own
name.

7.7.     SMH shall also have an option for licenses on all
    aforesaid intellectual property rights at most favorable
    conditions for the application on other types of
    Automobiles then specified in this Contract.


ART. 8  GUARANTEE

8.1.     ELECTROSOURCE will use its best effort to perform the
    Development and the attached documents correspond to the
    specifications as per A~~endix 1.

8.2.     ELECTROSOURCE's covenant covers only the care
customary
    in the sector and compliance with the recognized technical
    standards unless ELECTROSOURCE expressly guarantees
    specific characteristics of the Development.

8.3.     ELECTROSOURCE shall attempt to remedy defective
    developments within a reasonable period. If the defect
    cannot be remedied within the reasonable period, the
    remuneration shall be partially refunded. If SMH wishes to
    use the perfect part of the Development, the remuneration
    therefor shall be fixed by agreement.


ART. 9  LIABILITY

9.1.     The parties shall have reciprocal liability only in
the
    event of deliberate intent or gross negligence. There shall
    be no liability for consequential damages except for the
    consequences of default as defined in Art. 8.2.

9.2.     As soon as ELECTROSOURCE perceives that the agreed
    timetable (AD~endix
    2) cannot be fulfilled, ELECTROSOURCE shall immediately
    inform SMH and give reasons for the delay. In such cases,
    the parties shall jointly decide upon appropriate remedial
    measures.

9.3.     If third parties5 rights are claimed, with SMH's prior
    written consent ELECTROSOURCE will attempt to attack the
    claimed rights, acquire a license for SMH or
    I modify the
    Development in such a way that the rights claimed
    by third are no longer infringed.
                                                               1
                                                               0


                             )arties

9.4.     In cases of product liability. ELECTROSOURCE shall fully
    compensate  SMH  if the claims against SMH are  based  solely
    upon a defective development of
    ELECTROSOURCE.

    ELECTROSOURCE  shall take out customary  insurance  to
    cover such  financial charges and shall maintain it  for
    at  least three years beyond the term of the
    Contract.
ART. 10     MANUFACTURING AND SUPPLY
10.1.    Upon successful completion of Development and testing
    of the Battery, it is the intent of the parties to
    negotiate the supply  by ELECTROSOURCE of said Batteries
    and packs  to  fit the Automobile.
    ELECTROSOURCE  is  already committed  to  deliver  the
    first 10000  Battery  units  to  SMH and SMH  committed  to
    order, provided  that the conditions to be negotiated are
    at  arm's length  and  competitive regarding price,
    quality,  delivery terms and conditions and quantity.
10.2.     ELECTROSOURCE shall be a non-exclusive supplier of
    the Battery   with  a  preferential  status  provided  that
    the
    requirements  of price, quality, quantity and delivery
    dates are met. These requirements can be generally
    described in the following terms:

10.2.1.     On  the  date  this  contract is  concluded  only
an
      approximate quantity allocation can be given.
      ELECTROSOURCE agrees that the precise quantities shall
      only be determined once the call orders have been
      specifically detailed.

10.2.2.     ELECTROSOURCE  gives  an undertaking  to  supply
the
      contract products in the quality and quantity requested
      by SMH  on  the  stipulated  call dates,  provided
      sufficient notice is given.

10.2.3.     Call  orders,  shall only be binding providing
these
      have  been issued or confirmed by SMH or subsidiary of
      SMH Group in writing, by fax or telex.

10.2.4.     The  order  confirmation  is  definitive  for
supply
      quantity,  finish,  quality, specification,  assorting
      and price  of  the  products as well as  the  binding
      delivery dates.  If the confirmation differs, in respect
      of  one  of these above points, from the contents of the
      order, then  a contract  is only deemed to have come into
      effect providing SMH gives its express approval to the
      differing conditions.

10.2.5.     Orders  may  only  be  passed  on  to  sub-
contracted
      suppliers  with the written approval of SMH. In this
      event ELECTROSOURCE shall be liable for the goods
      supplied by its sub-contracted  suppliers  as  it  would
      be  for  its  own supplies.
                                                               1
                                                               1


10.2.6.
The  parties will set out the specifications for the products
in ai appendix (A~~endix 4) to this contract, to be defined
later on in good faith. Changes to the specifications require
the approval of  both  parties. On the basis of Appendix 4
ELECTROSOURCE  will manufacture  a  job-lot  of           units
as  prototypes.  The prototypes  approved by SMH shall be
deemed as  samples  for  the purpose  of  checking the quality
and specification of subsequent supplies.

10.2.7.    ELECTROSOURCE guarantees the technical, functional
      and aesthetic quality of the finish in accordance with
      the agreed technical drawings, samples, 11technical4ile"
      and other standards mutually agreed in writing.

      ELECTROSOURCE will produce records of random sample
      testing in accordance with the drawing or operational
      standards on the basis of   A copy of the records will
      be forwarded to SMH by ELECTROSOURCE unprompted.
      Written proof of the quality testing must be enclosed
      with the delivery note for each consignment. In
      addition, this proof is to be sent to SMH prior to
      dispatch of the consignment if requested by SMH.
      SMH is entitled to carry out quality testing at the
      supply plant in consultation with ELECTROSOURCE.
10.2.8.    The agreed prices are fixed prices and in each case
      apply until completion of the entire consignment.
Art. 11 TERM

11.1. This Contract shall come into effect when signed by both
    parties and shall end with the delivery of the Development
    and the settlement of the final invoice.

