Tianwei Takes Majority Control of Hoku

Hoku Scientific, Inc. (NASDAQ:HOKU) and Tianwei New Energy Holdings Co., Ltd. announced the signing of a definitive agreement providing for a majority investment in Hoku by Tianwei and debt financing by Tianwei and China Construction Bank for the construction and development of Hoku’s polysilicon production facility in Pocatello, Idaho.

The transaction will involve the conversion of $50 million of an aggregate of $79 million in secured prepayments previously paid by Tianwei to Hoku under certain polysilicon supply agreements into shares of Hoku’s common stock and related warrants, plus the provision of $50 million in initial debt financing for Hoku, together with a commitment from Tianwei to assist Hoku in obtaining additional financing that may be required by Hoku to construct and operate the Pocatello facility.

The conversion of the $50 million in secured prepayments will be reflected in amendments to Hoku’s existing supply agreements with Tianwei that the parties intend to sign upon the closing of the transaction. Over the term of the two supply agreements, the cancellation of the $50 million in prepayments will reduce the price at which Tianwei purchases polysilicon by approximately 11% per year.

Hoku confirmed that the $50 million in debt, plus prepayments from its existing customers, is expected to be sufficient to complete construction to the point where it could commence shipments to customers, and it intends to delay any additional financing until such time.

On the basis of these funding sources, Hoku reported it is preparing to issue orders to resume full scale plant construction at an accelerated pace upon closing of the financing, which is expected to occur in October 2009.

In exchange for the value being provided by Tianwei, Hoku will issue to Tianwei 33,379,287 shares of its common stock, which will represent 60% of Hoku’s fully-diluted outstanding shares. Hoku will also grant Tianwei warrants to purchase an additional 10 million shares of Hoku’s common stock at a price per share equal to $2.52.

At closing, Hoku’s current shareholders will continue to own 40% of the voting shares, and Hoku will continue to be traded publicly on Nasdaq. Additionally, Tianwei has agreed to a one year lock-up of 70% of its shares, further affirming its commitment to Hoku’s long-term success.

As a result of the transaction, Tianwei will become Hoku’s majority shareholder, and will have the right to nominate a majority of the members serving on Hoku’s Board of Directors. Effective upon closing, Hoku will increase the size of its Board from five to seven members, three of whom will be selected from Hoku’s existing Board, and four of whom will be selected by Tianwei. Tianwei will have the right to appoint the chairperson of the Board.

Subject to the receipt of requisite Chinese governmental approvals and other customary closing conditions, the transaction is expected to close in October 2009.

The Nasdaq Listing Rules would normally require Hoku to obtain shareholder approval with respect to the announced transaction. Hoku has obtained an exception from Nasdaq from this requirement, in reliance on Nasdaq Listing Rule 5365(f) which provides that an exception may be granted when (i) the delay in securing shareholder approval would seriously jeopardize the financial viability of the enterprise and (ii) reliance on the exception has been expressly approved by the audit committee.

In March 31, 2009 and June 30, 2009, the Company reported that without new polysilicon customers making additional prepayments, and/or new debt or equity financing, it would have insufficient cash to continue as a going concern through March 31, 2010 and June 30, 2010, respectively.

Throughout 2009, Hoku has sought to secure additional customers and related prepayments and strategic investors or financing sources that would allow the Company to complete construction and procurement of its polysilicon plant.

Hoku retained Deutsche Bank Securities Inc. as its financial advisor to identify investment and financing sources, as well as a potential acquirer of the Company. The Company has also considered other actions, including a restructuring, and liquidation of assets.

Hoku’s Board of Directors has concluded that the announced transaction with Tianwei is the only viable option to avoid a Chapter 7 bankruptcy and liquidation of the Hoku Materials polysilicon business, according to a company release.

The company’s financing troubles began in May 2008 when Merrill Lynch withdrew an offer to loan $185 million for construction costs.

"All things considered, this transaction with Tianwei will enable us to fulfill our commitments to our creditors, vendors, customers, and employees, while retaining a meaningful percentage of the company for our existing shareholders," said Dustin Shindo, chairman and CEO of Hoku.

Hoku said that it had no plans to lay-off any of its current employees, and instead, expects to accelerate hiring in the coming months as it prepares for polysilicon production.

Hoku Scientific, Inc. is a diversified, clean energy technologies company with three business units: Hoku Materials, Hoku Solar and Hoku Fuel Cells. Hoku Materials plans to manufacture, market, and sell polysilicon for the solar market from its plant currently under construction in Pocatello, Idaho. Hoku Solar is a provider of turnkey photovoltaic systems in Hawaii. Hoku Fuel Cells has developed proprietary fuel cell membranes and membrane electrode assemblies for stationary and automotive proton exchange membrane fuel cells.

Tianwei New Energy Holdings Co., Ltd. is based in Chengdu, China, and has total combined assets of approximately 2.7 billion Yuan (US$ 400 million). The Company is a subsidiary of Baoding Tianwei Group Co., Ltd, a leading Chinese manufacturer of power transmission equipment and green energy products.

Website: http://www.hokucorp.com     
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