Development and Manufacturing Agreement

SulphCo is engaged in the business of commercializing its patented and proprietary Sonocracking ^TM process. The Sonocracking ^TM  process is designed to use high power ultrasound to modify the composition and structure of crude oil derived from any source (e.g.,normal crude oil production, tar sands, shale, etc.) and/or crude oil fractions (e.g., diesel, kerosene, etc.), including, without limitation, the upgrading of crude oil and fractions thereof by lowering the density, lowering the viscosity and reducing the sulfur-containing, nitrogen-containing, acid-containing and other undesirable components of crude oil and its fractions. Among the benefits of this upgrading of crude oil is the transformation of sour heavy crude oils into sweeter, lighter crudes, producing more gallons of usable oil per barrel. For purposes of this Agreement, SulphCo’s “Primary Field of Business” shall include (i) the foregoing applications, together with any future benefits yet to be discovered that may be derived through the application of the Sonocracking ^TM  process to crude oil, its components, fractions, or refined products, as well as (ii) the general application of ultrasound to crude oil, its components, fractions, or refined products.

MWH is a developer and manufacturer of components and systems used in diverse industries for demanding applications.

SulphCo seeks to secure a reliable, high-quality, high-value development partner and supplier for its Sonocracking ^TM probe assembly and reactor (“ Equipment ”). The supplier should be able to offer manufacturing and development assistance throughout the trial and commercial phases of SulphCo ’s business expansion. Supplier must also be capable of rapidly ramping-up manufacturing in order to meet expected accelerating demand for its Equipment . SulphCo intends to use MWH as a development partner and supplier for said Equipment .

MWH seeks to secure an additional long-term customer for the sale of highly-complex manufactured systems. MWH also seeks to further diversify its business by participating in new growth industries. MWH intends to provide SulphCo with development assistance and supply of Equipment .

During the term of this Agreement,   MWH will provide SulphCo with development assistance (engineering and development personnel) to improve the Equipment according to development goals and targets to be established from time to time by SulphCo . In addition, MWH will manufacture and deliver Equipment in the quantity and by the reasonable delivery dates that SulphCo specifies in purchase orders and according to manufacturing specifications and technical drawings provided or referenced by SulphCo in its purchase orders.

SulphCo shall specify quality control standards for the Equipment and the tests that MWH is to perform on each unit of Equipment manufactured for SulphCo prior to each delivery in order to ensure uniform Equipment quality and function. Once a reliable series of quality control tests are developed and specified in writing by SulphCo , MWH shall integrate these tests into its Equipment manufacturing process and the costs associated with the tests shall be incorporated into the Equipment price. SulphCo shall have no obligation to purchase any Equipment that fails to meet the quality standards that it sets for the Equipment .

SulphCo will provide MWH with orders for the Equipment but is in no way obligated to order any fixed quantity over any fixed period of time. SulphCo will provide MWH with the manufacturing specifications and technical drawings necessary for MWH to produce the Equipment , including, without limitation, all necessary technical and shop drawings, manufacturing materials and tolerance requirements, quality control requirements and functional requirements. SulphCo agrees to consider all MWH suggestions for Equipment improvements and shall make commercially reasonable efforts to improve the Equipment .

Subject to the other provisions hereof, MWH will sell Equipment exclusively to SulphCo , and will not sell, vend, exchange, barter, give, or transfer such Equipment to any other party without express written permission of SulphCo . SulphCo will not prevent MWH from developing, manufacturing or selling ultrasound technology to third parties engaged in business that is outside of SulphCo ’s Primary Field of Business.

SulphCo will purchase a minimum of 60% of its annual Equipment requirements from MWH . SulphCo may purchase a lesser percentage of its annual Equipment requirements from MWH under the following circumstances:

(a) if SulphCo is able to purchase Equipment from another source with comparable quality and identical design at price that is at least 25% less than the price that MWH charges SulphCo for the comparable product. In such circumstances SulphCo will provide MWH in writing with the opportunity to meet the price quoted to SulphCo by the other source. In the event that MWH will not meet the other source’s price, SulphCo shall be free to purchase Equipment from the other source, and shall be under no obligation to purchase Equipment from MWH ;

(b) if MWH fails to manufacture the Equipment with a level of quality consistent with SulphCo’s manufacturing or quality control specifications, and another supplier demonstrates that it is able to meet SulphCo’s manufacturing or quality control specifications;

(c) if MWH is not able to consistently deliver the Equipment in a reasonable timeframe required by SulphCo and another supplier is able to do so.

SulphCo will, to the extent possible, provide MWH with forecasts for its Equipment demand. MWH will operate with a maximum 16-week lead time for new orders. If SulphCo so requests, MWH will build and maintain a three-month stock of Equipment at one of its warehouses in the USA. In such a case, SulphCo shall compensate MWH for any such stock that it is unable to sell as a result of Equipment design changes, design innovations, or other Equipment changes required by SulphCo . MWH shall be responsible for, and SulphCo shall not compensate MWH for, any stocked Equipment that fails to meet SulphCo’s manufacturing or quality control specifications.

In consideration for the development services that MWH has provided under earlier agreements and will continue to provide under this Agreement, SulphCo shall issue to MWH an option to purchase 50,000 shares of its common stock, par value $0.001 per share (the “ Option ”), as payment for services under this Agreement immediately upon receiving the approval of the American Stock Exchange of the Additional Listing Application. The Option shall have an exercise price determined by the average of the high and low prices of SulphCo common stock on the date hereof (the “ Grant Date ”). The Option shall vest as follows: one-half of the Option (option to purchase 25,000 shares of SulphCo common stock) shall vest six (6) months after the Grant Date and the remaining half of the Option shall vest one (1) year after the Grant Date . In addition to the foregoing, in the event that, within one (1) year of the date hereof, the Equipment demonstrates that, when operated in accordance with SulphCo’s specifications and directions in the field and under actual operating conditions, it will consistently produce sulphur reductions greater than 25% on Arab Light and Khafji crude oils (or similar oils as determined by SulphCo ), SulphCo shall issue to MWH an additional 50,000 shares of its common stock (the “ Additional Shares ”), subject to receiving approval by the American Stock Exchange of the Additional Listing Application for the Additional Shares . The Board of Directors of SulphCo (but not any director who is an emplo