11.2.    The Contract may be terminated in full or in part by
    SMH at any time, allowing 4 weeks' notice. The following
    shall generally apply:

    ELECTROSOURCE undertakes to give notice of this Contract to
    any subordinate contractors employed with SMH's consent and
    shall organize legal relations with those subordinate
    contractors in accordance herewith.

    Should this Contract be terminated, ELECTROSOURCE shall
    immediately terminate the legal relations with subordinate
    contractors which are based hereupon, protecting SMH's
    interests.

    SMH shall inform ELECTROSOURCE in writing whether and, if
    appropriate, what work which has already begun must be
    completed. ELECTROSOURCE undertakes to carry out such work
    in accordance with the conditions of the terminated
    Contract.

    ELECTROSOURCE shall be entitled to remuneration at the
    contractual prices for the contractual Development carried
    out up to and irrevocable commitments
                                                               1
                                                               2


    made to the date when the notice of termination takes
    effect. The sam applies for parts of the performance which
    are still to be provided and for orders to subordinate
    contractors which can no longer be canceled.
                               e

    The provisions of Art. 6 and 7 shall apply for partial
    Development which is provided up to the time of the
    termination or which is to be provided after the termi
    nation.

  No claims may be made for compensation or lucrum cessans as
    a consequence of termination. All the payments due under
    this Contract may not exceed the sum which ELECTROSOURCE
    would have acquired in the event of its complete
    fulfillment.

11.3.    Both parties shall have the right of immediate
    termination for a serious reason. The right of termination
    for a serious reason shall constitute the sole possible
    ground for termination by ELECTROSOURCE.
11.4. If the purview of individual provisions of this Contract
    extends beyond the term fixed herein, the corresponding
    provisions shall remain effective beyond the term fixed
    herein. This applies particularly for the provisions of
    Arts. 4, 5, 6 and
    7
Art. 12  MISCELLANEOUS PROVISIONS

12.1.This Contract contains the entire understanding between
    the parties hereto and no amendment, modification or waiver
    of any provision hereof shall be valid unless set down in
    writing and signed by both parties hereto.

    Any previous agreement, also orally, between the parties
    with respect to the subject matter of this Contract is
    hereby fully replaced.

12.2.    All the Appendices referred to in the Contract are
    elements of the Contract.

12.3.    SMH may assign this Contract with all its rights and
    obligations to other companies of the SMH Group. The
    Contract may be assigned in any other way only with the
    other party's prior written consent.

12.4.    Should one or more provisions of this Contract be or
    become invalid, the validity of the other provisions shall

    remain unimpaired. The parties undertake as far as possible

    to replace the invalid provision with a valid provision

    with the same economic consequences and to conduct

    themselves each to the other as if the latter provision had

    been agreed from the time of the invalidity.

12.5.    The place of service is Austin/Texas, the place of

    delivery is Biel, Switzerland. The parties may jointly

    agree upon another place of performance.





12.6. This Contract is governed by Swiss law.
                                                                        1
                                                                        3
         12.7.    All disputes arising in connection with the
             present Contract shall be fi ally settled under the
             Rules of the Swiss-American Chamber of Commerce1
             Zurich. Switzerland. by one or more arbitrators
             appointed in accordance with the said rules and
             acting as amiable compositors.

        Bienne, March 14,1997              San Marcos, 3/14, 1997

        SMH AUTOMOBILE S A                 ELECTROSOURCE, INC.



        /s/ R. Darwish                     /s/ Michael G. Semmens
        /s/ H. Renstsch


                                                           Exhibit 10.42

                SUMMARY CONTRACT AMENDMENT TERMS
                               for
                   FRAME DEVELOPMENT CONTRACT
                             between
           SMH AUTOMOBILE S.A. and ELECTROSOURCE, INC.


1.   After  acceptance  of a B3 pack, SMH pays  U.S.$160,000  for
     design (includes all B design).  Acceptance will be done  in
     Laredo  with  the  first pack before the  end  of  the  week
     beginning  November 10, 1997.  The money will then  be  wire
     transferred to ELSI on November 17, 1997 at the latest.

2.   The  first B3 pack was delivered to SMH at Laredo, Texas  on
     November  6,  1997.  ELSI delivers a second pack  of  B3  to
     Laredo the week beginning November 10, 1997 and ships two B3
     packs  to  Biel the week beginning November 17,  1997.   Two
     further  B3  packs  shall be shipped  from  ELSI  on  Friday
     November  21,  1997  to  SMH, with  the  destination  to  be
     designated on November 19, 1997 by SMH.  After delivery  and
     short  tests (1 week in Biel), SMH pays for the 6 packs  per
     the  September 5, 1997 Quote from ELSI (a copy of  which  is
     attached):  U.S.$39,563.97 per complete pack, later delivery
     shall not be accepted.

3.   A new B4 battery should be delivered by the end of the first
     quarter 1998, with specifications to be mutually agreed upon
     by  December 1, 1997 by SMH and ELSI in replacement  of  the
     Phase B specification in the Frame Development Agreement.

4.   The  Frame Development Contract is not otherwise amended  or
     modified except as specifically set forth herein

AGREED TO this 12th day of November, 1997.

ELECTROSOURCE, INC.            SMH AUTOMOBILE S.A.



