Unassociated Document


    CONFIDENTIAL

     

    Exhibit
      10.61

    [*]
      =
      CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
      HAS BEEN OMITTED FROM PUBLIC FILING PURSUANT TO A REQUEST FOR CONFIDENTIAL
      TREATMENT SUBMITTED TO THE U.S. SECURITIES AND EXCHANGE COMMISSION. THE OMITTED
      INFORMATION, WHICH HAS BEEN IDENTIFIED WITH THE SYMBOL “[*],” HAS BEEN FILED
      SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
      24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

     

    FIRST
      AMENDED & RESTATED SUPPLY AGREEMENT 

     

    This
      First Amended & Restated Supply Agreement (“Agreement”)
      is
      made as of January 30, 2008 (the “Effective
      Date”)
      between SANYO Electric Co., Ltd. (hereinafter “SANYO”)
      and
      HOKU MATERIALS, INC. (hereinafter “HOKU”).
      

     

    RECITALS
      

     

    Whereas,
      Hoku Scientific, Inc. (“Hoku
      Scientific”)
      and
      SANYO are parties to that certain Supply Agreement dated as of January 17,
      2007,
      as amended pursuant to that certain Amendment No. 1 to Supply Agreement dated
      as
      of May 18, 2007, that certain Amendment No. 2 to Supply Agreement dated as
      of
      October 12, 2007, and that certain Amendment No. 3 to Supply Agreement dated
      as
      of December 28, 2007 (collectively, the “Supply
      Agreement”);
      and

     

    Whereas,
      Hoku Scientific, Inc., has assigned all of its right, title and interest in
      the
      Supply Agreement to HOKU, its wholly-owned subsidiary, pursuant to that certain
      Assignment and Assumption Agreement dated as of September 5, 2007 by and between
      Hoku Scientific and HOKU; and

     

    Whereas,
      HOKU and SANYO desire to amend and restate the Supply Agreement as hereinafter
      set forth; and

     

    Whereas,
      HOKU desires to supply polysilicon to SANYO for SANYO’s manufacture and/or sale
      of high performance solar photovoltaic cells beginning in 2010 for a continuous
      period of ten (10) Years (as defined below); 

     

    Whereas,
      in exchange for HOKU’s agreement to allocate the supply of polysilicon, SANYO
      desires to provide HOKU with a firm order for polysilicon upon the terms and
      conditions provided herein. 

     

    NOW,
      THEREFORE, in furtherance of the foregoing Recitals and in consideration of
      the
      mutual covenants and obligations set forth in this Agreement, the parties hereby
      agree as follows: 

     

    1.
      Definitions.
      The
      following terms used in this Agreement (defined below) shall have the meanings
      set forth below: 

     

    1.1.
      “Agreement”
shall
      mean this First Amended & Restated Supply Agreement and all appendices
      annexed to this Agreement as the same may be amended from time to time by the
      mutual written agreement of the parties hereto in accordance with the provisions
      hereof. 

     

    1.2.
      “Amended
      and Restated Escrow Agreement”
shall
      mean the Amended and Restated Escrow Agreement between HOKU, SANYO and Bank
      of
      Hawaii, Inc., substantially in the form of Exhibit
      A
      attached
      hereto.

     

    
      
        
        

      

      
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      CONFIDENTIAL

       

    

    1.3.
      “Commencement
      Date”
shall
      mean the date in January 2010, on which HOKU commences shipment of Products
      pursuant to this Agreement.

     

    1.4.
      “Business
      Day”
shall
      mean a day on which commercial banks are generally open to conduct their regular
      business in Los Angeles, California USA. 

     

    1.5.
      “Escrow
      Agent”
means
      Bank of Hawaii, Inc.

     

    1.6.
      “Escrow”
shall
      mean the escrow account established with the Escrow Agent in the United States
      of America pursuant to the Amended and Restated Escrow Agreement.

     

    1.7.
      “HOKU
      Facility”
shall
      mean HOKU’s manufacturing facility used to manufacture Products that is owned by
      HOKU located in the United States of America.

     

    1.8.
      “Minimum
      Annual Quantity of Product”
shall
      mean one [*] metric tons ([*] kilograms) of Product (as defined below) in each
      Year. 

     

    1.9.
      “Minimum
      Monthly Quantity of Product”
shall
      mean forty [*] metric tons ([*] kilograms) of Product (as defined below) in
      each
      month. 

     

    1.10.
      “Product(s)”
shall
      mean the raw polysilicon in chunk form manufactured by HOKU at the HOKU
      Facility, or in the case of Alternative Products pursuant to Section 3.3,
      manufactured by a third party and sold to SANYO pursuant to this Agreement,
      of
      which specifications are specifically described in Appendix
      2.
      

     

    1.11.
      “Term”
shall
      mean the period during which this Agreement is in effect, as more specifically
      set forth in Section 9.1 of this Agreement. 

     

    1.12.
      “Year”
shall
      mean each of the ten (10) consecutive twelve (12) month periods starting from
      January 2010.

     

    2.
      Ordering.
      

     

    2.1.
      Each
      Year
      starting from January 2010 and continuing for ten (10) consecutive Years
      thereafter (the “Shipment
      Period”),
      SANYO
      agrees to purchase from HOKU, and HOKU agrees to sell to SANYO, the Minimum
      Annual Quantity of Product at the prices set forth on Appendix
      1
      to this
      Agreement (the “Pricing
      Schedule”).
      This
      Agreement constitutes a firm order from SANYO for the sum of [*] metric tons
      of
      Product that cannot be cancelled during the Shipment Period, unless otherwise
      expressly provided in this Agreement. For the avoidance of doubt, SANYO’s
      failure to purchase the Minimum Annual Quantity of Product due to HOKU’s failure
      to ship Products in accordance with the terms or other breach of this Agreement
      by HOKU shall not constitute a breach of this Agreement by SANYO. This Agreement
      constitutes a firm commitment by HOKU to supply the sum of [*] metric tons
      of
      Product that cannot be canceled during the Shipment Period, unless otherwise
      expressly provided in this Agreement.

     

    2.2.
      At
      any
      time in calendar year 2009, HOKU may ship such raw polysilicon in chunk form
      that meets the specifications in Appendix 2 (the “2009
      Products”)
      to
      SANYO during the calendar year 2009 (each such shipment, an “Early
      Shipment”).
      HOKU
      shall provide SANYO with thirty (30) days’ advanced notice prior to any Early
      Shipment, and SANYO shall be obligated to accept such Early Shipment in
      accordance with the terms of this Agreement; provided that such Early Shipment
      is not greater than [*] ([*]) metric tons in any month. The net EXW price for
      such 2009 Products shall be agreed upon by the parties prior to shipment, but
      shall not be greater than [*]/kg. For the avoidance of doubt, notwithstanding
      anything to the contrary, HOKU shall have no obligation to make any Early
      Shipment to SANYO. Any Early Shipment shall not affect any termination
      provisions, requirements, obligations, deposit balances, penalties, or schedules
      described anywhere in this Agreement; provided, however, that: 

     

    
      
        
        

      

      
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      CONFIDENTIAL

    

     

    (a)
      if
      the 2009 Products fail to conform to the specifications in Appendix 2, then
      SANYO is entitled to take the remedial measures as set forth in Article
      8;

     

    (b)
      the
      payment terms for each shipment of 2009 Products shall be net sixty (60) days
      from the date of SANYO’s receipt of such shipment of 2009 Products and HOKU’s
      invoice;

     

    (c)
      Articles 7.1, 8 and 13 shall apply to the Early Shipment. 

     

    (d) if
      HOKU
      ships a minimum aggregate of [*] metric tons of 2009 Products in calendar year
      2009 and such 2009 Products shall include only the raw polysilicon in chunk
      form
      manufactured by HOKU at HOKU Facility and shall not include any Alternative
      Products defined in Section 3.3 below, then the fourth installment of [*]
      percent ([*]%) of the Main Deposit shall be released from Escrow pursuant to
      Section 5.2.2 (d) below; and

     

    (e)
      any
      Early Shipment shall be in addition to the Minimum Annual Quantity of Product
      to
      be shipped during the applicable Year.

     

    3.
      Supply
      Obligations.

     

    3.1.
      HOKU
      shall deliver each Year during the Shipment Period pursuant to this Agreement
      the Minimum Annual Quantity of Product and any additional quantities of Product
      that may be agreed by the parties in writing from time to time. 

     

    3.2.
      Notwithstanding
      Section 3.1 above, HOKU shall deliver to SANYO the Minimum Monthly Quantity
      of
      Product on the first Business Day of each month during the Shipment Period;
      provided, however, that, for the month including the Commencement Date, on
      or
      before the end of the said month. If HOKU is not able to deliver the Minimum
      Monthly Quantity of Product on the first Business Day of any month because
      of
      capacity constraints, HOKU shall immediately notify SANYO of such in writing.
      Notwithstanding anything herein to the contrary, SANYO shall have first priority
      with respect to any supply of Product and HOKU shall not deliver any Product
      to
      any other entity or person in any applicable monthly period unless HOKU has
      delivered to SANYO at least the Minimum Monthly Quantity of Product for such
      applicable monthly period. 

     

    3.3.
      HOKU
      intends to manufacture Products at the HOKU Facility; provided, however, that
      HOKU may deliver to SANYO Products that are manufactured by a third party other
      than HOKU (the “Alternative
      Products”).
      The
      Alternative Products shall conform to the warranties of HOKU to SANYO hereunder,
      and the quality, price, delivery and any other terms and conditions of the
      Alternative Products shall be no less favorable than the terms and conditions
      set forth in this Agreement. Delivery of the Alternative Products shall not
      release or mitigate HOKU’s liabilities and obligations hereunder except that
      delivery of the Alternative Products is deemed to be delivery of Products,
      and
      SANYO shall have the same rights and HOKU shall have the same obligations as
      set
      forth hereunder with respect to any Alternative Products. HOKU shall notify
      SANYO in writing prior to the delivery of Alternative Products.

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    4.
      Shipping
      & Delivery.
      

     

    4.1.
      The
      Commencement Date shall occur on or before January 31, 2010.

     

    4.2.
      Subject
      to Article 3 above, shipments of Products shall be made from the HOKU Facility
      on a monthly basis in accordance with a shipment schedule that shall be provided
      by HOKU each month (the “Shipment
      Schedule”).
      The
      Shipment Schedule shall be submitted by HOKU on or before the 10th Business
      Day
      of each month, and shall include rolling forecasts of scheduled quantity, price
      and delivery date of Products for the following six (6) months. The first
      Shipment Schedule shall be submitted by HOKU to SANYO on or before October
      31,
      2009. The forecasts for the first three (3) months in each Shipment Schedule
      shall be fixed (the “Fixed
      Schedule”).
      HOKU
      and SANYO shall have regular discussions regarding the Shipment Schedule and
      Fixed Schedule. In the event that HOKU fails to deliver Products in accordance
      with the Fixed Period, SANYO may cause HOKU at HOKU’s own responsibility, cost
      and expense to deliver Products to the locations designated by SANYO by rail
      or
      boat means of shipment.

     

    4.3.
      If
      HOKU
      does not fulfill its obligations in any applicable monthly period starting
      from
      January 2010 with respect to supplying the Minimum Monthly Quantity of Product
      or in any applicable Year to supply the Minimum Annual Quantity of Product,
      HOKU
      shall reduce the applicable price set forth in the Pricing Schedule (the
“Product
      Price”)
      for
      the relevant Products as liquidated damages but not as a penalty. Such price
      reduction shall be made at the rate of [*] percent ([*]%) of the applicable
      Product Price of the respective Products for each week or part thereof until
      the
      date when such deficiency is shipped. Without limiting SANYO’s right to
      terminate this Agreement pursuant to Section 9.2 and receive its deposit
      pursuant to Section 9.5, such liquidated damages should not equal more than
      [*]%
      of the purchase price for the applicable Product. 

