AMENDED DEVELOPMENT AGREEMENT

1.

Definitions.

a.

Catalyst : Catalyst is a component of the Fuel Cell that helps to initiate and maintain the electrochemical reaction needed to generate electricity. Catalyst is typically precious metals-based but may consist of other low cost materials.

b.

Catalyst Binding : Catalyst Binding means the process used to attach the Catalyst to the Catalyst Support.

c.

Catalyst Support : Catalyst Support is the backing used to support the Catalyst in the context of a Fuel Cell. The Catalyst Support and Catalyst together make up an Electrode.

d.

Electrode : Electrodes consist of a Catalyst and a Catalyst Support. In Fuel Cells, Electrodes are located on either side of a Membrane.

e.

Formulation : Formulation is a prescription of ingredients in fixed proportion; a recipe.

f.

Fuel Cell : A Fuel Cell is an electrochemical device that combines a fuel such as hydrogen, methanol, or others with an oxidant such as oxygen. The result is electricity, heat, and water.

g.

Hoku Membrane ^™ : Hoku Membrane ^™ is defined as all Formulations of the Membranes developed by HOKU for use in an electrochemical device such as a Fuel Cell. The Hoku Membrane ^™ is typically used as a Proton Exchange Membrane in Fuel Cells.

h.

Joint Laboratory : The Joint Laboratory is the laboratory facility that will house the single cell and limited short stack testing associated with Phase I of this Agreement, as indicated in Exhibit A. The Joint Laboratory will be located at the HOKU facilities in Honolulu, Hawaii.

i.

Liquid Hoku Membrane ^™ : Liquid Hoku Membrane ^™ is defined as all Formulations of the Liquid Membranes developed by HOKU for use in an electrochemical device such as a Fuel Cell. It is a type of Liquid Membrane or Membrane Paint.

j.

Liquid Membrane : Liquid Membrane (sometimes called Membrane Paint) is used to combine the Catalyst on the Electrode with the Membrane for use in Fuel Cells. This can be painted onto the surface of the Catalyst or the other components of a Fuel Cell as part of the MEA, and can serve to increase Fuel Cell performance.

k.

MEA : MEA stands for Membrane Electrode Assembly and represents a finished product that typically contains Electrodes adhered to both sides of a Membrane. An MEA may also incorporate Liquid Membrane or Membrane Paint.

l.

MEA Assembly Process : MEA Assembly Process pertains to the procedures, the Research and Development Equipment, and the methods entailed in the use of this equipment, that are required to build an MEA.

m.

Specific MEA Product : Specific MEA Product means the MEA that is jointly developed by the Parties pursuant to this Agreement incorporating a specific formulation of the Hoku Membrane ^™ and/or the Liquid Hoku Membrane ^™ , and for which a patent naming employees of both Parties as the inventors shall be filed and subsequently issued in the USA or Japan.

n.

Membrane : Membranes in the context of Fuel Cells separate the system into two halves and help to initiate and maintain the electrochemical reaction which generates electricity.

o.

Membrane Paint : Membrane Paint has the same meaning as Liquid Membrane (see Liquid Membrane definition).

p.

Production Equipment : Production Equipment includes all equipment required for the fabrication of the Hoku Membrane ^™ in accordance with this Agreement, including but not limited to hot presses, injection molders, and mixers.

q.

Proton Exchange Membrane : A Proton Exchange Membrane is a Membrane utilized in a Proton Exchange Membrane Fuel Cell.

r.

Research and Development Supplies : Research and Development Supplies includes all materials and reagents required to support joint testing in accordance with this Agreement, including but not limited to electrode material, gases, and synthesis chemicals.

s.

Research and Development Equipment : Research and Development Equipment includes all equipment required to support joint testing in accordance with this Agreement including but not limited test stations, MEA assembly equipment, spectrometers, and other testing equipment.

t.

Single Cell : Single Cell is a Fuel Cell that utilizes a single MEA to generate power.

u.

Stack : A Stack is a Fuel Cell that contains two or more Single Cells connected in series. Fuel Cell Stacks are utilized to generate more power than a Single Cell can generate.

2.

Relationship.

a.

The Parties agree to work together to achieve the objectives stated below:

i.