By:   /s/ Gary R. Sams         By:  /s/ R Darwish  /s/ P. Aebersold
Printed Name: Gary Sams        Printed Name:
Title: VP Contracts & Programs Title:

                                                           Exhibit 10.51

               DIRECTOR INDEMNIFICATION AGREEMENT


           THIS  AGREEMENT is made this 3rd day of  March,  1997,
between    Electrosource,    Inc.,   a    Delaware    corporation
("Corporation") and Richard E. Balzhiser ("Director").

                           WITNESSETH:

          WHEREAS, Director is a member of the Board of Directors
of  Corporation  and  in such capacity is performing  a  valuable
service for Corporation; and

           WHEREAS,  the Bylaws of the Corporation (the "Bylaws")
provide  for  the  indemnification of  the  officers,  directors,
agents and employees of Corporation; and

           WHEREAS,  such Bylaws and Section 145 of the  Delaware
General  Corporation  Laws,  as  amended  to  date  (the   "State
Statutes"), specifically provide that they are not exclusive, and
thereby   allow  that  contracts  may  be  entered  into  between
Corporation  and  the  members of its  Board  of  Directors  with
respect to indemnification of such directors; and

           WHEREAS, in accordance with the authorization provided
by  the  State Statutes, Corporation has purchased and  presently
maintains  a  policy  or  policies  of  Directors  and   Officers
Liability   Insurance   ("D&O   Insurance")   covering    certain
liabilities  which may be incurred by its directors and  officers
in the performance of their services for Corporation; and

           WHEREAS, recent developments with respect to the terms
and  availability  of  D&O  Insurance and  with  respect  to  the
application,  amendment and enforcement of  statutory  and  bylaw
indemnification   provisions  generally  have  raised   questions
concerning   the  adequacy  and  reliability  of  the  protection
afforded to directors thereby; and

          WHEREAS, in order to resolve such questions and thereby
induce the Director to continue to serve as a member of the Board
of  Directors  of  Corporation, Corporation  has  determined  and
agreed to enter into this Agreement with Director.

          NOW THEREFORE, in consideration of Director's continued
service  as a Director after the date hereof, the parties  hereto
agree as follows:


1.   Indemnity of Director.

      Corporation shall hold harmless and indemnify  Director  to
the  full extent authorized or permitted by the provisions of the
State  Statutes,  or by any amendment thereof or other  statutory
provisions  authorizing or permitting such indemnification  which
is adopted after the date hereof.


2.   Maintenance of Insurance and Self Insurance.

     (a)   Corporation represents that it presently has in  force
     and  effect  a  policy of D&O Insurance with  the  insurance
     company  and  in  the  amount  as  follows  (the  "Insurance
     Policy"):

              Insurer                               Policy    No.
Amount         Deductible

      National  Union  Fire  Insurance 483-68-89       $2,000,000
Security Claims $250,000
     Company of Pittsburgh, PA                              Other
Claims $100,000
     Subject  only  to  the  provisions of Section  2(b)  hereof,
     Corporation  hereby agrees that, so long as  Director  shall
     continue  to  serve as a director of Corporation  (or  shall
     continue  at  the  request  of Corporation  to  serve  as  a
     director, officer, employee or agent of another corporation,
     partnership,  joint venture, trust or other enterprise)  and
     thereafter  so  long as Director shall  be  subject  to  any
     possible  claim or threatened, pending or completed  action,
     suit    or   proceeding,   whether   civil,   criminal    or
     investigative,  by reason of the fact that  Director  was  a
     director  of  Corporation (or served in any  of  said  other
     capacities),  Corporation  will  purchase  and  maintain  in
     effect  for  the  benefit of Director  one  or  more  valid,
     binding  and enforceable policy or policies of D&O Insurance
     providing, in all respects, coverage at least comparable  to
     that presently provided pursuant to the Insurance Policy.

     (b)   Corporation  shall not be required  to  maintain  said
     policy  or  policies  of D&O Insurance  in  effect  if  said
     insurance  is  not  reasonably  available  or  if,  in   the
     reasonable  business  judgment  of  the  then  directors  of
     Corporation, either (i) the premium cost for such  insurance
     is substantially disproportionate to the amount of coverage;
     or  (ii)  the  coverage  provided by such  insurance  is  so
     limited  by  exclusions that there is  insufficient  benefit
     from such insurance.

     (c)  In the event Corporation does not purchase and maintain
     in  effect said policy or policies of D&O Insurance pursuant
     to the provisions of Section 2(b) hereof, Corporation agrees
     to  hold harmless and indemnify Director to the full  extent
     of the coverage which would otherwise have been provided for
     the benefit of Director pursuant to the Insurance Policy.


3.   Additional Indemnity.

      Subject  only  to the limitations set forth  in  Section  4
hereof,  and  without limitation to Section 1 above,  Corporation
shall further hold harmless and indemnify Director:

     (a)   Against  any  and  all expenses (including  attorneys'
     fees),  judgments,  fines  and amounts  paid  in  settlement
     actually  and reasonably incurred by Director in  connection
     with  any threatened, pending or completed action,  suit  or
     proceeding,  whether  civil,  criminal,  administrative   or
     investigative (including  an action by or in  the  right  of
     the  Corporation) to which Director is or was a party or  is
     threatened  to  be made a party by reason of the  fact  that
     Director  is, was or at any time becomes a director  of  the
     Corporation, or is or was serving or at any time  serves  at
     the  request  of  the  Corporation as a  director,  officer,
     employee or agent of another corporation, partnership, joint
     venture, trust or other enterprise; and

     (b)  Otherwise to the fullest extent that may be provided to
     Director by Corporation under the  nonexclusivity provisions
     of  Section  10.5 of the Bylaws of the Corporation  and  the
     State Statutes.


