Shoreline Pacific
                      Institutional Finance
                                
                    The Institutional Division
October 25, 1995      of Financial West Group

Via Facsimile
(512-445-0583)

Mr. Michael G. Semmens
Chairman
Electrosource, Inc.
3800 Drossett Drive
Austin, TX   78744

Dear Mr. Semmens:

We are writing to confirm our understanding with respect to the
placement of up to Five Million Dollars ($5,000,000) U.S.
principal amount of Convertible Debentures (the "Debentures"),
convertible into shares of common stock (the "Common Shares") of
Electrosource Inc. (ELSI) (the "Company").  The Debentures will
be convertible into Common Shares at the option of the holders
sixty (60) days after the closing of the purchase of the
Debentures (the "Closing") at a conversion price of twenty-five
percent (25%) off the Closing Price of the Common Shares.  The
Debentures will bear interest at Eight percent (8%) per annum,
payable quarterly in arrears, on any unconverted portion thereof.
If a holder converts a Debenture during any quarter, the Company
will pay the holder the pro-rata portion of accrued interest on
the Debenture on the date of conversion.  Any Debentures
remaining outstanding on the second anniversary of the purchase
thereof will be automatically converted into Common Shares on
such date.  As used herein, the term "Closing Price" refers to
the average closing bid prices of the Common Shares as reported
by Bloomberg, L.P. over the five-day period ending on the day
prior to the conversion date in question.

The Company agrees to pay Shoreline Pacific, Institutional
Finance Division of  Financial West Group ("Shoreline Pacific") a
commission of Eight percent (8%) of the principal amount of
Debentures sold, said fee to be deducted from the Company's gross
proceeds and paid to Shoreline Pacific from the escrow upon
closing.  In addition, the Company will pay Shoreline Pacific
with 15,000 two (2) year warrants per million dollars of
Debentures sold, and the pro-rata portion of any amount that is
not a multiple of $1,000,000, payable to Shoreline Pacific or its
designee.  The warrants will be issued at the Closing Price of
the Shares and will be in the form annexed hereto as Exhibit 1.
Our engagement shall be for a period (the "Engagement Period")
commencing on the date Shoreline Pacific receives written
approval, in the form attached hereto as Attachment "A," of the
form of subscription documents, and extending through and
including Ten (10) business days from such date.  There may be
multiple closings within the Engagement Period (each a
"Closing").

During the Engagement Period, we shall have the exclusive right
to identify buyers for the Debentures.  We will also assist in
arrangements for the Closings.  Our identification and
solicitation of potential investors will be conducted in
compliance with Rule 903 of Regulation S, promulgated under the
Securities Act of 1933, as amended, and in compliance with the
laws of each jurisdiction in which the offering is conducted.  We
will use no offering materials other than your publicly-filed
reports and such other materials, including a subscription
agreement, as you shall have approved.  Each investor will be
required to execute a standard form of subscription agreement,
which will include, without limitation, representations regarding
domicile, method of offering, and reliance only on specified
offering materials.

In the event this placement and any other placement completed by
Shoreline Pacific for the Company, is completed in the amount of
at least $4,000,000, you agree not to offer any other shares of
the Company's common stock, or any other securities convertible
into shares of the Company's common stock, pursuant to a
discounted transaction for 90 days from the end of the Engagement
Period.  If you wish to make any further sales within that 90-day
period, you will offer the stock on a right-of-first-refusal
basis to Shoreline Pacific, which will have five (5) business
days from the time of the offer to accept or reject it.  If
Shoreline Pacific rejects the offer, the Company shall be
permitted to proceed with the additional offering.

You hereby agree to the foregoing, agree to use your reasonable
best efforts to assist our participation in this transaction, and
agree not to take any actions which will be materially
detrimental to our selling efforts.  You undertake and represent
to us that the number of Debentures necessary to fulfill the
placement referred to herein will be available at the Closings
and that the number of Common Shares issuable upon conversion of
the Preferred Shares will be available upon each conversion date.
You further agree, in consideration of our identification of
buyers for the Debentures as set out above, to be fully bound by
the Indemnification Provisions which are attached hereto as
Attachment "B" and which are hereby incorporated by reference.

Please acknowledge by your signature below that, for a period of
two (2) years after the date of this letter agreement, you will
not contact any purchaser of Debentures for the purpose of
entering into a securities transaction with such institution
unless such transaction is effected through Shoreline Pacific
upon terms acceptable to Shoreline Pacific.

We look forward to working with you,

Sincerely,                              Agreed and Accepted:

        /s/                                       /s/
Harlan P. Kleiman                       Michael G. Semmens
Executive Vice President                Chairman
Institutional Sales                     Electrosource Inc.
                                   Date:



                                LETTER AGREEMENT #2, Attachment A
                                
                            APPROVAL
                                
     The undersigned hereby approves the use of the Form of
Offshore Convertible Securities Subscription Agreement attached
hereto as Exhibit 1 and the Form of Debenture attached hereto as
Exhibit 2 in connection with the placement of Convertible
Debentures of Electrosource Inc. by Shoreline Pacific,
Institutional Finance Divisions of Financial West Group
("Shoreline Pacific") referred to in the Engagement Letter
between Electrosource and Shoreline Pacific dated October 25,
1995.  This Approval may be sent to Shoreline Pacific by
facsimile to (415) 380-8911 and shall be effective upon
transmission thereof, or may be sent by any other method so long
as Shoreline Pacific receives proof of the date of such delivery.
The Ten (10) business day period referred to in the Engagement
Letter will commence following receipt of this Approval by
Shoreline Pacific, in the manner set forth above.  In the event
this Approval is not received by Shoreline Pacific until after
12:00 noon Pacific Standard Time, the Engagement Period will
commence the following day.