Develop and optimize the Specific MEA Product incorporating the Hoku Membrane ^™ and/or the Liquid Hoku Membrane ^™ .

b.

To do so, the Parties shall follow the work plan attached as Exhibit A.

c.

Joint development will commence at the Joint Laboratory located at the HOKU facilities in Honolulu, Hawaii. All work pertaining to Phase I of this Agreement shall be conducted in the Joint Laboratory at the HOKU facilities. No HOKU development activities other than the joint development efforts described in this Agreement shall be held in the Joint Laboratory. SANYO personnel will need to be accompanied by HOKU personnel to enter into any of the HOKU research and development facilities other than the Joint Laboratory. Joint development Phases II and III will be completed at the SANYO facilities in Gunma, Japan. The timing and location of all joint development efforts are described in Exhibit A.

3.

Responsibilities of the Parties.

a.

The Parties shall divide responsibility for all Agreement costs as defined by Exhibit B. Exhibit B describes any and all assignable costs associated with this Agreement. Costs not covered in Exhibit B cannot be charged to the other Party.

b.

Responsibility for the filing of technology patents shall be as follows:

i.

HOKU shall be responsible for filing any and all patents for technology owned exclusively by HOKU as defined in Exhibit C.

ii.

SANYO shall be responsible for filing any and all patents for technology owned exclusively by SANYO as defined in Exhibit C.

iii.

[ * ] shall be responsible for filing any and all patents for the Specific MEA Product jointly owned by the Parties in accordance with this Agreement.

iv.

Any patents filed by [ * ] for the Specific MEA Product jointly owned by the Parties that refers to the Hoku Membrane ^™ and/or the Liquid Hoku Membrane ^™ , shall be specific to a particular Formulation of the Hoku Membrane ^™ and/or a particular Formulation of the Liquid Hoku Membrane ^™ .

v.

[ * ] shall file patent applications for the Specific MEA Product owned jointly by the Parties within six months of the completion of the Phase III goals. [ * ] shall file, prosecute, and maintain these patent applications in any country where the Specific MEA Product will be sold. [ * ] shall pay for all legal expenses and other fees and expenses related to the filing, prosecution, maintenance and defense of such patents. [ * ] shall provide [ * ] a copy of (A) the documents to be submitted to the Patent Office before submission to the Patent Office, including the description of novelty of the invention and/or a comparison to the prior art and (B) all documents received from the Patent Office, for filing, prosecuting or maintaining such patent applications.

vi.

All patents for the Specific MEA Product owned jointly by the Parties, regardless of filing date or country, shall name both HOKU and SANYO as joint developers on the patents, except as described below in 12.a.

vii.

The patent filed for the Specific MEA Product shall not contain any claims of procedure. However, general examples of procedure may be described in embodiments of the patent.

viii.

HOKU may, in its sole discretion, file patent applications for any MEA Assembly Process developed jointly by the Parties, including the MEA Assembly Process used to manufacture the Specific MEA Product. If HOKU files a patent application for any MEA Assembly Process developed jointly by the Parties, including the MEA Assembly Process used to manufacture the Specific MEA Product, then such patent application shall name as the inventors the HOKU employees and the SANYO employees who directly contributed to the invention described in such patent application. If HOKU files a patent application for a jointly developed MEA Assembly Process pursuant to this Section 3.b.viii, then HOKU agrees to provide the SANYO employees who are named as inventors in such patent application with a copy of (A) the documents to be submitted to the Patent Office before submission to the Patent Office, including the description of novelty of the invention and/or a comparison to the prior art and (B) all documents received from the Patent Office, for filing, prosecuting or maintaining such patent applications.

ix.

HOKU and SANYO shall each use its best efforts to file, prosecute, and maintain these patent applications.

c.

Responsibility for defending technology patents shall be as follows:

i.

HOKU shall be responsible for the legal fees and any other costs associated with maintaining and defending all patents associated with technology owned exclusively by HOKU.

ii.

SANYO shall be responsible for the legal fees and any other costs associated with maintaining and defending all patents associated with technology owned exclusively by SANYO, and for the Specific MEA Product jointly owned by the Parties.

d.