4.   Limitations on Additional Indemnity.

      No indemnity pursuant to Section 3 hereof shall be paid  by
Corporation:

     (a)   except  to the extent the aggregate of  losses  to  be
     indemnified thereunder exceeds the amount of such losses for
     which  the  Director  is  indemnified  either  pursuant   to
     Sections  1  or  2 hereof or pursuant to any  D&O  Insurance
     purchased and maintained by the Corporation; or

     (b)  in respect to remuneration paid to Director if it shall
     be  determined by the Reviewing Party (as defined in Section
     5   below),   or  by  a  final  judgment  or   other   final
     adjudication,  that such remuneration was  in  violation  of
     law; or

     (c)   if a determination of the Reviewing Party is made,  or
     if  a  judgment  is  rendered against a  Director,  that  an
     accounting  must be made for profits made from the  purchase
     or   sale  by  Director  of  securities  of  Corporation  in
     violation  of  the  provisions  of  Section  16(b)  of   the
     Securities  Exchange Act  of 1934 and amendments thereto  or
     similar  provisions of any federal, state or local statutory
     law; or

     (d)  on account of Director's conduct which is determined by
     the  Reviewing Party, or by a final judgment or other  final
     adjudication,    to   have   been   knowingly    fraudulent,
     deliberately dishonest or of willful misconduct; or

     (e)   if  the Reviewing Party or a Court having jurisdiction
     in  the matter shall determine that such indemnification  is
     not lawful.


5.   Reviewing Party.

     "Reviewing Party" means:

     (a)   the  Board of Directors, provided that a  majority  of
     directors are not parties to the claim, or

     (b)  special, independent counsel selected and appointed  by
     the Board of Directors; or

     (c)    special,  independent  counsel  approved  or   chosen
     pursuant to Section 6 below.

     Any determination by the Reviewing Party shall be conclusive
and  binding on Corporation and Director.  If the Reviewing Party
determines that Director would not be permitted to be indemnified
in  whole  or in part, Director shall have the right to  commence
litigation  in  the  State of Delaware in  any  court  of  proper
jurisdiction   seeking  an  order  or  judgment  by   the   court
equivalent  to  the  determination  of  the  Reviewing  Party  or
challenging any such determination by the Reviewing Party or  any
aspect thereof.


6.   Change in Control of Corporation.

      If  there is a change in control of Corporation (as defined
below),  then  with  respect to all matters   thereafter  arising
concerning  the  rights  of Director to  indemnity  payments  and
expense advances under this Agreement, or any other agreements or
Bylaws   now   or  hereafter  in  effect  relating  to   director
indemnification,  Corporation shall seek legal advice  and  shall
retain  a Reviewing Party only from special, independent  counsel
selected  by Director and approved by Corporation (which approval
shall  not  be unreasonably withheld), and who has not  otherwise
performed  services for Corporation or Director.   In  the  event
that  Director  and  Corporation  are  unable  to  agree  on  the
selection  of  the  special, independent counsel,  such  special,
independent counsel shall  be selected by lot from among at least
five  law  firms designated by Director, each of such  law  firms
having  more  than 35 attorneys and having a rating  of  "av"  or
better  in  the  then current Martindale-Hubbell  Law  Directory.
Such  selection  shall be made in the presence of  Director  (and
Director's  legal  counsel or either of  them,  as  Director  may
elect).   Such special, independent counsel, among other relevant
appropriate  matters, shall determine whether and to what  extent
Director  would  be permitted to be indemnified under  applicable
law  and   shall  render its written opinion to  Corporation  and
Director  to  such effect.  Corporation shall pay the  reasonable
fees   of  the  special,  independent  counsel  and  shall  fully
indemnify  such  counsel against any and all costs  and  expenses
arising  out  of or relating to this Agreement or its  engagement
pursuant hereto.

      "Change in control" of Corporation shall be deemed to  have
occurred  if  (i) any "person" (as such term is used in  Sections
13(d)  and  14(d)  of the Securities Exchange  Act  of  1934,  as
amended  (the  "Act")), other than a trustee or  other  fiduciary
holding securities under an employee benefit plan of Corporation,
is  or  becomes the "beneficial owner" (as defined in rule  13d-3
under  the  Act),  directly  or  indirectly,  of  securities   of
Corporation  representing 20% or more of the total  voting  power
represented  by Corporation's then outstanding voting securities;
(ii) during any period of two consecutive years, individuals  who
at the beginning of such period constitute the Board of Directors
of  Corporation and any new director whose election by the  Board
of   Directors   or  nomination  for  election  by  Corporation's
shareholders was approved by a vote of at least two-thirds  (2/3)
of   the directors then still in office who either were directors
at  the  beginning of the period or whose election or  nomination
for  election was previously so approved, cease, for any  reason,
to  constitute a majority of the Board of Directors; or (iii) the
shareholders of Corporation approve a merger or consolidation  of
Corporation  with any other corporation, other than a  merger  or
consolidation  that  would  result in the  voting  securities  of
Corporation  outstanding immediately prior thereto continuing  to
represent  (either by remaining outstanding or by being converted
into  voting securities of the surviving entity) at least 80%  of
the  total  voting power represented by the voting securities  of
Corporation or the surviving entity, as the case may  be,  or  an
agreement  for  sale  or  disposition by Corporation  of  all  or
substantially all Corporation's assets.