                                             /s/
                                        Michael G. Semmens
                                        Chairman
                                        Electrosource Inc.
                                        Date:

                                LETTER AGREEMENT #2, Attachment B
                                
                   Indemnification Provisions
                                
      Electrosource, Inc. (the "Company") agrees to indemnify and
hold  harmless Shoreline Pacific, Institutional Finance  Division
of  Financial  West Group ("Shoreline Pacific") and  its  agents,
employees,  affiliates,  control  persons,  and  successors   and
assignees  (collectively, the "Indemnitees" and each individually
an  "Indemnitee")  from and against any and all  losses,  claims,
damages, liabilities, obligations, penalties, judgments,  awards,
costs,  expenses,  and disbursements (and any  and  all  actions,
suits,  proceedings, and investigations in respect  thereof)  and
any  and  all  legal and other costs, expenses, or  disbursements
relating   thereto,  including,  without  limitation,  any   loss
occasioned  by the Indemnitees or prospective purchasers  of  the
Shares  identified by Shoreline Pacific by reason of  the  Shares
not  being  available upon any Closing, for whatever reason,  and
including  the costs, expenses, and disbursements,  as  and  when
incurred,  of  investigating, preparing, or  defending  any  such
action,  suit, proceeding, or investigation (whether  or  not  in
connection with litigation in which any Indemnitee is  a  party),
directly  or  indirectly,  caused by, relating  to,  based  upon,
arising  out  of or in connection with (a) any Indemnitee  acting
for  the  Company,  including, without  limitation,  any  act  or
omission  by any Indemnitee in connection with its acceptance  of
or   the  performance  or  non-performance  of  the  Indemnitee's
obligation  under  the letter agreement dated October  25,  1995,
between  Shoreline Pacific and the Company, as it may be  amended
from  time to time (the "Agreement"), or (b) any untrue statement
or  alleged untrue statement of a material fact contained in,  or
omissions or alleged omissions from, information furnished by the
Company to any Indemnitee or any prospective purchaser, provided,
however, such indemnity agreement shall not apply to any  portion
of  any  such loss, claim, damage, obligation, penalty, judgment,
award, liability, cost, expense or disbursement to the extent  it
is found in a final judgment by a court of competent jurisdiction
(not  subject  to further appeal) to have resulted primarily  and
directly from the gross negligence or willful misconduct  of  the
Indemnitee  seeking indemnification hereunder.  The Company  also
agrees that the Indemnitees shall not have any liability (whether
direct  or  indirect, in contract or tort or  otherwise)  to  the
Company  or to any person (including, without limitation, Company
shareholders)  claiming through the Company for or in  connection
with  the engagement of Shoreline Pacific or for or in connection
with the acts or omissions of any Indemnitee except to the extent
that  any such liability is found in a final judgment by a  court
of competent jurisdiction (not subject to further appeal) to have
resulted  primarily  and directly from the  gross  negligence  or
willful  misconduct  of  the Indemnitee seeking  indemnification.
These  Indemnification Provisions shall be  in  addition  to  any
liability which the Company may otherwise have to the Indemnitees
or the buyer in the transaction contemplated by the Agreement.

       If  any  action,  suit,  proceeding  or  investigation  is
commenced,  as  to  which  any  Indemnitee  proposes  to   demand
indemnification,  the Indemnitee shall notify  the  Company  with
reasonable promptness; provided, however, that any failure by  an
Indemnitee  to notify the Company shall not relieve  the  Company
from  its obligations hereunder.  Each Indemnitee shall have  the
right  to retain counsel of its own choice to represent  it,  and
the  Company  shall pay the fees, expenses and  disbursements  of
such  counsel;  and such counsel shall, to the extent  consistent
with  its  professional  responsibilities,  cooperate  with   the
Company  and any counsel designated by the Company.  The  Company
shall be liable for any payment of any award or settlement of any
claim  against  any  Indemnitee made with the  Company's  written
consent,  which consent shall not be unreasonably withheld.   The
company  shall  not,  without the prior written  consent  of  the
Indemnitee  seeking  indemnification, settle  or  compromise  any
claim,  or  permit  a  default or consent to  the  entry  of  any
judgment  in respect thereof, unless such settlement,  compromise
or consent includes, as an unconditional term thereof, the giving
by  the  claimant  to  the Indemnitee seeking indemnification  an
unconditional  release  from all liability  in  respect  of  such
claim.

      In order to provide for just and equitable contribution, if
a  claim  for  indemnification pursuant to these  Indemnification
Provisions is made but is found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) that  such
indemnification may not be enforced in such case, even though the
express  provisions  hereof provide for indemnification  in  such
case,  then the Company, on the one hand, and the Indemnitees  on
the  other hand, shall contribute to the losses, claims, damages,
obligations,  penalties, judgments, awards,  liabilities,  costs,
expenses  and disbursements to which the indemnified persons  may
be  subject in accordance with the relative benefits received  by
the  Company, on the one hand, and the Indemnitees, on the  other
hand,  in connection with the statements, acts or omissions which
resulted in such losses, claims, damages, obligations, penalties,
judgments,    awards,    liabilities,   costs,    expenses    and
disbursements,  and  the relevant equitable considerations  shall
also  be  considered.  No person found liable  for  a  fraudulent
misrepresentation  shall  be entitled to  contribution  from  any
person   who  is  not  also  found  liable  for  such  fraudulent
misrepresentation.     Notwithstanding   the    foregoing,    the
Indemnitees  shall  not  be obligated to  contribute  any  amount
hereunder  that exceeds the amount of fees actually  received  by
Shoreline Pacific pursuant to the Agreement.

      Neither  termination nor completion of  the  engagement  of
Shoreline   Pacific   referred  to  above  shall   affect   these
Indemnification Provisions, which shall then remain operative and
in full force and effect.

                                  LETTER AGREEMENT #2,  Exhibit 1
                                                                 
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "SECURITIES ACT").  THIS WARRANT AND
THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION  UNDER THE SECURITIES ACT OR SUCH OFFER, SALE OR
TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

            COMMON STOCK PURCHASE WARRANT CERTIFICATE
                                
                   Dated:  October ____, 1995
                                
                      [Number ( )] Warrants
                                
                 to Purchase [Number ( )] Shares
                                
           of Common Stock, $0.10 Par Value Per Share
                                
     ELECTROSOURCE, INC., a Delaware corporation (the "Company"),
hereby certifies that [Holder], its permissible transferees,
designees, successors and assigns (collectively, the "Holder"),
for value received, is entitled to purchase from the Company at
any time commencing on October __, 1995 up to [Number] ( ) shares
(the "Shares") of the Company's common stock, par value $0.10 per
share (the "Common Stock"), at [$_____] per share (the "Exercise
Price").

     1.  Exercise of Warrants.  Upon presentation and surrender
of this Common Stock Purchase Warrant Certificate ("Warrant
Certificate" or "this Certificate"), with the attached Purchase
Form duly executed, at the principal office of the Company at
3800 Drossett Drive, Austin, TX 78744, together with a check
payable to the Company in the amount of the Exercise Price
multiplied by the number of Shares being purchased, the Company,
or the Company's Transfer Agent as the case may be, shall deliver
to the holder hereof, certificates of Common Stock which in the
aggregate represent the number of Shares being purchased.  All or
less than all of the Warrants represented by this Certificate may
be exercised and, in case of the exercise of less than all, the
Company, upon surrender hereof, will deliver to the holder a new
Warrant Certificate or Certificates of like tenor and dated the
date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been
exercised and to receive Registration Rights with respect to such
Shares.