     

    4.4.
      HOKU
      shall not be responsible for loading the Products on any vehicle provided by
      SANYO or for clearing the Products for export, unless otherwise agreed, and
      SANYO shall bear all costs and risks involved in loading and transporting the
      Products from the HOKU Facility to the location designated by SANYO except
      in
      case of Section 4.2, as set forth in Section 5.4 below. Title to the Products
      shall transfer EXW ex works the HOKU Facility. 

     

    5.
      Payments.

     

    5.1.
      Pursuant
      to the Supply Agreement, SANYO has provided HOKU with an advance initial deposit
      of Two Million U.S. Dollars ($2,000,000) (the “Initial
      Deposit”).

     

    5.2.
      Main
      Deposit.

     

    5.2.1.
      Establishment
      of Escrow.
      Pursuant to the Supply Agreement, SANYO and HOKU entered into an Escrow
      Agreement with the Escrow Agent dated as of January 17, 2007, as amended by
      that
      certain Amendment No. 1 to Escrow Agreement dated as of May 18, 2007 (together,
      the “Escrow
      Agreement”),
      and
      SANYO paid to the Escrow Agent, by wire transfer of immediately available funds,
      an amount equal to the Main Deposit (as defined below) to be held by the Escrow
      Agent pursuant to the Escrow Agreement. Concurrent with the execution of this
      Agreement, SANYO, HOKU and the Escrow Agent shall enter into an Amended and
      Restated Escrow Agreement in substantially the form of Exhibit
      A
      attached
      hereto The Main Deposit shall be held and delivered by the Escrow Agent to
      HOKU
      in accordance with the terms and conditions of this Agreement and the Amended
      and Restated Escrow Agreement. For the avoidance of doubt, the funds of the
      Main
      Deposit remaining in the account of the Escrow Agent shall remain the property
      of SANYO until such time as such funds have been delivered to HOKU under the
      terms of this Agreement and the Amended and Restated Escrow
      Agreement.

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    5.2.2.
      SANYO shall pay in cash to HOKU through the Escrow Agent the sum of One Hundred
      Nine Million Three Hundred Thousand U.S. Dollars ($109,300,000) (the
“Main
      Deposit”)
      as an
      advance deposit for Products to be delivered under this Agreement in four
      installments as follows:

     

    (a) the
      first
      installment shall be in the amount equal to [*] percent ([*]%) of the Main
      Deposit and shall be released from Escrow to HOKU within fifteen (15) Business
      Days after HOKU and SANYO confirm in writing Success of the [*] Test [*] (as
      defined in Section 5.2.4). 

     

    (b) the
      second installment shall be in the amount equal to [*] percent ([*]%) of the
      Main Deposit and shall be released from Escrow to HOKU within fifteen (15)
      Business Days after HOKU and SANYO confirm in writing Success of the [*] Test
      [*] (as defined in Section 5.2.5).

     

    (c) the
      third
      installment shall be in the amount equal to [*] percent ([*]%) of the Main
      Deposit and shall be released from Escrow to HOKU within fifteen (15) Business
      Days after HOKU and SANYO
      confirm in writing Success of the [*] Test [*] (as defined in Section
      5.2.4).

     

    (d) the
      fourth installment shall be in the amount equal to [*] percent ([*]%) of the
      Main Deposit and shall be released from Escrow to HOKU within fifteen (15)
      Business Days after SANYO confirms in writing that the Products delivered in
      the
      shipment meet the specifications set forth in Appendix
      2
      attached
      hereto warranted by HOKU pursuant to Section 7.1 of this Agreement.
      Notwithstanding anything herein to the contrary, to satisfy the conditions
      set
      forth in this Section 5.2.2(d), HOKU shall be required to deliver at least
      [*]
      ([*]) metric tons of Products to SANYO and such Products shall include only
      Products manufactured at the HOKU Facility and shall not include any Alternative
      Products; provided, however, that if the shipment consists of 2009 Products,
      then HOKU shall be required to deliver a minimum aggregate of [*] metric tons
      of
      2009 Products in calendar year 2009 and otherwise satisfy the conditions in
      Section 2.2 to satisfy the foregoing conditions and receive such fourth
      installment from Escrow. 

     

    5.2.3.
      As
      a
      further condition to Escrow Agent’s release of any portion of the Main Deposit
      from Escrow, as of the date of the proposed release, HOKU shall submit to the
      Escrow Agent, with a copy to SANYO, a certificate, in substantially the form
      of
Appendix
      4
      attached
      hereto, signed by an executive officer of HOKU that certifies that (i) HOKU
      has
      obtained all inspections, certifications, licenses, permits and other
      governmental approvals and authorizations (“Authorizations”)
      necessary as of the current stage of development of the HOKU Facility that
      would
      be known by a reasonably prudent company engaged
      in the business of manufacture and sale of polysilicon in the United States
      of
      America;
      (ii) To
      the best of HOKU’s knowledge, such Authorizations are in full force and effect;
      and (iii) HOKU is not aware of any reason that HOKU will not obtain in the
      ordinary course of business all Authorizations required for the completion
      and
      operation of the HOKU Facility. 

     

    5.2.4.
      For purposes of this Agreement, “Success
      of the [*] Test [*]”
shall
      mean that the [*] Test [*] set forth in Appendix
      3
      attached
      hereto meets all criteria set forth in item [*] in Appendix
      3
      attached
      hereto, and “Success
      of the [*] Test [*]”
shall
      mean the [*] Test [*] set forth in Appendix
      3
      attached
      hereto meets all criteria set forth in item [*] in Appendix
      3
      attached
      hereto.

     

    5.2.5.
      For purposes of this Agreement, “Success
      of the [*] Test [*]”
shall
      mean that the [*] Test [*] set forth in Appendix
      3
      attached
      hereto meets all specifications set forth in item [*] in Appendix
      3
      attached
      hereto.

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    5.2.6.
      The sum of the Initial Deposit and Main Deposit shall be the “Total
      Deposit”.
      The
      Total Deposit is equal to 21% of the total purchase price for this Agreement,
      excluding taxes, duties, shipping, insurance, and other fees, costs and
      expenses. 

     

    5.2.7.
      SANYO, at its option and expense, shall have the right to attend, and subject
      to
      the sentence immediately below, shall have the right to have one or more of
      its
      designated representatives attend, the [*] Tests [*] and [*], and [*] Test
      [*]
      (as described in Appendix
      3
      attached
      hereto). HOKU shall provide a written notice to SANYO no less than twenty (20)
      Business Days prior to the applicable test and at least ten (10) Business Days
      prior to any re-test. Any third party that SANYO requests to view any such
      test
      must not be a competitor to HOKU, and must sign a confidentiality and
      non-compete agreement prior to participating in the applicable test. The [*]
      Test [*] and [*], and [*] Test [*] shall be performed pursuant to the processes
      set forth in Appendix
      3.
      

     

    5.2.8.
      If
      HOKU believes that the criteria required for it to receive any of the four
      installment payments as described in Sections 5.2.2(a) through 5.2.2(d) above
      (other than the receipt of written confirmation from SANYO) has been met, HOKU
      shall so advise SANYO in writing (the “Confirmation
      Notice”).
      Within thirty (30) Business Days following the date of SANYO’s receipt of such
      Confirmation Notice relating to any such installment payment, SANYO shall either
      (i) provide to HOKU the written confirmation of the achievement of the criteria
      relating to such payment or (ii) provide to HOKU, in reasonable detail, the
      reasons that it has concluded that such criteria have not been met. The parties
      agree that neither party may withhold unreasonably any written confirmation
      of
      such party referenced in items 5.2.2(a) through 5.2.2(d).

     

    5.2.9.
      If, with respect to any of the four installments described in Sections 5.2.2(a)
      through 5.2.2(d), respectively, of this Agreement, (i) SANYO provides written
      notice to HOKU pursuant to Section 5.2.8(ii) above or otherwise fails to provide
      written confirmation of the achievement of the applicable criteria within
      fifteen (15) Business Days from receipt of a written reminder notice from HOKU
      and (ii) HOKU disputes the applicable findings or conclusions of SANYO, then
      HOKU may elect (by providing written notice to the Escrow Agent and SANYO)
      to
      resolve the controversy pursuant to the arbitration provisions of Section 14.4
      below. Such written reminder notice shall be sent by HOKU no earlier than thirty
      one (31) Business Days after SANYO’s receipt of the Confirmation Notice. If such
      an arbitration results in a finding that the criteria required in connection
      with any such installment (other than the delivery of written confirmation
      by
      SANYO) had been achieved or that SANYO otherwise unreasonably withheld delivery
      of its applicable confirmation, then HOKU shall be entitled to receive the
      applicable funds in accordance with the Amended and Restated Escrow Agreement
      and any other damages awarded in arbitration pursuant to the terms and
      conditions of this Agreement. Notwithstanding anything to the contrary herein,
      it shall be a condition to any release of Escrow Funds to HOKU under the Amended
      and Restated Escrow Agreement that HOKU shall have granted SANYO the security
      interest described in Section 6.1 below. SANYO shall have a reasonable basis
      for
      refusing to execute any test or specification confirmation under Sections
      5.2.2(a) through 5.2.2(d) hereunder (as applicable) if HOKU shall not have
      granted SANYO such security interest.

     

    5.3.
      HOKU
      shall invoice SANYO at or after the time of each shipment of Products to SANYO.
      Taxes, customs and duties, if any, shall be identified as separate items on
      HOKU
      invoices. All invoices shall be sent to SANYO’s location indicated in the
      applicable order. Payment terms for all invoiced amounts hereunder shall be
      sixty (60) days from the date of SANYO’s receipt of Products and HOKU’s invoice
      (the “Due
      Date”).
      All
      payments hereunder shall be made in U.S. Dollars. Total Deposit shall be
      credited against each shipment hereunder once the aggregate volume of Product
      shipped under this Agreement is equal to [*] ([*]) metric tons, whereupon the
      Total Deposit shall be credited pro rata with each shipment over the next [*]
      ([*]) metric tons, bringing the Total Deposit to zero (0) once [*] ([*]) metric
      tons have been shipped.

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    5.4.
      The
      prices for the Products do not include any excise, sales, use, import, export
      or
      other taxes, which taxes shall be invoiced to and paid by SANYO, provided that
      SANYO is legally or contractually obligated to pay such taxes. HOKU and SANYO
      shall work together to eliminate the possibility of taxes, but if there are
      any
      assessed, HOKU shall promptly remit to SANYO in full any such taxes paid by
      SANYO which are refunded to HOKU in whole or in part. SANYO shall be responsible
      for all transportation charges, duties and charges for shipping and handling
      except in case of Section 4.2; thus, the price for the Products shall not
      include any such charges except in case of Section 4.2.

     

    5.5.
      Late
      payments for outstanding balances shall accrue interest at the lesser of
      eighteen percent (18%) per annum or the maximum rate allowed by the applicable
      law. 

     

    5.6.
      HOKU
      shall solely use the Total Deposit from SANYO for HOKU’s polysilicon business or
      production of Product related to this Agreement. Such polysilicon business
      shall
      be resided within HOKU.

