2
                            FORM 10Q
               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C.  20549

(Mark One)
[X]  QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998
                               OR

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

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

      Indicate by check mark whether the registrant (1) has filed
all  reports 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 __

       APPLICABLE  ONLY TO ISSUERS INVOLVED  IN BANKRUPTCY
           PROCEEDINGS DURING THE PRECEDING FIVE YEARS

      Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12,  13  or
15(d)  of the Securities Exchange Act of 1934 subsequent  to  the
distribution of securities under a plan confirmed by a court.

Yes __  No __

             APPLICABLE  ONLY TO CORPORATE ISSUERS:

      Indicate  the number of shares outstanding of each  of  the
issuer's  classes  of common stock, as of the latest  practicable
date:  7,234,531 shares as of August 14, 1998.


                  INDEX TO FINANCIAL STATEMENTS
                          June 30, 1998
                                

ELECTROSOURCE, INC.              COMMISSION FILE NUMBER   0-16323


PART I - FINANCIAL INFORMATION

  Item 1.  Financial Statements.

     Condensed Balance Sheets at
       June 30, 1998  (Unaudited)and
       December 31, 1997                                  Page  3

     Condensed Statements of Operations for the
       three and six months ended
       June 30, 1998 and 1997 (Unaudited)                 Page  4

     Condensed Statements of Cash Flows for the
       six months ended
       June 30, 1998 and 1997 (Unaudited)                 Page  5

     Notes to Condensed Financial
       Statements (Unaudited)                             Page  6

  Item 2.  Management's Discussion and Analysis
            of Financial Condition and Results
            of Operations (Unaudited)                     Page 10

PART II - OTHER INFORMATION

  Item 1.  Legal Proceedings                              Page 15

  Item 2.  Changes in Securities                          Page 15

  Item 3.  Defaults Upon Senior Securities                Page 15

  Item 4.  Submission of Matters to a Vote
            of Security Holders                           Page 15

  Item 5.  Other Information                              Page 15

  Item 6.  Exhibits and Reports on Form 8-K               Page 16

INDEX TO EXHIBITS                                         Page 19


                         Part I - Financial Information

Item 1.  Financial Statements.

<TABLE>
                               Electrosource, Inc.
                            Condensed Balance Sheets

                                                               June 30, 1998     December 31,
                                                                (Unaudited)          1997
ASSETS                                                                                        
                                                                                              
<S>                                                             <C>               <C>        
CURRENT ASSETS                                                                                
  Cash and cash equivalents                                      $   648,788        $  782,918
  Trade receivables                                                  177,842           408,230
  Inventories                                                        338,382           322,289
  Prepaid expenses and other assets                                   47,029           376,757
TOTAL CURRENT ASSETS                                               1,212,041         1,890,194
                                                                                              
PROPERTY AND EQUIPMENT (net of accumulated depreciation                                       
  of $3,654,331 in 1998 and $3,239,817 in 1997)                    3,782,118         4,164,459
                                                                                              
INTANGIBLE ASSETS (net of accumulated amortization                                            
  of $4,096,773 in 1998 and $3,600,213 in 1997)                    1,364,787         1,861,347
                                                                                              
RESTRICTED CASH                                                          ---            81,604
OTHER ASSETS                                                           7,000             8,500
TOTAL ASSETS                                                      $6,365,946        $8,006,104
                                                                                              
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                                                
                                                                                              
CURRENT LIABILITIES                                                                           
  Accounts payable                                               $   462,940       $   518,808
  Accrued liabilities                                              1,320,421         1,668,718
  Deferred revenue and advance payments on batteries               1,049,210           432,599
  Current portion of capital lease obligations                        74,317            72,685
  Convertible notes payable                                              ---           871,920
TOTAL CURRENT LIABILITIES                                          2,906,888         3,564,730
                                                                                              
CONVERTIBLE NOTES PAYABLE (less current portion)                         ---         2,800,554
CAPITAL LEASE OBLIGATIONS (less current portion)                     111,155           148,518
                                                                                              
SHAREHOLDERS' EQUITY (DEFICIT)                                                                
  Common Stock, par value $1.00 per share,                                                    
  authorized 50,000,000 shares; issued and
     outstanding 7,234,531 shares in 1998                                                     
     and 4,534,531 shares in 1997                                  7,234,531         4,534,531
  Preferred Stock, par value $1.00 per share; authorized                                      
     10,000,000 shares, no shares issued or outstanding                  ---               ---
  Common Stock subscription receivable                             (467,663)         (467,663)
  Warrants                                                               ---               ---
  Paid in capital                                                 51,446,508        51,146,508
  Accumulated deficit                                           (54,865,473)      (53,721,074)
                                                                   3,347,903         1,492,302
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)              $6,365,946       $ 8,006,104
                                                                                             
See notes to condensed financial statements.
</TABLE>


<TABLE>
                               Electrosource, Inc.
                 Condensed Statements of Operations (Unaudited)
                                        
                                        
                                        
                              Three Months Ended June 30       Six Months ended June 30,
                                     1998           1997           1998            1997
<S>                              <C>             <C>           <C>             <C>
Revenues                                                                                 
  Battery sales                  $  143,644      $ 119,820     $  388,619      $  663,055    
  Project revenue                   165,941        740,367        214,956       1,204,863
  Interest income                    18,989         52,353         28,573          55,506
                                    328,574        912,540        632,148       1,923,424
Costs and expenses                                                                       
  Manufacturing                     742,085        827,430      1,734,689       1,674,508
  Selling, general and              605,054        661,472      1,182,767       1,225,654
administrative
  Research and development          483,531        616,153      1,079,642       1,065,661
  Technology license and             25,000         25,000         50,000          50,000
royalties
  Depreciation and                  444,862        477,273        911,073         955,960
amortization
  Interest expense                  148,164        168,615        350,421         221,901
                                  2,448,696      2,775,943      5,308,592       5,193,684
Loss before income taxes        (2,120,122)    (1,863,403)    (4,676,444)     (3,270,260)
                                                                                         
     Income taxes                       ---            ---            ---             ---
Loss before extraordinary gain  (2,120,122)    (1,863,403)    (4,676,444)     (3,270,260)
                                                                                         
Extraordinary gain from early                                                            
extinguishment of debt (Note D)   3,532,045            ---      3,532,045             ---
                                                                                         
Net income (loss)                $1,411,923   $(1,863,403)   $(1,144,399)    $(3,270,260)
                                                                                         
Net income (loss) per common          $0.27        $(0.45)        $(0.24)         $(0.81)
share
                                                                                         
Average common shares             5,164,202      4,096,964      4,851,105       4,017,882
outstanding


See notes to condensed financial statements.
</TABLE>



<TABLE>
                               Electrosource, Inc.
                 Condensed Statements of Cash Flows (Unaudited)

                                                   Six Months Ended June 30,
                                                     1998            1997
OPERATING ACTIVITIES                                                         
 <S>                                             <C>             <C>
 Net loss                                        $(1,144,399)    $(3,270,260)
  Adjustments to reconcile net loss to net  cash                             
     used in operating activities:
   Equity instruments for consulting services         300,000          21,600
   Depreciation and amortization                      911,074       1,032,712
   Non-cash interest expense                          359,573             ---
   Amortization of prepaid lease expense              213,071             ---
   Extraordinary gain from early extinguishment   (3,532,045)             ---
     of debt
 Changes in operating assets and liabilities:                                
   (Increase) decrease in trade receivables           230,387       (518,457)
   (Increase) decrease in inventories                (16,093)          37,526
    (Increase) decrease in prepaid expenses  and      118,157         (8,145)
other assets
    Increase (decrease) in accounts payable  and    (404,166)          96,727
accrued liabilities
    Increase (decrease) in deferred revenue  and      616,611       (162,223)
advance payments on batteries
CASH USED IN OPERATING ACTIVITIES                 (2,347,830)     (2,770,520)
                                                                             
INVESTING ACTIVITIES                                                         
 Purchases of property and equipment, net            (32,173)        (30,438)
CASH USED IN INVESTING ACTIVITIES                    (32,173)        (30,438)
                                                                             
FINANCING ACTIVITIES                                                         
 Proceeds  from issuances of convertible  notes                             
   payable and related warrants                     1,000,000       4,000,000
   to purchase Common Stock
 Payment  of  notes payable and  capital  lease   (1,535,731)       (569,060)
   obligations
 Proceeds from issuances of common stock, net       2,700,000         643,602
 Decrease in restricted cash                           81,604             ---
CASH PROVIDED BY FINANCING ACTIVITIES               2,245,873       4,074,542
                                                                             
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS    (134,130)       1,273,584
                                                                             
Cash and cash equivalents at beginning of period      782,918         367,861
                                                                             
CASH AND CASH EQUIVALENTS AT END OF PERIOD         $  648,788      $1,641,445
                                                                             
                                                                             
See notes to condensed financial statements.                                 
</TABLE>

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).

NOTE A - BASIS OF PRESENTATION

The  accompanying unaudited condensed financial  statements  have
been  prepared  in accordance with generally accepted  accounting
principles for interim financial information.  Accordingly,  they
do  not  include  all of the information and  notes  required  by
generally  accepted accounting principles for complete  financial
statements.   In  the  opinion  of management,  all  adjustments,
consisting of normal recurring accruals, considered necessary for
a  fair presentation have been included.  These interim financial
statements  should  be  read in conjunction  with  the  financial
statements  and  notes thereto included in the  Company's  Annual
Report on Form 10-K for the year ended December 31, 1997, and are
not necessarily indicative of results for the entire year.

Certain  reclassifications have been made to the  1997  financial
statements to conform with the 1998 presentation.


NOTE B - INVENTORIES

                                      June 30,       December 31,
                                         1998            1997
                                                               
      Raw materials                    $169,412        $172,469
      Work in progress                   65,267          79,774
      Finished goods                    103,703          70,046
                                       $338,382        $322,289


NOTE C - PROPERTY AND EQUIPMENT

                                       June 30,        December 31,
                                         1998              1997
                                                                 
      Office equipment                 $  801,610      $  785,529
      Production and lab equipment      5,333,821       5,317,729
      Leasehold improvements            1,301,018       1,301,018
                                        7,436,449       7,404,276
      Less - accumulated                                         
       depreciation and amortization   (3,654,331)     (3,239,817)
      Total Property and Equipment     $3,782,118      $4,164,459


NOTE D - CONVERTIBLE NOTES PAYABLE

In  June  1998, in accordance with the terms of a Stock  Purchase
Agreement  ("Agreement")  with  Kamkorp  Limited  ("Kamkorp"),  a
company  organized in England, the Company executed an  agreement
with   Corning  Incorporated  ("Corning")  to  retire  the   full
$6,293,002  in outstanding Convertible Notes Payable and  accrued
interest  owed  to Corning, in exchange for $1,500,000  in  cash.
The  transaction was completed on June 16, 1998.  The Convertible
Notes  Payable  and  accrued interest had a  carrying  amount  of
$5,032,045 (after unamortized discount of $1,260,957),  resulting
in an extraordinary gain from the early extinguishment of debt of
$3,532,045 upon completion of the transaction.  Basic and diluted
earnings  per  share for the extraordinary gain  from  the  early
extinguishment   of  debt  were  $0.68  and  $0.73   per   share,
respectively, for the three and six month periods ended June  30,
1998.  The $1,500,000 was provided to the Company by Kamkorp from
the  sale of 1,500,000 shares of Common Stock under the terms  of
the Agreement.  (See Note E.)

NOTE E - COMMON STOCK AND CHANGE IN CONTROL

On  June  2,  1998,  the Company entered into an  Agreement  with
Kamkorp,  for up to $6,000,000 of equity funding.  The  Agreement
was  structured  with the intent of providing additional  capital
combined  with  battery  orders for  use  in  electric  vehicles,
neighborhood  electric  vehicles  and  other  applications.   The
Agreement provides Kamkorp the right to purchase an aggregate  of
6,000,000 shares of the Company's Common Stock for cash at  $1.00
per  share  and  an  option to purchase an  additional  3,000,000
shares of the Company's Common Stock at $1.00 per share for  cash
or,  with the agreement of the Company, for services.  Under  the
terms of the Agreement, Kamkorp purchased 1,200,000 shares of the
Company's Common Stock at $1.00 per share at closing on  June  2,
1998.    On  June  16,  1998,  Kamkorp  purchased  an  additional
1,500,000  shares of the Company's Common Stock  for  $1,500,000.
The  proceeds from the June 16, 1998 sale were used to retire all
Convertible  Notes Payable and accrued interest owed to  Corning.
(See Note D.)  The Agreement requires that Kamkorp purchase up to
an  additional $3,300,000 of the Company's Common Stock at  $1.00
per share over an 11-month period beginning September 1998.  (See
Note I.)

In  accordance  with  the  terms of  the  Agreement,  Kamkorp  is
entitled to a number of representatives on the Company's Board of
Directors  equal  to  at least one-third of the  members  of  the
Board.   On  June 2, 1998, Kamkorp nominated, and  the  Company's
Board appointed, three (3) directors to the Board for a total  of
eleven  (11)  directors.  Accordingly, Kamkorp may  nominate  one
additional director if it so chooses.  Kamkorp has the ability to
obtain  greater than 50% of the outstanding Common Shares of  the
Company on a fully-diluted basis under the terms of the Agreement
and  to  ultimately  have  control  of  the  Company's  Board  of
Directors.    Additionally,  the  Company  must  obtain   express
approval  of  Kamkorp for all important management  policies  and
decisions which include the following:

          a.   the issuance of Common Stock or any security which
          provides for the right to acquire Common Stock, or  any
          other capital stock of the Company;
          b.    overall  policy  decisions relating  to  business
          direction and manufacturing capacity;
          c.     any  agreement  or  commitment  that  materially
          affects or modifies the intellectual property owned  by
          the Company;
          d.    approval of the annual operating budget,  capital
          budget,  overhead  budgets and business  plans  of  the
          Company;
          e.   approval of any merger, consolidation, partnership
          or joint venture;
          f.    approval of transfer of any assets of the Company
          with a fair market value greater than $100,000;
          g.     incurring   indebtedness  for  borrowed   money,
          granting  any material pledge or security  interest  in
          the assets of the Company;
          h.    increasing  the  size of the Company's  Board  of
          Directors;
          i.      amending    the   Company's   Certificate    of
          Incorporation or Bylaws;
          j.    entering into any transaction involving an amount
          greater  than, or having a value in excess of  $100,000
          or  involving  a term or commitment for  more  than  12
          months; and
          k.   other various management policies and decisions.

Kamkorp  is  currently the record owner of  2,700,000  shares  or
37.3%  of  the Company's 7,234,531 current outstanding shares  of
Common  Stock  and  the beneficial owner of 9,000,000  shares  or
66.5%  of  the Company's Common Stock (assuming purchase  of  the
full  6,000,000  shares available under the  Agreement  and  full
exercise  of  the  option  to purchase  3,000,000  shares).   The
Company granted Kamkorp demand and piggyback registration  rights
with  respect to all such shares.  Kamkorp has not yet  requested
registration.