     2.  Exchange and Transfer.  This Certificate at any time
prior to the exercise hereof, upon presentation and surrender to
the Company, may be exchanged, alone or with other Certificates
of like tenor registered in the name of the same holder, for
another Certificate or Certificates of like tenor in the name of
such holder exercisable for the aggregate number of Shares as the
Certificate or Certificates surrendered.

     3.  Rights and Obligations of Holders of this Certificate.
(a)  The holder of this Certificate shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either
at law or in equity; provided, however, that in the event any
certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some
or all of the Warrants, such holder shall, for all purposes, be
deemed to have become the holder of record of such Common Stock
on the date on which this Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of
delivery of such share certificate.

     (b)  In case the Company shall (i) pay a dividend in Common
Stock or make a distribution in Common Stock, (ii) subdivide its
outstanding Common Stock into a greater number of shares, or
(iii) combine its outstanding Common Stock into a smaller number
of shares (including a recapitalization in connection with a
consolidation or merger in which the Company is the continuing
corporation), then (x) the Exercise Price on the record date of
such division or the effective date of such action shall be
adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding
immediately after such event and (y) the number of shares of
Common Stock for which this Warrant Certificate may be exercised
immediately before such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the Exercise
Price immediately before such event and the denominator of which
is the Exercise Price immediately after such event.

     (c)  In case of any consolidation or merger of the Company
with or into another corporation (other than any consolidation or
merger in which the Company is the continuing corporation and
which does not result in any reclassification of the outstanding
shares of Common Stock or the conversion of such outstanding
shares of Common Stock into shares or other stock or other
securities or property), or the sale or transfer of the property
of the Company as an entirety or substantially as an entirety,
there shall be deliverable upon exercise of the Warrant
Certificate (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the number of shares
of Common Stock which would otherwise have been deliverable upon
the exercise of this Warrant Certificate would have been entitled
upon such action if this Warrant Certificate had been exercised
immediately prior to such action.

     4.  Common Stock.  (a)  The Company covenants and agrees
that all shares of Common Stock of this Warrant Certificate
will, upon delivery, be duly and validly authorized and issued,
fully-paid and non-assessable.

     (b)  The Company covenants and agrees that it will at all
times reserve and keep available an authorized number of shares
of its Common Stock and other applicable securities sufficient to
permit the exercise in full of all outstanding options, warrants
and rights, including the Warrants.

     5.  Issuance of Certificates.  As soon as possible after
full or partial exercise of this Warrant, the Company, at its
expense, will cause to be issued in the name of and delivered to
the holder of this Warrant, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to
which that holder shall be entitled on such exercise.  No
fractional shares will be issued on exercise of this Warrant.  If
on any exercise of this Warrant a fraction of a share results,
the Company will pay the cash value of that fractional share,
calculated on the basis of the Exercise Price.  All such
certificates shall bear a restrictive legend to the effect that
the Shares represented by such certificate have not been
registered under the Securities Act of 1933, as amended, and the
Shares may not be sold or transferred in the absence of such
registration or an exemption therefrom, such legend to be
substantially in the form of the bold face language appearing on
Page 1 of this Warrant Certificate.

     6.  Disposition of Warrants or Shares.  The holder of this
Warrant Certificate, each transferee hereof and any holder and
transferee of any Shares, by his or its acceptance thereof,
agrees that no public distribution of Warrants or Shares will be
made in violation of the provisions of the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Act").  Furthermore, it shall be a
condition to the transfer of the Warrants that any transferee
thereof deliver to the Company his or its written agreement to
accept and be bound by all of the terms and conditions contained
in this Warrant Certificate.

     7.  Notices.  Except as otherwise specified herein to the
contrary, all notices, requests, demands and other communications
required or desired to be given hereunder shall only be effective
if given in writing by certified or registered mail, return
receipt requested, postage prepaid, or by U. S. express mail
service, or by private overnight mail service (e.g. Federal
Express).  Any such notice shall be deemed to have been given (a)
on the business day immediately subsequent to mailing, if sent by
U. S. express mail service or private overnight mail service, or
(b) three (3) business days following the mailing thereof, if
mailed by certified or registered mail, postage prepaid, return
receipt requested, and all such notices shall be sent to the
following addresses (or to such other address or addresses as a
party may have advised the other in the manner provided in this
Section 7):

          If to the Company:

          [Name]
          Electrosource, Inc.
          3800 Drossett Drive
          Austin, TX 78744

          If to the Holder:

          Harlan P. Kleiman
          Shoreline Pacific
          591 Redwood Highway, Suite 2255
          Mill Valley, CA 94941

     8.  Governing Law.  This Warrant Certificate and all rights
and obligations hereunder shall be deemed to be made under and
governed by the laws of the State of California without giving
effect to the conflicts of laws provisions.  The Holder hereby
irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of California, County of
Marin.

     9.  Successors and Assigns.  This Warrant Certificate shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.

     10.  Headings.  The headings of various sections of this
Warrant Certificate have been inserted for reference only and
shall not be a part of this Certificate.

     IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one
of its officers thereunto duly authorized.

                              ELECTROSOURCE, INC.

Date:_________________        By:______________________________
                                   [Name and Title]

                      ELECTION TO PURCHASE
                                
                  To Be Executed by the Holder
              in Order to Exercise the Common Stock
                  Purchase Warrant Certificate
                                
     The undersigned Holder hereby irrevocably elects to exercise
_______ of the Warrants represented by this Common Stock Warrant
Certificate, and to purchase the shares of Common Stock issuable
upon the exercise of such Warrants and requests that certificates
for securities be issued in the name of:

          _________________________________________________
            (Please type or print name and address)

          _________________________________________________

          _________________________________________________

          _________________________________________________
            (Social Security or tax identification number)

and delivered to ________________________________________________
_________________________________________________________________
          (Please type or print name and address)
and, if such number of Warrants shall not be all the Warrants
evidenced by this Common Stock Warrant Certificate, that a new
Common Stock Warrant Certificate for the balance of such Warrants
be registered in the name of, and delivered to, the Holder at the
address stated below.

     In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned
hereby tenders payment of $__________by check or money order
payable in United States currency to the order of Electrosource,
Inc.

