Hoku Scientific Inc. has given up majority control of its company in exchange for a financial lifeline from one of its Chinese customers that will allow it to resume full-scale construction of the polysilicon plant it is building in Pocatello, Idaho.

Tianwei New Energy Holdings Co. will become a 60 percent owner of the Honolulu-based company after signing a definitive agreement in which Tianwei will convert into stock and warrants $50 million of $79 million it prepaid to Hoku as part of their supply agreements. Tianwei and China Construction Bank also will provide $50 million in initial debt financing for Hoku.

In addition, Tianwei, a provider of silicon wafers, photovoltaic cells, modules and systems, has given a verbal commitment that it will assist Hoku in obtaining additional financing that may be required to complete the planned $390 million, 4,000-metric-ton polysilicon facility.

With its wholly owned polysilicon subsidiary on the brink of liquidation, Hoku said the $50 million in debt, plus prepayments from its five other existing customers, is expected to be sufficient to complete construction in which the plant would have 2,500 metric tons of capacity and Hoku could begin shipments to customers in the first half of 2010.

Polysilicon is the raw material used to make solar panels.

“;With very limited financing choices available, the agreement with Tianwei is a significant step forward toward our goal of becoming a top-tier global provider of clean-energy solutions,”; said Dustin Shindo, chairman, president and chief executive officer of Hoku. “;This transaction is expected to alleviate the financing challenges we have experienced during these difficult macroeconomic times, allowing us to focus on execution in all areas of our business.”;

Hoku's shares soared 50 percent, or 97 cents, to $3.21 in after-hours trading on the Nasdaq after closing the regular session down 4 cents at $2.14.

The companies confirmed their intention to maintain Hoku's headquarters in Hawaii, and Hoku said it had no plans to lay off any of its current employees and that it expects to accelerate hiring in the coming months as it prepares for polysilicon production. The company, which declined to provide a current employee count, had 28 employees according to its March 31 filing with the U.S. Securities and Exchange Commission.

Hoku had been warning investors and customers since March that it had insufficient cash to continue “;as a going concern”; past another 12 months and had slowed down construction to preserve cash. In July Hoku said it had hired Deutsche Bank Securities as its financial adviser to seek a possible sale.

The company also said at the time it was continuing to explore other financial options to survive.

Hoku said yesterday its board of directors determined that the deal with Tianwei was the only viable option to avoid a Chapter 7 liquidation of its subsidiary, Hoku Materials. Hoku also has a solar installation business in Hawaii.

As the majority shareholder, Tianwei will have the right to nominate a majority of the members on Hoku's board as well as appoint the chairman. Effective upon closing, Hoku will increase the size of its board to seven from five members, three of whom will be selected from Hoku's existing board.

Current board members are Shindo; Karl Stahlkopf, director at Sennet Renewables; Dean Hirata, chief financial officer of Central Pacific Financial Corp.; Kaleo Taft, chief technology officer at Hoku; and Kenton Eldridge, a co-founder and partner of Sennet Capital.

The transaction is expected to close in October, subject to Chinese governmental approvals and other customary closing conditions.

Hoku will give Tianwei 33,379,287 newly issued shares of its common stock, which will represent 60 percent of Hoku's fully diluted outstanding shares. Hoku also will grant Tianwei warrants to purchase an additional 10 million shares of Hoku's common stock at a price per share equal to $2.52. Tianwei has agreed to a one-year lockup of 70 percent of its shares.

“;This strategic investment allows both companies to draw on each others' strengths and creates a world-class vertically integrated partnership that will have exceptional cost control throughout the entire solar value chain,”; said Ding Qiang, chairman of Tianwei Group. “;Hoku's entrepreneurial approach and clean-energy expertise nicely complement Tianwei's strategy, financial position and experience. We are convinced that this combination will allow both Hoku and Tianwei to expand their respective market shares and accelerate their growth in the renewable-energy industry.”;