7.   Continuation of Indemnity.

      All  agreements  and  obligations of Corporation  contained
herein shall continue during the period Director is a director of
Corporation  (or is or was serving at the request of  Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise), and shall
continue thereafter so long as Director shall be subject  to  any
possible  claim or threatened, pending or completed action,  suit
or  proceeding,  whether, civil, criminal  or  investigative,  by
reason of the fact that Director was a director of Corporation or
serving in any other capacity referred to herein.


8.   Notification and Defense of Claim.

      Promptly  after  receipt  by  Director  of  notice  of  the
commencement of any action, claim, suit or  proceeding,  Director
will,  if  a  claim  in respect thereof is  to  be  made  against
Corporation  under  this  Agreement, notify  Corporation  of  the
commencement  thereof; but the omission so to notify  Corporation
will  not  relieve it  from any liability which it  may  have  to
Director  otherwise than under this Agreement.  With  respect  to
any such action, suit or proceeding as to which Director notifies
Corporation of the commencement thereof;

     (a)  Corporation will be entitled to participate therein  at
     its own expense, and;

     (b)   Except as otherwise provided below, to the extent that
     it may wish, Corporation jointly with any other indemnifying
     party  similarly  notified will be entitled  to  assume  the
     defense  thereof,  with  counsel satisfactory  to  Director.
     After notice from Corporation to Director of its election so
     to  assume  the  defense thereof, Corporation  will  not  be
     liable  to  Director under this Agreement for any  legal  or
     other    expenses  subsequently  incurred  by  Director   in
     connection  with  the defense thereof other than  reasonable
     costs  of  investigation  or  as otherwise  provided  below.
     Director  shall  have the right to employ  counsel  in  such
     action,  suite or proceeding, but the fees and  expenses  of
     such  counsel incurred after notice from Corporation of  its
     assumption of the defense thereof shall be at the expense of
     Director  unless  (i) the employment of counsel by  Director
     has  been  authorized by Corporation;  (ii)  Director  shall
     have  reasonably concluded that there may be a  conflict  of
     interest between Corporation and Director in the conduct  of
     the  defense of such action; or  (iii) Corporation shall not
     in  fact have employed counsel to assume the defense of such
     action,  in  each  of which cases the fees and  expenses  of
     counsel shall be at the expense of Corporation.  Corporation
     shall  not be entitled to assume the defense of any  action,
     suit or proceeding brought by or on behalf of Corporation or
     as to which Director shall have made the conclusion provided
     for in (i) above.

     (c)   Corporation shall not be liable to indemnify  Director
     under  this Agreement for any amounts paid in settlement  of
     any  action  or claim effected without its written  consent.
     Corporation  shall not settle any action  or  claim  in  any
     manner  which  would  impose any penalty  or  limitation  on
     Director   without  Director's  written  consent.    Neither
     Corporation  nor  Director  will unreasonably  withhold  its
     consent to any proposed settlement.


9.   Advancement of Expenses.

      Upon  the  request of Director, and except  as  limited  by
paragraph  8(b) above, Corporation shall reimburse  Director  for
all  reasonable expenses paid by Director in defending any claim,
civil  or  criminal action, suit or proceeding for which Director
is entitled to be indemnified by Corporation for such expenses
under  the  provisions of the State Statutes,  the  Bylaws,  this
Agreement or otherwise.


10.  Repayment of Expenses.

      Director  shall  reimburse Corporation for  all  reasonable
expenses paid or advanced to Director by Corporation in defending
any  claim, civil or criminal action, suit or proceeding  against
Director  in  the event and only to the extent that it  shall  be
determined  by the Reviewing Party that Director is not  entitled
to  be   indemnified by Corporation for such expenses  under  the
provisions  of the State Statutes, the Bylaws, this Agreement  or
otherwise.


11.  Enforcement.

     (a)   Corporation expressly confirms and agrees that it  has
     entered  into  this  Agreement and assumed  the  obligations
     imposed on Corporation hereby in order to induce Director to
     continue as a director of Corporation, and acknowledges that
     Director  is  relying upon this Agreement in  continuing  in
     such capacity.

     (b)   In  the event Director is required to bring any action
     to  enforce  rights  or to collect moneys  due   under  this
     Agreement  and  is  successful in such  action,  Corporation
     shall  reimburse  Director for all of Director's  reasonable
     fees and expenses in bringing and pursuing such action.


12.  Severability.

      Each of the provisions of this Agreement is a separate  and
distinct agreement and independent of the others, so that if  any
provision  hereof shall be held to be valid or unenforceable  for
any  reason, such invalidity or unenforceability shall not affect
the validity or enforceability of the other provisions hereof.


13.  Governing Law; Binding Effect; Amendment and Termination.

     (a)   This  Agreement shall be interpreted and  enforced  in
     accordance with the laws of the State of Delaware.

     (b)   This Agreement shall be binding upon Director and upon
     Corporation, its successors and assigns, and shall inure  to
     the benefit of Director, his heirs, personal representatives
     and   assigns  and   to  the  benefit  of  Corporation,  its
     successors and assigns.

     (c)  No amendment, modification, termination or cancellation
     of  this  Agreement  shall be effective unless  in  writing,
     signed by both parties hereto.


           IN  WITNESS WHEREOF, the parties hereto have  executed
this Agreement on and as of the day and year first above written.

ELECTROSOURCE, INC.