                              [HOLDER]


Dated:________________        By:_________________________________
                                 Name:
                                 Title:

                              ____________________________________
                                        (Address)

                              ___________________________________

                              ___________________________________
                              (Social Security or tax identification
                                   number)

                                         ATTACHMENT A,  EXHIBIT 1
                                
     OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
                    Electrosource, Inc./Buyer
                                
                                                           [Date]
                                                                 
THE  SECURITIES  OFFERED HEREBY HAVE NOT BEEN  AND  WILL  NOT  BE
REGISTERED  UNDER THE UNITED STATES SECURITIES ACT  OF  1933,  AS
AMENDED,  AND  THE  RULES AND REGULATIONS PROMULGATED  THEREUNDER
(THE  "1933  ACT"),  AND MAY NOT BE OFFERED OR  SOLD  WITHIN  THE
UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO,
OR  FOR  THE  ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED  IN
REGULATION  S  OF  THE 1933 ACT) EXCEPT PURSUANT TO  REGISTRATION
UNDER  OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF  THE
1933 ACT.

      THIS OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
(hereinafter   the  "Agreement")  has  been   executed   by   the
undersigned in connection with the sale of Convertible Debentures
(hereinafter the "Debentures"), convertible into shares of common
stock  (hereinafter the "Shares") of Electrosource, Inc.  (ELSI),
3800  B  Drossett  Drive,  Austin, Texas,  78744,  a  corporation
organized  under the laws of Delaware (hereinafter  "Seller")  to
[Buyer],  located  [Address], a corporation organized  under  the
laws  of  [area of incorporation] (hereinafter "Buyer").   Seller
and  Buyer  (hereinafter collectively the "parties") each  hereby
represents, warrants and agrees as follows:

                                
     1.   AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
                                
           (i)   Buyer hereby subscribes for [written  amount  of
     dollars]   (#)   U.S.   principal  amount   of   Debentures,
     convertible  into shares of ELSI common stock in  accordance
     with  the  terms set forth in the form of Debenture attached
     as Exhibit A to this Agreement.
     
           (ii)  Buyer shall pay the purchase price by delivering
     same  day funds in United States Dollars to an escrow  agent
     or  as otherwise agreed between the parties, to be delivered
     to the order of Seller upon Delivery of the Debentures.
     
            (iii)       This  Agreement  has  been  executed   in
     connection  with an offering (the "Offering") by  Seller  of
     the  Debentures  pursuant to Regulation S  ("Regulation  S")
     promulgated  under the Securities Act of  1933,  as  amended
     (the  "Securities Act").  Buyer will be notified of the date
     of the conclusion of the Offering.
     
                                
     2.   BUYER'S REPRESENTATIONS
                                
          Buyer represents and warrants to Seller as follows:
                                
                (i)   Buyer is not a "U.S. Person" as defined  by
          Rule  902 of Regulation S, was not organized under  the
          laws  of any U.S. jurisdiction, and was not formed  for
          the  purpose of investing in securities not  registered
          under the Securities Act;
          
                 (ii)  At  the  time  the  buy  order  for   this
          transaction  was  originated,  Buyer  was  outside  the
          United States;
          
                (iii)     No offer to purchase the Debentures was
          made in the United States;
          
               (iv) Buyer is either (a) purchasing the Debentures
          for  its  own account for investment purposes  and  not
          with  a  view  towards distribution, or (b)  acting  as
          agent for a principal that has made the representations
          contained in Exhibit B hereto;
          
                (v)   All  subsequent offers  and  sales  of  the
          Debentures  or the Shares will be made (a) outside  the
          United  States in compliance with Rule 903 or Rule  904
          of  Regulation S, (b) pursuant to registration  of  the
          Debentures  or  the  Shares,  respectively,  under  the
          Securities  Act, or (c) pursuant to an  exemption  from
          such registration.  Buyer understands the conditions of
          the  exemption  from registration afforded  by  Section
          4(1)  of the Securities Act and acknowledges that there
          can  be  no assurance that it will be able to  rely  on
          such exemption.  In any case, Buyer will not resell the
          Debentures or the Shares to U.S. Persons or within  the
          United States until after the end of the forty (40) day
          period  commencing  on the date of  completion  of  the
          Offering (as defined above) (the "Restricted Period");
          
                (vi)  Buyer  agrees not to enter into  any  short
          sales with respect to the common stock of Seller at any
          time after the execution of this Agreement by Buyer and
          prior  to  the  expiration of  the  Restricted  Period.
          Buyer  further  agrees that, at  all  times  after  the
          execution of this Agreement by Buyer and prior  to  the
          expiration of the Restricted Period, it will  keep  its
          purchase  of  the  Debentures confidential,  except  as
          required by law and except as necessary in the ordinary
          course of Buyer's business;
          
                (vii)      Buyer understands that the  Debentures
          are  being  offered  and sold  to  it  in  reliance  on
          specific  provisions  of federal and  state  securities
          laws  and  that  Seller is relying upon the  truth  and
          accuracy    of    the   representations,    warranties,
          agreements, acknowledgments and understandings of Buyer
          set   forth   herein   in  order   to   determine   the
          applicability  of such provisions.  Accordingly,  Buyer
          agrees to notify Seller of any events which would cause
          the  representations  and warranties  of  Buyer  to  be
          untrue  or breached at any time after the execution  of
          this Agreement by Buyer and prior to the expiration  of
          the Restricted Period;
          
               (viii)    This Agreement has been duly authorized,
          validly executed, and delivered on behalf of Buyer  and
          is   a  valid  and  binding  agreement  enforceable  in
          accordance   with   its  terms,  subject   to   general
          principles  of equity and to bankruptcy or  other  laws
          affecting   the   enforcement  of   creditors'   rights
          generally;
          
                (ix)  Any  offering documents received  by  Buyer
          include  statements  to  the effect  that  neither  the
          Debentures  nor  the Shares have been registered  under
          the  Securities  Act  and such securities  may  not  be
          offered or sold in the United States or to U.S. Persons
          during the Restricted Period;
          
               (x)  Buyer, in making the decision to purchase the
          Debentures  subscribed for, has relied upon independent
          investigations  made by it and has not  relied  on  any
          information or representations made by third parties;
          
                (xi) In the event of resale of the Debentures  or
          the  Shares  during the Restricted Period, Buyer  shall
          provide a written confirmation or other written  notice
          to  any  distributor,  dealer, or  person  receiving  a
          selling  concession,  fee,  or  other  remuneration  in
          respect  of  the Debentures or the Shares stating  that
          such  purchaser is subject to the same restrictions  on
          offers  and  sales  that apply to the undersigned,  and
          shall  require  that any such purchaser  shall  provide
          such  written confirmation or other notice upon  resale
          during the Restricted Period; and
          
                (xii)      Buyer  has not taken any  action  that
          would  cause  Seller to be subject  to  any  claim  for
          commission or other fee or remuneration by any  broker,
          finder,  or  other person and Buyer hereby  indemnifies
          Seller against any such claim caused by the actions  of
          Buyer or any of its employees or agents.
          