     

    6.
      Security
      Interest.

     

    6.1.
      Subject
      to receipt of the Initial Deposit, HOKU hereby grants to SANYO a security
      interest, which shall be subordinated in accordance with Section 6.3 below,
      in
      all of the tangible and intangible assets related to HOKU (the “Collateral”).
      In
      connection with the foregoing and concurrent with obtaining the Financing (as
      defined below), (a) HOKU shall enter into or cause the applicable subsidiary
      or
      affiliate to enter into customary collateral documentation reasonably requested
      by SANYO in order to provide SANYO with perfected security interests and liens
      on the Collateral, including, without limitation, deeds of trust with respect
      to
      the real property and fixtures comprising the HOKU Facility and a security
      agreement with respect to the Collateral consisting of personal property, (b)
      HOKU shall cause to be delivered such other items in connection with the
      Collateral and such documentation as reasonably requested by SANYO, including,
      without limitation, Uniform Commercial Code financing statements, other items
      necessary to perfect SANYO’s security interests and liens, opinions of counsel
      as to matters reasonably requested by SANYO, including the enforceability of
      the
      Collateral documents and the creation and perfection of the security interests
      and liens created thereby, and title insurance policies with respect to the
      Collateral consisting of real property. Any cost for obtaining the title
      insurance shall be borne by HOKU.

     

    6.2.
      Concurrent
      with obtaining the Financing, Hoku Scientific shall pledge to SANYO all of
      the
      equity interests in HOKU owned by Hoku Scientific, and such equity interests
      shall constitute Collateral for the obligations of Hoku Scientific and HOKU
      under this Agreement.

     

    6.3.
      SANYO
      acknowledges and agrees that the security interests and liens in the Collateral
      will be expressly subordinated to HOKU’s third-party lenders (the “Senior
      Lenders”)
      that
      provide debt financing for the construction of the HOKU Facility (excluding
      all
      other third party customers who provide pre-payments under supply and similar
      agreements). SANYO shall enter into subordination agreements with the Senior
      Lenders on terms and conditions acceptable to SANYO and the Senior
      Lenders.

     

    6.4.
      Notwithstanding
      anything herein to the contrary, prior to the release of funds from Escrow,
      HOKU
      (and, with reference to Section 6.2, Hoku Scientific) shall (A) enter into
      the
      agreements described in Sections 6.1 and 6.2 above with SANYO and (B) raise
      an
      aggregate of $150 million in gross aggregate proceeds from financing (the
“Financing”), which may include proceeds from long-term bank debt, equity
      offering, customer pre-payments or any combination thereof (excluding any
      amounts received from SANYO), to procure the HOKU Facility and equipment
      necessary to manufacture three thousand (3,000) metric tons of Product per
      annum.

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    6.5.
      The
      security interests granted hereby shall continue so long as HOKU continues
      to
      maintain any amount of the Total Deposit, and only to the extent of such
      remaining amount of the Total Deposit being held by HOKU, which has not been
      credited against the shipment of Products pursuant to this Agreement.
      Notwithstanding anything to the contrary contained in this Agreement, the
      Collateral consisting of real property shall secure only the obligations of
      HOKU
      to refund any portion of the Total Deposit to SANYO in accordance with the
      terms
      of this Agreement or the Amended and Restated Escrow Agreement.

     

    7.
      Product
      Quality Guarantee.
      

     

    7.1.
      HOKU
      warrants to SANYO for a period of ninety (90) days from the date the Product
      leaves the HOKU Facility, that the Products shall meet the specifications set
      forth on Appendix
      2
      to this
      Agreement (the “Product
      Specifications”).
      Provided that SANYO complies with the return goods policy described in Article
      8
      below, HOKU shall, upon SANYO’s prompt written notification to HOKU, replace
      non-conforming Products with conforming Products, and if HOKU is unable to
      do
      so, HOKU shall refund SANYO for non-conforming Products within thirty (30)
      days
      after HOKU’s receipt of such returned Products. No employee, agent or
      representative of HOKU has the authority to bind HOKU to any oral representation
      or warranty concerning Products. Any oral representation or warranty made prior
      to the purchase of any Product and not set forth in writing and signed by a
      duly
      authorized officer of HOKU shall not be enforceable by SANYO. HOKU makes no
      warranty and shall have no obligation with respect to damage caused by or
      resulting from misuse, neglect or unauthorized alterations to the Products
      for
      which SANYO is responsible. 

     

    7.2.
      HOKU
      EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES NOT EXPLICITLY DESCRIBED IN THIS
      AGREEMENT, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE WARRANTIES
      OF
      MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. HOKU’s sole
      responsibility and SANYO’s exclusive remedy for any claim arising out of HOKU’s
      breach of the warranties set forth in Section 7.1 above is a refund or
      replacement, as described above. 

     

    7.3.
      Except
      as
      otherwise expressly set forth herein, HOKU disclaims any obligation to defend
      or
      indemnify SANYO, its past, present and future subsidiaries, affiliates, and
      their respective officers, agents, or employees, from and against any claims,
      demands, actions, proceedings, losses, damages, liabilities, costs or expenses,
      including without limitation, reasonable attorney fees, which may arise out
      of
      HOKU’s acts or omissions or the sale or use of the Products provided to SANYO by
      HOKU.

     

    8.
      Return
      Goods Policy.
      After
      receipt of the Products and during the ninety (90) day warranty period described
      in Section 7.1, SANYO may inspect the Products to confirm no shortfall and
      conformity of Products to the warranties set forth in Section 7.1. Should SANYO
      find any shortfall or non-conformity in the delivered Products as a result
      of
      such inspection, HOKU shall, at SANYO’s sole discretion, fulfill such shortfalls
      and/or replace the non-conforming Products with conforming Products or refund
      to
      SANYO for such non-conforming Products pursuant to Section 7.1. To assure prompt
      handling, SANYO must obtain and HOKU must issue, upon SANYO’s written notice to
      HOKU, a return goods authorization number and SANYO shall reference this number
      on return shipping documents. Returns of Products made without the authorization
      number shall be returned to SANYO, freight collect. HOKU reserves the right
      to
      reverse any credit issued to SANYO: (i) for any Product not returned after
      authorization and request by HOKU; or (ii) if, upon return, such Product is
      reasonably determined by HOKU not to be non-conforming based on legitimate
      evidence supporting such determination which may be reasonably acceptable to
      SANYO. 

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    9.
      Term
      and Termination.
      

     

    9.1.
      The
      term
      of this Agreement shall begin on the Effective Date and, unless previously
      terminated as hereinafter set forth, shall remain in full force and effect
      until
      the ten (10) Year anniversary of the Commencement Date. For the avoidance of
      doubt, regardless of HOKU’s delay in commencement to supply Products to SANYO
      beyond January 2010, this Agreement shall expire on December 31, 2019, and
      thereafter the parties hereto shall have no further obligation to, in case
      of
      HOKU, sell to SANYO and, in case of SANYO, purchase from HOKU Products which
      have not yet delivered to SANYO on the foregoing expiration date regardless
      of
      the requirements in connection with either the Minimum Annual Quantity of
      Product or the Minimum Monthly Quantity of Product set forth in this
      Agreement.

     

    9.2.
      Each
      party hereto may, at its discretion, upon written notice to the other party,
      and
      in addition to its rights and remedies provided under this Agreement and at
      law
      or in equity, terminate this Agreement in the event of any of the following:
      

     

    9.2.1.
      Upon a material breach of the other party of any provision in this Agreement,
      and failure of the other party to cure such material breach within fifteen
      (15)
      Business Days after the written notice thereof. 

     

    9.2.2.
      For purposes of this Agreement, and notwithstanding anything to the contrary
      in
      the preceding sentence, a material breach by SANYO hereunder shall include,
      but
      not be limited to, SANYO failing to make a payment pursuant to this Agreement
      ninety (90) days from SANYO’s receipt of Products and HOKU’s
      invoice.

     

    9.2.3.
      For purposes of this Agreement, a material breach by HOKU hereunder shall
      include, but not be limited to, any of:

     

    
      	
            	(a)	
              Beginning
                on April 30, 2010, HOKU failing to deliver the Minimum Monthly Quantity
                of
                Product in any month;

            


    

    


    
      	
            	(b)	
              HOKU
                failing to deliver the Minimum Annual Quantity of Product in any
                Year;

            


    

    


    
      	
            	(c)	
              HOKU
                being unable to complete successfully [*] Tests [*], [*] Test [*],
                and [*]
                Test [*], as described in Sections 5.2.4 and 5.2.5, by September
                30,
                2009;

            


    

    


    
      	
            	(d)	
              HOKU
                being unable to complete successfully the [*] Test [*], as described
                in
                Appendix 5, by September 30, 2009; 

            


    

    


    
      	
            	(e)	
              HOKU
                being unable to complete successfully the shipment described in Section
                5.2.2(d) prior to April 30, 2010;

            


    

    


    
      
        	
              	(f)	
                HOKU’s
                  repetitive failure to deliver Products conforming to the warranties
                  set
                  forth in Section 7.1;

              


      

    

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    
      	
            	(g)	
              Occurrence
                of any payment by SANYO Indemnitees (as defined in Section 13.1)
                with
                respect to Losses (as defined in Section 13.1) not reimbursed by
                HOKU;
                

            


    

    


    
      	
            	(h)	
              HOKU’s
                breach of Article 13.1 of this Agreement;
                or

            


    

    


    
      	
            	(i)	
              HOKU’s
                breach of Article 14.5 of this
                Agreement.

            


    

     

    9.2.4.
      Upon the voluntary or involuntary initiation of bankruptcy or insolvency
      proceedings against the other party (and,
      in
      the case of HOKU, including Hoku Scientific); provided, that for an involuntary
      bankruptcy or insolvency proceeding, the party subject to the proceeding shall
      have sixty (60) Business Days within which to dissolve the proceeding or
      demonstrate to the terminating party’s satisfaction the lack of grounds for the
      initiation of such proceeding; 

     

    9.2.5.
      Upon entering into an assignment for the benefit of creditors against the other
      party;

     

    9.2.6.
      Upon initiation of dissolution, liquidation or winding-up proceedings of the
      other party; or

     

    9.2.7.
      In
      accordance with the provisions of Article 12 below. 

     

    9.3.
      HOKU
      shall have the right to terminate this Agreement if (A) SANYO fails to make
      either (i) the Initial Deposit pursuant to Section 5.1, or (ii) the Main Deposit
      pursuant to Section 5.2 hereof; or (B) the terms of this Agreement make it
      difficult for HOKU to secure financing sufficient to procure the HOKU Facility
      and equipment necessary to manufacture one thousand five hundred (1,500) metric
      tons of Products per annum. Notwithstanding the above, before terminating the
      Agreement pursuant to clause (B) above, HOKU shall first discuss and request
      SANYO to make the necessary changes to this Agreement needed to move forward
      with financing. For the avoidance of doubt, SANYO has no obligation to make
      any
      such changes to this Agreement.

     

    9.4.
      Either
      party may terminate this Agreement upon the written notice to the other party
      if

     

    (a)
      the
      Amended and Restated Escrow Agreement shall not be executed within thirty (30)
      Business Days after the date of this Agreement;

     

    (b)
      the
      Amended and Restated Escrow Agreement shall be terminated prior to release
      of
      the full amount of the Main Deposit to HOKU.

     

    (c)
      HOKU
      is unable to secure the Financing in accordance with Section 6.4 hereof on
      or
      before May 31, 2008 (in this case, notwithstanding Section 9.2.1, without
      fifteen (15) Business Days cure period). 

     

    9.5.
      Upon
      expiration or termination of this Agreement for any reason, except for a
      termination of this Agreement by HOKU pursuant to Section 9.2.4, 9.2.5, or
      9.2.6, HOKU shall refund to SANYO the entire amount of the Total Deposit less
      any part of the Total Deposit applied to the purchase price of the Products
      pursuant to Section 5.3 hereof within thirty (30) Business Days after the
      expiration or termination hereof. Without limiting the foregoing, in case the
      Main Deposit or any part thereof is still in the account of the Escrow Agent
      at
      the time of any such the expiration or termination hereof, HOKU shall authorize
      the Escrow Agent to refund the Main Deposit to SANYO. For the avoidance of
      doubt, in case this Agreement is terminated before HOKU applies any part of
      the
      Total Deposit to the purchase price of Products pursuant to Section 5.3 hereof,
      and except in the case of a termination of this Agreement by HOKU pursuant
      to
      Section 9.2.4, 9.2.5, or 9.2.6, HOKU shall be able to execute the Off-Set as
      described in Section 11 prior to refunding to SANYO the remaining amount of
      the
      Total Deposit. 

