(Source: MARKETWIRE)Hoku Scientific, Inc. (NASDAQ: HOKU), a diversified, clean energy company with headquarters in Honolulu, and Tianwei New Energy Holdings Co., Ltd., a leading provider of silicon wafers, photovoltaic (PV) cells, modules and systems, today 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 newly-issued 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 comprised solely of independent, disinterested directors. The audit committee of Hoku has expressly approved such reliance. Pursuant to this exception, Hoku will mail to all shareholders not later than ten days before the closing, a letter notifying them of its receipt of the exception from the requirement to seek shareholder approval, and setting forth the terms of the financing agreement with Tianwei and its reliance on the financial viability exception.

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.