     3.   SELLER'S REPRESENTATIONS
                                
          Seller represents and warrants to Buyer as follows:
                                
                 (i)   Seller  is  a  "Domestic  Issuer"  and   a
          "Reporting Issuer," as such terms are defined  by  Rule
          902  of Regulation S.  Seller has registered its common
          stock   pursuant  to  Section  12(b)  or  (g)  of   the
          Securities  Exchange  Act  of  1934,  as  amended  (the
          "Exchange  Act"),  is  in  full  compliance  with   all
          reporting requirements of either Section 13(a) or 15(d)
          of  the  Exchange Act, and Seller's common stock trades
          on the NASDAQ Small Cap Market;
          
                (ii)  Seller has furnished Buyer with  copies  of
          Seller's  most  recent Annual Report on its  Form  10-K
          filed  with the Securities and Exchange Commission  and
          all Forms 10-Q and 8K filed thereafter;
          
               (iii)     Seller has not offered the Debentures to
          any person in the United States, any identifiable group
          of U.S. citizens abroad, or to any U.S. Person;
          
                (iv)  At  the time the buy order was  originated,
          Seller reasonably believed Buyer was outside the United
          States and was not a U.S. Person;
          
                (v)  Seller reasonably believes that the sale  of
          Debentures has not been prearranged with a Buyer in the
          United States.
          
                (vi)  Seller  has  not  conducted  any  "directed
          selling efforts" with respect to the Debentures nor has
          Seller conducted any general solicitation (as that term
          is  used in Regulation D under the Securities Act) with
          respect to any of its securities;
          
                (vii)      The  Debentures and  the  Shares  when
          issued   and   delivered  will  be  duly  and   validly
          authorized and issued, fully-paid and nonassessable and
          will  not  subject  the  holders  thereof  to  personal
          liability  by reason of being such holders.  There  are
          no  preemptive rights of any shareholder of Seller with
          respect to the Debentures or the Shares;
          
               (viii)    This Agreement has been duly authorized,
          validly executed and delivered on behalf of Seller  and
          is a valid and binding agreement in accordance with its
          terms,  subject to general principles of equity and  to
          bankruptcy  or other laws affecting the enforcement  of
          creditors' rights generally;
          
                (ix) The execution and delivery of this Agreement
          and  the consummation of the issuance of the Debentures
          and  the  Shares  and the transactions contemplated  by
          this  Agreement  do not and will not conflict  with  or
          result  in  a breach by Seller of any of the  terms  or
          provisions  of,  or  constitute a  default  under,  the
          articles of incorporation or bylaws of Seller,  or  any
          indenture,  mortgage, deed of trust or  other  material
          agreement or instrument to which Seller is a  party  or
          by  which  it  or any of its properties or  assets  are
          bound,  or any existing applicable decree, judgment  or
          order  of any court, Federal or State regulatory  body,
          administrative agency or other governmental body having
          jurisdiction  over Seller or any of its  properties  or
          assets;
          
                (x)   Seller  is  not aware of any authorization,
          approval  or consent of any governmental body which  is
          legally  required  for the issuance  and  sale  of  the
          Debentures as contemplated by this Agreement;
          
                (xi)  Seller  will issue one or more certificates
          representing the Debentures in the name of Buyer and in
          such  denominations to be specified by Buyer  prior  to
          closing.   Upon  conversion of the  Debentures,  Seller
          will   issue  one  or  more  certificates  representing
          theShares  in  the name of Buyer without a  restrictive
          legend  and  in such denominations to be  specified  by
          Buyer   prior  to conversion.  Seller further  warrants
          that no instructions other than these instructions, and
          instructions for a "stop transfer" until the end of the
          Restricted  Period,  have been given  to  the  transfer
          agent  and  also warrants that the Debentures  and  the
          Shares  shall otherwise be freely transferable  by  the
          Buyer  on  the books and records of Seller  subject  to
          compliance  with  Federal and  State  securities  laws.
          Seller  will notify the transfer agent of the  date  of
          completion  of  the  Offering  and  of  the   date   of
          expiration of the Restricted Period.  Nothing  in  this
          section shall affect in any way Buyer's obligations and
          agreement to comply with all applicable securities laws
          upon resale of the Debentures or the Shares;
          
               (xii)     Seller has taken and will take no action
          that  will  affect  in  any  way  the  running  of  the
          Restricted  Period or the ability of  Buyer  to  freely
          resell the Debentures or the Shares in accordance  with
          applicable securities laws and this Agreement; and
          
                (xiii)     Seller will comply with all applicable
          securities  laws  with  respect  to  the  sale  of  the
          Debentures and the Shares, including but not limited to
          the  filing  of  all reports required to  be  filed  in
          connection  therewith with the Securities and  Exchange
          Commission  or any stock exchange or the  NASDAQ  stock
          market or any other regulatory authority.
          
     4.    CLOSING.  Debenture certificates shall be delivered to
     Buyer and the funds therefor shall be delivered to Seller on
     Friday,  November  3, 1995 or at such time  to  be  mutually
     agreed.
     
     5.   CONDITIONS TO CLOSING.
                                
               (i)  Buyer understands that Seller's obligation to
          sell  the Debentures is conditioned upon delivery  into
          escrow  or otherwise as agreed between Buyer and Seller
          by Buyer of the amount set forth in Section 1 hereof.
          
               (ii) Seller understands that Buyer's obligation to
          purchase the Debentures is conditioned upon delivery of
          certificate(s)  representing  Debentures  as  described
          herein   and   provision  of  an  opinion  of   counsel
          confirming  the matters et out in Section 3(i),  (vii),
          (viii), (ix), and (x) above.
          
     6.   GOVERNING LAW; INTERPRETATION.  This Agreement shall be
     governed by and interpreted in accordance with the  laws  of
     the  State  of  New  York.   Facsimile  signatures  of  this
     Agreement shall be binding on all parties hereto.  All terms
     used  herein  that  are defined in Regulation  S  under  the
     Securities Act shall have the meanings set forth therein.
     

      IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.


Official Signatory of Buyer:


Official Signatory of Seller:
Electrosource, Inc.