By:       /s/ Michael G. Semmens
     Michael G. Semmens
     President



DIRECTOR



     /s/ Richard E. Balzhiser
Richard E. Balzhiser

                                                           Exhibit 10.52

               DIRECTOR INDEMNIFICATION AGREEMENT


           THIS  AGREEMENT is made this 26th day of August, 1997,
between    Electrosource,    Inc.,   a    Delaware    corporation
("Corporation") and Earl E. Gjelde ("Director").

                           WITNESSETH:

          WHEREAS, Director is a member of the Board of Directors
of  Corporation  and  in such capacity is performing  a  valuable
service for Corporation; and

           WHEREAS,  the Bylaws of the Corporation (the "Bylaws")
provide  for  the  indemnification of  the  officers,  directors,
agents and employees of Corporation; and

           WHEREAS,  such Bylaws and Section 145 of the  Delaware
General  Corporation  Laws,  as  amended  to  date  (the   "State
Statutes"), specifically provide that they are not exclusive, and
thereby   allow  that  contracts  may  be  entered  into  between
Corporation  and  the  members of its  Board  of  Directors  with
respect to indemnification of such directors; and

           WHEREAS, in accordance with the authorization provided
by  the  State Statutes, Corporation has purchased and  presently
maintains  a  policy  or  policies  of  Directors  and   Officers
Liability   Insurance   ("D&O   Insurance")   covering    certain
liabilities  which may be incurred by its directors and  officers
in the performance of their services for Corporation; and

           WHEREAS, recent developments with respect to the terms
and  availability  of  D&O  Insurance and  with  respect  to  the
application,  amendment and enforcement of  statutory  and  bylaw
indemnification   provisions  generally  have  raised   questions
concerning   the  adequacy  and  reliability  of  the  protection
afforded to directors thereby; and

          WHEREAS, in order to resolve such questions and thereby
induce the Director to continue to serve as a member of the Board
of  Directors  of  Corporation, Corporation  has  determined  and
agreed to enter into this Agreement with Director.

          NOW THEREFORE, in consideration of Director's continued
service  as a Director after the date hereof, the parties  hereto
agree as follows:


1.   Indemnity of Director.

      Corporation shall hold harmless and indemnify  Director  to
the  full extent authorized or permitted by the provisions of the
State  Statutes,  or by any amendment thereof or other  statutory
provisions  authorizing or permitting such indemnification  which
is adopted after the date hereof.


2.   Maintenance of Insurance and Self Insurance.

     (a)   Corporation represents that it presently has in  force
     and  effect  a  policy of D&O Insurance with  the  insurance
     company  and  in  the  amount  as  follows  (the  "Insurance
     Policy"):

              Insurer                               Policy    No.
Amount         Deductible

      National  Union  Fire  Insurance 486-03-72       $2,000,000
Security Claims $250,000
     Company of Pittsburgh, PA                              Other
Claims $100,000
     Subject  only  to  the  provisions of Section  2(b)  hereof,
     Corporation  hereby agrees that, so long as  Director  shall
     continue  to  serve as a director of Corporation  (or  shall
     continue  at  the  request  of Corporation  to  serve  as  a
     director, officer, employee or agent of another corporation,
     partnership,  joint venture, trust or other enterprise)  and
     thereafter  so  long as Director shall  be  subject  to  any
     possible  claim or threatened, pending or completed  action,
     suit    or   proceeding,   whether   civil,   criminal    or
     investigative,  by reason of the fact that  Director  was  a
     director  of  Corporation (or served in any  of  said  other
     capacities),  Corporation  will  purchase  and  maintain  in
     effect  for  the  benefit of Director  one  or  more  valid,
     binding  and enforceable policy or policies of D&O Insurance
     providing, in all respects, coverage at least comparable  to
     that presently provided pursuant to the Insurance Policy.

     (b)   Corporation  shall not be required  to  maintain  said
     policy  or  policies  of D&O Insurance  in  effect  if  said
     insurance  is  not  reasonably  available  or  if,  in   the
     reasonable  business  judgment  of  the  then  directors  of
     Corporation, either (i) the premium cost for such  insurance
     is substantially disproportionate to the amount of coverage;
     or  (ii)  the  coverage  provided by such  insurance  is  so
     limited  by  exclusions that there is  insufficient  benefit
     from such insurance.

     (c)  In the event Corporation does not purchase and maintain
     in  effect said policy or policies of D&O Insurance pursuant
     to the provisions of Section 2(b) hereof, Corporation agrees
     to  hold harmless and indemnify Director to the full  extent
     of the coverage which would otherwise have been provided for
     the benefit of Director pursuant to the Insurance Policy.


3.   Additional Indemnity.

      Subject  only  to the limitations set forth  in  Section  4
hereof,  and  without limitation to Section 1 above,  Corporation
shall further hold harmless and indemnify Director:

     (a)   Against  any  and  all expenses (including  attorneys'
     fees),  judgments,  fines  and amounts  paid  in  settlement
     actually  and reasonably incurred by Director in  connection
     with  any threatened, pending or completed action,  suit  or
     proceeding,  whether  civil,  criminal,  administrative   or
     investigative (including  an action by or in  the  right  of
     the  Corporation) to which Director is or was a party or  is
     threatened  to  be made a party by reason of the  fact  that
     Director  is, was or at any time becomes a director  of  the
     Corporation, or is or was serving or at any time  serves  at
     the  request  of  the  Corporation as a  director,  officer,
     employee or agent of another corporation, partnership, joint
     venture, trust or other enterprise; and

     (b)  Otherwise to the fullest extent that may be provided to
     Director by Corporation under the  nonexclusivity provisions
     of  Section  10.5 of the Bylaws of the Corporation  and  the
     State Statutes.