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    9.6.
      Upon
      the
      expiration or termination of this Agreement howsoever arising and subject always
      to the provisions of Section 9.7 below, the following Sections shall survive
      such expiration or termination: Article 1 (Definitions); Section 4.3 (Shipping
      & Delivery); Article 7 (Product Quality Guarantee); Article 8 (Return Goods
      Policy); Section 9.5, 9.6 and 9.7 (Term and Termination); Article 10
      (Liability); Article 11 (Right to Off-Set); Article 13 (Indemnification); and
      Article 14 (General Provisions). 

     

    9.7.
      Upon
      expiration or termination of this Agreement for any reason, all outstanding
      deliveries of Products fixed in the Fixed Schedule prior to such expiration
      or
      termination shall be completed by HOKU and for this purpose and to that extent,
      the provisions of this Agreement shall continue in full force and effect.


     

    10.
      Liability.
      

     

    10.1.
      IN
      NO
      EVENT SHALL EITHER PARTY BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL OR
      CONSEQUENTIAL DAMAGES OR FOR EXEMPLARY OR PUNITIVE DAMAGES, EVEN IF SANYO OR
      HOKU HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 

     

    10.2.
      EXCEPT
      FOR REFUND OF THE TOTAL DEPOSIT PURSUANT TO SECTION 9.5 ABOVE, EITHER PARTY’S
      TOTAL LIABILITY TO THE OTHER FOR ANY KIND OF LOSS, DAMAGE OR LIABILITY ARISING
      UNDER OR IN CONNECTION WITH THIS AGREEMENT, UNDER ANY THEORY OF LIABILITY,
      SHALL
      NOT EXCEED FIFTY SIX MILLION US DOLLARS ($56,000,000); PROVIDED, HOWEVER, THAT
      SUCH MAXIMUM LIABILITY SHALL NOT INCLUDE LIQUIDATED DAMAGES PROVIDED IN SECTION
      4.3 ABOVE.

     

    11.
      Right
      to Off-Set.
      THE
      PARTIES ACKNOWLEDGE AND AGREE THAT, IN THE EVENT THAT SANYO IS LATE IN MAKING
      ANY PAYMENTS TO HOKU FOR PRODUCTS THAT HAVE BEEN SHIPPED BY HOKU, HOKU RESERVES
      THE RIGHT TO OFF-SET THE AMOUNT OF THE TOTAL DEPOSIT BY CREDITING TO HOKU’S
      ACCOUNT THE AMOUNT OF THE TOTAL DEPOSIT THAT IS EQUAL TO THE PAST DUE AMOUNT,
      INCLUDING ANY INTEREST PAYABLE THEREON PURSUANT TO THIS AGREEMENT; PROVIDED,
      HOWEVER, THAT HOKU SHALL NOTIFY SANYO IN WRITING PRIOR TO SUCH OFF-SET. FOR
      THE
      AVOIDANCE OF DOUBT, THE INTEREST PAYABLE SET FORTH ABOVE SHALL ACCRUE FROM
      THE
      DUE DATE TO THE DATE WHEN HOKU EXERCISES THE RIGHT TO OFF-SET. IN CASE OF SUCH
      SET-OFF BY HOKU, SANYO SHALL BE REQUIRED TO REPLENISH WITHIN THIRTY (30)
      BUSINESS DAYS AFTER SANYO’S RECEIPT OF SUCH NOTIFICATION ANY ADDITIONAL DEPOSIT
      IN ORDER TO RETURN THE TOTAL DEPOSIT TO THE LEVEL IT SHOULD BE AS DESCRIBED
      IN
      SECTION 5.3. 

     

    12.
      Force
      Majeure.
      Neither
      party shall be liable to the other party for failure of or delay in performance
      of any obligation under this Agreement, directly or indirectly, owing to acts
      of
      God, war, war-like condition, embargoes, riots, strikes and other events beyond
      its reasonable control. If such failure or delay occurs, the affected party
      (i.e., the party that is unable to perform) shall notify the other party of
      the
      occurrence thereof as soon as possible, and the parties shall discuss the best
      way to resolve the event of force majeure. If the conditions of force majeure
      apply for a period of more than two (2) consecutive calendar months, the
      non-affected party shall be entitled to terminate this Agreement by written
      notice to the other party.

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    13.
      Indemnification.

     

    13.1.
      HOKU
      shall indemnify, defend and hold harmless SANYO, its respective past, present
      and future subsidiaries, affiliates, and each of their past, present and future
      constituent members, partners, officers, shareholders, directors, agents,
      employees, attorneys, retailers and customers and each of their respective
      successors and assigns (“SANYO
      Indemnitees”)
      from
      any claims, demands, actions, proceedings, losses, damages, liabilities, costs
      and expenses, including without limitation, reasonable attorney fees, (the
      “Losses”)
      which
      may arise out of or in connection with any infringement by the Products of
      the
      patent rights, trademark rights, copyrights or other intellectual property
      rights belonging to any third party. 

     

    13.2.
      Any
      such
      indemnification set forth in Section 13.1 shall be pursuant to the following
      provisions:

     

    13.2.1.
      SANYO shall give a prompt written notice to HOKU of any assertion of liability
      by a third party which might give rise to a claim for indemnification, which
      notice shall state the nature and basis of the assertion and the amount thereof,
      to the extent known; provided, however, that no delay on the part of SANYO
      in
      giving notice shall relieve HOKU of any obligation to indemnify unless (and
      then
      solely to the extent that) HOKU is prejudiced by such delay. SANYO shall take
      reasonable steps to mitigate indemnifiable liabilities and damages upon and
      after becoming aware of any event which could reasonably be expected to give
      rise to any liabilities and damages that are indemnifiable hereunder.


     

    13.2.2.
      If any action, suit or proceeding (the “Legal
      Action”)
      is
      brought against any of SANYO Indemnitees with respect to which HOKU may have
      an
      obligation to indemnify, the Legal Action shall be defended by HOKU and such
      defense shall include all proceedings and appeals which counsel for SANYO
      Indemnitees shall reasonably deem appropriate; provided, however, that SANYO
      Indemnitees shall be entitled to participate in the defense of (but not control)
      any Legal Action, the defense of which is assumed by HOKU, with its own counsel
      and at its own expense; provided, however, that if HOKU does not assume control
      of such defense within a reasonable time, SANYO may assume control of such
      defense at the cost and expense of HOKU. 

     

    13.2.3.
      In any Legal Action initiated by a third party and defended by HOKU (a)
      applicable SANYO Indemnitees shall have the right to be represented by advisory
      counsel and accountants, at their own expense, (b) HOKU shall keep applicable
      SANYO Indemnitees fully informed as to the status of such Legal Action at all
      stages thereof, whether or not such SANYO Indemnitees are represented by their
      own counsel, (c) HOKU shall make available to applicable SANYO Indemnitees,
      and
      their attorneys, accountants and other representatives, all books and records
      of
      HOKU relating to such Legal Action, and (d) the parties shall render to each
      other such assistance as may be reasonably required in order to ensure the
      proper and adequate defense of the Legal Action.

     

    13.3.
      HOKU’s
      obligation to indemnify SANYO as set forth above shall not apply to any claim
      set forth in a written notice provided by SANYO pursuant to Section 13.2.1
      that
      is sent to HOKU more than five (5) years after the termination or expiration
      of
      this Agreement.

     

    13.4
      HOKU
      warrants that the manufacture, sale and/or use of Products shall not infringe
      any patent rights, trademark rights, copyrights or other intellectual property
      rights belonging to any third party. 

     

    
      
        
        

      

      
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    14.
      General
      Provisions.
      

     

    14.1.
      HOKU
      represents that it has contracted with [*] based in [*] for engineering and
      design services related to the vent gas recovery process that shall be used
      at
      the HOKU Facility.

     

    14.2.
      HOKU
      shall allow SANYO visitation rights for and between the time of signing and
      first delivery of Products upon reasonable advanced notice and at mutually
      agreeable times. HOKU shall provide SANYO with monthly written progress reports
      in reasonable detail on the polysilicon business that include a summary record
      of sources of cash in and uses of cash out and discuss them with SANYO; provided
      that HOKU shall not be required to provide the monthly written progress reports
      after HOKU has completed the first delivery of Products.

     

    14.3.
      This
      Agreement shall be construed under and governed by the laws of the State of
      California, U.S.A. 

     

    14.4.
      The
      parties agree that any controversy between the parties hereto involving any
      claim arising out of or relating to this Agreement shall be finally settled
      by
      arbitration in Santa Clara County, California, in accordance with the then
      current Commercial Arbitration Rules of the American Arbitration Association,
      and judgment upon the award rendered by the arbitrators may be entered in any
      court having jurisdiction thereof.

     

    14.5.
      This
      Agreement, in whole or in part, may not be assigned to a third party without
      prior written consent of the other party. Hoku Scientific shall be jointly
      and
      severally liable with HOKU for HOKU’s breach of its obligations hereunder.
      Merger or acquisition of a party hereto with a third party shall not be
      considered an assignment of this Agreement. This
      Agreement may be assigned by a party in connection with the sale of all or
      substantially all of such party’s assets. If
      this
      Agreement is assigned effectively to the third party, this Agreement shall
      bind
      upon successors and assigns of the parties hereto. Further, if HOKU assigns
      this
      Agreement to any other party, HOKU shall be required to assign the Amended
      and
      Restated Escrow Agreement to the same party.

     

    14.6.
      Hoku
      Scientific shall maintain greater than [*]% equity interest in HOKU during
      the
      term of this Agreement and shall otherwise control HOKU. Hoku Scientific shall
      obtain written approval from SANYO for Hoku Scientific to reduce its equity
      interest in HOKU to a level less than or equal to [*]%.

     

    14.7.
      Except
      as
      provided elsewhere in this Agreement, a notice is effective only if the party
      giving or making the notice has complied with this Section 14.7 and if the
      addressee has received the notice. A notice is deemed to have been received
      as
      follows: 

     

    (a) If
      a
      notice is delivered in person, or sent by registered or certified mail, or
      nationally or internationally recognized overnight courier, upon receipt as
      indicated by the date on the signed receipt; 

     

    (b) If
      a
      notice is sent by facsimile, upon receipt by the party giving the notice of
      an
      acknowledgment or transmission report generated by the machine from which the
      facsimile was sent indicating that the facsimile was sent in its entirety to
      the
      addressee’s facsimile number; or 

     

    (c) If
      a
      notice is sent by e-mail, upon receipt by the party giving the notice of an
      acknowledgement or transmission report indicating that the e-mail was sent
      in
      its entirety to the addressee’s e-mail address. 

     

    Each
      party giving a notice shall address the notice to the appropriate person at
      the
      receiving party at the address listed below or to a changed address as the
      party
      shall have specified by prior written notice: 

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    SANYO:
      

    SANYO
      Electric Co., Ltd. 

    15-2
      Nishikiminami-machi

    Kaizuka
      City, Osaka, 597-0094, Japan 

    Attn:
      Mr.
      Yasuyoshi Kawanishi, General Manager

    E-mail:
      [*]

    Facsimile:
      [*]

    


    HOKU:
      

    HOKU
      MATERIALS, INC.

    One
      Hoku
      Way

    Pocatello,
      Idaho 83204 USA

    Attn:
      Mr.
      Dustin Shindo, CEO

    E-mail:
      [*]

    Facsimile:
      +1 (808) 682-7807

    


    


    Hoku
      Scientific:

    HOKU
      SCIENTIFIC, INC.

    1075
      Opakapaka Street

    Kapolei,
      Hawaii 96707, USA

    Attn:
      Mr.
      Dustin Shindo, CEO

    E-mail:
      [*]

    Facsimile:
      +1 (808) 682-7807

     

    14.8.
      The
      waiver by either party of the remedy for the other party’s breach of or its
      rights under this Agreement shall not constitute a waiver of the remedy for
      any
      other similar or subsequent breach of any rights hereunder. 

     

    14.9.
      If
      any
      provision of this Agreement is or becomes, at any time or for any reason,
      unenforceable or invalid, no other provision of this Agreement shall be affected
      thereby, and the remaining provisions of this Agreement shall continue with
      the
      same force and effect as if such unenforceable or invalid provisions had not
      been inserted in this Agreement. 

     

    14.10.
      No
      changes, modifications or alterations to this Agreement shall be valid unless
      reduced to writing and duly signed by respective authorized representatives
      of
      the parties hereto. If any amendment to this Agreement containing further delay
      of the Commencement Date to supply Product to SANYO is agreed between the
      parties hereto, such amendment shall also include HOKU’s reduction of the
      applicable Product Prices set forth in Appendix 1 hereof at the rate of [*]
      percent ([*]%) for each week or part thereof until such delayed the Commencement
      Date; provided, however, that such reduction should not equal to more than
      [*]%
      of the applicable Product Prices. For the avoidance of doubt, in no event shall
      the foregoing provision be construed as SANYO’s consent to further amendment to
      this Agreement containing additional delay of the Commencement Date to supply
      Product to SANYO. 

     

    14.11.
      No
      employment, agency, trust, partnership or joint venture is created by, or shall
      be founded upon, this Agreement. Each party further acknowledges that neither
      it
      nor any party acting on its behalf shall have any right, power or authority,
      implied or express, to obligate the other party in any way. 

     

    14.12.
      Neither
      party shall make any announcement or press release regarding this Agreement
      or
      any terms thereof without the other party’s prior written consent.
      Notwithstanding the foregoing, either party may publicly disclose the material
      terms of this Agreement through any channel if such information is required
      to
      be disclosed pursuant to the United States Securities Act of 1933, as amended,
      the United States Securities Exchange Act of 1934, as amended, a rule of stock
      exchange, a governmental authority, or other applicable law; provided, however,
      that the party being required to disclose the material terms of this Agreement
      shall provide the reasonable advance notice to the other party, and shall use
      commercially reasonable efforts to obtain confidential treatment from the
      applicable governing entity for all pricing, volume and technical information
      set forth in this Agreement.

     

    
      
        
        

      

      
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    CONFIDENTIAL

     

    14.13.
      This
      Agreement constitutes the entire agreement between the parties and supersedes
      all prior proposal(s) and discussions, relative to the subject matter of this
      Agreement and neither of the parties shall be bound by any conditions,
      definitions, warranties, understandings or representations with respect to
      such
      subject matter other than as expressly provided herein. No oral explanation
      or
      oral information by either party hereto shall alter the meaning or
      interpretation of this Agreement. 

     

    14.14.
      The
      headings are inserted for convenience of reference only and shall not affect
      the
      interpretation and or construction of this Agreement. 

     

    14.15.
      Words
      expressed in the singular include the plural and vice-versa. 

     

    [This
      space intentionally left blank.]

    


    
      
        
        

      

      
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      CONFIDENTIAL

       

    

    IN
      WITNESS WHEREOF, the parties have executed this First Amended & Restated
      Supply Agreement as of the date first set forth above.

     

    
      	SANYO:	 	HOKU:
	 	 	 	 	 
	SANYO
              Electric Co., Ltd.	 	HOKU
              MATERIALS, INC.
	 	 	 	 	 
	By:
              	Tadao
              Shimada  	 	By:
              	Dustin
              Shindo  
	 	 	 	 	 
	Name:	Tadao
              Shimada  	 	Name:	Dustin
              Shindo
	 	 	 	 	 
	Title:	Senior
              Vice President  	 	Title:	Chairman
              & CEO
	Authorized
              Signatory	 	Authorized
              Signatory
	 	 	 	 	 
	AGREED
              AND ACCEPTED as to Sections 6.2, 6.4, 9.2.4, 10, 14.4, 14.5,14.6, 14.7
              and
              14.12 only:	 	 	 
	 	
               

            	 	 	
               

            
	HOKU
              SCIENTIFIC, INC.	 	 	 
	 	 	 	 	 
	By:
              	Dustin
              Shindo 	 	 	 
	 	 	 	 	 
	Name:	Dustin
              Shindo	 	 	 
	 	 	 	 	 
	Title:	 Chairman
              & CEO	 	 	 
	Authorized
              Signatory	 	 	 


    

    


    
      
        
        

      

      
        Page
          16
          of 36

        
          

        

      

      
        
        

      

      CONFIDENTIAL

       

    

    Appendix
      1

     

    Pricing
      Schedule

     

    
      	
              Planned
                Delivery Period

            	
              Quantity

            	
              Price
                / kg 

            
	 	 	 
	
              Year
                1 (2010)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                2 (2011)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                3 (2012)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                4 (2013)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                5 (2014)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                6 (2015)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                7 (2016)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                8 (2017)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                9 (2018)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              Year
                10 (2019)

            	
              [*]
                MT

            	
              $[*]

            
	 	 	 
	
              TOTAL

            	
              [*]
                MT

            	 


    

     

    If
      there
      is uncertainty in price between the delivery period and the total quantity
      for
      that period based on the table above, the price assigned to the quantity shall
      prevail. For example, the first [*] MT shipped after the Commencement Date
      shall
      be invoiced at $[*], regardless of when it is shipped (early or late).


     

    
      
        
        

      

      
        Page
          17
          of 36

        
          

        

      

      
        
        

      

      CONFIDENTIAL

       

    

    Appendix
      2

     

    Product
      Specifications

     

    PRODUCT
      CODE: CAS # 7440-21-3

    


    1.
      Description

    


    Solar
      grade polycrystalline silicon used for applications in the photovoltaic industry
      meeting specifications below.

    


    2.
      Bulk & Surface Impurity Specifications

    


    
      	
              Type
                

            	
              Bulk
                elements

            	
              Value

            	
              Unit

            
	
              Acceptors

            	
              Boron
                /
                Aluminum
                (B + Al)

            	
              [*]

            	
              [*]

            
	
              Donors

            	
              Phosphorus
                / Arsenic
                (P + As)

            	
              [*]

            	
              [*]

            
	
              Carbon
                Levels (for 2009 Products)

            	
              Carbon
                (C)

            	
              [*]

            	
              [*]

            
	
              Carbon
                Levels (for the Products to be delivered in and after January
                2010)

            	
              Carbon
                (C)

            	
              [*]

            	
              [*]

            
	
              Total
                Metals

            	
              (Fe,
                Cu, Ni, Cr, Zn, Na)

            	
              [*]

            	
              [*]

            


    

     

    3.
      Size Specifications

    


    Nominal
      Chunk Size:

    


    
      	
              [*]
                mm

            	
              approximately
                [*]
                %
                by weight

            
	
              [*]
                mm

            	
              approximately
                [*] % by weight

            
	
              [*]
                mm

            	
              approximately
                [*] % by weight

            


    

    


    4.
      Certification & Elemental Analysis

    


    Certification
      purified to the following analysis:

    


    ASTM
      F
      1723

    ASTM
      F
      1389

    ASTM
      F
      1391

    


    5.
      Packaging

    


    Double-packaged
      in polyethylene bags, weighed, and bar-coded for tracking purposes.

    


    
      
        
        

      

      
        Page
          18
          of 36

        
          

        

      

      
        
        
CONFIDENTIAL


    

    Appendix
      3

     

    [*]



    
      
        
        

      

      
        Page
          19
          of 36

        
          

        

      

      
        
        

      

    

    CONFIDENTIAL

     

    [*]
      TEST [*] SIGN OFF SHEET

     

    HOKU
      confirmation of a successful

    [*]
      TEST [*] demonstration

    
       

      The
        parties have jointly executed and witnessed successful demonstration of the
        [*]
        Test [*].

       

      
        	
                Date(s)
                  of [*] Test [*]:  

              	 


      

       

      
        	
                Location
                  of [*] Test [*]: 

              	 


      

       

      
        	
                Number
                  of [*] used in the [*] Test [*]: 

              	 


      

       

      ITEMS
        FOR APPROVAL:

    

     

    
      	
              [*]?
                Yes/No

            	 	
              HOKU
                Initials and Date:

            	
               

            
	
               

            	 	SANYO
              Initials and Date:	 
	 	 	 	 
	 	 	 	 
	
              [*]?
                Yes/No

            	 	
              HOKU
                Initials and Date:

            	 
	
               

            	 	SANYO
              Initials and Date:	 
	 	 	 	 
	
              [*]?
                Yes/No

            	 	 	 
	
               

            	
               

            	HOKU
              Initials and Date:	 
	
               

            	 	SANYO
              Initials and Date:	 

	 	 	 	 
	 	 	 	 
	
              Successful
                [*] Test [*] completed? Yes / No

            	 	
              HOKU
                Initials and Date:

            	
               

            
	 	 	
              SANYO
                Initials and Date:

            	 


    

     

    
      
        
          	
                  SANYO: 

                	 	
                  HOKU:

                	 
	 	 	 	 	 
	
                  SANYO
                    Electric Co., Ltd.

                	 	HOKU
                  MATERIALS, INC.
	 	 	 	 	 
	
                  By:

                	   
	 	
                  By:

                	  

	 	 	 	 	 
	
                  Name:

                	   
	 	
                  Name:

                	
                   
                    

                
	 	 	 	 	 
	
                  Title:

                	  
	 	
                  Title:

                	
                   
                    

                
	
                  Authorized
                    Signatory

                	 	Authorized
                  Signatory
	 	 	 	 	 
	
                  Date:

                	
                   
                    

                	 	
                  Date:

                	  



        

      

       

    

     


    
      
        
        

      

      
        Page
          20
          of 36

        
          

        

      

      
        
        

      

    

    CONFIDENTIAL


    [*]
      TEST [*] SIGN OFF SHEET

     

    HOKU
      confirmation of a successful

    [*]
      TEST [*] demonstration

     

    The
      parties have jointly executed and witnessed successful demonstration of the
      [*]
      Test [*]. 

     

    
      	
              Date(s)
                of [*] Test [*]:  

            	 


    

     

    
      	
              Location
                of [*] Test [*]: 

            	 


    

     

    
      	
              Number
                of [*] used in the [*] Test [*]: 

            	 


    

     

    ITEMS
      FOR APPROVAL:

    
       

      
        	
                [*]?
                  Yes/No

              	 	
                HOKU
                  Initials and Date:

              	
                 

              
	
                 

              	 	SANYO
                Initials and Date:	 
	 	 	 	 
	 	 	 	 
	
                [*]?
                  Yes/No

              	 	
                HOKU
                  Initials and Date:

              	 
	
                 

              	 	SANYO
                Initials and Date:	 
	 	 	 	 
	
                [*]?
                  Yes/No

              	 	 	 
	
                 

              	
                 

              	HOKU
                Initials and Date:	 
	
                 

              	 	SANYO
                Initials and Date:	 
	 	 	 	 
	 	 	 	 
	
                Successful
                  [*] Test [*] completed? Yes / No

              	 	
                HOKU
                  Initials and Date:

              	
                 

              
	 	 	SANYO
                Initials and Date:	 



      

    

     

    

      
        	
                SANYO: 

              	 	
                HOKU:

              	 
	 	 	 	 	 
	
                SANYO
                  Electric Co., Ltd.

              	 	HOKU
                MATERIALS, INC.
	 	 	 	 	 
