Hoku, Tianwei amend polysilicon supply agreements

POCATELLO, USA & CHENGDU, CHINA: Hoku Materials Inc., a wholly owned subsidiary of Hoku Scientific Inc., established to manufacture and sell polysilicon for the solar market, and Tianwei New Energy (Chengdu) Wafer Co. Ltd., a subsidiary of Tianwei New Energy Holdings Co. Ltd. that manufactures silicon wafers, photovoltaic cells, and modules in China, have amended their two polysilicon supply contracts.

This amendment is meant to accelerate $5 million of the remaining $7 million in prepayments that Tianwei was obligated to pay to Hoku, eliminate Hoku's near-term shipping obligation to Tianwei, and adjust the long-term contract price.

Tianwei had already paid Hoku a combined $74 million in prepayments through April 30, 2009. Before the amendments, Tianwei was obligated to pay Hoku an additional $7 million upon Hoku's first shipment of products in 2010.

In exchange for a long-term contract price adjustment, Tianwei agreed to pay $5 million of this remaining $7 million up front, and eliminated the requirement that Hoku ship polysilicon to Tianwei before March 2010. These early shipments would have been additive to the long-term contract amounts, and Hoku's failure to make these shipments would have resulted in a price penalty.

The remaining $2 million is to be paid when Hoku commences polysilicon shipments to Tianwei in 2010. As of June 30, 2009, Tianwei has paid to Hoku a combined aggregate of $79 million in prepayments for future product deliveries.

Hoku reported that the average prices over the ten-year term of each contract were adjusted downward by eight percent, such that the total amounts payable over the ten-year term of both agreements was reduced from approximately $511 million to approximately $468 million.

"The early payment of $5 million has helped us manage cash flow for our Hoku Materials subsidiary, especially as some of our other customers were requesting extensions of time make their prepayments to us," said Dustin Shindo, chairman and CEO of Hoku Scientific.

"Eliminating the early shipment requirement reduces near-term pressure for us to commence shipments, and allows us to more effectively manage the timing of our capital expenditures as we seek to raise additional financing for continuing construction costs."

"Tianwei has contributed $79 million out of a combined total of $158 million in prepayments from our polysilicon customers," said Shindo. "Their strong commitment to our project is reflected not just in the amount of capital committed, but in our mutual willingness to adjust our contractual commitments based on recent market conditions.

"The agreed upon unit prices remain attractive for Hoku over the ten-year period, while also offering Tianwei the ability to more effectively control its production costs and be competitive. The accelerated payment of $5 million helps us manage our near-term capital requirements."

"Tianwei views Hoku as one of our key strategic partners," said Aihua Guo, Tianwei's general manager. "These amendments strengthen our long-term commitment to Hoku, and we remain confident in their ability to begin shipping high quality polysilicon to us in the months ahead."