Michael G. Semmens
                                                        President
                               SUBSCRIPTION AGREEMENT,  EXHIBIT A
                                                                 
         8% Convertible Debenture Due November __, 1997
                                
                   See Attachment A, Exhibit 2



                                          ATTACHMENT A, Exhibit 2

THE  SECURITIES  OFFERED HEREBY HAVE NOT BEEN  AND  WILL  NOT  BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND  THE
RULES  AND  REGULATIONS PROMULGATED THEREUNDER (THE "1933  ACT"),
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO  OR
FOR  THE  ACCOUNT OR BENEFIT OF U.S. PERSONS (AS SUCH  TERMS  ARE
DEFINED  IN  REGULATION S UNDER THE 1933 ACT), FOR  A  PERIOD  OF
FORTY  (40)  DAYS  AFTER COMPLETION OF THE OFFERING  PURSUANT  TO
WHICH  THESE DEBENTURES WERE ISSUED, AND THEREAFTER MAY  ONLY  BE
OFFERED  OR  SOLD PURSUANT TO REGISTRATION UNDER OR AN  EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT.

         8% CONVERTIBLE DEBENTURE DUE November____, 1997
                                
$___________                                 November [   ], 1995
Number ____

       FOR   VALUE  RECEIVED,  Electrosource,  Inc.,  a  Delaware
corporation   (the  "Company"),  hereby  promises   to   pay   to
_______________________, or registered assigns (the "Holder")  on
November____, 1997 (the "Maturity Date"), the principal amount of
______________________________Dollars ($___________), and to  pay
interest on the principal amount hereof, in such amounts, at such
times and on such terms and conditions as are specified herein.

Article 1.  Interest

      The  Company  shall  pay interest on the  unpaid  principal
amount of this Debenture (this "Debenture") at the rate of  Eight
Percent  (8%)  per year, payable quarterly in arrears  until  the
principal hereof is paid in full or has been converted.  Interest
on this Debenture shall accrue from the most recent date to which
interest  has  been paid or, if no interest has been  paid,  from
[date of issuance].  Interest shall be computed on the basis of a
360-day  year  of 12 30-day months.  If the Holder shall  convert
this  Debenture during any quarter, the Company shall pay to  the
Holder, upon conversion, the pro-rata portion of accrued interest
payable through the conversion date.

Article 2.  Method of Payment

      This  Debenture must be surrendered to the Company in order
for the Holder to receive payment of the principal amount hereof.
The  Company  shall  pay the principal of and  interest  on  this
Debenture in United States dollars.  However, the Company may pay
principal  and  interest by a check payable in such  money.   The
Company may draw a check for the payment of interest to the order
of the Holder of this Note and mail it to the Holder's address as
shown  on  the  Register  (as  defined  in  Section  7.2  below).
Interest  and principal payments shall be subject to  withholding
under  applicable United States Federal Internal Revenue  Service
Regulations.

Article 3.  Conversion

     Section 3.1.  Conversion Privilege

      (a)  The Holder of this Debenture shall have the right,  at
its option, to  convert it into shares of common stock, par value
$0.10  per  share, of the Company ("Common Stock")  at  any  time
which  is  before  the close of business on  the  Maturity  Date,
except  as  set  forth in Section 3.1(c) below.   The  number  of
shares  of  Common  Stock issuable upon the  conversion  of  this
Debenture  is determined by dividing the principal amount  hereof
to  be  converted  plus all accrued interest  thereon  minus  any
required  withholding by the conversion price in  effect  on  the
conversion date (as defined in paragraph (b) of this Section  3.1
below) and rounding the result to the nearest 1/100th of a share.
On  conversion,  no  payment  of or  adjustment  (other  than  as
provided in the previous sentence) for accrued interest shall  be
made whether or not such conversion occurs before, on or after an
interest payment date.

      (b)  The conversion price is Seventy Five Percent (75%)  of
the  current  market price of the Common Stock on the  conversion
date.

     (c)  Less than all of the principal amount of this Debenture
may  be  converted into Common Stock if the portion converted  is
$10,000 or a whole multiple of $10,000 and the provisions of this
Article  3  that apply to the conversion of all of the  Debenture
also  apply  to the conversion of a portion of it.   All  accrued
interest on this Debenture shall be added to the amount converted
if  less  than  all of the principal amount of this Debenture  is
converted and shall be deemed to be paid and discharged  thereby.
This  Debenture  may  not  be converted  until  Sixty  (60)  days
following the closing of the purchase of this Debenture.

      (d)  In the event any Debentures remain outstanding on  the
second anniversary of the date hereof, the unconverted portion of
such  Debentures will automatically be converted into  shares  of
Common Stock on such date in the manner set forth in this Section
3.1.

       Section  3.2.   Conversion  Procedure.   To  convert  this
Debenture  into  Common Stock, the Holder must (a)  complete  and
sign the Notice of Conversion attached hereto, (b) surrender  the
Debenture  to  the Company, (c) furnish appropriate  endorsements
and  transfer  documents if so requested by the Company  and  (d)
subject  to  Section  3.4  pay any transfer  or  similar  tax  if
required  by  the  Company.   The date  upon  which  all  of  the
foregoing  requirements  are satisfied is  the  conversion  date.
Within five business days thereafter, the Company shall deliver a
certificate  for  the  number  of full  shares  of  Common  Stock
issuable  upon the conversion and a check for any fraction  of  a
share.  The person in whose name the certificate of Common  Stock
is  to  be registered shall be treated as a shareholder of record
on and after the conversion date.  No payment or adjustment shall
be made for accrued interest on a converted Debenture whether the
conversion date is on, at or after an interest payment date.   If
one person converts more than one Debenture at the same time, the
number of full shares issuable upon the conversion shall be based
on  the  total  principal amount of Debentures  converted.   Upon
surrender  of  a Debenture that is to be converted in  part,  the
Company  shall  issue  to  the Holder a new  Debenture  equal  in
principal  amount  to the unconverted portion  of  the  Debenture
surrendered.

      Section  3.3.   Fractional Shares.  The Company  shall  not
issue  a fractional share of Common Stock upon the conversion  of
this  Debenture.  Instead, the Company shall pay in lieu  of  any
fractional  share  the cash value thereof  at  the  then  current
market price of the Common Stock as determined under Section  3.7
below.

      Section  3.4.  Taxes on Conversion.  The Company shall  pay
any  documentary, stamp or similar issue or transfer tax  due  on
the  issue of shares of Common Stock upon the conversion of  this
Debenture.  However, the Holder shall pay any such tax  which  is
due because the shares are issued in a name other than its name.