The  Company  anticipates Kamkorp and its affiliates  will  place
significant orders for the Company's Horizonr batteries  and  has
received  a  non-cancelable purchase order and  a  $507,500  down
payment  for 5,800 batteries for delivery during the second  half
of 1998.  Shipments related to this purchase order began in June.
The  purchase order was from Electrosource International  Limited
("EIL"), a newly formed distribution company owned 60% by Kamkorp
and  40% by the Company.  EIL, in turn, received a purchase order
for  5,800 batteries from Perusahaan Otomobil Elektrik (Malaysia)
("POEM"),  a  Malaysian joint venture company  in  which  Kamkorp
affiliates hold a minority interest, engaged in the production of
electric vehicles.  The parties anticipate that Kamkorp  and  its
affiliates  may  place  orders for up  to  72,000  batteries  for
delivery  in  1999, however, there is no guarantee  or  assurance
that  any  additional batteries will be ordered by, or  delivered
to,  Kamkorp  or  its affiliates.  The Company  is  obligated  to
establish   a  dedicated  manufacturing  line  or  capacity   for
production  of  batteries  to  fill  such  orders.   Although  an
increase  in capacity is currently available, battery  production
at  those  levels,  if fully realized, would require  significant
expansion  of  plant capacity.  The Company has not  yet  secured
financing for such expansion, and there can be no assurance  that
such financing will be available.


NOTE F - 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 $5,100,000 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  then  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  which denied jurisdiction.  A  decision  on  the
appeal is expected at any time.  If the appeal is successful, the
U.S.  Federal Court will have jurisdiction to hear the case.   No
liability has been recorded in the financial statements  at  June
30,  1998,  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.


NOTE G - EARNINGS 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  (before  the
effect  of extraordinary items), outstanding options and warrants
and contingently issuable shares to purchase common stock have an
antidilutive  effect.  Therefore, such options and  warrants  and
contingently  issuable shares were not included  in  the  diluted
loss per share calculation.


NOTE H - COMPREHENSIVE INCOME

In 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.   The  Company  adopted
SFAS  130  effective  January 1, 1998,  but  does  not  have  any
comprehensive income as defined in SFAS 130.

NOTE I - LIQUIDITY

The  Company continues to operate at a cash deficit.  In  January
and  February 1998 the Company borrowed the remaining  $1,000,000
of 5% Convertible Notes from Corning in accordance with the terms
of its $2,000,000 Note signed in December 1997.  Existing battery
orders and contract work were not adequate to sustain the Company
on  an  ongoing basis.  As a result, in February 1998 the Company
reduced  its  staffing by approximately 40% to reduce  costs  and
began  to  explore  strategic alternatives  such  as  a  business
combination,  the  sale of substantially  all  of  the  Company's
assets or a strategic alliance.

On  June  2,  1998,  the Company entered into an  Agreement  with
Kamkorp   for  up  to  $6,000,000  of  equity  funding.   Kamkorp
subsequently purchased 2,700,000 shares of Common Stock at  $1.00
per share. The Agreement requires that Kamkorp purchase up to  an
additional  3,300,000  shares of Common  Stock.   (See  Note  E.)
KamkorpOs  obligation to make these purchases is  dependent  upon
the  absence  of  any material change in the financial  position,
business  or  prospects  of the Company and  upon  certain  other
conditions precedent, such as the absence of litigation,  absence
of  defaults  on  other contracts and agreements, and  compliance
with environmental regulations.  The Company believes that it  is
currently in compliance with these conditions.  While Kamkorp has
provided substantial amounts of financing to the Company to date,
as  a private company Kamkorp is not legally required to, and has
not, provided information to the Company sufficient to allow  the
Company to determine the financial ability of Kamkorp to make the
remaining required purchases of Company Common Stock.

The  Company received a non-cancelable purchase order  for  5,800
batteries  for  delivery during the second half of  1998  from  a
Kamkorp   affiliate.   During  July  1998  the  Company  received
$507,500 as a down payment in accordance with the terms  of  this
purchase order.  The Company began shipments to fill the order in
June 1998. The Company and Kamkorp have discussed possible orders
from  Kamkorp  and its affiliates for up to an additional  72,000
batteries for delivery in 1999; however, there is no guarantee or
assurance  that any additional batteries will be ordered  by,  or
delivered  to,  Kamkorp  or  its  affiliates.   The  Company   is
obligated to establish a dedicated manufacturing line or capacity
for  production of batteries to fill these orders.   Although  an
increase  in capacity is currently available, battery  production
at  these  levels  in 1999, if fully realized, would  require  an
increase  in  production levels and plant capacity.  The  Company
has  not  yet identified sources of financing for such  potential
expansion.

Management  believes  it has sufficient cash  on  hand  from  the
financing  transactions  completed in June  1998  and  from  down
payments  of  battery  orders to continue operations  at  current
levels  through  August 1998.  Under the terms of the  Agreement,
Kamkorp  is  required  (subject to certain  conditions  precedent
discussed  above) to purchase 3,300,000 shares of  the  Company's
Common  Stock at a minimum rate of 300,000 shares per month  over
an  11  month  period at $1.00 per share beginning  in  September
1998.    The  anticipated  minimum  $300,000  funding  per  month
expected  to  begin in September 1998 would not,  by  itself,  be
sufficient  to continue operations at current levels.  Additional
funding  beyond  $300,000 per month, additional  battery  orders,
settlement of outstanding amounts due under the Chrysler purchase
order  or other financing will be required at least through  1998
to  continue  operations  at  current  levels.   The  Company  is
discussing the possibility of accelerated or additional financing
from  Kamkorp  which could be provided under  the  terms  of  the
Agreement, including Kamkorp's exercise of its option to purchase
3,000,000  shares  of the Company's Common  Stock  at  $1.00  per
share.   The  Company is also discussing other alternatives  with
Kamkorp,  including  cuts in personnel and  potential  additional
battery orders.  Absent additional funding from Kamkorp or  other
sources,  the  Company  would not have  the  funds  necessary  to
complete   battery  orders  for  Kamkorp  affiliates   or   other
customers,  or  to pay all outstanding obligations.   If  minimum
funding is not received from Kamkorp in accordance with the terms
of  the Agreement or from another party, the Company will not  be
able to continue as a going concern.

The  Company's  Common  Stock is traded in  the  Over-the-Counter
Market  and  is reported on the Nasdaq Stock Markets  ("Nasdaq").
In  order  to maintain listing by Nasdaq under rules  which  went
into effect in February 1998, the Company must maintain a minimum
$2,000,000  of  net  tangible  assets  (total  assets,  excluding
goodwill,  minus  total liabilities).  The  Company  was  not  in
compliance  with  the requirement before the  completion  of  the
financing transactions and debt extinguishment completed in  June
1998.  In April 1998 the Company received notice from Nasdaq that
it  must present a plan for compliance with listing standards  on
or  before April 16, 1998.  The Company submitted such a plan  on
April  15,  1998.  On May 13, 1998, the Company was  notified  by
Nasdaq  that  its plan was not accepted and it would be  delisted
from Nasdaq effective the close of business on May 20, 1998.  The
Company  filed  a  request  for an  oral  hearing  regarding  the
decision.   The hearing was held on June 18, 1998.   On  July  1,
1998,  the Company received written notice from Nasdaq  that  its
shares  would  continue  to be listed on  the  Nasdaq  Small  Cap
Market,  as  the Company regained compliance with  the  financial
listing  criteria  and provided a plan for continued  compliance.
The  success  of  this  plan is contingent  upon  equity  funding
anticipated  to  be  provided by Kamkorp in accordance  with  the
terms  of the Agreement and successful execution of the Company's
business  plan  which  includes increased  revenues  and  reduced
operating  losses  and/or  additional equity  funding.   If  such
funding  is  not  provided (by Kamkorp  or  other  parties),  the
Company  will not be able to maintain the required $2,000,000  of
net  tangible  assets.   If the Company  does  not  maintain  the
required listing criteria, it is likely that the Company's shares
would  be  delisted from the Nasdaq Small Cap Market  at  a  time
specified by Nasdaq, in which event the shares would be quoted on
the  Over-the-Counter  ("OTC") Bulletin  Board  and/or  the  Pink
Sheets of the National Quotation Bureau ("NQB").  In such trading
markets, brokers and dealers effecting trades in the Common Stock
would  become  subject to the Securities and Exchange  Commission
rules  covering trading in "penny stocks."  Becoming  subject  to
the "penny stock" rules may likely have a material adverse effect
on  both the price and trading liquidity of the Company's  Common
Stock.

If  the  Company  is  delisted from Nasdaq  it  may  become  more
difficult  to  obtain  additional  funding.   There  can  be   no
assurance  that additional funding 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.



Item 2.   Management's  Discussion  and  Analysis  of   Financial
          Condition and Results of Operations (Unaudited)

Results of Operations:

Revenues.

The  Company  had  battery  sales of approximately  $144,000  and
$389,000  for  the three and six months ended June 30,  1998,  as
compared  to $120,000 and $663,000 for the three and  six  months
ended  June 30, 1997.  Approximately 47% and 78% of battery sales
for  the  six  months ended June 30, 1998 and 1997, respectively,
were  to Chrysler Corporation ("Chrysler").  These purchases were
for  testing and evaluation of the Horizonr battery in  the  EPIC
Minivan  Program.   Chrysler placed a $1,400,000  purchase  order
with  the  Company  in  February 1998  for  further  testing  and
evaluation of the batteries.  Approximately $700,000 was received
from  Chrysler in February 1998, in advance of battery shipments,
all  of which remained deferred at June 30, 1998.  Only a nominal
amount  of  batteries have been shipped to date under the  order.
Chrysler  has  indicated that it may not complete  all  purchases
under  the  $1,400,000 purchase order, but that it will  make  at
least a partial further payment.  The Company and Chrysler are in
discussions  regarding payment for the balance  of  the  purchase
order.   Future  shipments  of  batteries  under  the  order  are
uncertain.   The  remainder of battery sales  in  the  first  six
months   of   1998  were  to  Lockheed  Martin,  Micro-Vett   and
Electrosource International Limited ("EIL").

EIL  is  a newly formed distribution company owned 60% by Kamkorp
Limited  ("Kamkorp") and 40% by the Company.  EIL placed  a  non-
cancelable  order  for 5,800 batteries to  be  delivered  in  the
second half of 1998 with the Company.  A down payment of $507,500
on  the order was received in July.  A significant amount of  the
battery shipments for this order are expected to be made  in  the
third  quarter with the final shipments expected to be  completed
in  December 1998.  EIL, in turn, received a purchase  order  for
5,800  batteries  from  Perusahaan Otomobil  Elektrik  (Malaysia)
("POEM"),  a  Malaysian joint venture company  in  which  Kamkorp
affiliates  hold a minority interest, for production of  electric
vehicles.   POEM  is  using  a  portion  of  the  5,800  Horizonr
batteries  in electric vehicles it is producing and supplying  to
shuttle  athletes and officials at the Commonwealth  Games  being
held  in  Kuala Lumpur, Malaysia in September 1998.  Kamkorp  and
its  affiliates have indicated that they may place orders for  up
to  72,000 batteries for delivery during 1999 which would require
significant  expansion of plant capacity.  There is no  guarantee
or  assurance  that any batteries beyond the 5,800 initial  order
will  be  ordered by, or delivered to Kamkorp or its  affiliates.
Lockheed Martin is using the batteries for testing and evaluation
in  Hybrid  Electric  Vehicles  ("HEVs")  and  Electric  Vehicles
("EVs")  in which they are producing drive trains.  The HEVs  and
EVs  are  being produced for fleet consumers.  The production  of
HEVs  and EVs has been minimal to date.  Micro-Vett is using  the
batteries  for  on-road  testing and demonstration  and  converts
several models of small urban vehicles to electric power under an
exclusive   agreement  with  a  major  European   motor   vehicle
manufacturer.   Releases  under a purchase  order  from  Lockheed
Martin  are expected to begin in late 1998/early 1999, and orders
from  Micro-Vett  and others testing various  battery  types  are
expected  to  begin  in  the same general time  frame.   However,
purchase orders from both customers have been delayed in the past
and  continue to be difficult to predict.  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.

Management  expects  to  receive Federal Aviation  Administration
("FAA")  certification of batteries for aircraft  and  helicopter
starting applications in late 1998/early 1999 at which time sales
of these batteries are expected to commence.  However, the amount
and  timing of these sales remains uncertain.  Moreover, in order
to  continue operating at current levels, the Company must obtain
funding  from Kamkorp or other sources beyond the minimum  amount
of  $300,000  per month beginning in September 1998, outlined  in
the  Company's  Agreement  with  Kamkorp,  as  the  Company  will
otherwise be out of cash in early September 1998.  (See Liquidity
and Capital Resources below.)  If larger orders for batteries are
obtained,  expansion  of the plant will be  required  which  will
necessitate additional funding which has not yet been obtained.

The  Company  had project revenue of approximately  $166,000  and
$215,000  for  the three and six months ended June 30,  1998,  as
compared to $740,000 and $1,205,000 for the three and six  months
ended June 30, 1997.  Essentially all of the revenue generated in
1998  was  from  cooperative development and research  agreements
with  the Defense Advance Research Projects Agency ("DARPA")  for
HEV  and  EV applications.  Development work continues  on  other
programs,  however, no specific payment milestones were  achieved
during  1998  to  permit  the  recognition  of  revenue  on  such
programs.  The Company received notice on June 8, 1998, from  SMH
Automobile of termination of the development contract between the
Company  and SMH.  The stated reason for termination was problems
with   the   Company   meeting  contractual  requirements.    The
termination  is not expected to have an impact on  the  financial
statements  of the Company, as the Company did not recognize  any
revenue  on  this  contract in 1998.  Management expects  project
revenue  to  increase slightly beyond current levels as  programs
with  Fiat  Auto  ("Fiat")  and others are  completed.   However,
project  revenue  for  1998 is expected to  be  well  below  1997
levels.  A significant amount of effort has also been expended on
various internal research and development programs which will not
generate project revenue.  Management expects most projects to be
complete  in  late  1998  at  which  time  orders  for  prototype
batteries  from  such customers will be discussed,  however,  the
timing and amount of any such future orders is uncertain.

Costs and Expenses.

Generally,  total costs were slightly lower in the  three  months
ended  June  30, 1998, compared to the same period in  1997,  and
were  approximately the same for the six months  ended  June  30,
1998, compared to the same period in 1997.  In late February 1998
management reduced staffing significantly to reduce costs.   Most
of  these reductions were at lower salary levels.  The impact  of
these  labor reductions was not realized until the second quarter
of  1998, thereby causing costs to be lower for the three  months
ended  June 30, 1998, compared to the same period in 1997.  Since
most  of these reductions were at lower salary levels, the impact
of  these  labor reductions did not have a significant impact  on
total  costs for the six months ended June 30, 1998, compared  to
the same period in 1997.

Manufacturing costs have remained high as a percentage of battery
sales,  primarily due to the lack of capital required to  further
automate  the production processes, materials being purchased  in
low   volumes  and  the  fixed  facility  cost  of  leasing   and
maintaining  the  88,000  square foot  manufacturing  and  office
facility.   As a result, manufacturing costs have not  fluctuated
significantly   from   relatively  small   changes   in   volume.
Management  expects that manufacturing costs can  decrease  as  a
percentage of battery sales if volume production begins, however,
additional  capital  will be required for  manufacturing  tooling
required  for  the  large-scale 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   have   remained
relatively constant during the three and six month periods  ended
June  30,  1998,  compared to 1997 as the Company has  previously
attempted  to reduce staffing and costs in this area.  The  fixed
cost  of  maintaining a publicly registered company and operating
an  88,000  square  foot manufacturing and  office  facility  are
significant  and  are expected to decrease  as  a  percentage  of
revenue if sales volumes increase.

Development  work and related costs have decreased in  the  three
month period ended June 30, 1998, compared to the same period  in
1997,  which  correlates with the decrease  in  revenue  for  the
periods.   Development costs were approximately the same  in  the
six month period ended June 30, 1998, compared to the same period
in  1997, even though revenues for the six month period  in  1998
decreased significantly from the same period in 1997.  The amount
of  development  work and related costs have  remained  constant,
however, the nature of the work and costs has shifted in 1998  to
programs  which  are  not generating revenue  and  to  cost-share
programs  which  generate less revenue than commercial  programs.
The  Company  has  incurred more costs in  1998  on  testing  and
evaluation  of  batteries  (aircraft,  helicopter  and  lawnmower
applications)  and  improvements in manufacturing  processes  and
joint  research and development efforts with Corning.  The  costs
of  such development efforts have been significant.  Research and
development costs decreased upon completion of the joint research
and  development efforts with Corning which were completed in May
1998.   Such  costs  were  approximately $100,000  and  $300,000,
respectively,  for  the three month and six month  periods  ended
June  30, 1998.  The efforts began in the third quarter of  1997,
thus,  no  such  costs were incurred in the three and  six  month
periods  ended June 30, 1997.  Payment for such services provided
by  Corning were made through the issuance of options to purchase
Electrosource  Common Stock at agreed upon  values  and  exercise
prices.

Interest  costs relate primarily to the Company's  previous  debt
obligations  to  Corning and will greatly  decrease  due  to  the
Company's retirement of its obligations to Corning in June  1998.
During  1997 and early 1998 the Company issued Convertible  Notes
Payable to Corning with a principal balance of $6,202,500 at face
interest  rates of 5%.  The Company was also amortizing discounts
on  the Convertible Notes Payable.  In June 1998 the Company paid
Corning  $1,500,000 in cash in full settlement of its outstanding
obligations  to  Corning.  An extraordinary  gain  on  the  early
extinguishment of debt of approximately $3,500,000  was  realized
from  this  transaction.  (See Note D to  the  interim  financial
statements.)

Liquidity and Capital Resources.

The  Company continues to operate at a cash deficit.  In  January
and  February 1998 the Company borrowed the remaining  $1,000,000
of  5% Convertible Notes from Corning Incorporated ("Corning") in
accordance  with  the  terms  of its $2,000,000  Note  signed  in
December  1997.  Existing battery orders and contract  work  were
not  adequate to sustain the Company on an ongoing basis.   As  a
result,  in  February 1998 the Company reduced  its  staffing  by
approximately 40% to reduce costs and began to explore  strategic
alternatives  such  as  a  business  combination,  the  sale   of
substantially  all  of  the  Company's  assets  or  a   strategic
alliance.

On  June  2,  1998,  the Company entered into an  Agreement  with
Kamkorp  Limited  ("Kamkorp") for  up  to  $6,000,000  of  equity
funding.   (See  Note  E  and  Note I to  the  interim  financial
statements.)

Management  believes  that  it has sufficient  cash  on  hand  to
continue  operations  at  current  levels  through  August  1998.
Absent  additional  funding from Kamkorp or  other  sources,  the
Company  would  not have the funds necessary to complete  battery
orders  for  Kamkorp affiliates or other customers,  or  pay  all
outstanding obligations.  If minimum funding is not received from
Kamkorp  in  accordance with the terms of the Agreement  or  from
another  party,  the Company will not be able to  continue  as  a
going concern.  (See Note I to the interim financial statements.)

In  December  1997  the Company issued 299,304 shares  of  Common
Stock  to  BDM  (now  part of TRW) 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  reduce
amounts  owed  to it by at least $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 agreed  to
pay  $300,000  cash  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, which did not occur.  The balance is to  be
paid  in  shares of Common Stock which the Company  has  not  yet
issued.  The Company and BDM have agreed to postpone issuance  of
the shares in order to discuss other arrangements.  The Company's
closing market price as reported by Nasdaq on July 31, 1998,  was
$1.56  per share.  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.   The
funding   required  for  such  expansion  has  not   been   fully
identified.  There were no capital commitments at June 30, 1998.

The Company is a party to certain litigation that, if resolved in
a  manner  adverse to the Company, could have a material  adverse
effect  on  the CompanyOs liquidity and capital resources.   (See
Note F to the interim financial statements.)

The  Company  may not be able to continue to meet Nasdaq  listing
requirements.   Delisting  from  Nasdaq  may  have  a  materially
adverse  effect  upon  the  price and trading  liquidity  of  the
CompanyOs  Common Stock and upon the CompanyOs ability to  obtain
necessary  additional  financing.  (See Note  I  to  the  interim
financial 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  completion  of  existing   battery   orders,
uncertainty  as  to  receipt of additional orders,  inability  to
obtain additional debt or equity financing, continued willingness
and   ability  of  Kamkorp  to  provide  agreed-upon   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-K and 8-K filed with the Securities
and Exchange Commission.



                   Part II - Other Information
                                
                                
Item 1.   Legal Proceedings

     None.

Item 2.   Changes in Securities

     Recent Sales of Unregistered Securities.

     On  June 2, 1998, the Company entered into an agreement with
     Kamkorp Limited ("Kamkorp") for the sale of 6,000,000 shares
     of  the Company's Common Stock at a purchase price of  $1.00
     per  share,  for an aggregate offering price of  $6,000,000.
     There   were   no  underwriting  discounts  or   commissions
     associated with the sale.  The agreement called for issuance
     of  1,200,000  shares  on  June 2,  with  Kamkorp  agreeing,
     subject  to  certain  conditions precedent,  to  purchase  a
     further  4,800,000  shares prior to  August  1999.   Kamkorp
     purchased  an additional 1,500,000 shares on June  16.   The
     Company  also  granted Kamkorp an option to purchase  up  to
     3,000,000  shares of Common Stock at a price  of  $1.00  per
     share at any time prior to June 2, 2003.

     These  sales were effected pursuant to Section 4(2)  of  the
     Securities  act of 1933 and Rule 506 of Regulation  D.   The
     offering   was   made   without   public   solicitation   or
     advertising,  and  the  only sales were  made  to  a  single
     accredited  investor.  The Company filed a Form D pertaining
     to the sales.

Item 3.   Defaults on Senior Securities

     None.

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

     At  the Company's Annual Meeting of Shareholders held on May
     20, 1998, the following items were voted on:

            PROPOSITION            FOR      AGAINST   ABSTAIN  NON-
                                                               VOTE
                                                              
     1.Directors:                                                
         Gjelde, Earl E.        3,376,115    52,407     N/A    N/A
         Graham, William R.                  52,298     N/A    N/A
                                3,376,224
                                     
   2.Approve Ernst & Young                                       
       as independent auditors  3,408,365    12,336    7,821    0
       for fiscal 1998               

Item 5.   Other Information

     None.

Item 6.   Exhibits and Reports on Form 8-K

     (a)  Exhibits.

          10.1   Lease  Agreement between William D.  McMorris  and
                 Electrosource, Inc., dated May 29, 1998.
                 
          10.2   Agreement  dated  May  29,  1998  between  Corning
                 Incorporated  and Electrosource, Inc.  terminating
                 the Note Purchase and Option Agreement dated March
                 27,   1997,  the  Note  Purchase  Agreement  dated
                 December 19, 1997 and the Research and Development
                 Umbrella agreement dated July 1, 1997.
                 
          10.3   Amendment  dated  June 15, 1998 to  May  29,  1998
                 Agreement   terminating  Notes   between   Corning
                 Incorporated and Electrosource, Inc. for a one-day
                 extension for payment.
                 
          10.4   Form  of Severance Agreements between officers/key
                 employees  and Electrosource, Inc. dated  May  18,
                 1998.
                 
          10.5   Director Indemnification Agreement dated  June  2,
                 1998   between  Electrosource,  Inc.   and   Kamal
                 Siddiqi.
                 
          10.6   Director Indemnification Agreement dated  June  2,
                 1998  between  Electrosource,  Inc.  and  Clifford
                 Winckless.
                 
          10.7   Director Indemnification Agreement dated  June  2,
                 1998 between Electrosource, Inc. and Roger Musson.
                 
          27.    Financial Data Schedule.


     (b)  Reports on Form 8-K.

          Reports on Form 8-K filed during the quarter ended June
          30, 1998 and up to the date of this filing on Form 10-Q
          were:

               June  11,  1998,  Stock  Purchase  Agreement   for
               $6,000,000 and Registration Rights Agreement dated
               June  2,  1998  between Kamkorp  Limited  and  the
               Company.

               July 8, 1998, financial information as of June 30,
               1998  as requested by Nasdaq Qualifications  Panel
               in support of compliance for listing requirements.





                           SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act
of  1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.


Date: August 14, 1998              ELECTROSOURCE, INC.



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



                                        /s/ James M. Rosel
                                   James M. Rosel
                                   Chief Financial Officer
                                   and General Counsel



                                        /s/ Mary Beth Koenig
                                   Mary Beth Koenig
                                   Chief Accounting Officer
                                   and Treasurer/Controller


                     Washington, D.C.  20549
                                
                                
                                
                                
            ________________________________________
                                
                           EXHIBITS TO
                            FORM 10-Q
                                
                                
       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934
                                
                                
     For the quarter ended           Commission File Number:
         June 30, 1998                       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,                  78666
       San Marcos, Texas
     (Address of principal                  (Zip Code)
      executive offices)
                                                 
       Registrant's telephone number, including area code:
                         (512) 753-6500
                                
   Securities registered pursuant to Section 12(b) of the Act:
                              None
                                                 
   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
                                                                  
10.1      Lease  Agreement between William  D.  McMorris          
          and Electrosource, Inc. dated May 29, 1998.           20
                                                                  
10.2      Agreement  dated May 29, 1998 between  Corning          
          Incorporated    and    Electrosource,     Inc.          
          terminating  the  Note  Purchase  and   Option          
          Agreement  dated  March  27,  1997,  the  Note        45
          Purchase Agreement dated December 19, 1997 and
          the    Research   and   Development   Umbrella
          agreement dated July 1, 1997.
                                                                  
10.3      Amendment dated June 15, 1998 to May 29,  1998          
          Agreement  terminating Notes  between  Corning          
          Incorporated and Electrosource, Inc. for a one-       48
          day extension for payment.
                                                                  
10.4      Form    of    Severance   Agreements   between          
          officers/key employees and Electrosource, Inc.        49
          dated May 18, 1998.
                                                                  
10.5      Director Indemnification Agreement dated  June          
          2,  1998 between Electrosource, Inc. and Kamal        57
          Siddiqi.
                                                                  
10.6      Director Indemnification Agreement dated  June          
          2,   1998  between  Electrosource,  Inc.   and        66
          Clifford Winckless.
                                                                  
10.7      Director Indemnification Agreement dated  June          
          2,  1998 between Electrosource, Inc. and Roger        75
          Musson.
                                                                  
27.       Financial Data Schedule                               84



                                                Exhibit 10.1

STATE OF TEXAS
COUNTY OF HAYS

      This Lease Agreement ("Lease") made and entered into by and
between William D. McMorris ("Landlord") and Electrosource,  Inc.
("Tenant");

1.   Premises  and Term.  In consideration of the  obligation  of
Tenant   to  pay  rent  as  provided  in  this  Lease,   and   in
consideration  of the other terms, provisions, and  covenants  of
this  Lease,  Landlord hereby demises and leases to  Tenant,  and
Tenant  hereby  takes from Landlord certain  real  property  (the
"Land")  located  in  the  above-named  County  and  State,  more
particularly   described  in  Exhibit  A  attached   hereto   and
incorporated herein by this reference, together with any building
(the "Building") on the Land together with any other improvements
upon   said   premises  (the  said  Land,  Building,  and   other
improvements   located  therein  or  thereon  being   hereinafter
referred to as the "Premises").

To  Have and to Hold the Premises, subject to the other terms and
provisions  of  this Lease, for a term commencing on  October  1,
1998  (the  "Commencement Date") and ending  November  30,  2003.
Tenant  acknowledges  that  it has  inspected  the  Premises  and
accepts  the Premises in their present condition as suitable  for
the  purpose  for which the Premises are leased.  Tenant  further
acknowledges  that  no representations as to the  repair  of  the
Premises,  nor  promises  to  alter,  remodel,  or  improve   the
Premises, have been made by Landlord.

2.   Rent. Tenant agrees to pay to Landlord rent for the Premises
("Rent"), without deduction, set off, or abatement, beginning  on
the Commencement Date for the term, as described below:

     Time Period                             Rent
     Commencement Date - November 1998       $25,000
     December 1998 - November 2001           $30,000
     December 2001 - November 2003           $35,000

All  monthly  installments shall be due and  payable  in  advance
without  demand on or before the first day of each month  of  the
lease term.

Tenant  shall have the right to cancel the Lease as of  September
30,  2001,  with  180 days written notice.  In the  event  Tenant
exercises  such  right  to  cancel the  Lease,  Tenant  shall  be
obligated to pay Landlord a cancellation fee of $50,000. Landlord
shall  have the right to terminate the Lease as of September  30,
2001 with 180 days written notice.  In such event, Landlord shall
be  obligated to pay Tenant a cancellation fee equal to  $50,000.
Such  fee  may be paid by Landlord in the form of credit  against
rent for the last two rental periods of the Lease.

3.  Security Deposit. By no later than September 1, 1998,  Tenant
shall  remit  to  the Landlord a security deposit of  $50,000.00,
which shall remain on deposit with Landlord, as security for  the
faithful  performance  of all the terms and  conditions  of  this
Lease by Tenant.  Such security deposit shall be paid in the form
of cash, which shall be held with Landlord in an interest bearing
account (the "Deposit Account"). The interest paid on the Deposit
Account  shall  be taxable income to Tenant irrespective  of  the
fact  that such interest shall be held in such account to be paid
according  to  the provisions set forth below. If  Tenant  should
default  in performing any term or provision of this Lease,  then
the  security deposit, or any part thereof, may be applied on the
damages  or  expenses sustained by Landlord  by  reason  of  such
default.  Such application shall not be construed as an agreement
to  limit  the amount of Landlord's claim or as a waiver  of  any
damages,  but on the contrary, Landlord's claim for  damages  not
covered  by such security deposit shall remain in full force  and
effect.  If, at the end of the terms of this Lease, Tenant is not
in default in the performance of any provision of this Lease, the
security  deposit,  and  any accrued  interest,  or  any  balance
thereof  remaining, will be refunded to Tenant.  No mortgagee  of
Landlord  shall  have any liability to Tenant for  such  security
deposit   until  such  mortgagee  shall  actually  have  received
possession thereof.

4.   Disclaimer  of  Warranties.   Neither  Landlord,  Landlord's
mortgagee,   nor  any  officer,  partner,  agent,  employee,   or
representative of either Landlord or Landlord's mortgagee,  makes
or  has  made  any warranties or representations of any  kind  or
character,  express or implied, with respect to the Premises,  or
any  portion  thereof,  its  physical conditions,  income  to  be
derived  therefrom,  or  expenses to  be  incurred  with  respect
thereto,  its  fitness  or suitability for  any  particular  use,
latent  defects  or  any other matter or  thing  relating  to  or
affecting the same.  There are no oral agreements, warranties, or
representations  collateral to or affecting the Premises  or  any
portion  thereof, except as may otherwise be expressly set  forth
in  this  Lease.  Landlord and Tenant each hereby agree that  the
Premises are leased in an "as is" condition.

Tenant   agrees   to  furnish  Landlord  with  all  environmental
assessments  of  the Premises obtained by Tenant upon  completion
thereof.

5.  Use.

A.   The  Premises  may  be  used, to  the  extent  permitted  by
applicable  law, for general office purposes and for the  purpose
of  manufacturing, assembling, receiving, storing, shipping,  and
selling  (other than retail) of an advanced lead acid battery  or
such  other  products  as do not involve  the  use,  creation  or
storage  of  any type of Hazardous Substance unless  the  written
consent  of Landlord is first obtained (which approval shall  not
be   unreasonably   withheld  or  delayed  after   all   required
Environmental  Assessments and data are  provided  to  Landlord).
Landlord  hereby consents to the use of the substances  specified
in  Exhibit  D, provided all permits necessary for such  use  are
possessed by Tenant and Tenant continues to comply with all laws,
rules or regulations applicable thereto.  Tenant shall at its own
cost  and  expense obtain and at all time maintain  any  and  all
licenses  and  permits necessary for any such use.  Tenant  shall
comply  with  all governmental laws, ordinances, and  regulations
applicable  to the use of the Premises and shall promptly  comply
with  all  governmental orders and directives for the correction,
prevention,  and  abatement of nuisances in, upon,  or  connected
with  the  Premises, all at Tenant's sole expense.  In the  event
any use of the Premises, or any part thereof, whether approved by
Landlord or not, shall ever cause the insurance rates of policies
carried by Landlord to increase, Tenant shall pay on demand  from
Landlord,  as  additional rent, the full  amount  by  which  such
insurance  rates increase as a result of Tenant's use.   Further,
Tenant  will not use the Premises in any manner that would result
in  the  cancellation of any insurance policy carried by Landlord
on  the Premises, and Tenant will not introduce into the Premises
or   use  therein  any  equipment  or  fixtures  which  might  be
reasonably  expected,  due to excess weight,  vibration,  or  any
other characteristic, to cause damage to the Premises or walls or
interior demising walls of the Premises without Landlord's  prior
written consent.

B.    Without  limiting  the  generality  of  the  provisions  of
Paragraph  5.A.  above,  Tenant expressly  agrees  that  (i)  all
activities  will be conducted on the Premises in accordance  with
all  Environmental Laws; (ii) the Premises will not be knowingly,
intentionally, or negligently used in any manner for the  storage
or disposal of any Hazardous Substances except for the storage or
disposal of such materials as are used in the ordinary course  of
Tenant's  business,  provided such materials  are  at  all  times
properly stored and disposed of in a manner and location  meeting
all Environmental Laws; (iii) no portion of the Premises will  be
used as a landfill or a dump or other waste management unit; (iv)
Tenant will not install any underground tanks of any type on  the
Premises  or  the Land; (v) Tenant will not permit any  Hazardous
Substances to be brought onto, stored, processed, disposed of on,
released,  discharged from (including ground water contamination)
or  otherwise handled on the Premises, except in accordance  with
all  Environmental  Laws,  and if so  brought  or  found  located
thereon,  the  same shall be immediately removed  by  Tenant,  at
Tenant's  sole  cost  and expense, with  proper  disposal  (at  a
location  other than on the Land or Premises), and  all  required
cleanup  procedures  shall  be diligently  undertaken  by  Tenant
pursuant  to  all  Environmental Laws.  Tenant shall  immediately
notify  Landlord  should  Tenant become aware  of  the  presence,
release,  discharge  or  disposal of any Hazardous  Substance  or
other  environmental  problem or liability with  respect  to  the
Premises.  For purposes of this Lease, "Environmental Laws" shall
mean  any  and  all laws pertaining to health or the environment,
including  without  limitation, the  Comprehensive  Environmental
Response,  Compensation, and Liability Act  of  1980,  42  U.S.C.
9601-75,   as   amended   by   the   Superfund   Amendments   and
Reauthorization Act, Pub. L. No. 99-499, 100 Stat.  1613  (1986),
as  the same may be further amended from time to time, The  Toxic
Substances  Control  Act, 15 U.S.C. 2601, et.  seq.,  as  amended
from  time to time, the Clean Water Act, 33 U.S.C. 1251 et. seq.,
as  amended  from time to time, The Safe Drinking Water  Act,  42
U.S.C.
300(f)-300(j)-10,  as amended from time to time,  the  Clean  Air
Act,  42 U.S.C. 7401 et. seq., as amended from time to time,  the
Resource  Conservation and Recovery Act of 1976, 42 U.S.C.  6901-
91,  as  amended  from  time to time, the Texas  Water  Code,  as
amended from time to time, the Texas Solid Waste Disposal Act, as
amended from time to time, the Hazardous Materials Transportation
Act,  as  amended from time to time, and the Texas  Air  Act,  as
amended  from  time to time, together with any and all rules  and
regulations  promulgated under any of the preceding  statutes  or
acts,   including  without  limitation,  rules  and   regulations
promulgated by the United States Environmental Protection  Agency
and  the Texas Natural Resource Conservation Commission,  or  any
successor  agency.   Additionally, for purposes  of  this  Lease,
"Hazardous  Substances" means any substance (i) the  presence  of
which  requires  removal,  remediation,  or  investigation  under
Environmental  Laws, including without limitation, any  hazardous
substance   within  the  meaning  of  Section  101(14)   of   the
Comprehensive Environmental Response, Compensation, and Liability
Act,  as  amended, 42 U.S.C.  9601(14), or (ii) that contains  or
consists  of  gasoline,  diesel fuel, oil,  fuel  oil,  or  other
petroleum hydrocarbons.  Tenant shall indemnify, defend and  hold
Landlord (as well as any mortgagee and trustee under any deed  of
trust  or  mortgage on the Premises and their respective  agents,
employees,  affiliates,  officers, directors,  shareholders,  and
representatives)  harmless  from all  claims,  demands,  actions,
liabilities, costs (including attorney's fees), expenses, damages
and  obligations  of  any  nature, whether  threatened,  brought,
sought or imposed, arising from or as a result of the use of  the
Premises by Tenant, its invitees, agents, contractors, employees,
subcontractors, permitted subtenants, or permitted  assignees  in
violation  of  the  foregoing  provision  relating  to  Hazardous
Substances.   The  foregoing indemnification  shall  survive  the
termination or expiration of this Lease.

C.   Tenant agrees to give Landlord notice of any act,  spill  or
condition  which would be deemed to be a violation  of  the  uses
permitted  under  this Lease or a violation of  an  Environmental
Law.   In the event Tenant files any type of environmental report
with a governmental agency pertaining to an environmental matter,
Tenant  agrees  to furnish Landlord a copy of such report  within
five (5) days of the filing of such report.

6.  Taxes.

A.   Tenant  agrees  to  pay,  as  additional  rent,  all  taxes,
assessments  (both general and special), or governmental  charges
(hereinafter collectively referred to as "Taxes") lawfully levied
or  assessed  against the Premises or any part thereof,  together
with  any  tax with respect to this Lease and/or on sums received
by  Landlord under this Lease, but excluding any tax  based  upon
Landlord's  net income. Such payment of Taxes shall  be  made  by
Tenant  depositing  with Landlord along  with  the  Rent  payment
required to be made each month, an amount equal to 1/12th of  the
prior  year's  ad  valorem  taxes.  Such  monthly  payment  shall
initially be $6,060.00 per month.  Landlord agrees to place  such
sums  into the Deposit Account; and to pay Taxes prior  to  their
due  date.  In the event ad valorem taxes should either be raised
or lowered from time to time, then the amount of such tax deposit
shall  be  adjusted accordingly.  If, at the end of any  calendar
year,  it  is  determined that Tenant has  overpaid  such  taxes,
Landlord shall refund to Tenant the amount of such excess, but if
Tenant  shall  have  underpaid, Landlord shall  bill  or  invoice
Tenant  for the amount of such underpayment and such underpayment
shall  be  due  within  ten (10) days thereafter.   Tenant  shall
immediately  forward to Landlord any tax statement received  from
any  taxing  authority.   Tenant shall deposit  (or  shall  cause
Horizon  Battery  Technologies, Inc., and/or  BDM  International,
Inc. to deposit) the sum of $61,740.00 (being the estimated taxes
for  the  period of January 1, 1998, through September 30,  1998,
based  on  1997  taxes) with Landlord on or before  September  1,
1998, to be deposited into the Deposit Account.

B.  Landlord or Tenant may, at their own cost and expense (in its
own  name  or in the name of both Landlord and Tenant as Landlord
may  deem appropriate), dispute and contest the same, and in such
case  such disputed item need not be an amount equivalent to  the
amount  of  the  assessed  taxes.  Tenant  shall  escrow  with  a
mutually  agreeable financial institution the amount of any  such
disputed  or  contested item, including any penalty and  interest
which  may  accrue while the tax is being contested,  until  such
dispute  or  contest  is  resolved.  At the  conclusion  of  such
contest, Tenant shall pay the items contested to the extent  that
they  are  held  valid,  together with all  items,  court  costs,
interest, and penalties relating thereto and noted herein.   Both
parties  agree to promptly cooperate with each other in providing
information which is relevant in contesting the assessed value of
the  Premises.  Notwithstanding the above, Tenant shall  pay  any
tax being contested by it should payment be demanded by holder of
a mortgage on the Premises.

C.   Any  payment  to be made pursuant to this Paragraph  5  with
respect  to  the  real  estate  tax  year  in  which  this  Lease
terminates  shall bear the same ratio to the payment which  would
be required to be made for the full tax year as that part of such
tax  year  covered by the term of this Lease bears to a full  tax
year.  Landlord's real estate tax statements, with respect to the
Premises,  shall be made available for inspection  by  Tenant  at
Landlord's offices during Landlord's business hours.

D.    Landlord  agrees  that  if  an  abatement  of  any   taxes,
assessments  (both general and special), or governmental  charges
pertaining   to   the  Premises  is  granted  by   the   relevant
governmental  agency or authority, then the full amount  of  such
abatement  shall be received by Tenant.  If any tax,  assessment,
or  governmental  charge is paid prior to the  granting  of  such
abatement,  the  portion paid either directly  or  indirectly  by
Tenant  shall  be  refunded  to Tenant  either  directly  by  the
governmental agency or authority or, if refunded to the Landlord,
by  the  Landlord promptly after its receipt; provided,  however,
that  Tenant  shall deposit with Landlord any such refund  and/or
abated taxes until such time as Landlord shall have no contingent
liability  for the same due to the failure of Tenant  to  satisfy
any of the conditions required in order to obtain such abatements
and/or refunds.

E.   Tenant  agrees  that the 1997 ad valorem  taxes,  penalties,
interest  and collection costs shall be paid no later  than  June
30, 1998.

7.   Landlord's  Repair  Obligations.   Landlord  shall  have  no
obligation to maintain any portion of the Premises, but  may,  if
Tenant fails to do so after reasonable notice, make any necessary
repairs  thereto, whereupon Tenant shall reimburse  Landlord,  on
demand, the full cost of the same to the extent such repairs were
required  to  be  made by Tenant hereunder.  Notwithstanding  the
above,  should latent structural defects in either the foundation
or structural portions of the Building (excluding the roof) exist
upon  the  Commencement Date of this Lease, but not be discovered
until some later date, which latent defects materially lessen the
usefulness of the Building to Tenant for the purposes  for  which
Tenant  is then using the Building, then Landlord shall,  at  its
option after receiving written notice of the existence thereof by
Tenant, either perform such repairs as is reasonably required (at
no  cost  to  Tenant),  or, shall notify  Tenant  in  writing  of
Landlord's  refusal  to  perform such repairs,  whereupon  Tenant
shall have the option of performing such repairs at its sole cost
and  expense or terminating this Lease without penalty.  Any such
termination by Tenant must be done by written notice to  Landlord
within thirty (30) days after Landlord has notified Tenant of its
refusal to perform such repairs as aforesaid.

8.  Tenant's Repairs.  Tenant shall, at its own cost and expense,
keep  all  parts of the Premises, including but not  limited  to,
foundation, roof, exterior walls, windows, glass and plate glass,
doors  (including  overhead  doors),  any  special  store  front,
interior  walls,  and  finish work, floors  and  floor  covering,
heating, ventilating and air conditioning systems, gutters,  down
spouts and protective posts therefor, curbs, loading docks,  dock
boards, dock bumpers, dock levelers, steps and landings, plumbing
work  and  fixtures, and gas, electric, water and  other  utility
lines,  landscaping, parking areas, sidewalks, walkways, exterior
lighting,  driveways and the like, in good repair and  condition,
and  shall  take good care of the Premises and its  fixtures  and
suffer no waste.  Tenant shall keep the Premises free of all pest
infestation, including but not limited to, termites and  rodents,
and  shall  maintain  a regular pest control prevention  program.
Except  as  set forth in the last sentence of this  Paragraph  8,
Tenant  shall  not  be obligated to repair any damage  caused  by
fire, tornado, or other casualty covered by items set forth under
the  extended  coverage provisions of Landlord's  fire  insurance
policy.   Tenant shall also be obligated to repair any damage  to
the  Premises or any part thereof caused by the negligent act  or
willful   misconduct  of  its  Tenant,  its  agents,   customers,
employees,  or  invitees  regardless  of  whether  Tenant   would
otherwise  be  obligated to make such repair  by  the  provisions
hereof.   If  Tenant  fails  to  make  any  repairs  or  do   any
maintenance required by this Paragraph 8, Landlord may, but shall
not  be obligated to make such repairs or do such maintenance  at
Tenant's  expense.   The reasonable costs  of  such  repairs  and
maintenance shall be payable to Landlord by Tenant on demand.

9.   Alterations.   Tenant shall not make any major  alterations,
additions,  or  improvements to the Premises  without  the  prior
written consent of Landlord.  Tenant may, without the consent  of
Landlord,  but  at Tenant's own cost and expense and  in  a  good
workmanlike  manner, make such minor alterations,  additions,  or
improvements or erect, remove or alter such partitions, or  erect
such  shelves,  bins,  machinery, coolers,  freezers,  and  trade
fixtures  as  it may deem advisable, without altering  the  basic
character of the Building or improvements, without affecting  the
structural   or  load  bearing  elements  of  the   Building   or
improvements,  without overloading or damaging such  Building  or
improvements or any utility systems servicing same, and  in  each
case complying with all applicable governmental laws, ordinances,
regulations,   and  other  requirements.   All   shelves,   bins,
machinery,  coolers,  freezers, and trade fixtures  installed  by
Tenant may be removed by Tenant at the termination of this Lease,
if  Tenant so elects, so long as no event of default by Tenant is
then  in  existence,  and shall be removed  if  required  by  the
Landlord.   All   such   removals  and  restorations   shall   be
accomplished  in a good, workmanlike manner so as not  to  damage
the  primary  structural  qualities of  the  Building  and  other
improvements  situated on the Premises.  As used  herein,  "trade
fixtures"  shall not include any permanent leasehold improvements
including  but  not  limited  to  any  floor,  wall  or   ceiling
coverings,  any  interior  walls  or  partitions,  any   lighting
fixtures,  track lights or any property which is  a  part  of  or
associated  with any electrical, plumbing or mechanical  systems,
notwithstanding that the same may have been installed in, upon or
about the Premises by Tenant.

10.   Signs.   Tenant shall have the right to install signs  upon
the  exterior of the Building and other improvements situated  on
the  Premises.  Tenant's installation of signage shall be subject
to  any applicable governmental laws, ordinances, regulations and
other   requirements,  and  subject  to  applicable   restrictive
covenants,  if any.  Tenant shall remove all such  signs  at  the
termination of this Lease.  Such installation and removals  shall
be  made in such manner as to avoid injury or defacement  of  the
Building and other improvements situated on the Premises.

11.  Inspection.

A.   Landlord and Landlord's agents, representatives, and  lender
(and  the  lender's agents and representatives)  shall  have  the
right  to  enter  and  inspect the Premises at  any  time  during
reasonable business hours with reasonable prior notification  for
the  purpose  of  ascertaining  the  condition  of  the  Premises
(including  without  limitation, by  means  of  soil,  water  and
subsurface  testing and investigation), showing the  Premises  to
prospective purchasers, or in order to make such repairs  as  may
be  permitted  to  be made by Landlord under the  terms  of  this
Lease, and, during the final six months of the lease term  or  at
any time while Tenant is in default hereunder, for the purpose of
showing  the Premises to prospective tenants and shall  have  the
right  to  erect on the Premises a suitable sign indicating  that
the  Premises are for lease.  Landlord shall, at any time,  after
Tenant approves of the size and design (which approval shall  not
be unreasonably withheld or delayed), also be entitled to erect a
suitable sign indicating that the Premises are for sale.

B.   Between  October 1, 1998 and October 30, 1998, Tenant  shall
cause  Hill  Country  Environmental  to  enter  and  inspect  the
Premises  for  the  purposes  of  determining  the  environmental
condition of the Premises.  Such inspection shall be at the  sole
cost  and  expense  of  Tenant.  In  the  event  such  inspection
determines there are environmental conditions or activities which
would  be  a violation of Section 5 of the Lease, Landlord  shall
give  Tenant  notice  of  such  violations.   The  provisions  of
Paragraph  19 hereof shall control the requirements of Tenant  to
cure or correct such violations.  Nothing in this Paragraph 11(B)
shall  waive, diminish, delete, or impair the rights of  Landlord
under  that certain Lease dated August 17, 1993, between Landlord
and   Horizon  Battery  Technologies,  Inc.,  pertaining  to  the
Property.

12.   Utilities.  Tenant shall pay all charges incurred  for  any
utility services used on or from the Premises and any maintenance
charges  for  utilities, and shall be responsible for  any  costs
associated  in any manner with any additional utility connections
to the Premises which Tenant may require.  Such payments shall be
made directly to the supplier of any utility.  Landlord shall  in
no  event  be liable for any interruption or failure  of  utility
services on the Premises.

13.   Assignment and Subletting. Tenant shall not have the  right
to  assign this Lease or to sublet the whole or any part  of  the
Premises  without  the prior written consent of  Landlord,  which
consent   shall   not  be  unreasonably  withheld   or   delayed.
Notwithstanding any assignment or subletting, Tenant shall at all
times remain fully responsible  and liable for the payment of the
rent  herein specified and for compliance with all of  the  other
obligations  imposed on Tenant under the terms,  provisions,  and
covenants  of  this Lease.  Upon the occurrence of an  "event  of
default"  as  hereinafter defined, if the Premises  or  any  part
thereof are then assigned or sublet, Landlord, in addition to any
other  remedies provided, or provided by law, may at  its  option
collect  directly from such assignee or subtenant  all  rents  or
payments becoming due to Tenant under such assignment or sublease
and  apply such rent or payment against any sums due to  Landlord
by Tenant.  No such collection shall be construed to constitute a
release of Tenant from the further performance of its obligations
under this Lease.  Landlord shall have the right to assign any of
its rights under this Lease.

14.  Fire, Casualty and Pollution Damage.

A.   If  the  Premises  should be damaged or destroyed  by  fire,
tornado,  or  other  casualty, Tenant shall give  prompt  written
notice thereof to Landlord.

B.   If  the Premises or the Building should be totally destroyed
by  fire,  tornado, or other casualty, Tenant shall  give  prompt
written notice thereof to Landlord.

C.   If  the Premises or the Building should be damaged by  fire,
tornado,  or  other  casualty,  but  only  to  such  extent  that
rebuilding or repairs can be completed within 180 days after  the
date  upon  which Landlord is notified by Tenant of such  damage,
this  Lease shall not terminate, but Landlord shall, at its  sole
cost and expense, proceed with best efforts to rebuild and repair
such  Building to substantially the condition in which it existed
prior  to  such  damage, except that (i) Landlord  shall  not  be
required to so rebuild or repair if less than twelve (12)  months
remain in the term hereof (or if less than 12 months remain until
Tenant  or  Landlord  may terminate this  Lease  as  provided  in
Paragraph 2 herein) after the expiration of such 180 day  period;
(ii)  Landlord  shall  not be required  to  rebuild,  repair,  or
replace   any  part  of  the  partitions,  fixtures,  and   other
improvements  which  may  have been placed  on  the  Premises  by
Tenant;  and  (iii)  so long as Landlord has  complied  with  the
provisions hereof relating to insurance coverage, Landlord  shall
not  be  obligated  to  expend any funds in excess  of  available
insurance proceeds attributable to such damage in rebuilding  the
Premises.  If the Premises are untenantable in whole or  in  part
following  such  damage, the rent payable  hereunder  during  the
period  the  premises are untenantable shall be reduced  to  such
extent   as  may  be  fair  and  reasonable  under  all  of   the
circumstances, as mutually determined by Tenant and Landlord.  In
the  event that Landlord should fail to complete such repairs and
rebuilding within 180 days after the date upon which Landlord  is
notified by Tenant of such damage, Tenant may, as its sole remedy
and  at  its  option, terminate this Lease by delivering  written
notice  of termination to Landlord within thirty (30) days  after
the  expiration of such 180 day period, whereupon all rights  and
obligations hereunder shall cease and determine, save and  except
Tenant's obligations to indemnify Landlord.  Notwithstanding  the
above  provisions of this Lease, if the Premises or  any  portion
thereof  is damaged by fire or other casualty resulting from  the
fault  or  negligence  of Tenant or any  of  Tenant's  agents  or
employees,  the  rent  under this Lease will  not  be  abated  or
diminished during the repair of that damage, and Tenant  will  be
liable  to  Landlord for the cost and expense of the  repair  and
restoration of the Premises or any part thereof caused thereby to
the  extent  that  cost and expense is not covered  by  insurance
proceeds  (including  without  limitation,  the  amount  of   any
insurance deductible).

D.   Any  insurance  which may be carried by Landlord  or  Tenant
against  loss  or damage to the buildings and other  improvements
situated  on  the Premises shall be for the sole benefit  of  the
party carrying such insurance and under its sole control.

E.  Except as noted in subparagraph C above, each of Landlord and
Tenant  hereby releases the other from any and all  liability  or
responsibility to the other or anyone claiming through  or  under
them by way of subrogation or otherwise for any loss or damage to
property   caused  by  fire  or  any  of  the  extended  coverage
casualties covered by the insurance maintained hereunder, EVEN IF
SUCH  FIRE OR OTHER CASUALTY SHALL HAVE BEEN CAUSED BY THE  FAULT
OR  NEGLIGENCE OF THE OTHER PARTY, or anyone for whom such  party
may be responsible; provided, however, that this release shall be
applicable and in force and effect only with respect to  loss  or
damage  occurring  during such times as  the  applicable  insurer
consents thereto, to the extent any such consent is required, and
the  releaser's policies contain a clause or endorsement  to  the
effect that any release shall not adversely affect or impair said
policies  or  prejudice  the right of  the  releaser  to  recover
thereunder.   Each  of Landlord and Tenant agrees  that  it  will
request its insurance carriers to include in its policies such  a
clause or endorsement.

F.   Landlord covenants and agrees to maintain standard fire  and
extended  coverage insurance covering the Building (exclusive  of
any  of  Tenant's  fixtures,  furnishings,  equipment  and  other
property  attached hereto or located thereon) in  an  amount  not
less  then  eighty percent (80%) or more, at Tenant's option,  of
the  replacement cost thereof.  On a monthly basis along with the
payment of Rent, Tenant shall pay to Landlord as additional rent,
one-twelfth  (1/12)  of  the amount  of  the  premiums  for  such
insurance.  Such payment shall be placed in the Deposit  Account.
The  failure  to  pay such amount shall be treated  in  the  same
manner  as a failure to make payment of rent when due.   Any  and
all  payments  for  losses  under such  insurance  maintained  by
Landlord shall be made solely to Landlord, and such insurance may
be  obtained  by  Landlord  through blanket  or  master  policies
insuring  other  entities or properties owned  or  controlled  by
Landlord.  Similar  provisions  regarding  the  overpayment   and
underpayment  of  such insurance premiums  as  are  contained  in
Paragraph 6(A) shall apply to this Paragraph 14(F). Tenant  shall
deposit the sum of $6,497.00 (being the estimated premium for the
period  January 1, 1998 through September 30, 1998, based on  the
1997  premiums) with Landlord on or before September 1, 1998,  to
be deposited into the Deposit Account.

G.   Tenant  shall, at its own expense, during the  term  of  the
Lease,  obtain pollution insurance protecting Landlord  from  any
damages  resulting  from any act of pollution  occurring  on  the
Premises.   Such  policy shall be in the amount of $1,000,000.00,
with  no greater than a $50,000.00 deductible.  The policy  shall
provide  that  any proceeds for loss or damage  to  the  Premises
shall be payable solely to Landlord, which sum Landlord shall use
for  the  correction or abatement of the pollution  resulting  in
such  payment. On a monthly basis along with the payment of Rent,
Tenant  shall  pay  to Landlord as additional  rent,  one-twelfth
(1/12)  of  the amount of the premiums for such insurance.   Such
payment  shall be placed in the Deposit Account.  The failure  to
pay  such amount shall be treated in the same manner as a failure
to  make  payment  of rent when due.  Any and  all  payments  for
losses under such insurance maintained by Landlord shall be  made
solely  to  Landlord,  and  such insurance  may  be  obtained  by
Landlord  through  blanket  or  master  policies  insuring  other
entities  or properties owned or controlled by Landlord.  Similar
provisions  regarding  the overpayment and underpayment  of  such
insurance premiums as are contained in Paragraph 6(A) shall apply
to this Paragraph 14(G). Tenant shall provided Landlord with a 12
month prepaid pollution insurance policy under the above terms at
the beginning of this Lease.

15.   Liability.   Landlord shall not  be  liable  to  Tenant  or
Tenant's employees, agents, patrons, or visitors, or to any other
person whomsoever, for any injury to person or damage to property
on  or  about the Premises caused by the negligence or misconduct
of  Tenant,  its  agents,  servants, or  employees,  invitees  or
licensees  or caused by the Building and improvements located  on
the premises becoming out of repair, or caused by leakage of gas,
oil,  water,  or  steam  or  by electricity  emanating  from  the
Premises,  or due to any cause whatsoever, and Tenant  agrees  to
indemnify  Landlord and hold it harmless from any loss,  expense,
or  claims  including attorney's fees, arising out  of  any  such
damage  or injury; except to the extent that any injury to person
or  damage  to  property is caused solely by  the  negligence  of
Landlord.  Tenant shall procure and maintain throughout the  term
of  this  Lease a policy or policies of insurance  (in  form  and
content reasonably acceptable to Landlord), at its sole cost  and
expense,  insuring both Landlord and Tenant against  all  claims,
demands  or actions arising out of or in connection with Tenant's
use  or  occupancy  of the Premises, or by the condition  of  the
Premises,  the  limits of such policy or policies  to  be  in  an
amount  not  less  than  $1,000,000.00  in  respect  of  any  one
occurrence and a General Aggregate limit of $2,000,000.00, and to
be  written  by  insurance  companies  reasonably  acceptable  to
Landlord  and qualified to do business in the state in which  the
Premises are located.  All policies of insurance required  to  be
maintained  by  Tenant shall specifically make reference  to  the
indemnifications  of  Landlord  by  Tenant  hereunder  and  shall
provide  that  the Landlord shall be given at least  thirty  (30)
days  prior written notice of any cancellation or non-renewal  of
any  such  policy.  The indemnity provisions  contained  in  this
Paragraph 15 shall survive the termination or expiration of  this
Lease  and  run in favor of not only Landlord, but the Landlord's
agents, employees, affiliates, officers, directors, shareholders,
and   representatives   (collectively  the  "Landlord's   Related
Parties").

16.  Condemnation.

A.   If the whole or any substantial part of the Premises or  the
Building  or Land upon which the Premises are located  should  be
taken for any public or quasi-public use under governmental  law,
ordinance,  or regulation, or by right of eminent domain,  or  by
private purchase in lieu thereof, this Lease shall terminate  and
the  rent  shall be abated during the unexpired portion  of  this
Lease, effective when the physical taking of said Premises  shall
occur.   For  the  purposes  hereof  "substantial  part  of   the
Premises"  shall be deemed to mean such portion of  the  Premises
the  loss  of which would, in Landlord's and Tenant's  reasonable
opinion,  materially lessen the usefulness  of  the  Premises  to
Tenant  for  the  purposes for which Tenant  is  then  using  the
Premises.
B.   If  less  than  a substantial part of the  Premises  or  the
Building  or  Land upon which the Premises are located  shall  be
taken  for  any public or quasi-public use under any governmental
law,  ordinance or regulation, or by right of eminent domain,  or
by  private  purchase  in  lieu thereof,  this  Lease  shall  not
terminate,  but the rent payable hereunder during  the  unexpired
portion of this Lease shall be reduced to such extent as  may  be
fair  and  reasonable under all of the circumstances as  mutually
determined by Landlord and Tenant.

C.   In the event of any such taking or private purchase in  lieu
thereof,  Landlord and Tenant shall each be entitled  to  receive
and retain such separate awards and/or portion of lump sum awards
as   may  be  allocated  to  their  respective  interest  in  any
condemnation  proceedings.  Notwithstanding  the  above,   Tenant
agrees  that  any awards payable as a result of the  condemnation
and/or  private purchase in lieu of condemnation of the Land  not
affecting  the Building and/or Parking Area shall be paid  solely
to Landlord.

17.   Holding  Over.  Should Tenant, or any of its successors  in
interest, hold over the Premises, or any part thereof, after  the
expiration  of  the  term of this Lease, as  may  be  renewed  or
extended,  unless otherwise agreed in writing, such holding  over
shall  constitute  and be construed as creating a  month-to-month
tenancy  only,  cancelable at the will of Landlord,  upon  thirty
(30)  days notice, at a rental equal to one hundred fifty percent
(150%) of the total rental payable for the last month of the term
hereof,  payable in full on the first day on which  Tenant  holds
over  and  on the first day of each month thereafter during  such
holdover  period.  The inclusion of the preceding sentence  shall
not  be  construed as Landlord's permission for  Tenant  to  hold
over.

18.   Quiet Enjoyment.  Landlord covenants that it now  has  good
title  to  the  Premises,  free  and  clear  of  all  liens   and
encumbrances, excepting only the lien for current taxes  not  yet
due, such mortgage or mortgages as are permitted by the terms  of
this  Lease,  zoning  ordinances, and  other  building  and  fire
ordinances  and governmental regulations relating to the  use  of
such  property, and easements, restrictions, and other conditions
of  record.   Landlord represents and warrants that it  has  full
right  and  authority to enter into this Lease and  that  Tenant,
upon  paying  the rental and performing its other  covenants  and
agreements  under  the terms of this Lease, shall  peaceably  and
quietly  have, hold, and enjoy the Premises for the  term  hereof
without  hindrance  or  molestation  from  Landlord,  or   anyone
claiming  by,  through,  or under Landlord,  but  not  otherwise,
subject  to  the  terms and provisions of  this  Lease.   Nothing
herein  shall  prohibit  Landlord from granting  easements  over,
above,  through  or under any portion of the Land  provided  such
grant  (a) does not affect the Building and/or Parking  Area,  or
(b) does not destroy the current or proposed future operations of
Tenant.   Tenant consents to the granting of a 25 foot  permanent
and temporary easement to the City of San Marcos along Interstate
35 for the construction and operation of a water line (the Center
Point Transmission Main Project).

19.  Events of Default.  The following events shall be deemed  to
be events of default by Tenant under this Lease:

A.   Tenant  shall fail to pay any installment  of  the  rent  or
additional  rent hereby reserved (including, without  limitation,
amounts payable pursuant to Paragraphs 5, 6, 8, 12 and 14 hereof)
or  shall  fail  to perform or discharge any other obligation  or
liability  of  Tenant under this Lease requiring the  payment  of
money when any such payment is due, within five (5) business days
after receipt of written notice from Landlord; provided, however,
that  Landlord shall not be required to give more  than  two  (2)
such notices during any twelve (12) month period.

B.  Tenant shall make an assignment for the benefit of creditors.

C.  Tenant should file a petition under any section or chapter of
the  Bankruptcy  Code or under any present or future  bankruptcy,
insolvency, or similar law or statute of the United States or any
state  thereof heretofore or hereinafter enacted; or Tenant shall
have  such  a  petition filed against it involuntarily  and  such
petition is not withdrawn or otherwise removed within sixty  (60)
days of its being filed; or Tenant shall be adjudged bankrupt  or
insolvent in proceedings filed against Tenant thereunder.

D.   A receiver, trustee, or custodian shall be appointed for, or
shall  take possession of, all or substantially all of the assets
of Tenant.

E.   Tenant  shall  fail to comply with any term,  provision,  or
covenant  of this Lease or shall fail to discharge any obligation
or   liability hereunder not involving the payment of money,  and
shall  not  cure  any  such failure within ten  (10)  days  after
written  notice thereof to Tenant, provided that if such  default
is  not susceptible to cure within ten (10) days, Tenant shall be
deemed to have cured such default if Tenant has commenced efforts
to  cure  such  default  within such  ten  (10)  day  period  and
diligently pursues and completes such curative actions  within  a
reasonably  prompt  period  of  time  thereafter;  and  provided,
further,  that Landlord shall not be required to give  more  than
two (2) such notices during any twelve (12) month period.

F.  The termination, dissolution or liquidation of Tenant.

20.   Remedies.   Upon the occurrence of any of  such  events  of
default  described  herein, Landlord shall  have  the  option  to
pursue  any  one  or more of the following remedies  without  any
notice or demand whatsoever (Tenant hereby expressly waiving  any
such notice or demand):

A.  Terminate this Lease, in which event Tenant shall immediately
surrender  the Premises to Landlord without any payment therefor,
and if Tenant fails to do so, Landlord may, without prejudice  to
any other remedy which it may have for possession or arrearage in
rent, enter upon and take possession of the Premises and expel or
remove  Tenant  and  any other person who may be  occupying  such
Premises  or  any  part  thereof, by any  lawful  means,  whether
through  judicial process or otherwise, without being liable  for
any  claim  of  damages therefor; and Tenant  agrees  to  pay  to
Landlord  on  demand  the amount of all  loss  and  damage  which
Landlord  may  suffer  by  reason of  such  termination,  whether
through inability to relet the Premises on satisfactory terms  or
otherwise.

B.   Enter upon and take possession of the Premises and expel  or
remove  Tenant  and  any other person who may be  occupying  such
Premises  or  any  part  thereof, by any  lawful  means,  whether
through  judicial process or otherwise, without being liable  for
any  claim for damages therefor, and relet the Premises,  in  the
name of Landlord or otherwise, for such term or terms (which  may
be  greater or lesser than the period which would otherwise  have
constituted  the balance of the term of this lease) and  on  such
conditions  (which  may  include concessions  or  free  rent)  as
Landlord, in its sole discretion, may determine, and receive  the
rent   therefor.    In  the  event  of  any  such   re-entry   or
dispossession,  Tenant  shall not  thereby  be  relieved  of  its
liability  and obligations under this Lease, which shall  survive
any  such  re-entry or dispossession, and in that event  (i)  the
rent  and other charges required to be paid by Tenant up  to  the
time  of  such  re-entry or dispossession shall  become  due  and
payable,  together with such reasonable expenses as Landlord  may
incur  for  reasonable  attorneys' fees,  brokerage  commissions,
and/or expenses of putting the Premises in such condition as  the
Tenant  under  the provisions hereof is required to maintain,  or
for  preparing  the same for reletting, and (ii)  Tenant  or  the
legal  representatives  of Tenant shall  also  pay  Landlord,  as
liquidated  damages  for the failure of  Tenant  to  observe  and
perform  Tenant's covenants herein contained, an amount equal  to
the  sum  of (A) the base rental set forth in Paragraph 2 hereof,
and  (B)  all  additional  rental payable  by  Tenant  under  the
provisions  hereof, as if this Lease were still in  effect,  less
the  net  amount,  if  any, of the rents and  all  other  amounts
collected  on account of the lease or leases of the Premises  for
each  month  of the period which would otherwise have constituted
the balance of the term of this Lease as the same may theretofore
have  been  extended.  In computing the amount of such liquidated
damages  there  shall be included such expenses as  Landlord  may
incur   in   connection  with  reletting,  including   reasonable
attorneys'  fees, brokerage commissions, expenses of keeping  the
Premises  in  the condition Tenant is required to maintain  under
the provision of this Lease, or expenses of preparing the same of
reletting.  Any such liquidated damages shall be paid in  monthly
installments  by Tenant on the day specified hereunder,  and  any
suit brought to collect the amount of the deficiency of any month
shall  not prejudice in any way the rights of Landlord to collect
the  deficiency for any subsequent month by a similar  proceeding
or  to bring suit for the net present value of such rents for the
balance   of  the  lease  term.   Notwithstanding  any   contrary
provision  contained  herein, no re-entry and  reletting  of  the
Premises  by  Landlord shall be construed as an election  on  the
part  of Landlord to terminate this Lease unless a written notice
of  such  intention is given to Tenant by Landlord.  Furthermore,
notwithstanding any such reletting without termination,  Landlord
may at any time thereafter elect to terminate this Lease for such
previous  default and/or exercise any other available  rights  in
connection therewith.

C.   Enter upon the Premises by any lawful means, whether through
judicial process or otherwise, without terminating this Lease and
without being liable for any claim for damages therefor,  and  do
whatever Tenant is obligated to do under the terms of this Lease;
and  Tenant  agrees  to  reimburse Landlord  on  demand  for  any
expenses  which  Landlord may incur in thus effecting  compliance
with  Tenant's  obligations under this Lease; and Tenant  further
agrees  that  Landlord  shall  not  be  liable  for  any  damages
resulting  to  Tenant  from such action,  unless  caused  by  the
negligence of Landlord.

In  the  event  Tenant fails to pay any installment  of  rent  or
additional  rent  hereunder within ten (10)  days  of  when  such
installment  is  due,  Tenant shall pay to  Landlord  on  written
demand  a late charge in an amount equal to five percent (5%)  of
such  installment; and the failure to pay such late charge amount
within ten (10) days after such written demand therefor shall  be
an  event  of  default hereunder.  The provision  for  such  late
charge shall be in addition to all of Landlord's other rights and
remedies  hereunder  or  at law and shall  not  be  construed  as
liquidated  damages  or as limiting Landlord's  remedies  in  any
manner.

Pursuit  of  any  of  the foregoing remedies shall  not  preclude
pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy  herein
provided  constitute a forfeiture or waiver of any  rent  due  to
Landlord  hereunder  or of any damages accruing  to  Landlord  by
reason  of  the  violation of any of the terms,  provisions,  and
covenants  herein  contained.   No  waiver  by  Landlord  of  any
violation  or  breach  of  any  of  the  terms,  provisions,  and
covenants  herein  contained shall  be  deemed  or  construed  to
constitute a waiver of any other violation or breach  of  any  of
the   terms,   provisions,   and  covenants   herein   contained.
Landlord's acceptance of the payment of rental or other  payments
hereunder  after the occurrence of an event of default shall  not
be  construed  as  a waiver of such default, unless  Landlord  so
notifies  Tenant in writing.  Forbearance by Landlord to  enforce
one  or  more  of the remedies herein provided upon an  event  of
default  shall not be deemed or construed to constitute a  waiver
of  such  default.  If, on account of any breach  or  default  by
Tenant in Tenant's obligations under the terms and conditions  of
this  Lease,  provided it is adjudged that  Tenant  did  actually
default, it shall become necessary or appropriate for Landlord to
employ  or consult with an attorney concerning, or to enforce  or
defend,  any  of Landlord's rights or remedies hereunder,  Tenant
agrees  to pay any reasonable attorneys' fees.  No act  or  thing
done by the Landlord or its agents during the term hereby granted
shall be deemed an acceptance of the surrender of the Premise and
no  agreement  to  accept a surrender of said Premises  shall  be
valid  unless in writing signed by the Landlord.  The receipt  by
Landlord of rent with knowledge of the breach of any covenant  or
other  provision contained in this Lease shall not be  deemed  or
construed to constitute a waiver of any other violation or breach
of any of the terms, provisions, and covenants contained herein.

21.    Mortgages.    Tenant  accepts  this  Lease   subject   and
subordinate to any mortgage(s) and/or deed(s) of trust now or  at
any  time  hereafter  constituting a  lien  or  charge  upon  the
Premises  or  the improvements situated thereon  or  any  portion
thereof.   Tenant shall at any time hereafter on  demand  execute
any  instruments,  releases  or  other  documents  which  may  be
reasonably   required  by  any  mortgagee  for  the  purpose   of
subjecting and subordinating this Lease to the lien of  any  such
mortgage.   With  respect to any current  or  future  mortgage(s)
and/or  deed(s)  of  trust  at any time hereafter  created  which
constitute a lien or charge upon the Premises or the improvements
situated  thereon, Landlord agrees to obtain from the  holder  of
such  mortgage, and Tenant agrees to execute and deliver to  such
lender,  a non-disturbance and attornment agreement (in form  and
content   reasonably  acceptable  to  such  lender  and   Tenant)
providing  for Tenant to attorn to such lender (or any  purchaser
of  the  Premises at a foreclosure of such lender's lien  against
the  Premises)  and  for  such lender to  honor  this  Lease  and
Tenant's  interest in the Premises so long as Tenant  is  not  in
default  hereunder.  Tenant specifically requires  that  Landlord
obtain a non-disturbance and attornment agreement from Chase.

22.  Landlord's Default.  In the event Landlord should become  in
default in any payments due on any such mortgage described in the
above  Paragraph 22 or in the payment of taxes or any other items
which  might become a lien upon the Premises and which Tenant  is
not  obligated  to  pay under the terms and  provisions  of  this
Lease,  Tenant is authorized and empowered, after giving Landlord
(and the holder of any mortgage or deed of trust lien encumbering
the Premises of which it has received notice) five (5) days prior
written notice of such default and if Landlord fails to cure such
default, to pay any such items for and on behalf of Landlord, and
the  amount  of any item so paid by Tenant for or  on  behalf  of
Landlord,  together with any interest or penalty required  to  be
paid  in  connection  therewith, shall be  credited  against  the
installments of rent next payable by Tenant hereunder;  provided,
however,  that  Tenant shall not be authorized and  empowered  to
make any payment under the terms of this Paragraph 23, unless the
items paid shall be superior to Tenant's interest hereunder.

23.   Mechanic's Liens.  Tenant shall have no authority,  express
or  implied,  to create or place any lien or encumbrance  of  any
kind  or  nature whatsoever upon, or in any manner to  bind,  the
interest of the Landlord in the Premises or to charge the rentals
payable  hereunder for any claim in favor of any  person  dealing
with Tenant, including those who may furnish materials or perform
labor  for any construction or repairs, and each such claim shall
affect  and each such lien shall attach, if at all, only  to  the
leasehold interest granted to Tenant by this instrument.   Tenant
covenants  and agrees that it will pay or cause to  be  paid  all
sums  legally  due  and  payable on it on account  of  any  labor
performed  or  materials furnished in connection  with  any  work
performed on the Premises on which any lien is and can be validly
and  legally  asserted  against its  leasehold  interest  in  the
Premises  or the improvements thereon and that it will  save  and
hold  Landlord harmless from any and all loss, cost,  or  expense
based  on or arising out of asserted claims or liens against  the
leasehold  estate or against the rights, titles, and interest  of
Landlord  in  the  Premises or under the  terms  of  this  Lease.
Further,  Tenant agrees that it will immediately remove and  have
released any mechanic's, materialmen's or similar lien which  may
become  attached to the Premises or any interest  therein  during
the  term hereof; provided, however, that in lieu of removing and
releasing  any  mechanic's lien, Tenant may post  a  bond  in  an
amount  of not less than one hundred fifty percent (150%) of  the
amount  of  the  claimed  mechanic's lien,  issued  by  a  surety
acceptable  to  and approved by Landlord, in form  and  substance
satisfactory  to  Landlord,  in  Landlord's  sole  and   absolute
discretion.

24.   Notices.   Each  provision of this  instrument  or  of  any
applicable governmental laws, ordinances, regulations, and  other
requirements with reference to the sending, mailing, or  delivery
of  any notice or the making of any payment by Landlord to Tenant
or  with  reference to the sending, mailing, or  deliver  of  any
notice  or the making of any payment by Tenant to Landlord  shall
be deemed to be complied with when and if the following steps are
taken:

A.   All rent and other payments required to be made by Tenant to
Landlord  hereunder shall be payable to Landlord at  the  address
hereinbelow  set forth or at such other address as  Landlord  may
specify  from  time  to  time  by  written  notice  delivered  in
accordance herewith.

B.   All  payments  required to be made  by  Landlord  to  Tenant
hereunder  shall be payable to Tenant at the address  hereinbelow
set forth, or at such other address within the continental United
States  as Tenant may specify from time to time by written notice
delivered in accordance herewith.

C.   Any notice or document required or permitted to be delivered
hereunder  (other than a payment, which shall be deemed  received
only  when  actually received) shall be deemed  to  be  delivered
whether  actually  received or not three  (3)  days  after  being
deposited  in the United States Mail, postage prepaid,  certified
or  registered mail, addressed to the appropriate party hereto at
the  address  set out opposite its name below, or at  such  other
address  as  it  has  theretofore  specified  by  written  notice
delivered in accordance herewith:

LANDLORD:

William D. McMorris
P.O. Box 18149
Austin, Texas 78760-8149

With a copy to:

Mark J. Silverstone
Sneed, Vine & Perry, P.C.
P.O. Box 856
Georgetown, Texas 78627

TENANT:

Attn: Jim Rosel
Electrosource, Inc.
2809 IH 35 South
San Marcos, Texas 78666

With a copy to:

John Malone
P.O. Box 8030
Waco, Texas 76714-8030


If  and when included within the term "Landlord", as used in this
instrument, there are more than one person, firm, or corporation,
all  shall  jointly  arrange  among themselves  for  their  joint
execution  of  a notice specifying an individual  at  a  specific
address  for the receipt of notices and payments to Landlord;  if
and  when  included within the term "Tenant",  as  used  in  this
instrument,  there are more than one person, firm or corporation,
all  shall  jointly  arrange  among themselves  for  their  joint
execution  of  a notice specifying an individual  at  a  specific
address  within the continental United States for the receipt  of
notices and payments to Tenant.  All parties included within  the
terms  "Landlord" and "Tenant", respectively, shall be  bound  by
notices given in accordance with the provisions of this paragraph
to the same effect as if each had received such notice.

25.  Miscellaneous.

A.   Words  of  any gender used in this Lease shall be  held  and
construed to include any other gender, and works in the  singular
number shall be held to include the plural and vice versa, unless
the context otherwise requires.

B.  The terms, provisions, and covenants and conditions contained
in  this  Lease shall apply to, inure to the benefit of,  and  be
binding upon, the parties hereto and upon their respective heirs,
legal  representatives, successors, and permitted assigns, except
as otherwise herein expressly provided.

C.   The captions are inserted in this Lease for convenience only
and  in no way define, limit, or describe the scope or intent  of
this  Lease, or any provision hereof, nor in any way  affect  the
interpretation of this Lease.

D.  Tenant agrees, within ten (10) business days after request of
Landlord,  to  deliver  to Landlord, or Landlord's  designee,  an
estoppel certificate stating that this Lease is in full force and
effect, the date to which rent has been paid, the unexpired  term
of this Lease, and such other matters pertaining to this Lease as
may  be  reasonably  requested by Landlord.  Landlord  agrees  to
provide  a  like certificate to Tenant within ten  (10)  business
days after request by Tenant.

E.   This Lease may not be altered, changed, or amended except by
an instrument in writing executed by Landlord and Tenant.

F.   This  instrument, including any Exhibit (signed or initialed
by Landlord and Tenant) which is attached hereto, constitutes the
entire  agreement between Landlord and Tenant.  No prior  written
or   prior  or  contemporaneous  oral  statements,  promises,  or
representations shall be binding.

G.   If  any  provision of this Lease shall ever be  held  to  be
invalid  or  unenforceable, such invalidity  or  unenforceability
shall  not  affect any other provisions of the  Lease,  but  such
other provisions shall continue in full force and effect.

H.  This Lease shall be construed and enforced in accordance with
the laws and judicial decisions of the State of Texas.

I.   Under  no circumstances whatsoever shall Landlord or  Tenant
ever  be  liable hereunder for consequential damages  or  special
damages.
In  the event of the transfer by Landlord of his interest in  the
Land,  Landlord  shall thereupon be released and discharged  from
all  covenants  and obligations of Landlord thereafter  accruing,
but such covenants and obligations shall be binding upon each new
owner for the duration of such owner's ownership.

J.   In  the event of any act or omission by Landlord which would
give  Tenant the right to damages from Landlord or the  right  to
terminate  this  Lease  by  reason of a  constructive  or  actual
eviction  from  all or part of the Premises or otherwise,  Tenant
shall  not  sue  for such damages or exercise any such  right  to
terminate  until (a) it shall have given written notice  of  such
act  or  omission  to  Landlord  and  to  the  holder(s)  of  the
indebtedness  or other obligations secured by any first  mortgage
or  first  deed of trust affecting the Premises, if the name  and
address of such holder(s) shall have previously been furnished to
Tenant;  and  (b) a reasonable period of time for remedying  such
act  or omission shall have elapsed following the giving of  such
notice,  during which time Landlord and such holder(s) or  either
of  them,  their agents or employees, shall be entitled to  enter
upon  the  Premises and do therein whatever may be  necessary  to
remedy such act or omission.

K.   Whenever a period of time is herein prescribed for action to
be  taken by Landlord or Tenant, Landlord or Tenant shall not  be
liable  or responsible for, and there shall be excluded from  the
computation  for  any  such period of time,  any  delays  due  to
strikes,  riots,  acts of God, shortages of labor  or  materials,
war,  governmental laws, regulations or restrictions or any other
causes  of  any  kind whatsoever which are beyond the  reasonable
control  of  Landlord  or  Tenant, provided  however,  that  this
provision  shall  not apply to any obligation or liability  under
this  Lease requiring the payment of money when any such  payment
is due.

L.   Any provision of this Lease to the contrary notwithstanding,
Tenant hereby agrees that, no personal or corporate liability  of
any  kind  or  character whatsoever now attaches or at  any  time
hereafter under any condition shall attach to Landlord or any  of
Landlord's  Related  Parties or any  mortgagee  of  Landlord  for
payment  of  any  amounts  payable  under  this  Lease   or   for
performance of any obligation of Landlord under this Lease.   The
exclusive  remedies  of  Tenant for the failure  of  Landlord  to
perform  any of its obligations under this Lease (in addition  to
Tenant's  termination rights as set forth in other provisions  of
this  Lease) shall be to proceed against the interest of Landlord
in and to the Premises.  The provision contained in the foregoing
sentence  is not intended to, and shall not, limit any right  the
Tenant  might otherwise have to obtain injunctive relief  against
Landlord or Landlord's successors in interest for suit or  action
in connection with enforcement or collection of amounts which may
become   owing  or  payable  under  or  on  amount  of  insurance
maintained by Landlord.

26.   Return of Premises.  At the end of the term covered by this
Lease, or upon such earlier termination of this Lease as provided
herein,  Tenant shall surrender the Premises to Landlord in  good
order  and condition, reasonable wear and tear excepted; provided
that  in  any case the Premises shall be surrendered to  Landlord
reasonably  clean and free of debris and without the presence  of
any  Hazardous  Substances  used, handled,  generated,  released,
processed,  treated  or disposed by Tenant with  respect  to  the
Premises  during  the life of this Lease.  At  such  time  Tenant
shall  deliver  to  Landlord  all  keys  to  the  Premises.   Any
equipment,  trade fixtures, or other property of Tenant  left  in
the  Premises  after the end of the Lease shall  be  conclusively
deemed  to  have  been  abandoned by  Tenant,  and  Landlord  may
thereupon  without  notice  to Tenant  take  possession  of  such
property and, at Landlord's option either (i) declare same to  be
property  of  Landlord, or (ii) at the sole cost and  expense  of
Tenant,  dispose of such property in any manner and for  whatever
consideration  Landlord in its sole discretion  shall  deem  most
advisable.   Tenant agrees that it will, promptly upon Landlord's
request, execute at Tenant's sole cost and expense, such bills of
sale  or  other evidences of title to such property that Landlord
may request.

27.   Special  Provisions.  Additional provisions,  if  any,  set
forth on Exhibits attached hereto and made a part hereof for  all
purposes  are incorporated herein as if fully set forth  in  this
Paragraph.

Executed this 29th day of May, 1998.

LANDLORD:


  /s/ William D. McMorris
WILLIAM D. McMORRIS

TENANT:

ELECTROSOURCE, INC.



BY:  /s/ Michael G. Semmens
   Michael G. Semmens
   President

                            EXHIBIT A

                      PROPERTY DESCRIPTION

Lot  1,  Block 1, INTERNATIONAL ELECTRIC CORPORATION ADDITION,  a
subdivision in Hays County, Texas, according to the map  or  plat
of  record  in  Volume 3, page 393, Plat Records of Hays  County,
Texas,  together with that certain strip of land sixty (60)  feet
in width as described in that certain Warranty Deed dated October
3,  1979,  from Joe E. Leavines, et al., to Stewart  &  Stevenson
Realty  Corporation,  recorded in  Volume  332,  page  623,  Deed
Records  of  Hays County, Texas to which Deed reference  is  here
made.




                                                     Exhibit 10.2

                            AGREEMENT

      This Agreement, dated as of May 29, 1998 (the "Agreement"),
is   between   Corning  Incorporated,  a  New  York   corporation
("Corning")   and  Electrosource, Inc.,  a  Delaware  corporation
("Electrosource").

                           WITNESSETH

     WHEREAS, Corning and Electrosource (together, the "Parties")
entered  into a Note Purchase and Option Agreement,  dated  March
27,  1997  (the  "Note  Purchase and Option Agreement");  a  Note
Purchase  Agreement,  dated as of December 19,  1997  (the  "Note
Purchase  Agreement");  and a Research and  Development  Umbrella
Agreement, dated as of July 1, 1997 (the "RD&E Agreement");

      WHEREAS,  under the Note Purchase and Option Agreement  and
the Note Purchase Agreement, Electrosource Issued to Corning a 5%
Convertible  Promissory  Note in the  principal  amount  of  Four
Million Dollars ($4,000,000.00), dated March 27, 1997 (the "First
Note");  a  5% Convertible Promissory Note in the amount  of  One
Million  Dollars ($1,000,000.00), dated December  19,  1997  (the
"Second Note"); a 5% Convertible Promissory Note in the amount of
Five  Hundred Thousand Dollars ($500,000.00), dated  January  23,
1998 (the "Third Note"); a 5% Convertible Promissory Note in  the
amount  of  Five  Hundred Thousand Dollars  ($500,000.00),  dated
February   19,  1998  (the  "Fourth  Note");  a  5%   Convertible
Promissory  Note  in the amount of One Hundred  Thousand  Dollars
($100,000.00), dated September 27, 1997 (the "Fifth Note"); and a
5%  Convertible Promissory Note in the amount of One Hundred  and
Two  Thousand and Five Hundred Dollars ($102,500.00), dated March
27,  1998  (the  "Sixth Note" and, collectively with  the  First,
Second, Third, Fourth and Fifth Notes, the "Notes");

     WHEREAS,  under  the  Note Purchase  and  Option  Agreement,
Electrosource  issued  in  favor  of  Corning  a   Stock   Option
Agreement,   dated  March  27,  1997  (the  "Option  Agreement"),
providing an option to Corning to purchase from Electrosource  an
aggregate  of  Five Hundred Thousand (500,000) shares  of  Common
Stock  of  the  Company  at an exercise price  of  Seven  Dollars
($7.00) per share for Two Hundred Seventy Five Thousand (275,000)
shares  and Nine Dollars ($9.00) per share for Two Hundred Twenty
Five Thousand (225,000) shares;
     
     WHEREAS  the  exercise  prices of  the  Stock  Options  were
amended  by Section 1B of the Note Purchase Agreement to  provide
for  an exercise price of Four Dollars ($4.00) per share for  Two
Hundred  Seventy Five Thousand (275,000) shares and  Six  Dollars
($6.00)  per share for Two Hundred Twenty Five Thousand (225,000)
shares; and
     
     WHEREAS,  under the RD&E Agreement, Electrosource issued  to
Corning   options  (together  with  the  Option  Agreement,   the
"Options")  to  purchase  Two Hundred Eighty  Thousand  (280,000)
shares  of  Common Stock of the Company at an exercise  price  of
Seven and One-Eighth Dollars ($7.125).

      NOW THEREFORE, in consideration of the premises, the mutual
obligations herein described and other consideration the  receipt
of which is hereby acknowledged, the Parties agree as follows:

1.    On  or  before June 15, 1998, Electrosource  shall  pay  to
Corning,  by wire transfer of immediately available funds  to  an
account to be named by Corning, One Million Five Hundred Thousand
Dollars  ($1,500,000.00).  Corning acknowledges that  payment  of
such  amount  by Electrosource is subject to and contingent  upon
receipt of the necessary funds from a third party financing.  The
Parties agree that this Agreement is conditioned upon the receipt
by Corning of such payment on or prior to June 15, 1998, and this
Agreement  shall  be  deemed null and void  if  Corning  has  not
received  such payment on or before June 15, 1998.  Upon  receipt
into  such  account, such payment shall be considered payment  in
full in respect of the Notes.

2.    The Note Purchase and Option Agreement is hereby terminated
according  to its terms, effective as of the date hereof,  except
for  Section 6 (Registration Rights) as it applies to the  shares
that may be obtained upon exercise of the Options.

3.    The  Note Purchase Agreement is hereby terminated according
to its terms, effective as of the date hereof, except for Section
1B  thereof (the Option Amendment), which shall continue in  full
force and effect as long as the Option Agreement is in effect  or
any of the Options are outstanding.

4.    The  RD&E Agreement is hereby terminated according  to  its
terms, effective as of the date hereof.

5.    Electrosource hereby releases and agrees to  indemnify  and
hold  harmless  Corning Incorporated and each of its  affiliates,
directors,  employees  and  advisors  from  any  and  all  costs,
expenses, claims, actions, damages and other liabilities, whether
known  or  unknown, current or future, contingent  or  otherwise,
whenever and wherever arising or asserted, related to or  arising
in  connection with or in respect of the RD&E Agreement, the Note
Purchase and Option Agreement, the Note Purchase Agreement or the
Notes.

6.    The  Option  Agreement and the Options, as  amended,  shall
continue in full force and effect, unaltered by this Agreement or
the transactions contemplated herein.

7.   This Agreement shall be governed by the laws of the State of
Delaware, without regard to conflict of interest principles.  The
proper  venue for any action, suit or proceeding arising pursuant
to  this  Agreement, the Note Purchase and Option Agreement,  the
Note  Purchase  Agreement,  the  Notes  or  the  Options  or   in
connection  with the transactions contemplated herein or  therein
shall  be  in the State of 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, the Note Purchase and Option Agreement,  the
Note  Purchase  Agreement,  the  Notes  or  the  Options  or   in
connection with the transactions contemplated herein or therein.


IN  WITNESS WHEREOF, the Parties have executed this Agreement  as
of the date first written above by their duly authorized officers
named below.


CORNING INCORPORATED               ELECTROSOURCE, INC.



  /s/ David H. Fuller              /s/ Michael G. Semmens
Name: David H. Fuller              Name: Michael G. Semmens
Title: Division Vice President     Title: President



                                                     Exhibit 10.3

                     AMENDMENT TO AGREEMENT



This  amendment, dated as of June 15, 1998 (the "Amendment"),  is
between  Corning Incorporated, a New York Corporation ("Corning")
and     Electrosource,     Inc.,    a    Delaware     Corporation
("Electrosource").

                           WITNESSETH:

WHEREAS, on or about May 29, 1998 Corning and Electrosource  (the
"Parties") entered into an agreement (the "Agreement"), a copy of
which is attached hereto; and

WHEREAS, Section 1 on page two of the Agreement provided that  on
or before
June 15, 1998 Electrosource shall pay to Corning one million five
hundred thousand dollars ($1,500,000) contingent upon receipt  of
the necessary funds from a third party financing; and

WHEREAS, Electrosource has asked for and Corning has agreed to  a
one-day extension for payment of such funds to June 16, 1998;

NOW  THEREFORE,  in  consideration of  the  premises  the  mutual
obligations herein described and other consideration, the receipt
of which is hereby acknowledged, the Parties agree as follows:

      The  Agreement  is amended in Section  1  on  page  two  by
substituting the date
      of  June  16,  1998  in place of June  15,  1998,  wherever
appearing in said
     Section 1 of the Agreement.