	
                By:

              	   
	 	
                By:

              	  

	 	 	 	 	 
	
                Name:

              	   
	 	
                Name:

              	
                 
                  

              
	 	 	 	 	 
	
                Title:

              	  
	 	
                Title:

              	
                 
                  

              
	
                Authorized
                  Signatory

              	 	Authorized
                Signatory
	 	 	 	 	 
	
                Date:

              	
                 
                  

              	 	
                Date:

              	  



      

    

     

    
      
        
        

      

      
        Page
          21
          of 36

        
          

        

      

      
        
        

      

    

    CONFIDENTIAL


    [*]
      TEST [*] SIGN OFF SHEET

     

    HOKU
      confirmation of a successful

    [*]
      TEST [*] demonstration

    


    The
      parties have jointly executed and witnessed successful demonstration of the
      [*]
      Test [*]. 

     

    
      	
              Date(s)
                of [*] Test [*]:  

            	 


    

     

    
      	
              Location
                of [*] Test [*]: 

            	 


    

     

    
      	
              Number
                of [*] used in the [*] Test [*]: 

            	 


    

     

    ITEMS
      FOR APPROVAL:

     

    
      	
              [*]?
                Yes/No 

            	 	
              HOKU
                Initials and Date:

            	 
	 	 	
              SANYO
                Initials and Date:

            	 
	 	 	 	 
	
              [*]?:_____
                [*] 

            	 	
              HOKU
                Initials and Date:

            	 
	
              Acceptable?:
                Yes/No

            	 	
              SANYO
                Initials and Date:

            	 
	 	 	 	 
	
              [*]?:_____
                [*]

            	 	
              HOKU
                Initials and Date:

            	 
	
              Acceptable?:
                Yes/No

            	 	
              SANYO
                Initials and Date:

            	 
	 	 	 	 
	
              [*]?:_____
                [*]

            	 	
              HOKU
                Initials and Date:

            	 
	
              Acceptable?:
                Yes/No

            	 	
              SANYO
                Initials and Date:

            	 
	 	 	 	 
	
              [*]?:_____
                [*]

            	 	
              HOKU
                Initials and Date:

            	 
	
              Acceptable?:
                Yes/No

            	 	
              SANYO
                Initials and Date:

            	 
	 	 	 	 
	
              Successful
                [*] Test [*] completed? Yes / No

            	 	
              HOKU
                Initials and Date:

            	 
	 	 	
              SANYO
                Initials and Date:

            	 


    

     

     

    
      
        	SANYO: 	 	HOKU:
	 	 	 	 	 
	
                SANYO
                  Electric Co., Ltd.

              	 	HOKU
                MATERIALS, INC.
	 	 	 	 	 
	
                By:

              	 	 	
                By:

              	 
	 	 	 	 	 
	
                Name:

              	 	 	
                Name:

              	 
	 	 	 	 	 
	
                Title:

              	 	 	
                Title:

              	 
	
                Authorized
                  Signatory

              	 	Authorized
                Signatory
	 	 	 	 	 
	
                Date:

              	 	 	
                Date:

              	 


      

    

     

    
      
        
        

      

      
        Page
          22
          of 36

        
          

        

      

      
        
        

      

      CONFIDENTIAL

    


    Appendix
      4

     

    Officer’s
      Certificate of Government Authorizations

     

    Pursuant
      to Section 5.2.3 of the First Amended & Restated Supply Agreement (the
“Supply
      Agreement”)
      dated
      January __, 2008 between HOKU MATERIALS, INC., (“HOKU”)
      and
      SANYO ELECTRIC CO., LTD., the person signing below hereby certifies that the
      following statements are true and correct as of [date].

     

    
      	 	
              i.

            	
              I
                am the [executive officer title] of
                HOKU.

            


    

     

    
      	 	
              ii.

            	
              HOKU
                has obtained all inspections, certifications, licenses, permits and
                other
                governmental approvals and authorizations (“Authorizations”)
                necessary as of the current stage of development of the HOKU Facility
                that
                would be known by a reasonably prudent company engaged in the business
                of
                manufacture and sale of polysilicon in the United States of America;
                

            


    

     

    
      	 	
              iii.

            	
              To
                the best of HOKU’s knowledge, such Authorizations are in full force and
                effect; and 

            


    

     

    
      	 	
              iv.

            	
              HOKU
                is not aware of any reason that HOKU will not obtain in the ordinary
                course of business all Authorizations required for the completion
                and
                operation of the HOKU Facility.

            


    

     

    All
      capitalized terms not otherwise defined herein have the meaning set forth in
      the
      Supply Agreement.

     

    In
      witness whereof, I hereby certify to the truth of the above
      statements.

     

    
      	
              By:

            	 	 
	 	 	 
	
              Name:

            	 	 
	 	 	 
	
              Title:

            	 	 
	 	 	 
	
              Date:

            	 	 


    

    
 

    
      
        
        

      

      
        Page
          23
          of 36

        
          

        

      

      
        
        

      

      CONFIDENTIAL

    


    Appendix
      5

    


    [*]

    



    
      
        
        

      

      
        Page
          24
          of 36

        
          

        

      

      
        
        

      

    

    CONFIDENTIAL


    [*]
      TEST [*] SIGN OFF SHEET

     

    HOKU
      confirmation of a successful

    [*]
      TEST [*] demonstration

    


    The
      parties have jointly executed and witnessed successful demonstration of the
      [*]
      Test [*]. 

     

    
      	
              Date(s)
                of [*] Test [*]:  

            	 


    

     

    
      	
              Location
                of [*] Test [*]: 

            	 


    

     

    ITEMS
      FOR APPROVAL:

     

    [*]

     

    
      
        	
                [*]?
                  Yes/No

              	 	
                HOKU
                  Initials and Date:

              	 
	 	 	
                SANYO
                  Initials and Date:

              	 
	 	 	 	 


      

    

    
       

      
        
          	SANYO: 	 	HOKU:
	 	 	 	 	 
	
                  SANYO
                    Electric Co., Ltd.

                	 	HOKU
                  MATERIALS, INC.
	 	 	 	 	 
	
                  By:

                	 	 	
                  By:

                	 
	 	 	 	 	 
	
                  Name:

                	 	 	
                  Name:

                	 
	 	 	 	 	 
	
                  Title:

                	 	 	
                  Title:

                	 
	
                  Authorized
                    Signatory

                	 	Authorized
                  Signatory
	 	 	 	 	 
	
                  Date:

                	 	 	
                  Date:

                	 


        

      

    

     

     

    
      
        
        

      

      
        Page
          25
          of 36

        
          

        

      

      
        
        

      

    

    CONFIDENTIAL

     

    Exhibit
      A


     

    Amended
      and Restated Escrow Agreement

     

    (Attached)

     

    
      
        
        

      

      
        Page
          26
          of 36

        
          

        

      

      
        
        

      

    

    CONFIDENTIAL

     

    AMENDED
      AND RESTATED ESCROW AGREEMENT

     

    This
      AMENDED AND RESTATED ESCROW AGREEMENT (this “Agreement”)
      is
      entered into as of January __, 2008 (the “Effective
      Date”),
      by
      and among HOKU MATERIALS, INC., a Delaware corporation (hereinafter
“HOKU”),
      SANYO
      Electric Co., Ltd. (hereinafter “SANYO”),
      (collectively, the “Parties”),
      and
      Bank of Hawaii, as Escrow Agent (the “Escrow
      Agent”).

     

    BACKGROUND

     

    On
      January 17, 2007, Hoku Scientific, Inc. (“Hoku
      Scientific”)
      and
      SANYO entered into a Supply Agreement (“Supply
      Agreement”),
      pursuant to which Hoku Scientific agreed to sell Product (as defined in the
      Supply Agreement) to SANYO over a fixed period of time. Pursuant to the terms
      of
      the Supply Agreement, SANYO is obligated to make an advance deposit to Hoku
      Scientific upon Hoku Scientific’s satisfaction of certain conditions precedent.


     

    On
      May
      18, 2007, October 12, 2007 and December 28, 2007, Hoku Scientific or HOKU and
      SANYO entered into Amendment No.1, No.2 and No.3 to Supply Agreement
      respectively.

     

    On
      January 17, 2007, Hoku Scientific, SANYO and the Escrow Agent entered into
      an
      Escrow Agreement (the “Escrow
      Agreement”)
      as a
      condition to Hoku Scientific’s completing the transactions contemplated by the
      Supply Agreement.

     

    On
      May
      18, 2007, Hoku Scientific, SANYO and the Escrow Agent entered into Amendment
      No.
      1 to Escrow Agreement.

     

    On
      September 5. 2007, Hoku Scientific assigned all of its right, title and interest
      in the Supply Agreement and the Escrow Agreement to HOKU, its wholly-owned
      subsidiary, pursuant to that certain Assignment and Assumption Agreement by
      and
      between Hoku Scientific and HOKU.

     

    On
      January 30, 2008, HOKU and SANYO entered into the First Amended & Restated
      Supply Agreement (the “Amended
      & Restated Supply Agreement”)
      pursuant to which the Parties amended and restated their respective rights
      and
      obligations under the Supply Agreement. 

     

    The
      execution and delivery of this Agreement by the Parties is intended to amend
      and
      restate, in its entirety, the Escrow Agreement, and is required as a condition
      to HOKU’s completing the transactions contemplated by the Amended & Restated
      Supply Agreement. Each term utilized but not otherwise defined herein shall
      have
      the meaning given to such term in the Amended & Restated Supply
      Agreement.

     

    Escrow
      Agent is not a party to the Supply Agreement or the Amended & Restated
      Supply Agreement. Therefore, Escrow Agent has no duties or obligations under
      said Supply Agreement or Amended & Restated Supply Agreement.

     

    TERMS

     

    NOW,
      THEREFORE, in consideration of the mutual covenants contained herein and
      intending to be legally bound, the parties hereto agree as follows:


     

    1.
      Escrow
      Account.

     

    1.1.
      Escrow
      Funds.

     

    1.1.1.
      The Escrow Funds, initially in an amount equal to One Hundred Nine Million
      Three
      Hundred Thousand U.S. Dollars ($109,300,000) (the “Escrow
      Funds”),
      has
      been deposited with and shall be held by the Escrow Agent in a separate account
      located in the United States (the “Escrow
      Account”)
      for
      the benefit of HOKU and SANYO, as provided in this Agreement. The Escrow Agent
      shall not make any payment or distribution from the Escrow Account except as,
      and in the manner, expressly provided in this Agreement; provided, however,
      that
      the Escrow Funds shall remain the property of SANYO until such time as such
      funds are required under the terms of this Agreement to be delivered to HOKU,
      at
      which time the portion of such Escrow Funds required to be delivered to HOKU
      shall become the property of HOKU. 

     

    
      
        
        

      

      
        Page
          27
          of 36

        
          

        

      

      
        
        

      

      
        CONFIDENTIAL

      

    

     

    1.1.2.
      Concurrently with the execution of the Escrow Agreement, SANYO delivered the
      Escrow Funds to the Escrow Agent pursuant to Section 5.2.1 of the Amended &
Restated Supply Agreement.

     

    1.1.3.
      The Escrow Agent shall maintain the Escrow Account reflecting (i) the amount
      of
      the Escrow Funds deposited with Escrow Agent as of the date of this Agreement,
      plus (ii) all amounts earned or realized on any cash or Permitted Investments
      (as defined below), minus (iii) all amounts distributed pursuant to Section
      1.3
      of this Agreement.

     

    1.1.4.
      Except as expressly provided in Section 1.1.1 or elsewhere herein, none of
      the
      Parties shall have any right, title or interest in or possession of the Escrow
      Funds. Therefore, (i) none of the Parties shall have the ability to pledge,
      convey, hypothecate or grant a security interest in any portion of the Escrow
      Funds unless and until such funds have been disbursed to such party in
      accordance with this Agreement and (ii) until disbursed pursuant to this
      Agreement, the Escrow Agent shall be in sole possession of the Escrow Funds
      and
      agrees not to acknowledge requests that it act as, and nothing contained in
      this
      Agreement shall be deemed to constitute the Escrow Agent as, custodian for
      any
      party for purposes of perfecting a security interest therein. Accordingly,
      the
      Parties agree that no person or entity shall have any right to have or to hold
      any of the Escrow Funds as collateral for any obligation and shall not be able
      to obtain a security interest in any assets (tangible or intangible) contained
      in or relating to the Escrow Account.

     

    1.2.
      Investments.

     

    1.2.1.
      All amounts earned or received with respect to cash or any Permitted Investments
      shall be subject to the terms of this Agreement, and shall become part of the
      Escrow Funds. Any cash held in the Escrow Account shall, pending disbursement,
      be invested in Permitted Investments. For purposes of this Agreement,
“Permitted
      Investments”
shall
      mean (i) U.S. Treasuries in accordance with written instructions of HOKU and
      SANYO; (ii) U.S. Federal Agencies in accordance with written instructions of
      HOKU and SANYO; and (iii) Money Market Funds in accordance with written
      instructions of HOKU and SANYO (a “Joint
      Direction”).
      

     

    1.2.2.
      The Escrow Agent may purchase or sell to itself or any affiliate, as principal
      or agent. Such investment, if registerable, shall be registered in the name
      of
      the Escrow Agent for the benefit of the Parties and held by the Escrow Agent.
      The Escrow Agent shall be entitled to sell or redeem any such investments as
      necessary to make any payments or distributions required under this Agreement.
      The Escrow Agent may act as purchaser or agent in the making or disposing of
      any
      investments. The Escrow Agent shall have no responsibility or liability for
      any
      diminution of the Funds held in the Escrow Account which may result from any
      investment made pursuant to this Agreement, including any losses on any
      investment required to be liquidated prior to maturity in order to make a
      payment or distribution required hereunder. 

     

    
      
        
        

      

      
        Page
          28
          of 36

        
          

        

      

      
        
        

      

      
        CONFIDENTIAL

      

    

     

    1.2.3.
      Such investments will be made as soon as possible following the availability
      of
      such funds to the Escrow Agent for investment, taking into consideration the
      regulations and requirements (including cut-off times) of the Federal Reserve
      wire system, the investment provider and the Escrow Agent, and compliance with
      standard operating procedures of such parties.

     

    1.2.4.
      Investments designation may be changed through written instructions jointly
      by
      HOKU and SANYO to the Escrow Agent, substantially in the form of a letter
      specifying other Permitted Investments meeting the requirements of the
      Agreement. Such change in the designation will become effective upon receipt
      by
      the Escrow Agent.

     

    1.2.5.
      As
      and when any cash is needed for a payment under this Agreement, the Escrow
      Agent
      shall cause a sufficient amount of the Permitted Investments to be converted
      into cash. Escrow Agent shall convert such Permitted Investments as specified
      by
      HOKU and SANYO or, if HOKU and SANYO shall fail to so specify within five
      Business Days of a request therefor, as determined by Escrow Agent in its sole
      discretion. 

     

     

    1.2.6.
      Any and all interest, dividends and other income (including capital gains)
      (“Income”)
      earned
      on the Escrow Funds shall not be included as part of the Escrow Funds and shall
      remain as the sole property of SANYO. The Escrow Agent shall distribute to
      SANYO
      such income or gains quarterly during the term of this Agreement. Any losses
      from the Permitted Investments shall first be offset from Income and then
      deducted from the Escrow Funds. All Parties hereto shall file all tax returns
      consistent with such treatment. Escrow Agent shall not be responsible for any
      tax reporting hereunder. 

     

    1.3.
      Claim
      Procedure.

     

    1.3.1.
      Within fifteen (15) Business Days after HOKU’s delivery to the Escrow Agent of
      the written confirmation of each of HOKU and SANYO of the Success of the
[*]
      Test
      [*] (as defined in the Amended & Restated Supply Agreement) pursuant to
      Section 5.2.2(a) of the Amended & Restated Supply Agreement and a signed
      copy of the Officer’s Certificate and Government Authorizations by HOKU (as
      provided in Appendix
      4
      of the
      Amended & Restated Supply Agreement), the Escrow Agent shall disburse to
      HOKU [*] percent ([*]%) of the original amount of the Escrow Funds.

     

    1.3.2.
      Within fifteen (15) Business Days after HOKU’s delivery to the Escrow Agent of
      the written confirmation of each of HOKU and SANYO of the Success of the [*]
      Test [*] (as defined in the Amended & Restated Supply Agreement) pursuant to
      Section 5.2.2(b) of the Amended & Restated Supply Agreement and a signed
      copy of the Officer’s Certificate and Government Authorizations by HOKU (as
      provided in Appendix
      4
      of the
      Amended & Restated Supply Agreement), the Escrow Agent shall disburse to
      HOKU [*] percent ([*]%) of the original amount of the Escrow Funds.

     

    1.3.3.
      Within fifteen (15) Business Days after HOKU’s delivery to the Escrow Agent of
      the written confirmation of each of HOKU and SANYO of the Success of the [*]
      Test [*] (as defined in the Amended & Restated Supply Agreement) pursuant to
      Section 5.2.2(c) of the Amended & Restated Supply Agreement, and a signed
      copy of the Officer’s Certificate and Government Authorizations by HOKU (as
      provided in Appendix
      4
      of the
      Amended & Restated Supply Agreement), the Escrow Agent shall disburse to
      HOKU [*] percent ([*]%) of the original amount of the Escrow Funds.

     

    1.3.4.
      Within fifteen (15) Business Days after HOKU’s delivery to the Escrow Agent of
      the written confirmation of each of HOKU and SANYO that the Products (as defined
      in the Amended & Restated Supply Agreement) meet specifications set forth in
Appendix
      2
      attached
      to the Amended & Restated Supply Agreement warranted by HOKU pursuant to
      Section 7.1 of the Amended & Restated Supply Agreement pursuant to Section
      5.2.2(d) of the Amended & Restated Supply Agreement and a signed copy of the
      Officer’s Certificate and Government Authorizations by HOKU (as provided in
Appendix
      4
      of the
      Amended & Restated Supply Agreement), the Escrow Agent shall disburse to
      HOKU [*] percent ([*]%) of the original amount of the Escrow Funds. It shall
      be
      a condition to any release of Escrow Funds to HOKU hereunder that HOKU shall
      have granted SANYO the security interest described in Section 6.1 of the Amended
      & Restated Supply Agreement. SANYO shall have a reasonable basis for
      refusing to execute any test or specification confirmation under Sections
      1.3.1-1.3.4 hereunder (as applicable) if HOKU shall not have granted SANYO
      such
      security interest.

     

    
      
        
        

      

      
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        CONFIDENTIAL

      

    

     

    1.3.5.
      If, with respect to any of the four installments described in Sections 1.3.1
      -
      1.3.4, respectively, of this Agreement, (i) SANYO provides written notice to
      HOKU pursuant to Section 5.2.8(ii) of the Amended & Restated Supply
      Agreement or otherwise fails to provide written confirmation of the achievement
      of the applicable criteria and (ii) HOKU disputes the applicable findings or
      conclusions of SANYO, then HOKU may elect (by providing written notice to the
      Escrow Agent and SANYO) to resolve the controversy pursuant to the arbitration
      provisions of Section 14.4 of the Amended & Restated Supply Agreement. If
      such an arbitration results in a finding that the criteria required in
      connection with any such installment (other than the delivery of written
      confirmation by SANYO) had been achieved or that SANYO otherwise unreasonably
      withheld delivery of its applicable confirmation, then the Escrow Agent shall
      immediately deliver to HOKU the amount of such installment out of the Escrow
      Funds. Notwithstanding anything to the contrary herein, prior to the release
      of
      funds from Escrow, HOKU (with reference to Section 6.2 of the Amended &
Restated Supply Agreement, Hoku Scientific) shall (A) enter into the agreements
      described in Sections 6.1 and 6.2 of the Amended & Restated Supply Agreement
      with SANYO and (B) have raised an aggregate of $150 million in gross aggregate
      proceeds from financing, which may include proceeds from long-term bank debt,
      equity offerings, including customer pre-payments or any combination thereof
      (excluding any amounts received from SANYO), to procure the HOKU Facility and
      equipment necessary to manufacture three thousand (3,000) metric tons of Product
      per annum. SANYO shall have a reasonable basis for refusing to execute any
      test
      or specification confirmation under Sections 1.3.1-1.3.4 hereunder (as
      applicable) if HOKU shall not have granted SANYO such security interest.


     

    1.3.6.
      Distributions of the Escrow Funds shall be made in cash to the extent available
      in the Escrow Account, including cash derived from the liquidation of Permitted
      Investments in accordance with Section 1.2 hereof.

     

    1.3.7.
      Joint
      Direction.
      Notwithstanding any other provision of this Agreement, the Escrow Agent shall
      promptly deliver all or any part of the Escrow Funds in accordance with the
      terms of a Joint Direction, unless a final order of a court of competent
      jurisdiction prohibits the Escrow Agent from complying with the terms thereof.
      Any amount distributed pursuant to this Section 1.3.7 shall be deducted from
      the
      Escrow Account.

     

    1.3.8.
      Release
      to SANYO.
      The
      Escrow Agent shall release the entire amount of the Escrow Funds to SANYO within
      fifteen (15) Business Days after SANYO’s delivery to the Escrow Agent of the
      written confirmation of each of HOKU and SANYO that the Escrow Funds are to
      be
      released to SANYO pursuant to Section 9.5 of the Amended & Restated Supply
      Agreement. In the event that HOKU fails to provide written confirmation of
      the
      release of the Escrow Funds to SANYO pursuant to Section 9.5 of the Amended
      & Restated Supply Agreement, then SANYO may elect (by providing written
      notice to the Escrow Agent and HOKU) to resolve the controversy pursuant to
      the
      arbitration provisions of Section 14.4 of the Amended & Restated Supply
      Agreement. If such an arbitration results in a finding that Section 9.5 requires
      the Escrow Funds to be released to SANYO, then the Escrow Agent shall
      immediately deliver to SANYO such Escrow Funds. Notwithstanding anything herein
      to the contrary, the Escrow Agent shall not release any portion of the Escrow
      Funds pursuant to this Section 1.3.8 unless it has received (a) the written
      confirmation executed by both HOKU and SANYO as required by this Section 1.3.8,
      (b) a final written arbitral order obtained in accordance with Section 14.4
      of
      the Amended & Restated Supply Agreement providing that Section 9.5 requires
      the Escrow Funds to be released to SANYO, or (c) upon a joint direction pursuant
      to Section 1.3.7 above. 

     

    
      
        
        

      

      
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        CONFIDENTIAL

      

    

     

    1.4.
      Distributions
      and Termination of Escrow.

     

    1.4.1.
      This Agreement shall terminate on the earlier of
      either
      (i) after disbursement to HOKU or SANYO of the Escrow Funds pursuant to Section
      1.3 above, as applicable; (ii) on April 30, 2010 (the “Final
      Distribution Date”);
      or
      (iii) upon receipt of a Joint Direction ordering such distribution. The date
      when this Agreement terminates shall be the “Termination
      Date”.

     

    1.4.2.
      On
      the Final Distribution Date, this Agreement shall terminate and the Escrow
      Agent
      shall distribute to SANYO the then remaining balance of the Escrow Account.
      

     

    2.
      The
      Escrow Agent.

     

    2.1.
      Acceptance
      of Appointment as Escrow Agent.
      The
      Escrow Agent, by signing this Agreement, accepts the appointment as Escrow
      Agent
      and agrees to hold and distribute all Escrow Funds in accordance with the terms
      of this Agreement.

     

    2.2.
      Liability
      of Agent.
      The
      Escrow Agent shall be obligated to perform only the duties described in this
      Agreement. The Escrow Agent may rely on any instrument or signature believed
      by
      it to be genuine and to have been signed or presented by the proper party or
      parties duly authorized to do so. The Escrow Agent shall not be liable for
      any
      action taken or omitted by it in good faith and believed by it to be authorized,
      nor for any action taken or omitted by it in accordance with advice of counsel,
      and shall not be liable for any mistake of fact or error of judgment or for
      any
      acts or omissions of any kind unless caused by its willful misconduct or gross
      negligence. Each party (other than the Escrow Agent) agrees jointly and
      severally, to indemnify the Escrow Agent and to hold it harmless against any
      and
      all liabilities, including reasonable attorneys’ fees, incurred by it as a
      consequence of that party’s action, and the parties (other than the Escrow
      Agent) agree jointly and severally to indemnify the Escrow Agent and to hold
      it
      harmless against any and all liabilities, including reasonable attorneys’ fees,
      incurred by it which are not a consequence of any party’s action, except in
      either case for the Escrow Agent’s own willful misconduct or gross negligence.
      The indemnity contained in this Section 2.2 shall survive the termination of
      this Agreement and the resignation or removal of the Escrow Agent.

     

    2.3.
      Advice
      of Counsel.
      The
      Escrow Agent shall be entitled to consult with counsel of its choice with
      respect to the interpretation of the provisions hereof, and any other legal
      matters relating hereto, and shall be fully protected in taking any action
      or
      omitting to take any action in good faith in accordance with the advice of
      such
      counsel.

     

    2.4.
      Fees
      of Escrow Agent.
      The
      Escrow Agent shall serve hereunder in consideration of the fees described on
      Schedule
      A
      attached
      hereto and the reimbursement of any expenses and other charges reasonably
      incurred by the Escrow Agent in connection with the performance of its duties
      hereunder. Except as provided in Sections 2.2 and 2.7, all such fees, expenses
      and other charges of the Escrow Agent (the “Escrow
      Agent Fees and Expenses”)
      shall
      be paid by SANYO
      and
      deducted from the interest income prior to distribution of interest income
      to
      SANYO. This Section 2.4 shall survive the termination of this Agreement and
      the
      resignation or removal of the Escrow Agent. Legal fees incurred by the Escrow
      Agent to establish this Agreement shall be paid by the Escrow
      Agent.

     

    
      
        
        

      

      
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        CONFIDENTIAL

      

    

     

    2.5.
      Statements.
      The
      Escrow Agent shall mail to HOKU and SANYO a written accounting of all
      transactions relating to the Escrow Account not less frequently than
      quarterly.

     

    2.6.
      Successor.
      If the
      Escrow Agent at any time resigns, refuses to act or is removed pursuant to
      a
      Joint Direction, then a successor Escrow Agent shall be jointly selected by
      HOKU
      and SANYO, or if HOKU and SANYO cannot agree, the successor Escrow Agent shall
      be selected by HOKU. Any successor Escrow Agent shall be a national banking
      association which has a net worth in excess of $1,000,000,000 and has a
      principal place of business located in the State of California.

     

    2.7.
      Conflict.
      In the
      event of any conflicting or inconsistent claims or demands being made in
      connection with the subject matter of this Agreement, or in the event that
      the
      Escrow Agent is in doubt as to what action it should take hereunder, the Escrow
      Agent may, at its option, refuse to comply with any claims or demands on it,
      or
      refuse to take any other action hereunder so long as such disagreement continues
      or such doubt exists, and in any such event, the Escrow Agent shall not be
      or
      become liable in any way or to any person for its failure or refusal to act,
      and
      the Escrow Agent shall be entitled to continue to refrain from acting until
      (i)
      the rights of all parties have been fully and finally adjudicated by a court
      of
      competent jurisdiction and the Escrow Agent has received a copy of such
      adjudication, or (ii) all differences shall have been settled and all doubt
      resolved by agreement among all of the parties, and the Escrow Agent shall
      have
      been notified thereof in writing signed by all such parties. In addition to
      the
      foregoing rights, in the event the Escrow Agent has any doubt as to the course
      of action it should take under this Agreement, the Escrow Agent is hereby
      authorized to petition any court of competent jurisdiction for instructions
      or
      to interplead the Escrow Funds into such court. The parties agree to the
      jurisdiction of the court selected by the Escrow Agent over their persons as
      well as the Escrow Funds, waive personal service of process, and agree that
      service of process by certified or registered mail, return receipt requested,
      to
      the addresses provided in or pursuant to Section 3.6 for each party shall
      constitute adequate service. The parties to the Agreement hereby agree, jointly
      and severally, to indemnify and hold the Escrow Agent harmless from any
      liability or losses occasioned thereby and to pay any and all of its fees,
      costs, expenses, and counsel fees and expenses incurred in any such action
      and
      agree that, on such petition or interpleader action, the Escrow Agent, its
      servants, agents employees or officers will be relieved of further
      liability.

     

    2.8.
      Resignation
      of Escrow Agent.
      The
      Escrow Agent may resign for any reason, upon 30 days written notice to the
      HOKU
      and SANYO. Upon expiration of such 30 day notice period, the Escrow Agent may
      deliver all cash and other property in its possession, after the payment of
      all
      fees and expenses of the Escrow Agent, under this Agreement to any successor
      Escrow Agent appointed jointly by HOKU and SANYO, or if no successor Escrow
      Agent has been so appointed, to any court of competent jurisdiction in the
      State
      of California. SANYO hereby agrees to pay any and all of the Escrow Agent’s
      fees, costs, expenses, and counsel fees and expenses incurred in any such
      petition or action required to be filed by Escrow Agent. Upon either such
      delivery, the Escrow Agent shall be released from any and all liability under
      this Agreement. A termination under this Section shall in no way affect
      reimbursement of expenses, indemnity and fees. The Escrow Agent shall have
      the
      right to deduct from the Escrow Funds to be transferred to any successor agent
      any unpaid fees and expenses.

     

    3.
      Miscellaneous.

     

    3.1.
      Successors;
      Heirs and Assigns.
      The
      provisions of this Agreement shall be binding upon and shall inure to the
      benefit of the parties hereto and their respective successors, heirs and
      assigns; provided, however, that no party may assign, delegate or otherwise
      transfer any of its rights or obligations under this Agreement without the
      consent of the other parties hereto. 

     

    
      
        
        

      

      
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        CONFIDENTIAL

      

    

     

    3.2.
      Survival.
      All
      agreements, representations and warranties made in this Agreement or in any
      document delivered pursuant to this Agreement shall survive the execution and
      delivery of this Agreement and the delivery of any such documents.

     

    3.3.
      Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California, without giving effect to principles of conflicts of
      laws.

     

    3.4.
      Counterparts;
      Headings.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but such counterparts shall together constitute but one
      and
      the same agreement. The Article and Section headings in this Agreement are
      inserted for convenience of reference only and shall not constitute a part
      of
      this Agreement.

     

    3.5.
      Entire
      Agreement.
      This
      Agreement and the Amended & Restated Supply Agreement and the schedules,
      exhibits and documents referred to herein and therein contain the entire
      understanding of the parties with respect to the subject matter hereof and
      supersede all prior negotiations, agreements and undertakings among the parties
      with respect to such subject matter. There are no restrictions, promises,
      warranties, covenants or undertakings other than those expressly set forth
      herein and therein.

     

    3.6.
      Notices.
      All
      notices, requests, demands and other communications hereunder shall be in
      writing, and shall be deemed to have been duly given if delivered by overnight
      courier, sent by mail to the respective parties or personally delivered
      addressed as follows:

    


    If
      to
      SANYO: 

    


    SANYO
      Electric Co., Ltd.

    15-2
      Nishikiminami-machi

    Kaizuka
      City, Osaka, 597-0094, Japan 

    Attn:
      Mr.
      Yasuyoshi Kawanishi, General Manager

    E-mail:
      [*]

    Facsimile:
      [*]

    


    If
      to
      HOKU: 

    


    HOKU
      MATERIALS, INC.

    One
      Hoku
      Way

    Pocatello,
      Idaho 83204 USA

    Attn:
      Mr.
      Dustin Shindo, CEO

    E-mail:
      [*]

    Facsimile:
      +1 (808) 682-7807

    


    With
      a
      copy to:

    


    HOKU
      SCIENTIFIC, INC.

    1075
      Opakapaka Street

    Kapolei,
      Hawaii 96707, USA

    Attn:
      Mr.
      Dustin Shindo, CEO

    E-mail:
      [*]

    Facsimile:
      +1 (808) 682-7807

    


    If
      to
      Escrow Agent: 

    


    Bank
      of
      Hawaii

    111
      South
      King Street

    Honolulu,
      HI 96813, USA

    Attn.:
      Kamani B. Kuala'au

    E-mail:
      [*]

    Facsimile:
      [*]

    


    or
      to
      such other address as such party may designate by written notice to the other
      parties hereto. Any such notices, requests, demands or other communications
      shall be deemed to have been duly given when received if delivered personally
      or, if mailed, on the date five (5) days after the date so deposited in the
      mails, postage prepaid, return receipt requested or on the day following the
      day
      sent if sent by prepaid overnight delivery service. Notices, requests and other
      communications hereunder may be delivered by electronic facsimile transmission
      (fax) if confirmation by sender is made within three (3) Business Days by mail
      or personal delivery. All periods of notice shall be measured from the date
      of
      deemed delivery thereof.

     

    
      
        
        

      

      
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        CONFIDENTIAL

      

    

     

    3.7.
      Amendment
      or Modification of this Agreement.
      This
      Agreement may be amended or modified at any time with the written agreement
      of
      Escrow Agent, HOKU and SANYO.

     

    3.8.
      Severability.
      Any
      provision of this Agreement which is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions of this Agreement or affecting the validity or enforceability of
      such
      provision in any other jurisdiction.

     

    [This
      space intentionally left blank.]

    


    
      
        
        

      

      
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        CONFIDENTIAL

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      on
      the day and year first written above.

     

    

      
        	
                SANYO:

              	 	
                HOKU:

              	 
	 	 	 	 
	
                SANYO
                  Electric Co., Ltd.

              	HOKU
                MATERIALS, INC.
	 	 	 	 
	
                By:

              	
                Tadao
                  Shimada

              	
                By:

              	
                Dustin
                  Shindo

              
	 	 	 	 
	
                Name:

              	
                Tadao
                  Shimada

              	
                Name:

              	
                Dustin
                  Shindo

              
	 	 	 	 
	
                Title:

              	
                Senior
                  Vice President

              	
                Title:

              	
                Chairman
                  & CEO

              
	
                Authorized
                  Signatory

              	Authorized
                Signatory
	 	 	 	 
	 	 	 
	
                ESCROW
                  AGENT:

              	 	 
	 	 	 	 
	
                By:

              	
                Kamani
                  B. Kuala’au

              	 	 
	 	 	 	 
	
                Name:

              	
                Kamani
                  B. Kuala’au

              	 	 
	 	 	 	 
	
                Title:

              	
                Assistant
                  Vice President

              	 	 
	
                Authorized
                  Signatory

              	 	 
	 	 	 	 
	
                By:

              	
                Diana
                  Kuwaye

              	 	 
	 	 	 	 
	 	 	 	 
	
                Name:

              	
                Diana
                  Kuwaye

              	 	 
	 	 	 	 
	
                Title:

              	
                Vice
                  President

              	 	 
	
                Authorized
                  Signatory

              	 	 


      

    

     

     

    
      
        
        

      

      
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        CONFIDENTIAL

      

    

     

    Schedule
      A

     

    Escrow
      Fee Schedule

     

    
      
        
        

      

      
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