      Section 3.5.  Company to Reserve Stock.  The Company  shall
reserve out of its authorized but unissued Common Stock or Common
Stock  held in treasury enough shares of Common Stock  to  permit
the  conversion  of this Debenture.  All shares of  Common  Stock
which  may  be issued upon the conversion hereof shall  be  fully
paid and nonassesssable.

      Section 3.6.  Restrictions on Transfer.  This Debenture and
the  Common  Stock issuable upon the conversion hereof  have  not
been registered under the Securities Act of 1933 (the "Act")  and
have   been  sold  pursuant  to  Regulation  S  under   the   Act
("Regulation  S").   The  Debentures may not  be  transferred  or
resold  in the United States, or to a U.S. Person, or to  or  for
the account or benefit of a U.S. Person (as defined in Regulation
S)  for  a  period  of Forty (40) days from the date  hereof  and
thereafter  may only be offered or sold pursuant to  registration
under or an exemption from the Act.

     Section 3.7.  Current Market Price.

      (a)  In Sections 3.1 and 3.3, the current market price  per
share  of  Common Stock on any date is the average of the  quoted
prices  of  the  Common Stock for five consecutive  trading  days
ending on the trading day before the date in question.

      (b)   As  used  in this Section 3.7, the term quoted  price
shall mean (i) the closing bid prices thereof on any such trading
date,  as  reported by Bloomberg, L.P. or (ii) in the  event  the
Common  Stock  is  not reported on such system, the  fair  market
value of the Common Stock as determined by the Board of Directors
of the Company in its good faith judgment.

      Section  3.8.   Mergers, Etc.  If  the  Company  merges  or
consolidates  with another corporation or sells or transfers  all
or  substantially  all of its assets to another  person  and  the
holders  of  the  Common  Stock are entitled  to  receive  stock,
securities  or property in respect of or in exchange  for  Common
Stock, then as a condition of such merger, consolidation, sale or
transfer,  the  Company  and  any such  successor,  purchaser  or
transferee  shall  amend this Debenture to provide  that  it  may
thereafter  be  converted  on  the  terms  and  subject  to   the
conditions  set  forth above into the kind and amount  of  stock,
securities    or   property   receivable   upon   such    merger,
consolidation,  sale or transfer by a holder  of  the  number  of
shares of Common Stock into which this Debenture might have  been
converted immediately before such merger, consolidation, sale  or
transfer,  subject  to  adjustments  which  shall  be  as  nearly
equivalent as may be practicable to the adjustments provided  for
in this Article 3.

Article 4.  Mergers

     The Company shall not consolidate or merge into, or transfer
all  or  substantially all of its assets to, any  person,  unless
such  person  assumes the obligations of the Company  under  this
Debenture  and  immediately after such transaction  no  Event  of
Default exists.  Any reference herein to the Company shall  refer
to  such  surviving or transferee corporation and the obligations
of the Company shall terminate upon such assumption.

Article 5.  Reports

     The Company will mail to the Holder hereof at its address as
shown  on the Register a copy of any annual, quarterly or current
report  that it files with the Securities and Exchange Commission
promptly  after  the  filing thereof and a copy  of  any  annual,
quarterly or other report or proxy statement that it gives to its
shareholders  generally at the time such report or  statement  is
sent to shareholders.

Article 6.  Defaults and Remedies

      Section  6.1.   Events of Default.  An "Event  of  Default"
occurs  if  (a)  the  Company does not make the  payment  of  the
principal of this Debenture when the same becomes due and payable
at  maturity, upon redemption or otherwise, (b) the Company  does
not  make  a payment for a period of 5 days thereafter,  (c)  the
Company fails to comply with any of its other agreements in  this
Debenture and such failure continues for the period and after the
notice specified below, (d) the Company pursuant to or within the
meaning  of  any  Bankruptcy  Law (as hereinafter  defined):  (i)
commences  a  voluntary case; (ii) consents to the  entry  of  an
order  for  relief  against  it in  an  involuntary  case;  (iii)
consents  to  the  appointment  of a  Custodian  (as  hereinafter
defined) of it or for all or substantially all of its property or
(iv)  makes a general assignment for the benefit of its creditors
or  (v)  a  court of competent jurisdiction enters  an  order  or
decree  under any Bankruptcy Law that: (A) is for relief  against
the  Company in an involuntary case; (B) appoints a Custodian  of
the  Company  or for all or substantially all of its property  or
(C)  orders  the  liquidation of the Company, and  the  order  or
decree  remains unstayed and in effect for 60 days.  As  used  in
this Section 6.1, the term "Bankruptcy Law" means Title 11 of the
United  States Code or any similar federal or state law  for  the
relief  of  debtors.   The term "Custodian" means  any  receiver,
trustee,  assignee,  liquidator or  similar  official  under  any
Bankruptcy Law.  A default under clause (c) above is not an Event
of  Default  until the holders of at least 25% of  the  aggregate
principal  amount of the Debentures notify the  Company  of  such
default and the Company does not cure it within 5 days after  the
receipt  of  such notice, which must specify the default,  demand
that it be remedied and state that it is a "Notice of Default."

      Section 6.2.  Acceleration.  If an Event of Default  occurs
and  is  continuing, the Holder hereof by notice to the  Company,
may  declare  the  principal  of and  accrued  interest  on  this
Debenture  to  be  due and payable.  Upon such  declaration,  the
principal   and  interest  hereof  shall  be  due   and   payable
immediately.

Article 7.  Registered Debentures

      Section  7.1.  Series.  This Debenture is one of a numbered
series of Debentures having an aggregate principal amount of  not
more  than  $5,000,000  which  are identical  except  as  to  the
principal  amount  and date of issuance thereof  and  as  to  any
restriction on the transfer thereof in order to comply  with  the
Securities Act of 1933 and the regulations of the Securities  and
Exchange Commission promulgated thereunder.  Such Debentures  are
referred  to  herein  collectively  as  the  "Debentures".    The
Debentures shall be issued in whole multiples of $10,000.

      Section 7.2.  Record Ownership.  The Company shall maintain
a  register  of  the holders of the Debentures  (the  "Register")
showing  their  names and addresses and the  serial  numbers  and
principal  amounts  of  Debentures issued to  or  transferred  of
record by them from time to time.  The Register may be maintained
in  electronic, magnetic or other computerized form.  The Company
may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture.  The Holder of this
Debenture is the person exclusively entitled to receive  payments
of interest on this Debenture, receive notifications with respect
to  this  Debenture, convert it into Common Stock  and  otherwise
exercise  all  of  the rights and powers as  the  absolute  owner
hereof.