The Parties agree to notify each other immediately if they identify any potential or actual patent infringements.

4.

Rights.

a.

The Parties’ intellectual property rights associated with this Agreement are described in full at Exhibit C.

b.

SANYO and HOKU shall have the royalty free, exclusive and worldwide right and license to manufacture, market, and sell the Specific MEA Product jointly owned by the Parties in accordance with this Agreement; provided that such Specific MEA Product incorporates Hoku Membrane purchased from HOKU. SANYO shall not have the right to develop, reverse engineer, manufacture, market, or sell the Hoku Membrane ^™ , Liquid Hoku Membrane ^™ , or any other technology owned exclusively by HOKU, without written consent by HOKU.

c.

HOKU grants to SANYO the royalty free, non-transferable, non-exclusive and worldwide right and license to manufacture MEA using any MEA Assembly Process that is owned by HOKU and which was developed prior to February 28, 2005; provided, however, that this license is only applicable to the use of HOKU’s MEA Assembly Process to manufacture MEA that incorporates Hoku Membrane purchased from HOKU.

d.

SANYO and HOKU shall have the right to grant sublicenses with respect to production of the Specific MEA Product in accordance with this Agreement, including Specific MEA Product manufacturing, to subsidiary companies of which SANYO or HOKU, as the case may be, own or control greater than 50% of the voting securities; provided that, in the case of SANYO, such Specific MEA Product incorporates Hoku Membrane purchased from HOKU. SANYO also has the right to grant sublicenses with respect to the HOKU MEA Assembly Process license granted to SANYO in Section 4.c above to subsidiary companies of which SANYO owns or controls greater than 50% of the voting securities. SANYO shall disclose all

e.

HOKU maintains the exclusive right to develop, manufacture, market, distribute, and sell the Hoku Membrane ^™ , the Liquid Hoku Membrane, and any and all technologies developed solely by HOKU, which may or may not be included in the Specific MEA Product jointly owned by the Parties in accordance with this Agreement.

f.

This Agreement does not preclude SANYO from working alone or with a third party to develop a different MEA from the Specific MEA Product jointly owned by the Parties in accordance with this Agreement (“SANYO MEA”), or from manufacturing, marketing, and selling SANYO MEA. The SANYO MEA must be based on technology owned exclusively by SANYO or by SANYO and a third party other than HOKU. The SANYO MEA may not be based on technology owned exclusively by HOKU.

g.

This Agreement does not preclude HOKU from working alone or with a third party to develop a different MEA from the Specific MEA Product jointly owned by the Parties in accordance with this Agreement (“HOKU MEA”), or from manufacturing, marketing, and selling HOKU MEA, including, without limitation, MEA that are produced in accordance with HOKU MEA Assembly Process. The HOKU MEA must be based on technology owned exclusively by HOKU or by HOKU and a third party other than SANYO. The HOKU MEA may not be based on technology owned exclusively by SANYO.

h.

The Parties agree to allow each other to use the other Party’s name for purposes of furthering their business and developing business partnerships with other companies or corporations. This includes, but is not limited to, press releases, media quotes and paid advertising. Each Party agrees to seek and receive from the other Party prior approval for any use of the other Party’s name.

5.

Compensation.

a.

In exchange for the rights acquired by SANYO and described in Section 4 above, SANYO agrees to the following:

i.

Cash payment of five hundred thousand US dollars ($500,000) to HOKU upon completion of the Phase III goal as detailed in Exhibit D. Cash Payment is defined as a development fee being paid to HOKU by SANYO.

ii.

The dates listed in Exhibit D are dates agreed upon by the Parties. Cash payments associated with a milestone are indicated as such in Exhibit D.

b.

[ * ] .

6.

Equipment and Resources.

a.

[ * ] shall identify and purchase all reasonable Research and Development Equipment, except for the equipment identified in Section 6.b. below, to complete Phase I of this Agreement. Equipment described in this section will be housed at the Joint Laboratory in Honolulu, Hawaii.

b.

[ * ] shall provide all essential equipment pertaining to MEA assembly and test cells for use in Phase I of this Agreement, and pay any shipping costs required to relocate this equipment from the [ * ] to the Joint Laboratory in Honolulu, Hawaii.