Hoku, Alex New Energy sign 10-year polysilicon deal

POCATELLO, USA: Hoku Materials Inc., a wholly owned subsidiary of Hoku Scientific Inc. established to manufacture and sell polysilicon for the solar market, and Shanghai Alex New Energy Co. Ltd. (Alex), a manufacturer of crystalline silicon solar cells, modules and photovoltaic (PV) products, announced the signing of a definitive contract for Hoku's sale and delivery of polysilicon to Alex over a 10-year period beginning in early 2010.

Hoku's contract with Alex represents the resale of a portion of the polysilicon production capacity recaptured by Hoku after agreeing to amend its original supply agreement with Jiangxi Jinko Solar Co. (Jinko). Hoku will make its first shipment of polysilicon to Alex in the first half of 2010, and will ship the remainder over a ten-year period at set prices that will decline throughout the term of the agreement.

Prior to establishing its contract with Hoku, Alex had reached an agreement with Jinko whereby Alex would purchase some of the polysilicon Jinko was to receive from Hoku, in exchange for underwriting a portion of Jinko's prepayment deposits. At the request of both Jinko and Alex, Hoku formally assigned this additional capacity to Alex under the new agreement.

As a result, Hoku also announced today the signing of a second amendment to Jinko's polysilicon supply agreement. The amendment reduces the total volume of polysilicon to be sold by Hoku to Jinko and reduces their prepayment obligation to $20 million, including the $15 million previously paid to Hoku, but leaves the other terms of the contract unchanged. As amended, the contract continues to provide for Hoku's first shipment of polysilicon to Jinko in the second half of 2009, and Hoku's option to receive discounted wafer manufacturing (tolling) services from Jinko for up to a certain amount of polysilicon each year for the ten years of the agreement.

According to the terms of the new agreements with Alex and Jinko, up to an aggregate combined total of approximately $238 million may be payable to Hoku during the ten-year period, subject to product deliveries and other conditions. The take-or-pay contracts both provide for the delivery of predetermined volumes of polysilicon each year, with combined prepayments for product in an aggregate amount of $40 million, of which $22 million has been paid to date; $15 million from Jinko and $7 million from Alex. Hoku has granted both Jinko and Alex a security interest in its polysilicon assets to secure Hoku's obligation to repay each company's prepayments as a credit against product shipments over time.

Alex, through its PV module manufacturing subsidiary, has also agreed to provide Hoku with discounted original equipment manufacturing (OEM) services for up to a certain amount of PV modules per year for each of the ten years of the contract term. The OEM manufacturing service will be at Hoku's sole option and will be priced at Alex's most preferred rate. Together with Hoku's wafer OEM option from Jinko, this OEM option from Alex effectively provides Hoku with a low-cost, near-term strategy for vertical integration.

"Alex New Energy is an innovative, diversified company and an emerging leader in the solar industry," said Dustin Shindo, chairman and chief executive officer of Hoku Scientific. "Hoku is very pleased to have established this long-term relationship in a manner that will benefit all three companies: Hoku, Jinko and Alex. We are also enthusiastic about the opportunity to expand our new partnership further through OEM module manufacturing. Over time, we believe this could provide significant competitive advantage to Hoku Solar, our PV systems integration subsidiary. Hoku continues to see these types of reciprocal relationships as an excellent way to strengthen our long-term business while adding value for our customers and partners."

"Alex looks forward to a long and mutually-beneficial business relationship with Hoku and we are very pleased to have established a direct supply relationship with them," said Alex's president, Lian Wen Zhang. "Alex is committed to producing only the highest quality photovoltaic products, and we are confident in our selection of Hoku as one of our key suppliers."

"Hoku has gone the extra mile to support Jinko," said Jinko chairman, Xiande Li. "By working with us to redistribute production capacity between Alex and Jinko, Hoku continues to demonstrate their flexibility and commitment to our relationship."

Hoku confirmed that a small amount of Jinko's original production capacity remains available for sale. The company reported that it was in discussions with other potential customers for the possible resale of this recaptured polysilicon capacity, which would include additional prepayments for products.

Shindo commented: "As planned, we have begun reselling the production capacity that became available after our first contract amendment with Jinko. We continue to work with potential customers who, like Hoku, believe that a reliable, long-term supply of low-cost, high quality polysilicon will be essential to maintaining their competitive advantage going forward."