4.   Limitations on Additional Indemnity.

      No indemnity pursuant to Section 3 hereof shall be paid  by
Corporation:

     (a)   except  to the extent the aggregate of  losses  to  be
     indemnified thereunder exceeds the amount of such losses for
     which  the  Director  is  indemnified  either  pursuant   to
     Sections  1  or  2 hereof or pursuant to any  D&O  Insurance
     purchased and maintained by the Corporation; or

     (b)  in respect to remuneration paid to Director if it shall
     be  determined by the Reviewing Party (as defined in Section
     5   below),   or  by  a  final  judgment  or   other   final
     adjudication,  that such remuneration was  in  violation  of
     law; or

     (c)   if a determination of the Reviewing Party is made,  or
     if  a  judgment  is  rendered against a  Director,  that  an
     accounting  must be made for profits made from the  purchase
     or   sale  by  Director  of  securities  of  Corporation  in
     violation  of  the  provisions  of  Section  16(b)  of   the
     Securities  Exchange Act  of 1934 and amendments thereto  or
     similar  provisions of any federal, state or local statutory
     law; or

     (d)  on account of Director's conduct which is determined by
     the  Reviewing Party, or by a final judgment or other  final
     adjudication,    to   have   been   knowingly    fraudulent,
     deliberately dishonest or of willful misconduct; or

     (e)   if  the Reviewing Party or a Court having jurisdiction
     in  the matter shall determine that such indemnification  is
     not lawful.


5.   Reviewing Party.

     "Reviewing Party" means:

     (a)   the  Board of Directors, provided that a  majority  of
     directors are not parties to the claim, or

     (b)  special, independent counsel selected and appointed  by
     the Board of Directors; or

     (c)    special,  independent  counsel  approved  or   chosen
     pursuant to Section 6 below.

     Any determination by the Reviewing Party shall be conclusive
and  binding on Corporation and Director.  If the Reviewing Party
determines that Director would not be permitted to be indemnified
in  whole  or in part, Director shall have the right to  commence
litigation  in  the  State of Delaware in  any  court  of  proper
jurisdiction   seeking  an  order  or  judgment  by   the   court
equivalent  to  the  determination  of  the  Reviewing  Party  or
challenging any such determination by the Reviewing Party or  any
aspect thereof.


6.   Change in Control of Corporation.

      If  there is a change in control of Corporation (as defined
below),  then  with  respect to all matters   thereafter  arising
concerning  the  rights  of Director to  indemnity  payments  and
expense advances under this Agreement, or any other agreements or
Bylaws   now   or  hereafter  in  effect  relating  to   director
indemnification,  Corporation shall seek legal advice  and  shall
retain  a Reviewing Party only from special, independent  counsel
selected  by Director and approved by Corporation (which approval
shall  not  be unreasonably withheld), and who has not  otherwise
performed  services for Corporation or Director.   In  the  event
that  Director  and  Corporation  are  unable  to  agree  on  the
selection  of  the  special, independent counsel,  such  special,
independent counsel shall  be selected by lot from among at least
five  law  firms designated by Director, each of such  law  firms
having  more  than 35 attorneys and having a rating  of  "av"  or
better  in  the  then current Martindale-Hubbell  Law  Directory.
Such  selection  shall be made in the presence of  Director  (and
Director's  legal  counsel or either of  them,  as  Director  may
elect).   Such special, independent counsel, among other relevant
appropriate  matters, shall determine whether and to what  extent
Director  would  be permitted to be indemnified under  applicable
law  and   shall  render its written opinion to  Corporation  and
Director  to  such effect.  Corporation shall pay the  reasonable
fees   of  the  special,  independent  counsel  and  shall  fully
indemnify  such  counsel against any and all costs  and  expenses
arising  out  of or relating to this Agreement or its  engagement
pursuant hereto.

      "Change in control" of Corporation shall be deemed to  have
occurred  if  (i) any "person" (as such term is used in  Sections
13(d)  and  14(d)  of the Securities Exchange  Act  of  1934,  as
amended  (the  "Act")), other than a trustee or  other  fiduciary
holding securities under an employee benefit plan of Corporation,
is  or  becomes the "beneficial owner" (as defined in rule  13d-3
under  the  Act),  directly  or  indirectly,  of  securities   of
Corporation  representing 20% or more of the total  voting  power
represented  by Corporation's then outstanding voting securities;
(ii) during any period of two consecutive years, individuals  who
at the beginning of such period constitute the Board of Directors
of  Corporation and any new director whose election by the  Board
of   Directors   or  nomination  for  election  by  Corporation's
shareholders was approved by a vote of at least two-thirds  (2/3)
of   the directors then still in office who either were directors
at  the  beginning of the period or whose election or  nomination
for  election was previously so approved, cease, for any  reason,
to  constitute a majority of the Board of Directors; or (iii) the
shareholders of Corporation approve a merger or consolidation  of
Corporation  with any other corporation, other than a  merger  or
consolidation  that  would  result in the  voting  securities  of
Corporation  outstanding immediately prior thereto continuing  to
represent  (either by remaining outstanding or by being converted
into  voting securities of the surviving entity) at least 80%  of
the  total  voting power represented by the voting securities  of
Corporation or the surviving entity, as the case may  be,  or  an
agreement  for  sale  or  disposition by Corporation  of  all  or
substantially all Corporation's assets.


7.   Continuation of Indemnity.

      All  agreements  and  obligations of Corporation  contained
herein shall continue during the period Director is a director of
Corporation  (or is or was serving at the request of  Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise), and shall
continue thereafter so long as Director shall be subject  to  any
possible  claim or threatened, pending or completed action,  suit
or  proceeding,  whether, civil, criminal  or  investigative,  by
reason of the fact that Director was a director of Corporation or
serving in any other capacity referred to herein.


8.   Notification and Defense of Claim.

      Promptly  after  receipt  by  Director  of  notice  of  the
commencement of any action, claim, suit or  proceeding,  Director
will,  if  a  claim  in respect thereof is  to  be  made  against
Corporation  under  this  Agreement, notify  Corporation  of  the
commencement  thereof; but the omission so to notify  Corporation
will  not  relieve it  from any liability which it  may  have  to
Director  otherwise than under this Agreement.  With  respect  to
any such action, suit or proceeding as to which Director notifies
Corporation of the commencement thereof;

     (a)  Corporation will be entitled to participate therein  at
     its own expense, and;

     (b)   Except as otherwise provided below, to the extent that
     it may wish, Corporation jointly with any other indemnifying
     party  similarly  notified will be entitled  to  assume  the
     defense  thereof,  with  counsel satisfactory  to  Director.
     After notice from Corporation to Director of its election so
     to  assume  the  defense thereof, Corporation  will  not  be
     liable  to  Director under this Agreement for any  legal  or
     other    expenses  subsequently  incurred  by  Director   in
     connection  with  the defense thereof other than  reasonable
     costs  of  investigation  or  as otherwise  provided  below.
     Director  shall  have the right to employ  counsel  in  such
     action,  suite or proceeding, but the fees and  expenses  of
     such  counsel incurred after notice from Corporation of  its
     assumption of the defense thereof shall be at the expense of
     Director  unless  (i) the employment of counsel by  Director
     has  been  authorized by Corporation;  (ii)  Director  shall
     have  reasonably concluded that there may be a  conflict  of
     interest between Corporation and Director in the conduct  of
     the  defense of such action; or  (iii) Corporation shall not
     in  fact have employed counsel to assume the defense of such
     action,  in  each  of which cases the fees and  expenses  of
     counsel shall be at the expense of Corporation.  Corporation
     shall  not be entitled to assume the defense of any  action,
     suit or proceeding brought by or on behalf of Corporation or
     as to which Director shall have made the conclusion provided
     for in (i) above.

     (c)   Corporation shall not be liable to indemnify  Director
     under  this Agreement for any amounts paid in settlement  of
     any  action  or claim effected without its written  consent.
     Corporation  shall not settle any action  or  claim  in  any
     manner  which  would  impose any penalty  or  limitation  on
     Director   without  Director's  written  consent.    Neither
     Corporation  nor  Director  will unreasonably  withhold  its
     consent to any proposed settlement.


9.   Advancement of Expenses.

      Upon  the  request of Director, and except  as  limited  by
paragraph  8(b) above, Corporation shall reimburse  Director  for
all  reasonable expenses paid by Director in defending any claim,
civil  or  criminal action, suit or proceeding for which Director
is entitled to be indemnified by Corporation for such expenses
under  the  provisions of the State Statutes,  the  Bylaws,  this
Agreement or otherwise.


10.  Repayment of Expenses.

      Director  shall  reimburse Corporation for  all  reasonable
expenses paid or advanced to Director by Corporation in defending
any  claim, civil or criminal action, suit or proceeding  against
Director  in  the event and only to the extent that it  shall  be
determined  by the Reviewing Party that Director is not  entitled
to  be   indemnified by Corporation for such expenses  under  the
provisions  of the State Statutes, the Bylaws, this Agreement  or
otherwise.


11.  Enforcement.

     (a)   Corporation expressly confirms and agrees that it  has
     entered  into  this  Agreement and assumed  the  obligations
     imposed on Corporation hereby in order to induce Director to
     continue as a director of Corporation, and acknowledges that
     Director  is  relying upon this Agreement in  continuing  in
     such capacity.

     (b)   In  the event Director is required to bring any action
     to  enforce  rights  or to collect moneys  due   under  this
     Agreement  and  is  successful in such  action,  Corporation
     shall  reimburse  Director for all of Director's  reasonable
     fees and expenses in bringing and pursuing such action.


12.  Severability.

      Each of the provisions of this Agreement is a separate  and
distinct agreement and independent of the others, so that if  any
provision  hereof shall be held to be valid or unenforceable  for
any  reason, such invalidity or unenforceability shall not affect
the validity or enforceability of the other provisions hereof.


13.  Governing Law; Binding Effect; Amendment and Termination.

     (a)   This  Agreement shall be interpreted and  enforced  in
     accordance with the laws of the State of Delaware.

     (b)   This Agreement shall be binding upon Director and upon
     Corporation, its successors and assigns, and shall inure  to
     the benefit of Director, his heirs, personal representatives
     and   assigns  and   to  the  benefit  of  Corporation,  its
     successors and assigns.

     (c)  No amendment, modification, termination or cancellation
     of  this  Agreement  shall be effective unless  in  writing,
     signed by both parties hereto.


           IN  WITNESS WHEREOF, the parties hereto have  executed
this Agreement on and as of the day and year first above written.

ELECTROSOURCE, INC.



By:    /s/ Michael G. Semmens
     Michael G. Semmens
     President



DIRECTOR



     /s/ Earl E. Gjelde
Earl E. Gjelde