The  Agreement  is  not  otherwise amended  or  modified  in  any
respect.

IN WITNESS WHEREOF, the parties have executed the Amendment as of
the  date  first above written by their duly authorized  officers
named below.



  /s/ David H. Fuller                /s/ Michael G. Semmens
David H. Fuller                    Michael G. Semmens
Division Vice President            Chairman, President and CEO
Corning Incorporated               Electrosource, Inc.




                                                     Exhibit 10.4

The  following form of Severance Agreement was executed  for  the
below listed officers/key employees on May 18, 1998:

          Michael G. Semmens       Chris Morris
          Gary R. Sams             Mary Beth Koenig
          James M. Rosel           Ajoy Datta
          William F. Griffin       Benny Jay
          Charles L. Mathews


                      SEVERANCE AGREEMENT

     This  Severance  Agreement (this "Agreement")  is  made  and
effective   as  of  the  18th  of  May,  1998,  by  and   between
Electrosource, Inc., a Delaware corporation having its  principal
place  of  business  in  San  Marcos,  Hays  County,  Texas  (the
"Company"), and ________________________, an individual currently
residing in _____________ County, Texas ("Employee").

                           RECITALS:

     A.    Employee  and  the  Company  entered  into  a  written
severance   agreement   dated  August  25,   1997   (the   "Prior
Agreement"), setting forth certain terms and conditions governing
the termination of Employee's employment with the Company.

     B.    The  Company and Employee desire to replace the  Prior
Agreement with this Agreement.

     C.    In  partial consideration of Employee's  agreement  to
replace the Prior Agreement with this Agreement, the Company  has
agreed  to  grant  severance pay to Employee  and  to  waive  the
noncompete provision (but no other provisions) contained  in  the
Memorandum  of Employee's Agreement in the event of a  change  in
control of the Company.

     D.    Employee is a key executive or senior technical  staff
member of the Company and is an integral member of its management
team.

     E.    The  Company  considers the  maintenance  of  a  sound
management and senior technical team, essential to protecting and
enhancing the best interests of the Company and its stockholders.

     F.   The Company recognizes the possibility that a change in
control of the Company may result in the departure or distraction
of   management  to  the  detriment  of  the  Company   and   its
stockholders.

     G.    The  Company  has  determined that  appropriate  steps
should   be  taken  to  reinforce  and  encourage  the  continued
attention  and  dedication of selected members of  the  Company's
management  team to their assigned duties without  the  potential
distraction arising from the possibility of a change  in  control
of the Company.

     NOW,  THEREFORE,  in consideration for Employee's  past  and
future  employment with the Company and other good  and  valuable
consideration,  including the mutual release of the  Company  and
Employee   of  their  respective  obligations  under  the   Prior
Agreement the parties agree as follows:

     1.   Definitions.

          (a)   "Base  Annual  Salary"  means  Employee's  normal
annual  base  salary, prior to the last voluntary  and  temporary
reduction on the date of the most recent Change in Control.

          (b)   "Cause"  means  any of the following  conduct  by
Employee:

               (i)    Willful  misconduct  or  gross   negligence
          detrimental to the Company, monetarily or otherwise;

               (ii) Embezzlement of funds or misappropriation  of
          other property from the Company;

               (iii)      Conviction of a felony or  of  a  crime
          involving fraud, dishonesty, or moral turpitude;

               (iv)  Failure to substantially perform  Employee's
          duties  after  the  Company has delivered  to  Employee
          demand  for  substantial  performance  specifying   the
          manner   in   which  Employee  has  not   substantially
          performed  his  duties.   However,  Employee's  failure
          shall  not  be deemed to be ACause@ if it results  from
          Employee's  illness,  injury,  or  physical  or  mental
          incapacity;

               (v)   Conduct that, in the good faith  opinion  of
          the  Company, is materially detrimental to the  Company
          or reflects unfavorably on the Company or the Employee;
          or

               (vi)   Willful  breach  of  any  of  the  material
          provisions of this Agreement.

          (c)   A  "Change  of Control" shall be deemed  to  have
          occurred if:

               (i)  the individuals who constitute the Board (the
          "Incumbent  Board") as of the date  of  this  Agreement
          cease for any reason to constitute at least 51% of  the
          Board.   Any director who is elected after the date  of
          this  Agreement  shall be considered a  member  of  the
          Incumbent  Board if his or her election, or  nomination
          for   election,  by  the  Company's  stockholders   was
          approved by a vote of more than 50% of the directors of
          the Incumbent Board;

               (ii)   The   Company  approves  a  reorganization,
          merger,  or consolidation which results in persons  who
          were the stockholders of the Company immediately before
          such  reorganization,  merger, or consolidation  owning
          less  than  50%  total  of the  combined  voting  power
          entitled to vote generally in the election of directors
          of  the  reorganized, merged, or consolidated  entity's
          then outstanding voting securities; or

               (iii)      the  stockholders of the Company  shall
          approve a liquidation or dissolution of the Company  or
          a sale of all or substantially all of the assets of the
          Company.

          (d)   "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.

          (e)    "Termination  Date"  means  the  last  date   of
Employee's employment with the Company.

          (f)   "Termination  Event" means  the  Company  or  any
successor  to the Company has terminated Employee employment  for
any reason other than Cause.

     2.    Payment  of Severance Amount. If Employee's employment
is  terminated by the Company within twenty-four months following
a  Change  in  Control that occurred during the Term for  reasons
other than:

          (i)  Cause, or

          (ii) for Death, or Disability

then  the Employee shall be entitled to the following amount from
the Company:

          (a)   an  amount equal to Employee's Base Annual Salary
     (as  defined  in  paragraph 1) divided by twelve,  for  each
     month  that  Employee  remains unemployed,  for  up  to  six
     months.   Employee's right to such payments shall accrue  on
     the  fifteenth  of  the  month after  each  month  in  which
     Employee remains unemployed.
     
          (b)   reimbursement for any premiums Employee pays  for
     continuation of insurance coverage at the level provided for
     health,  dental and vision insurance upon the occurrence  of
     the  Termination  Event,  for  six  months  after  the  date
     Employee first becomes eligible for continuation coverage or
     until  the  date  Employee becomes covered under  any  other
     group   health   plan(s)   providing  comparable   coverage,
     whichever  comes  first.  Employee agrees to  timely  notify
     Company within ten (10) calendar days of the commencement of
     such  new coverage.  As a condition precedent to eligibility
     for  this  reimbursement,  Employee  must  comply  with  all
     requirements for entitlement to continuation coverage  under
     the   Consolidated  Omnibus  Reconciliation  Act   of   1985
     (ACOBRA@) and must submit the documentation required by  the
     Company   to   support   any  request   for   reimbursement.
     Employee's right to such reimbursements shall accrue on  the
     fifteenth  of the month after Employee submits the requisite
     documentation and request for reimbursement.

          (c)   reimbursement for any premiums Employee pays  for
     individual   continuation  of  group  life   insurance   (if
     permitted by the Company group policy) for six months  after
     the  date  Employee first becomes eligible for  continuation
     coverage  or until Employee becomes covered under any  other
     group life insurance policy with another employer, whichever
     comes  first.   Employee  agrees to  timely  notify  Company
     within  ten (10) calendar days of the commencement  of  such
     new  coverage.  As a condition precedent to eligibility  for
     this   reimbursement,   Employee  must   comply   with   all
     requirements  for  any  entitlement to  conversion  coverage
     under  the  relevant policy or policies and must submit  the
     documentation required by the Company to support any request
     for  reimbursement. Employee's right to such  reimbursements
     shall  accrue  on the fifteenth of the month after  Employee
     submits   the   requisite  documentation  and  request   for
     reimbursement.

     3.   Release and Waiver.

          (a)    Employee   acknowledges  that   this   Agreement
     replaces, in its entirety, the Prior Agreement and  Employee
     releases  all rights Employee may have had under  the  Prior
     Agreement.    Employee   irrevocably   and   unconditionally
     releases, forever discharges, and covenants not to  sue,  or
     bring  any  other  legal  action against  the  Company  with
     respect  to  the  Prior  Agreement,  and  any  other   term,
     condition, or benefit of the Prior Agreement.

           (b)   The  Memorandum  of  Employee's  Agreement  (the
     AMemorandum@)  between  Employee  and  the  Company,   dated
     September  15,  1997  including  the  Memorandum  Concerning
     Disclosure  Obligations  and  Insider  Trading  attached  as
     Exhibit A, remains in full force and effect subject to  this
     sole  exception:  in the event of a Change  in  Control  the
     noncompete provision contained in the Memorandum  is  hereby
     rendered   null  and  void  and  of  no  effect.    Employee
     acknowledges his remaining obligations under the  Memorandum
     and that he continues to be bound by it.

          (c)  Employee acknowledges that the severance described
     herein  constitutes  full  accord and  satisfaction  of  the
     Company's obligations under the Prior Agreement.

     
     4.    Notices.  For purposes of this Agreement, notices  and
all other communications provided for by this Agreement shall  be
in  writing  and  shall be deemed to have been  duly  given  when
personally  delivered or when mailed by United States  registered
or  certified  mail, return receipt requested,  postage  prepaid,
addressed as follows:

     To the Company:
                         
          Electrosource, Inc.
          2809 Interstate 35 South
          San Marcos, Texas 78666
                         
     To Employee:
          
          
          


A party may change its address, for purposes of notice under this
Agreement,  by providing the new address to the other  party,  in
writing, in accordance with this paragraph. Notices of changes of
address shall be effective only upon actual receipt.

     5.    Applicable Law.  This contract is entered into  under,
and  shall be governed for all purposes by, the laws of the State
of Texas.

     6.    Severability.   If  a court of competent  jurisdiction
determines  that any provision of this Agreement  is  invalid  or
unenforceable,  then the invalidity or unenforceability  of  that
provision shall not affect the validity or enforceability of  any
other provision of this Agreement, and all other provisions shall
remain in full force and effect.

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

     8.    Withholding of Taxes.  The Company may  withhold  from
any  benefits  payable under this Agreement all  federal,  state,
city,  or other taxes as may be required pursuant to any  law  or
governmental regulation or ruling.

     9.    No  Employment Agreement.  Nothing in  this  Agreement
shall  give  employee any rights (or impose any  obligations)  to
continued  employment  by the Company, its subsidiaries,  or  its
successors, nor shall it give the Company any rights  (or  impose
any  obligations) with respect to continued performance of duties
by Employee for the Company, its subsidiaries, or its successors.

     10.  Assignment.

          (a)   Employee  shall not, without the consent  of  the
     Company, assign or transfer this Agreement or any rights  or
     obligations under this Agreement, except as provided in  the
     remainder  of  this  paragraph  10.   Without  limiting  the
     foregoing,  Employee's right to receive payments under  this
     Agreement  shall not be assignable or transferable,  whether
     by  pledge,  creation of a security interest, or  otherwise,
     except   that  Employee's  rights  may  be  transferred   by
     Employee's  will or by the laws of descent or  distribution.
     If  Employee attempts an assignment or transfer contrary  to
     this  paragraph 10, the Company shall have no  liability  to
     pay  any  amount so attempted to be assigned or transferred.
     This  Agreement  shall  inure  to  the  benefit  of  and  be
     enforceable by Employee's personal or legal representatives,
     executors,  administrators, successors, heirs, distributees,
     devisees, and legatees.

          (b)   The  Company  may assign this Agreement  and  its
     rights hereunder in whole or in part to any corporation with
     or into which it may merge or consolidate or to which it may
     transfer all or substantially all of its assets.  Subject to
     the foregoing, this Agreement shall inure to the benefit  of
     and be enforceable by the Company's successors and assigns.

     11.   Modifications.  This Agreement shall  not  be  varied,
altered, modified, canceled, changed or in any way amended except
by  mutual  agreement  of  the parties in  a  written  instrument
executed by the parties or their legal representatives.

     12.   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;

     13.  Effective Date.  This Agreement becomes effective as of
the date and year entered in the first paragraph, above.

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

                              ELECTROSOURCE, INC.:


                              By:
                              Name:
                              Title:

                              EMPLOYEE:


                              
                              Name:


STATE OF TEXAS
                    
COUNTY OF HAYS

     BEFORE  ME,  the  undersigned Notary  Public,  on  this  day
personally  appeared __________________, who  being  by  me  duly
sworn   on   this   oath,  deposed  and  said  that   he/she   is
_____________________  of Electrosource, Inc.,  that  he/she  has
read  the  above  and foregoing Severance Agreement,  that  every
statement  contained therein is true and correct and that  he/she
is  authorized to execute this Severance Agreement on  behalf  of
Electrosource, Inc.
     
                              ______________________________


     SUBSCRIBED  AND  SWORN  TO  BEFORE  ME  this  ____  day   of
____________, 1998.


My commission expires:   _____________________________________
                              Notary Public, State of Texas
                              ___________________________________
                              (Type/Print/Stamp Name)


STATE OF TEXAS
                    
COUNTY OF HAYS

     BEFORE  ME,  the  undersigned Notary  Public,  on  this  day
personally  appeared __________________, who  being  by  me  duly
sworn  on  this oath, deposed and said that he/she is an employee
of  Electrosource,  Inc., that he/she  has  read  the  above  and
foregoing Severance Agreement, and that every statement contained
therein is true and correct.


                              ______________________________


     SUBSCRIBED  AND  SWORN  TO  BEFORE  ME  this  ____  day   of
____________, 1998.


My commission expires:   _____________________________________
                              Notary Public, State of Texas
                              ___________________________________
                              (Type/Print/Stamp Name)




                                                     Exhibit 10.5

               DIRECTOR INDEMNIFICATION AGREEMENT


      THIS  AGREEMENT is made this 2nd day of June, 1998, between
ELECTROSOURCE,  INC., a Delaware corporation ("Corporation")  and
KAMAL SIDDIQI ("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

           National Union Fire Ins. Co.486-03-72$2,000,000

               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.                DIRECTOR



By: /s/ Michael G. Semmens          /s/ Kamal Siddiqi
  Michael G. Semmens               Kamal Siddiqi
  Chairman, President and CEO



                                                     Exhibit 10.6

               DIRECTOR INDEMNIFICATION AGREEMENT


      THIS  AGREEMENT is made this 2nd day of June, 1998, between
ELECTROSOURCE,  INC., a Delaware corporation ("Corporation")  and
CLIFFORD WINCKLESS ("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

           National Union Fire Ins. Co.486-03-72$2,000,000

               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.                DIRECTOR



By:  /s/ Michael G. Semmens           /c/ Clifford Winckless
  Michael G. Semmens               Clifford Winckless
  Chairman, President and CEO



                                                     Exhibit 10.7

               DIRECTOR INDEMNIFICATION AGREEMENT


      THIS  AGREEMENT is made this 2nd day of June, 1998, between
ELECTROSOURCE,  INC., a Delaware corporation ("Corporation")  and
ROGER MUSSON ("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

           National Union Fire Ins. Co.486-03-72$2,000,000

               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.                DIRECTOR



By:  /s/ Michael G. Semmens           /s/ Roger Musson
  Michael G. Semmens               Roger Musson
  Chairman, President and CEO