      Section 7.3.  Registration of Transfer.  Transfers of  this
Debenture  may  be  registered  on  the  books  of  the   Company
maintained for such purpose pursuant to Section 7.2 above  (i.e.,
the Register).  Transfers shall be registered when this Debenture
is  presented  to  the  Company with a request  to  register  the
transfer  hereof  and  the  Debenture is  duly  endorsed  by  the
appropriate  person, reasonable assurances  are  given  that  the
endorsements  are  genuine and effective,  and  the  Company  has
received  evidence  satisfactory to  it  that  such  transfer  is
rightful  and  in compliance with all applicable laws,  including
tax  laws  and  state  and federal securities  laws.   When  this
Debenture   is  presented  for  transfer  and  duly   transferred
hereunder,  it shall be canceled and a new Debenture showing  the
name  of  the  transferee as the record holder thereof  shall  be
issued  in lieu hereof.  When this Debenture is presented to  the
Company  with  a reasonable request to exchange it for  an  equal
principal  amount  of  Debentures  of  other  denominations,  the
Company  shall make such exchange and shall cancel this Debenture
and  issue  in  lieu thereof Debentures having a total  principal
amount equal to this Debenture in the denominations requested  by
the  Holder.   The Company may charge a reasonable  fee  for  any
registration of transfer or exchange other than one occasioned by
a notice of redemption or the conversion hereof.

      Section  7.4.  Worn and Lost Debentures.  If this Debenture
becomes  worn,  defaced or mutilated but is  still  substantially
intact and recognizable, the Company or its agent may issue a new
Debenture in lieu hereof upon its surrender.  Where the Holder of
this Debenture claims that the Debenture has been lost, destroyed
or  wrongfully taken, the Company shall issue a new Debenture  in
place  of  the  original Debenture if the Holder so  requests  by
written  notice to the Company actually received by  the  Company
before it is notified that the Debenture has been acquired  by  a
bona  fide purchaser and the Holder has delivered to the  Company
an indemnity bond in such amount and issued by such surety as the
Company  deems  satisfactory together with an  affidavit  of  the
Holder  setting forth the facts concerning such loss, destruction
or  wrongful taking and such other information in such form  with
such proof or verification as the Company may request.

Article 8.  Notices

      Any  notice which is required or convenient under the terms
of  this  Debenture shall be duly given if it is in  writing  and
delivered  in  person  or  mailed by first  class  mail,  postage
prepaid  and  directed  to the Holder of  the  Debenture  at  its
address as it appears on the Register or if to the Company to its
principal executive offices.  The time when such notice  is  sent
shall be the time of the giving of the notice.

Article 9.  Time

      Where this Debenture authorizes or requires the payment  of
money  or  the  performance of a condition  or  obligation  on  a
Saturday or Sunday or a public holiday, or authorizes or requires
the  payment  of  money  or the performance  of  a  condition  or
obligation within, before or after a period of time computed from
a  certain date, and such period of time ends on a Saturday or  a
Sunday or a public holiday, such payment may be made or condition
or  obligation performed on the next succeeding business day, and
if  the period ends at a specified hour, such payment may be made
or  condition performed, at or before the same hour of such  next
succeeding  business day, with the same force and  effect  as  if
made or performed in accordance with the terms of this Debenture.
Where  time  is  extended  by virtue of the  provisions  of  this
Article  9,  such  extended time shall not  be  included  in  the
computation of interest.

Article 10.  Waivers

      The  holders  of  a  majority in principal  amount  of  the
Debentures may waive a default or rescind the declaration  of  an
Event of Default and its consequences except for a default in the
payment of principal of or interest on any Debenture.

Article 11.  Rules of Construction

      In  this  Debenture, unless the context otherwise requires,
words  in  the  singular number include the plural,  and  in  the
plural  include  the singular, and words of the masculine  gender
include  the  feminine  and the neuter, and  when  the  sense  so
indicates,  words of the neuter gender may refer to  any  gender.
The  numbers  and titles of sections contained in this  Debenture
are  inserted for convenience of reference only, and they neither
form  a  part  of this Debenture nor are they to be used  in  the
construction  or  interpretation  hereof.   Wherever,   in   this
Debenture, a determination of the Company is required or allowed,
such  determination shall be made by a majority of the  Board  of
Directors  of  the Company and if it is made in  good  faith,  it
shall  be conclusive and binding upon the Company and the  Holder
of this Debenture.

Article 12.  Governing Law

      The  validity, terms, performance and enforcement  of  this
Debenture  shall  be  governed and construed  by  the  provisions
hereof  and in accordance with the laws of the State of New  York
applicable to agreements that are negotiated, executed, delivered
and performed solely in the State of New York.

      IN  WITNESS  WHEREOF, the Company has  duly  executed  this
Debenture as of the date first written above.

                         ELECTROSOURCE, INC.

                         By_____________________________________

                         Name__________________________________

                         Title___________________________________

                      NOTICE OF CONVERSION
                                
     [To be completed and signed only upon conversion of
Debenture]

     The undersigned, the Holder of this Debenture, hereby
irrevocably elects to exercise the right to convert it into
common stock, par value $___ per share, of [Issuer] as follows:

[Complete if less than     ____________________Dollars($__________)*___
all of principal amount    ($10,000 or integral multiples of $10,000)
is to be converted]

[Signature must be         ___________________________________________
guaranteed if registered   (Name of Holder of shares if different than
holder of stock differs    registered Holder of Debenture)
from registered Holder of
Debenture)
                           ___________________________________________
                           (Address of Holder if different than address of
                           registered Holder of Debenture)

                           __________________________________________
                           (Social Security or EIN of Holder of shares
                           if different than Holder of Debenture)

     *If the principal amount of the Debenture to be converted is
     less than the entire principal amount thereof, a new 
     Debenture for the balance of the principal amount shall be
     returned to the Holder of the Debenture.
     
Date:________________      Sign:_____________________________________
                                (Signature must conform in all respects
                                to name of Holder shown on face of this
                                Debenture)

Signature Guaranteed:


                       Assignment of Note
                                
     The undersigned hereby sell(s) and assign(s) and transfer(s) unto

________________________________________________________________________
          (name, address and SSN or EIN of assignee)

__________________________________________________Dollars($_________)___
(principal amount of Debenture, $10,000 or integral multiples of $10,000)

of principal amount of this Debenture together with all accrued
interest hereon.

Date:________             Sign:__________________________________________
                          (Signature must conform in all respects to
                           name of Holder shown on face of Debenture)

Signature Guaranteed: