hyflux

Application has been made to the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for permission to deal in, and for quotation of, all of our ordinary shares of $0.05 each(the “Shares”) comprising existing issued and fully paid-up shares and the new Shares (the“New Shares”) which are the subject of this Invitation (as defined herein). Such permissionwill be granted when the Company has been admitted to the Official List of the SGX Sesdaq.Acceptance of applications will be conditional upon permission being granted to deal in, andfor quotation of, all the issued Shares and the New Shares. Moneys paid in respect of anyapplication accepted will be returned, without interest or any share of revenue or other benefitarising therefrom and at the applicant’s own risk, if the said permission is not granted.

The SGX-ST assumes no responsibility for the correctness of any of the statements made,opinions expressed or reports contained in this Prospectus. Admission to the Official List ofthe SGX Sesdaq is not to be taken as an indication of the merits of the Invitation, the Company,its subsidiaries, the Shares or the New Shares.

A copy of this Prospectus, together with copies of the Application Forms, has been lodgedwith and registered by the Registrar of Companies and Businesses in Singapore who takesno responsibility for its contents.

Invitation in respect of 39,470,000 Ordinary Shares of $0.05 each comprising25,000,000 New Shares and 14,470,000 Vendor Shares as follows:-

(1) 6,000,000 Offer Shares at $0.32 for each Offer Share by way of publicoffer, and

(2) 33,470,000 Placement Shares by way of placement, comprising:-

(i) 32,430,000 Placement Shares at $0.32 for each Placement Share; and

(ii) 1,040,000 Reserved Shares at $0.32 for each Reserved Share reservedfor our Directors, management, employees and others who havecontributed to the success of our Group,

payable in full on application.

Manager, Underwriter and Placement Agent

(Incorporated in the Republic of Singapore on 31 March 2000)

PROSPECTUS DATED 8 JANUARY 2001

HYFLUX LTD 40 Changi South Street 1 Singapore 486764

We build specialised systems for:

• Water Purification of raw water for public consumption and industrial applications

• Wastewater Treatment for industries

• Water Recycling of wastewater for reuse

• Advanced Membrane Filtration to recover or purify products, such as antibiotics, Vitamin C, dyes and urea in manufacturing process

• High-purity piping systems and equipment hook-up to convey pure products, such as compressedair, specialty gases, ultra-pure water and chemicals to manufacturing plants

Water Treatment Systemin an electronic factory

Membrane Filtration Plant for water recycling

Recycling of brine solutionin a sugar factory

businessCoreA one-stop shop service for the design, fabrication, installation,commissioning and maintenance of water treatment systems,specialising in advanced membrane filtration technologies thathave found diverse applications across industries and markets.

“A SPECIALIST IN INTEGRATED TREATMENTSYSTEMS FOR ADVANCED WATER TREATMENT ANDMEMBRANE FILTRATION”

EDI System in asemiconductor facility

Our headquarters in Singapore Our Shanghai Office

Turnover

Profit before tax

10 mths ended31 Oct ‘00

1997

12

10

8

6

4

2

0

14

16

18

20

0.137

1998 1999 2000(Estimate)

6.391

1.058

6.929

0.430

5.954

20.140

8.720

15.775

3.870

(’S$ mil)

Financial PerformanceFinancial Performance

Ourcompetitive

strengthsOurbusiness

strategies

For financialyear ended

December 31

Financialhighlights

Provide integrated services• Designing • Engineering• Installation • Commissioning• Maintenance

Ability to meet the diverse needs of various industries by utilisingmembrane filtration• Serve industries such as electronics, pharmaceutical and

biotechnology• Not reliant on a single industry or customer

Experienced management team• Led by founder and Managing Director, Ms Olivia Lum, for the past

10 years• Assisted by a dedicated management team

Ability to meet international standards• Produce water which meets USP standards• Manufacture equipment which meets ASME standards

Customised systems• Provide solutions to suit the various needs of customers• Customise membrane filtration plants for diverse applications

required by different industries

Established relationship with customers and suppliers• Approximately 70% of our business is obtained through referrals and

recommendations by our existing customers, engineering consultants and companies

• Supply agreement with E-Cell Corporation of Canada for a patented electrochemical liquid purification apparatus widely used in industries requiring ultra-pure water

Industryprospects

Rising demand for water treatment systems

Shortage of fresh water supply- less than 1% of world’s fresh water is readily accessible for human use

Growing market for conservation and recycling of water- Projected growth of 10% to 15% per annum over the next three years,

and by 20% to 25% per annum in the longer term in Singapore

Increasing water consumption- Water consumption in PRC estimated to grow at 5% per annum- Brisk pace of PRC‘s industrial development further compounds the

shortage of potable water

Demand for membrane materials in the US is projected to grow by 7.8% perannum from US$1.2 billion in 1999 to US$1.8 billion in 2004

•

•

•

Growth in membrane industry

•

Provide fully integrated services• Continue to provide a wide range of water treatment services

• Plan to provide emergency recovery units to provide uninterruptedwater treatment while servicing or upgrading customers’ watertreatment systems

Lower direct costs• Aim to manufacture in-house up to 30% to 50% of the

materials used in our systems

Incorporate information technology into systems• Enhance operational capabilities of our systems

Strengthen and cultivate relationships withengineering consultants and companies• Keep abreast of new projects

Tender for projects of larger value

Increase research & development andimprove quality standards• Develop proprietary membranes

• Improve existing membranes

• Find new uses and applications

• Drive quality system to ISO standards

Incorporated in the Republic of Singapore on 31 March 2000

SNP SPrint Pte Ltd 612004

TABLE OF CONTENTS

Page

CORPORATE INFORMATION ..................................................................................................... 4

DEFINITIONS ............................................................................................................................... 5

GLOSSARY OF TECHNICAL TERMS ........................................................................................ 9

DETAILS OF THE INVITATION

— Listing on SGX Sesdaq ....................................................................................................... 11

— Structure of Our Invitation ................................................................................................... 12

— Results of Application and Distribution ............................................................................... 14

— Indicative Timetable for Listing ............................................................................................ 15

PROSPECTUS SUMMARY .......................................................................................................... 16

THE INVITATION .......................................................................................................................... 20

RISK FACTORS ........................................................................................................................... 21

ISSUE STATISTICS ...................................................................................................................... 26

SUMMARY OF PROFORMA GROUP FINANCIAL INFORMATION .......................................... 28

REVIEW OF RESULTS

— Overview .............................................................................................................................. 30

— Results of Operations .......................................................................................................... 34

— Profit Estimate ..................................................................................................................... 37

— Review of Financial Position ............................................................................................... 38

— Capitalisation and Indebtedness ......................................................................................... 41

— Dividends .............................................................................................................................. 42

— Dilution ................................................................................................................................. 42

— Credit Policy on Sales and Purchases ............................................................................... 43

— Foreign Exchange Exposure ............................................................................................... 43

SHARE CAPITAL .......................................................................................................................... 45

HISTORY ...................................................................................................................................... 47

BUSINESS

— Principal Activities ................................................................................................................ 49

— Our Work Process ............................................................................................................... 52

— Major Projects Completed ................................................................................................... 55

— Our Business Strategy ........................................................................................................ 56

— Marketing .............................................................................................................................. 57

1

Page

— Production ............................................................................................................................ 58

— Disputes ............................................................................................................................... 59

— Staff Training ........................................................................................................................ 59

— Research and Development ................................................................................................ 60

— Trademark ............................................................................................................................ 60

COMPETITION

— Competitive Strengths .......................................................................................................... 61

MAJOR SUPPLIERS .................................................................................................................... 63

MAJOR CUSTOMERS ................................................................................................................. 64

GOVERNMENT REGULATIONS .................................................................................................. 65

PROSPECTS AND FUTURE PLANS

— Prospects ............................................................................................................................. 66

— Future Plans ........................................................................................................................ 67

CORPORATE GOVERNANCE ..................................................................................................... 68

DIRECTORS, MANAGEMENT AND STAFF

— Directors ............................................................................................................................... 69

— Management ........................................................................................................................ 72

— Management Structure ........................................................................................................ 73

— Staff ...................................................................................................................................... 76

— Directors’ Remuneration ...................................................................................................... 76

— Remuneration of Employees related to Directors and Substantial Shareholders ............. 76

— Service Agreements ............................................................................................................ 76

GENERAL INFORMATION ON THE GROUP

— Shareholders ........................................................................................................................ 78

— Moratorium ........................................................................................................................... 79

— Restructuring Exercise ......................................................................................................... 79

— Group Structure ................................................................................................................... 83

INTERESTED PERSON TRANSACTIONS ................................................................................. 85

PROPERTY, PLANTS AND EQUIPMENT .................................................................................. 87

GENERAL AND STATUTORY INFORMATION ........................................................................... 89

APPENDIX A — DIRECTORS’ REPORT ................................................................................... 107

2

Page

APPENDIX B — LETTER FROM THE AUDITORS AND REPORTING ACCOUNTANTSIN RELATION TO THE CONSOLIDATED PROFORMA PROFIT ESTIMATEFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000 ...................... 108

APPENDIX C — ACCOUNTANTS’ REPORT ............................................................................. 109

APPENDIX D — DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TOSHARES .......................................................................................................... 129

APPENDIX E — DESCRIPTION OF SINGAPORE LAW AND REGULATIONS RELATINGTO TAXATION ................................................................................................. 133

APPENDIX F — TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION ...... 136

3

CORPORATE INFORMATION

BOARD OF DIRECTORS : Ms Lum Ooi Lin Olivia (Managing Director) Dr Deirdre Murugasu (Executive Director)Mr Foo Hee Kiang (Executive Director)Mr Teo Kiang Kok (Independent Director)Mr Lee Joo Hai (Independent Director)

COMPANY SECRETARY : Ms Sherry Quark Siew Mui, CPA

REGISTERED OFFICE : 40 Changi South Street 1Singapore 486764Tel: (65) 214 0777Fax: (65) 214 1211

SHARE REGISTRAR AND SHARE : Lim Associates (Pte) LtdTRANSFER OFFICE 10 Collyer Quay #19-08

Ocean BuildingSingapore 049315

MANAGER, UNDERWRITER AND : The Development Bank of Singapore LtdPLACEMENT AGENT 6 Shenton Way

DBS Building Tower OneSingapore 068809

AUDITORS AND REPORTING : Arthur AndersenACCOUNTANTS Certified Public Accountants

10 Hoe Chiang Road #18-00 Keppel TowersSingapore 089315

SOLICITORS TO THE INVITATION : Shook Lin & Bok1 Robinson Road #18-00AIA TowerSingapore 048542

PRINCIPAL BANKER : The Development Bank of Singapore Ltd6 Shenton WayDBS Building Tower OneSingapore 068809

4

DEFINITIONS

For the purpose of this Prospectus and the accompanying Application Forms, the followingdefinitions have, where appropriate, been used:-

Companies

Group Companies

“HSPL” : Hydrochem (S) Pte Ltd

“HEPL” : Hydrochem Engineering (S) Pte Ltd

“HES” : Hydrochem Engineering (Shanghai) Co., Ltd

“HMTS” : Hydrochem Membrane Technology (Shanghai) Co., Ltd

“HFPL” : Hyflux Engineering Pte Ltd

“Hyflux” or the “Company” : Hyflux Ltd

“Hyflux Group” or the “Group” : The Company and its subsidiaries

“Proforma Group” : The Company and its subsidiaries following completion ofthe Restructuring Exercise, treated, for the purpose of thisProspectus, as if it had been in existence since 1 January1995 on the basis described in the Accountants’ Report

Other Corporations and Agencies

“Amway” : Amway (China) Co. Ltd

“ASME” : American Society of Mechanical Engineers

“CDP” : The Central Depository (Pte) Limited

“CPF” : Central Provident Fund

“DBS Bank”, “Manager”, : The Development Bank of Singapore Ltd“Placement Agent”, “Underwriter”or “Receiving Bank”

“DBS Capital” : DBS Capital Investments Ltd having its registered addressat 6 Shenton Way, DBS Building Tower One, Singapore068809

“Dandong” : Dandong Synthetic Fiber Co. Ltd

“EPCOS” : EPCOS Pte Ltd (formerly known as Siemens MatsushitaComponents Pte Ltd)

“Flextronics” : Flextronics (Malaysia) Sdn Bhd

“Gimmill” : Gimmill Industrial (Pte) Ltd having its registered address at43 Tampines Street 92, Singapore 528887

“HP” : Hewlett Packard Singapore (Pte) Ltd

5

“Jacobs-Lend Lease” : Jacobs-Lend Lease Pte Ltd

“JTC” : Jurong Town Corporation

“MPW” : Membrane Products Kiryat Weizman Ltd

“Ramatex” : Ramatex Textiles Industrial Sdn Bhd

“Ramatex Suzhou” : Ramatex Industrial (Suzhou) Ltd

“SCCS” : Securities Clearing & Computer Services (Pte) Ltd

“Siegle and Epple” : Siegle and Epple Asia Pte Ltd

“SGX-ST” or “Exchange” : Singapore Exchange Securities Trading Limited

“VTS Batteries” : VTS Batteries Pte Ltd

“Wyeth” : Wyeth Pharmaceuticals (Singapore) Pte Ltd

General

“Act” : The Companies Act, Chapter 50 of Singapore

“Application Forms” : The official application forms to be used for the purpose ofthe Invitation and which form part of this Prospectus

“Application List” : List of applications for subscription and/or purchase of theInvitation Shares

“Articles of Association” or “Article” : The articles of association of the Company

“ATM” : Automated teller machine

“Audit Committee” : The audit committee of the Company

“Board” : The board of Directors of the Company

“Directors” : The directors of the Company as at the date of thisProspectus, unless otherwise stated

“e-commerce” : Refers to commercial transactions based on the electronicsubmission of data over communication networks

“EPS” : Earnings per Share

“Electronic Applications” : Applications for the Invitation Shares through an ATM orInternet Banking website, where applicable, of one of theParticipating Banks in accordance with the terms andconditions of this Prospectus

“Executive Officers” : The executive officers of the Company as at the date ofthis Prospectus, unless otherwise stated

“FY” : Financial year ended or ending 31 December

Independent Director : A non-executive Director whose relationship would not, inthe individual case, be likely to affect the Director’sexercise of independent judgement

6

“Invitation” : The invitation to the public in respect of the InvitationShares, subject to and on the terms of this Prospectus

“Invitation Shares” : The New Shares and Vendor Shares

“ISO” : International Standards Organisation, a world-widefederation of national standards bodies

“Issue Price” : $0.32 for each Invitation Share

“Market Day” : A day on which the SGX-ST is open for trading insecurities

“MNC” : Multi-National Corporation

“NA” : Not applicable

“NTA” : Net tangible asset

“New Shares” : The 25,000,000 New Shares for which the Companyinvites applications to subscribe, subject to and on theterms of this Prospectus

“Offer” : The offer by the Company and the Vendors to the publicfor subscription and/or purchase of the Offer Shares andthe Vendor Shares respectively at the Issue Price, subjectto and on the terms and conditions of this Prospectus

“Offer Shares” : The 6,000,000 Invitation Shares which are the subject ofthe Offer

“Participating Banks” : DBS Bank (including its POSBank Services division);Keppel TatLee Bank Limited (“KTB”); Oversea-ChineseBanking Corporation Limited (“OCBC”) Group (comprisingOCBC and Bank of Singapore Limited); Overseas UnionBank Limited (“OUB”) and United Overseas Bank Limited(“UOB”) Group (comprising UOB, Far Eastern BankLimited and Industrial & Commercial Bank Limited)

“Placement” : The placement of the Placement Shares by the PlacementAgent on behalf of the Company and the Vendors forsubscription and/or purchase at the Issue Price, subject tothe terms and conditions of this Prospectus

“Placement Shares” : The 32,430,000 Invitation Shares which are the subject ofthe Placement (including the Reserved Shares)

“PRC” : The People’s Republic of China

“R&D” : Research and development

“Reserved Shares” : 1,040,000 Placement Shares reserved for the Directors,management, employees and others who have contributedto the success of the Group

“Restructuring Exercise” : The restructuring exercise of the Group undertaken inconnection with the Invitation, as described in pages 79 to82 of this Prospectus

7

“Securities Account” : Securities account maintained by a depositor with CDP

“Shares” : Ordinary shares of $0.05 each in the capital of theCompany

“Shareholders” : Shareholders of the Company

“Strategic Investors” : DBS Capital and Gimmill

“USA” or “US” : United States of America

“Vendors” : DBS Capital, Gimmill and Ms Lum Ooi Lin Olivia

“Vendor Shares” : 14,470,000 Shares for which the Vendors inviteapplications to purchase subject to and on the terms ofthis Prospectus

Currencies, Units and Others

“m3” : Cubic metres

“S$” or “$” and “cents” : Singapore dollars and cents respectively, unless otherwisestated

“US Dollar”, “US$” and “US cents” : United States dollar and cents, respectively

“%” or “per cent.” : Per centum or percentage

“RMB” : Chinese Renminbi

“sq ft” : Square feet

“sq m” : Square metre

“PBT” : Profit before tax

Words importing the singular shall, where applicable, include the plural and vice versa and wordsimporting the masculine gender shall, where applicable, include the feminine and neuter gendersand vice versa. References to persons shall include corporations.

Any reference in this Prospectus and the Application Forms to any enactment is a reference to thatenactment as for the time being amended or re-enacted. Any word defined under the Act or anystatutory modification thereof and used in this Prospectus and the Application Forms shall have themeaning assigned to it under the said Act or statutory modification as the case may be.

Any reference in this Prospectus and the Application Forms to shares being allotted to an applicantincludes allotment to CDP for the account of that applicant.

A reference to a time of day in this Prospectus and the Application Forms shall be a reference toSingapore time unless otherwise stated.

8

GLOSSARY OF TECHNICAL TERMS

For the purpose of this Prospectus, the following technical terms and abbreviations have, whereappropriate, been used:-

“activated carbon filtration” : The removal of chlorine by passing liquid through a bed of highlyadsorptive carbon material

“biological treatment” : The use of bacteria to consume unwanted organics

“city water” : Potable grade water in accordance with World HealthOrganisation’s standards

“Cleaning-in-place” or “CIP” : A built-in cleaning system within a production line that facilitatesperiodic cleaning

“coagulation” : A process of agglomeration of minute charged particles intolarger particles which can be removed by settling and/or filtration

“concentrate” : The portion of the feed stream that is rejected from themembrane surface

“concentration” : The removal of liquid from a suspension or solution

“degasification” : The process of removing dissolved gases in water

“deionisation” or “DI” : The removal of all ionised minerals and salts from a solution

“dissolved air flotation” : The injection of micro air bubbles into a stream to cause thelighter particles to float thereby causing a separation

“distillation” : The process in which a liquid is converted into its vapour stateby heating, and the vapour is subsequently cooled andcondensed to the liquid state and collected

“flocculation” : The agglomeration of finely divided suspended solids into larger,usually gelatinous, particles

“fractionation” : The separation of materials from a homogeneous mixture orfrom the common parental source

“granular media filtration” : Filtration using granular materials such as sand and coal

“ion exchange” : A process in which certain ions of a given charge may beabsorbed from solution and replaced in the solution by differentions of a similar charge from the resin

“membrane” : Media through which a liquid is passed and refers to thefunctional filter material

“permeate” : The portion of the feed stream that passes through themembrane

“PFA” : Perfluoroalkoxy, a type of material used for high purity watertubing

“pH” : An expression of the acidity of a solution. A pH of 1 is veryacidic; pH 7 is neutral; pH 14 is very alkaline

9

“pH adjustment” : The introduction of acids or alkalines into a solution to achievethe desired pH range

“potable water” : Water that is suitable for human consumption

“PVDF” : Polyvinylidene Floride, a type of material used for high puritywater piping

“recovery” : Expressed in %. The amount of useful material gained from thefeed stream

“refractory organic” : An organic compound that cannot be oxidised by normalbiological treatments

“reverse osmosis” or “RO” : The process by which a solution under pressure is forcedthrough a semi-permeable membrane from a more concentratedto a less concentrated solution

“sand filtration” : Filtration through a packed bed of sand that can removeparticles down to less than 25 microns

“screening” : The use of a mesh or screen to stop large particles frompassing through

“sedimentation” : Settling of suspended solids in a fluid by gravity

“sludge dewatering” : The process of reducing or eliminating moisture content

“suspension” : Undissolved particles in a liquid

“UF” : Ultra-filtration

“USP” : US Pharmacopoeia, a guide with lists and directions for the useof drugs

“water softening” : The process of removing the hardness of water, the applicationsinclude improving the lathering of soap, and reducing scale build-up

10

DETAILS OF THE INVITATION

LISTING ON SGX SESDAQ

Application has been made to the SGX-ST for permission to deal in, and for quotation of, all theShares already issued as well as the New Shares on the SGX Sesdaq. Such permission will begranted when the Company has been admitted to the Official List of the SGX Sesdaq. Acceptanceof applications will be conditional upon permission being granted to deal in and for quotation for allthe issued Shares as well as the New Shares. Moneys paid in respect of any application acceptedwill be returned, without interest or any share of revenue or benefit arising therefrom and at theapplicant’s own risk, if the said permission is not granted.

The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinionsexpressed or reports contained in this Prospectus. Admission to the Official List of the SGX Sesdaqis not to be taken as an indication of the merits of the Invitation, the Company, its subsidiaries orthe Shares.

The Directors and the Vendors individually and collectively accept full responsibility for the accuracyof the information given in this Prospectus and confirm, having made all reasonable enquiries, thatto the best of their knowledge and belief, there are no other material facts the omission of whichwould make any statement in this Prospectus misleading and that this Prospectus constitutes fulland true disclosure of all material facts about the Invitation and the Company and its subsidiaries.

No person is authorised to give any information or to make any representation not contained in thisProspectus in connection with the Invitation and, if given or made, such information orrepresentation must not be relied upon as having been authorised by the Company, the Vendors orthe Manager. Neither the delivery of this Prospectus and the Application Forms nor the Invitationshall, under any circumstances, constitute a continuing representation or create any suggestion orimplication that there has been no change in the affairs of the Company or of its subsidiaries or inany statements of fact or information contained in this Prospectus since the date of this Prospectus.Where such changes occur, the Company may make an announcement of the same to the SGX-ST.All applicants should take note of any such announcement and, upon release of such anannouncement, shall be deemed to have notice of such changes. Save as expressly stated in thisProspectus, nothing herein is, or may be relied upon as, a promise or representation as to the futureperformance or policies of the Company or its subsidiaries.

This Prospectus has been prepared solely for the purpose of the Invitation and may not be reliedupon by any persons other than the applicants in connection with their application for the InvitationShares or for any other purpose. This Prospectus does not constitute an offer of, or invitation orsolicitation to subscribe for, the Invitation Shares in any jurisdiction in which such offer or invitationis unauthorised or unlawful nor does it constitute an offer, invitation or solicitation to any person towhom it is unlawful to make such offer, invitation or solicitation.

Copies of this Prospectus and the Application Forms and envelopes may be obtained on request,subject to availability, from:-

The Development Bank of Singapore Ltd6 Shenton Way

DBS Building Tower OneSingapore 068809

and from DBS Bank branches (including its POSBank Services division), members of theAssociation of Banks in Singapore, members of the SGX-ST and merchant banks in Singapore.

The Application List will open at 10.00 a.m. on 15 January 2001 and will remain open until12.00 noon on the same day or for such further period or periods as the Directors andVendors may in their absolute discretion decide, subject to any limitation under all applicablelaws.

11

STRUCTURE OF OUR INVITATION

Issue Price

The Issue Price, determined by us, the Vendors and DBS Bank based on the estimated marketvaluation of our Company and the market demand for our Shares, is $0.32 for each Invitation Shareoffered in our Invitation. The Issue Price is the same for all Invitation Shares offered in the varioustranches of our Invitation and is payable in full on application.

Our Invitation

The Invitation comprises the following tranches:-

Investors may subscribe for any number of Invitation Shares in integral multiples of 1,000 InvitationShares.

(i) Public Offer Tranche

The Public Offer is open to members of the public in Singapore as well as to institutional andprofessional investors. Investors may apply for Invitation Shares under the Public Offer Trancheby way of printed Offer Shares Application Forms or by way of electronic applications throughthe ATMs belonging to the Participating Banks (“ATM Electronic Applications”) or throughInternet Banking (“IB”) websites of the relevant Participating Banks (“Internet ElectronicApplications”, which together with ATM Electronic Applications, shall be referred to as“Electronic Applications”).

The terms and conditions and the procedures for application of Invitation Shares under thePublic Offer Tranche are set out on pages 136 to 149 in Appendix F of this Prospectus.

Only one application may be made for the benefit of a person for Invitation Sharesunder the Public Offer Tranche. A person submitting an application for Invitation Sharesin the Public Offer Tranche by way of a printed Offer Shares Application Form may notsubmit another application of Invitation Shares by way of an Electronic Application andvice versa. A person submitting an application for the Invitation Shares in the PublicOffer Tranche by way of ATM may not submit another application of Invitation Shares byway of an Internet Electronic Application and vice versa. Such separate applicationsshall be deemed to be multiple applications and shall be rejected.

The Public Offer Tranche of initially 6,000,000 Invitation Shares at the Issue Price represents15.20% of the total number of Invitation Shares initially available under the Invitation and3.54% of our post-IPO issued and paid-up share capital.

INVITATION

39,470,000Ordinary Shares

PUBLIC OFFERTRANCHE

6,000,000 Offer Shares

(15.20% of Invitation) 1,040,000 Reserved Shares

(2.64 % of Invitation)

PLACEMENTTRANCHE33,470,000

Placement Shares(84.80 % of Invitation)

32,430,000 Placement Shares

(82.16 % of Invitation)

12

Allocation of Invitation Shares under the Public Offer Tranche will be based on the level of validapplications received. In the event that the Public Offer Tranche and the Invitation on the wholeare substantially over-subscribed, there will be balloting and applicants who are not successfulin the ballot will not receive any Invitation Shares under the Public Offer Tranche whilesuccessful applicants in the ballot may receive less than the number of Invitation Shares theyapplied for under the Public Offer Tranche.

The Placement Tranche comprises Reserved Shares and Placement Shares.

(ii) Reserved Tranche

1,040,000 Invitation Shares under our Invitation are subject to priority allocation to persons inthe following categories who have contributed to our success:- (a) the Directors, (b) theexecutive officers and employees of our Group and (c) others who have contributed to oursuccess.

Application for the Reserved Shares may only be made by way of printed Reserved SharesApplication Forms. The terms and conditions and the procedures for application of ReservedShares are set out on pages 136 to 149 in Appendix F of this Prospectus.

An applicant making an application for the Reserved Shares using the Reserved SharesApplication Form may submit one separate application for Invitation Shares under the PublicOffer Tranche in his own name either by way of an Offer Shares Application Form or throughan Electronic Application or submit one separate application for Placement Shares (other thanReserved Shares) by way of a Placement Shares Application Form, provided he adheres tothe terms and conditions of this Prospectus. Such separate applications will not be treated asmultiple applications.

The Reserved Tranche of 1,040,000 Invitation Shares at the Issue Price represents 2.64% ofthe total number of Invitation Shares available under the Invitation and 0.61% of our post-IPOissued and paid-up capital.

(iii) Placement Tranche

The Placement will involve selective marketing of Invitation Shares to institutional andprofessional investors and other investors expected to have a sizeable demand for theInvitation Shares. Professional investors generally include brokers, dealers, companies(including fund managers) whose ordinary business involves dealing in shares and othersecurities and corporate entities which regularly invest in shares and other securities.Application for Placement Shares may only be made by way of printed Placement SharesApplication Forms. The terms and conditions and the procedures for application of PlacementShares are set out on pages 136 to 149 in Appendix F of this Prospectus.

An investor who has agreed to subscribe for Placement Shares (other than Reserved Shares)or who otherwise subscribes for Placement Shares shall not make or procure to be made anyseparate application for Offer Shares. Such separate application will be deemed to be multipleapplications and shall be rejected.

The Placement Tranche (other than Reserved Shares) of 32,430,000 Invitation Shares at theIssue Price represents 82.16% of the total number of Invitation Shares initially available underthe Invitation and 19.11% of our post-IPO issued and paid-up share capital.

13

RESULTS OF APPLICATION AND DISTRIBUTION

We will publicly announce the level of subscription for Invitation Shares and the basis of allocationof the Invitation Shares, as soon as it is practicable after the closing date for applications:-

(i) through a MASNET announcement to be posted on the Internet at the SGX-ST websitehttp://www.singaporeexchange.com; and

(ii) in the local English and Chinese newspapers.

Applicants who make ATM Electronic Applications through the ATMs of the following banks maycheck the provisional results of their Electronic Applications as follows:-

Bank Telephone Available at ATM/Internet Operating Hours Service Expected From

DBS Bank 1800-222 2222 Internet Banking or 24 hours a day 7.00 p.m. on the balloting327 4767 Internet Kiosk day

www.dbs.com*

KTB 222 8228 ATM ATM - 24 hours a day ATM - Evening of theballoting day

Phone Banking - Phone Banking -Mon-Fri: 0800-2200 8.00 a.m. on the day afterSat: 0800-1500 the balloting day

OCBC 1800-363 3333 ATM ATM - 24 hours a day Evening of the balloting dayPhone Banking -24 hours a day

OUB 1800-224 2000 OUB Personal Internet Phone Banking/ Evening of the balloting dayBanking Internet Banking -www.oub2000.com.sg* 24 hours a day

OUB Mobile Buzz OUB Mobile Buzz** -24 hours a day

UOB 1800-533-5533 ATM (Other Transactions – Phone Banking***/ 6.00 p.m. on the balloting day1800-222-2121 “IPO Enquiry”) ATM - 24 hours a day

www.uobcyberbank.com.sg***

* Applicants who have made Internet Electronic Applications through the Internet Banking websites of DBS Bank orOUB may also check the results of their application through the same channels listed in the table above in relation toATM Electronic Applications made at the ATMs of DBS Bank or OUB.

** Applicants who have made Electronic Applications through the ATMs or the Internet Banking website of OUB and whohave activated their OUB Mobile Buzz service will be notified of the results of their Electronic Applications, via theirmobile phones.

*** Applicants who have made Electronic Applications through the ATMs or the Internet Banking website of UOB, maycheck the results of their application through UOB CyberBank, UOB Group’s ATMs or UOB Phone Banking services.

If the Applicant’s Electronic Application is made through the ATMs of the UOB Group and isunsuccessful, it is expected that a computer-generated notice will be sent to the Applicant by therelevant Participating Bank (at the address of the Applicant as stated in the records of the relevantParticipating Bank at the date of his ATM Electronic Application) by ordinary post at the Applicant’sown risk within three Market Days after the close of the Application List. If the Applicant’s ATMElectronic Application is made through the ATMs of KTB, the OCBC Group, OUB or DBS Bank(including its POSBank Services division) and is unsuccessful, no notification will be sent by therelevant Participating Bank.

If the Applicant’s Internet Electronic Application made through the IB websites of UOB, OUB or DBSBank is unsuccessful, no notification will be sent by such Participating Banks.

14

INDICATIVE TIMETABLE FOR LISTING

In accordance with the SGX-ST’s News Release of 28 May 1993 on the trading of initial publicoffering shares on a “when issued” basis, an indicative timetable is set out below for the referenceof applicants:-

Indicative date/time Event

15 January 2001, 12 noon Closing of Application List

16 January 2001 Balloting of applications, if necessary (in the event of an over-subscription for the Offer Shares (other than the ReservedShares))

17 January 2001, 9.00 a.m. Commence trading on a “when issued” basis

26 January 2001 Last day of trading on a “when issued” basis

29 January 2001, 9.00 a.m. Commence trading on a “ready” basis

1 February 2001 Settlement date for all trades done on a “when issued” basis andfor all trades done on a “ready” basis on 29 January 2001

The above timetable is only indicative as it assumes that the closing date of the Application List is15 January 2001, the date of admission of the Company to the Official List of SGX Sesdaq will be17 January 2001, the SGX-ST’s shareholding spread requirement will be complied with and theInvitation Shares will be issued and fully paid up prior to 17 January 2001. The actual date on whichthe Shares will commence trading on a “when issued” basis will be announced when it is confirmedby the SGX-ST.

The above timetable and procedure may be subject to such modifications as the SGX-ST may in itsdiscretion decide, including the decision to permit trading on a “when issued” basis, and thecommencement date of such trading. The commencement of trading on a “when issued” basiswill be entirely at the discretion of the SGX-ST. All persons trading in the Shares on a “whenissued” basis, if implemented, do so at their own risk. In particular, persons trading in theShares before their Securities Accounts with CDP are credited with the relevant number ofShares do so at the risk of selling Shares which neither they nor their nominees, ifapplicable, have been allotted with or are otherwise beneficially entitled to. Such persons arealso exposed to the risk of having to cover their net sell positions earlier if “when issued”trading ends sooner than the indicative date mentioned above. Persons who have a net sellposition traded on a “when issued” basis should close their position on or before the firstday of “ready” basis trading.

Investors should consult the SGX-ST announcement on the “ready” listing date on the Internet (atthe SGX-ST website http:// www.singaporeexchange.com), INTV or the newspapers, or check withtheir brokers on the date on which trading on a “ready” basis will commence.

15

PROSPECTUS SUMMARY

The information contained in this summary is derived from and should be read in conjunction withthe full text of this Prospectus.

Company

Our Company was incorporated in Singapore on 31 March 2000 under the Act as an exempt privatelimited company in the Republic of Singapore, under the name of Hyflux Pte Ltd. Our Company wassubsequently converted to a public limited company on 20 December 2000 and changed its nameto Hyflux Ltd.

To prepare for a listing on the SGX Sesdaq pursuant to the Invitation, the Restructuring Exercisewas undertaken to rationalise the shareholding structure and to consolidate the principal entities ofour Group as directly or indirectly wholly owned subsidiaries under the listing vehicle of Hyflux Ltd.

We operate from our Singapore registered office at 40 Changi South Street 1 Singapore 486764and our branch office in Shanghai. Our sales personnel are also stationed in Guangzhou and Beijingfor close proximity to our customers.

Business

We are a specialist company that provides integrated treatment systems for advanced watertreatment and membrane filtration. We provide one-stop shop service for the design, fabrication,installation, commissioning and maintenance of treatment systems for water purification, wastewatertreatment and water recycling. In the specialised field of membrane processing, we utilise membranefiltration technologies that have found diverse applications across industries such as electronics,pharmaceuticals and biotechnology.

Water Purification

This involves the purification of raw water from various sources (such as river water, seawater, wellwater and rainwater, etc) for public consumption and industrial applications including the productionof deionised water and ultra-pure water for use in industries such as electronics, pharmaceutical andbiotechnology.

Wastewater Treatment

We manufacture treatment plants that treat wastewater of industries so that such water may bedischarged in accordance with the standards of the relevant regulatory authorities in the respectivecountries in which our clients operate. Besides treatment, we also review the water streams in ourclients’ manufacturing processes and recommend ways to minimise waste effluent and the numberof subsequent treatments.

Water Recycling

Water recycling is the recovery of water for reuse. For companies that use substantial volumes ofwater, our water treatment systems assist them to recycle their wastewater. Depending on thecharacteristics of the wastewater, we can recover between 50% to 90% of the wastewater for reuseusing mainly membrane filtration technology.

16

Advanced Membrane Filtration

We utilise advanced membrane filtration technology to recover or purify certain products (such asantibiotics, Vitamin C, dyes, urea, etc.) in our clients’ manufacturing process. Advanced membranefiltration is distinguished from simple membrane filtration, in that the former includes a range oftechnologies such as ultrafiltration, nanofiltration and reverse osmosis while the latter generallyrefers to the use of reverse osmosis only. Advanced membrane filtration involves four physicalseparation processes: purification, recovery, concentration and fractionation. We offer applications ofthe four separation processes individually or together across many industries including electronics,pharmaceutical, biotechnology, chemical and food. We use membranes designed and manufacturedin-house as well as third party membranes.

High-purity piping systems and equipment hook-up

High-purity piping systems are required to convey pure products such as compressed air, specialtygases, ultra-pure water and chemicals to manufacturing plants. Proper hooking-up of the distributionpiping to the equipment is vital to prevent contamination.

Servicing and maintenance

Servicing and maintenance are part of our after-sale services that are essential to ensure smoothoperation of our customers’ plant.

Our Customers

We service customers in several industries, including the electronics, pharmaceutical, chemical, foodand beverage, biotechnology and textile industries. Our sales to the electronics and pharmaceuticalindustries each constitutes about 33% of our revenue in FY1999 with the remainder from the otherindustries. In FY1999, approximately 35% of our revenue was generated through sales in Singaporewhile 60% came from our operations in the People’s Republic of China (“PRC”). The balance 5%was generated through sales in other countries such as Malaysia and Taiwan.

Our Competitive Strengths

Integrated Services

We offer a one-stop shop service to our customers and provide integrated services of designing,engineering, installation, commissioning and maintenance of systems that treat liquids utilisingmainly membrane filtration technology.

Diverse Industries

Through our research and development (“R&D”) efforts, we have managed to utilise membranefiltration for water purification, wastewater treatment, water recycling and liquid separation asopposed to conventional methods. This has allowed us to meet the diverse needs of variousindustries such as electronics, pharmaceutical and biotechnology by applying the four separationprocesses of advanced membrane filtration individually or together (please refer to “AdvancedMembrane Filtration” as set out above for more details). This provides us with a competitive edgeover some of our competitors who utilise other technologies and hence focus on specific industries.

Though our current focus is on the electronics, pharmaceutical and biotechnology industries, we donot rely on a single industry or customer. We have always adopted an approach of serving at leastthree to four industries that are not closely linked, for example, the electronics and pharmaceuticalindustries.

17

Experienced Management

We have an experienced management team who is familiar with the business and is well positionedto lead our Group forward to continued growth and profitability. We have been led by our ManagingDirector, Ms Lum Ooi Lin Olivia, for the past ten (10) years.

Ability to Meet International Standards

Our products and services are able to meet international standards for different industries. Forexample, we are able to produce water which meets US Pharmacopoeia (“USP”) standards and ourequipment can be manufactured to meet American Society of Mechanical Engineers (“ASME”)standards.

Customised Systems

A key feature of our water treatment systems is the identification and adoption of moderntechnologies to provide solutions to the various needs of our customers. For example, we utiliseadvanced membrane filtration technology to customise the water treatment plants to meet thespecific needs of various industries. This is possible as we are able to manufacture the membranesand water treatment systems in-house.

Established relationships with customers and suppliers

We estimate that 70% of our business is obtained through referrals and recommendations by ourexisting customers and engineering consultants and companies. We are on the approved vendor listof several of our customers. This allows us to tender for jobs from these customers without havingto undergo a pre-selection process, which typically involves the evaluation of track record and capitalbase. This has enabled us to secure new projects without having to increase our marketing activitiesand thus, our marketing expenses.

The equipment which we source from our suppliers to incorporate into our customers’ watertreatment and advanced membrane filtration systems require a high degree of expertise ininstallation and commissioning. Our suppliers have to be assured that we, as the solution provider,are able to successfully install their products for the benefit of the end users. We have built up sucha relationship with our suppliers and this allows us to offer a range of products and services. Thisenhances our position as an integrated water treatment provider.

For details of our competitive strengths, please see pages 61 to 62 of this Prospectus.

Our Strategy

Provide fully integrated services

We will continue to focus on being an integrated service provider that treats liquids utilising mainlymembrane filtration technology. In order to provide uninterrupted water treatment while servicing orupgrading is carried out on our customers’ water treatment systems, we plan to provide emergencyrecovery units, which are specially designed truck-trailers containing water treatment systems, oncewe have ascertained that there is sufficient demand from our customers. We are able to providesuch a service due to our experience in building water treatment systems.

Lower direct costs

In order to remain competitive, we will continue to lower our direct costs by moving towardsmanufacturing more materials in-house. We currently aim to manufacture up to 30% to 50% of thematerials used in our systems.

18

Incorporate information technology into our systems

With the advent of information technology, we will be developing and incorporating more of suchtools to enhance the operational capability of our systems.

Strengthen and cultivate relationships with engineering consultants and companies

We estimate approximately 30% of our business is obtained through referrals and recommendationsby engineering consultants and companies. As such, we recognise the need to build ties andcultivate relationships with international engineering consultants and companies such as Siegle andEpple Asia Pte Ltd (“Siegle and Epple”), a German engineering consulting firm and Jacobs-LendLease Pte Ltd (“Jacobs-Lend Lease”), an engineering joint venture company between a US and anAustralian company. These companies specialise in the designing and building of pharmaceuticalplants, electronics manufacturing plants, chemical processing plants and other industrial plants.

Increase the value of the projects

After having secured projects of up to $5,000,000 each in value in 1999 and 2000, we intend todevelop the next phase of our business by tendering and obtaining projects of values of above$5,000,000 each.

Increase research and development (“R&D”) and improve quality standards

To remain competitive and be at the fore-front of the water treatment business, we will continue tocommit our resources in research and development both internally and also in collaboration withuniversities and environmental institutes to develop proprietary membranes, improve existing onesand to seek new uses for membrane filtration technology in the food and pharmaceutical industries.To meet the rising demand of our customers for products and services of the highest quality, weshall also seek to drive our quality system to International Standards Organisation (“ISO”) standardsby 2001. We are currently reviewing the documentation of our work procedures in preparation ofmeeting the ISO standards. We will apply for the ISO certification upon the completion of the review.

For details of our strategy, please see pages 56 to 57 of this Prospectus.

19

THE INVITATION

Size : 39,470,000 Invitation Shares, comprising 25,000,000 New Sharesand 14,470,000 Vendor Shares. The Vendor Shares and the NewShares will, upon registration in the name of CDP or its nominee,rank pari passu in all respects with the then existing issued Shares.

Issue Price : $0.32 for each Invitation Share.

Purpose of the Invitation : Our Directors consider that the listing of our Company and thequotation of the Shares on the Offical List of the SGX Sesdaq willenhance our Company’s public image. It will also provide membersof the public, our Directors, management, employees and otherswho have contributed to the success of our Group an opportunity toparticipate in the equity of our Company.

Use of proceeds : The net proceeds from the Invitation (after deducting estimatedexpenses in relation to the Invitation) is estimated to be $6.8 million.Our Company proposes to use the net proceeds of the Invitation asfollows:-

1. approximately $0.5 million for setting up sales and servicecentres in PRC;

2. approximately $2.5 million for the expansion of our manufacturingand research facilities in Singapore and Shanghai;

3. approximately $3.0 million for acquisition of new technologies;and

4. the balance of approximately $0.8 million for working capital.

Pending the deployment of the net proceeds for purposes mentionedabove, the proceeds from the New Shares may be placed ondeposits with banks or financial institutions or invested in short termmoney market instruments or used to repay short-term bankborrowings or used as working capital, as our Directors may in theirabsolute discretion deem fit.

Please see page 67 on “Future Plans” for more details.

Reserved Shares : 1,040,000 of the 33,470,000 Placement Shares will be reserved forour Group’s Directors, management, employees and others whohave contributed to the success of our Group. In the event that anyof the Reserved Shares are not taken up, they will be madeavailable to satisfy applications for the Placement Shares, or in theevent of an under-subscription for the Placement Shares, to satisfyapplications made by members of the public for the Offer Shares.

Listing Status : The Shares will be quoted on the SGX Sesdaq, subject toadmission of our Company to the Official List of the SGX Sesdaqand permission for dealing in and quotation of our Shares beinggranted by the SGX-ST.

20

RISK FACTORS

You should carefully evaluate each of the following considerations and all of the other informationset forth in this Prospectus before deciding to invest in the Company’s Shares. The followingconsiderations relate principally to the industry in which the Group operates and its business ingeneral.

If any of the following considerations and uncertainties develop into actual events, our business,financial conditions or results of operations could be materially and adversely affected. In such case,the trading price of our Shares could decline due to any of these considerations, and you may loseall or part of your investment.

This Prospectus also contains forward-looking statements that involve risks and uncertainties. Ouractual results could differ materially from those anticipated in these forward-looking statements as aresult of certain factors, including the risks faced by us described below and elsewhere in thisProspectus.

Mismanagement of projects could have an adverse effect on our profitability

As our business is project-based, it is important that we manage our projects in terms of time,procurement of materials and allocation of resources. Mismanagement will result in rectificationcosts and delays in the completion of the projects and hence adversely affect our profitability.

Our profit will depend on our ability to secure new projects

As mentioned earlier, our business is project-based. Our financial performance will depend on ourability to secure new projects that are profitable. If we are unable to do so, our profitability will beadversely affected.

Our profit for fixed price contracts may be adversely affected if our cost estimates areincorrect or if there are delays in completion of the projects

Almost all of our revenue is derived from contracts with fixed prices. If our initial cost estimates areincorrect or delays occur during the contract progress resulting in cost overruns, our profitabilityunder that contract will be adversely affected. In addition, we may be liable for liquidated damagesshould there be a delay in the completion of our projects. This will increase our costs and adverselyaffect our financial position. We have not encountered such a situation in the past but there can beno assurance that there will not be any delays in existing and future projects which we undertakeresulting in payment of liquidated damages which could have a material impact on our financialperformance and financial condition.

We are dependent on the electronics and pharmaceutical industries

We design, install and commission water treatment plants mainly for the electronics andpharmaceutical industries. Sales to the electronics industry accounted for 49.3%, 41.8%, 32.9% and38.0% of our turnover for FY1997, FY1998, FY1999 and the ten months ended 31 October 2000respectively. Sales to the pharmaceutical industry accounted for 36.9%, 2.5%, 33.2% and 51.8% ofour turnover for FY1997, FY1998, FY1999 and the ten months ended 31 October 2000 respectively.Should there be any downturn in both the electronics and pharmaceutical industries and if we arenot able to seek new customers in other industries on a timely basis, our financial performancewould be adversely affected.

21

We are subject to risks associated with technological and regulatory changes

In 1999, we commenced the manufacture of filtration membranes. As a result, we will be exposedto changes in technology such as the development of water treatment processes and filtrationmembranes, changes in industrial standards such as US Pharmacopoeia (“USP”) and regulatoryrequirements, each of which influences the demand for our products and services. Any changes inlegislative, regulatory or industrial requirements may render certain of our purification and filtrationproducts and processes obsolete. Acceptance of new products may also be affected by the adoptionof new government regulations requiring stricter standards. For example, if a new governmentregulation requires industries’ water discharge to be of a higher standard, and should our watertreatment plants not be able to meet these standards, our performance will be adversely affected.Our ability to anticipate changes in technology and regulatory standards and to develop andintroduce new and enhanced products successfully on a timely basis will be a significant factor inour ability to grow and to remain competitive. There can be no assurance that we will be able toachieve the technological advances that may be necessary for us to remain competitive or thatcertain of our products will not become obsolete. In addition, we are subject to the risks generallyassociated with new product introductions and applications, including the lack of market acceptance,delays in development or failure of products to operate properly.

We are exposed to foreign currency risks

Our projects are carried over a span of a few months to two (2) years. We provide quotations to ourcustomers mainly in S$ and US$ and make purchases mainly in S$ and US$. In FY1999, theproportion of our revenue in S$ and US$ was 28.3% and 53.5% respectively while the proportion ofpurchases and expenses in S$ and US$ was 67.6% and 24.1% respectively. Any significantfluctuation in foreign exchange rates during the course of our projects will have an impact on ourGroup’s profits. For example, profits derived from our projects denominated in US$ would be lowerin S$ should there be any depreciation in the exchange rate of US$ against S$.

Our foreign exchange gains/losses for the past three financial years and for the ten months ended31 October 2000 are as follows:

Ten monthsended

FY1997 FY1998 FY1999 31 October 2000

Net foreign exchange gain (loss) ($’000) 27 (9) (9) 42

Percentage of turnover 0.7% (0.1%) (0.1%) 0.3%

Percentage of profit before tax (“PBT”) 19.7% (0.9%) (2.1%) 0.7%

Currently, our Group does not have a foreign currency hedging policy as our foreign exchange gainsand losses over the past three financial years had been relatively low. We will continue to monitorour foreign exchange exposure in the future and will consider hedging any material foreignexchange exposure should the need arise. Please refer to “Foreign Exchange Exposure” on pages43 to 44 for more details.

Our customers are subject to environmental laws and regulations of the countries in whichthey operate and they may seek recourse from us should there be any violation

The environmental laws and regulations of the countries in which we support our clients require ourclients to meet certain standards and impose liability if these are not met (please refer to page 65on “Government Regulations” for more details). Though we are not directly regulated by theseenvironmental laws and regulations, there is no assurance that our customers or the relevantauthorities will not seek recourse from us in the event of non-compliance with such laws andregulations, even if our plants were commissioned and tested to be satisfactory at the point of handover to our customers.

22

In addition, the liabilities and risks imposed on our customers by environmental laws may adverselyimpact demand for some of our products or services or impose greater liabilities and risks on us,which could also have an adverse effect on our competitive and financial position.

We are dependent on the availability of adequately skilled engineers and our key personnel

Owing to the specialised nature of our work, there is a limited supply for adequately skilledengineers. The cost of labour has been steadily increasing due to staff remuneration and trainingcosts. Furthermore, to the extent that we are unable to recruit the required number of skilledengineers, locally or from overseas, to meet the expected increase in both production and R&D, ourturnover and profitability will be negatively affected.

We have been dependent on the continued efforts of our senior management, in particular ourManaging Director Ms Lum Ooi Lin Olivia, our Executive Director Dr Deirdre Murugasu, who steersthe R&D and business development activities, and Sales Director Mr Foo Hee Kiang, who overseessales and marketing. The loss of services of these senior management could have an adverse effecton our ability to achieve our objectives.

We do not have patents to protect our products and proprietary technology against claims byother parties

We have developed designs and applications of the advanced membrane filtration system in variousindustries such as electronics, pharmaceutical and food and beverage. Such applications arose fromour R&D efforts. We have not applied for any patents in respect of the designs and applications asthe technology is evolving and our R&D efforts are still on-going. We will apply for patents whenfurther research shows more conclusive results and we assess that it is feasible to do so.Meanwhile, we will not have any legal recourse for these designs and applications which are notpatented in the event that such solutions are successfully replicated by third parties. In the eventthat the applications are replicated, our turnover and profitability on these applications may beadversely affected.

Furthermore, third parties may subsequently assert claims to certain applications. In such an event,we may need to acquire licenses to, or to contest the validity of, issued or pending patents or claimsof third parties. There can be no assurance that any license acquired under such patents would bemade available to us on acceptable terms, if at all, or that we would prevail in any such contest. Inaddition, we could incur substantial costs in defending ourselves in suits brought against us foralleged infringement of another party’s patents.

We rely on trade secrets, proprietary know-how and technology, which we seek to protect, in part,by confidentiality agreements with our prospective working partners and collaborators, employeesand consultants. To the best of our knowledge, there were no breaches of such agreements in thepast. However, there can be no assurance that these agreements will not be breached, that we willhave adequate remedies for any breach, or that our trade secrets and proprietary know-how will nototherwise become known or be independently discovered by others.

We are dependent on foreign labour

Foreign workers account for approximately 40% of our workforce in Singapore. Due to the tightlabour supply, we will continue to be reliant on foreign workers. Any changes in governmentalpolicies which restrict the employment of foreign workers in Singapore would affect our profitabilityas such restrictions may allow us to employ only Singaporean workers who are relatively morecostly to employ. In addition, the Singapore government imposes levies on the employment offoreign workers. Should there be any significant increase in such levies, our profitability will beaffected by higher production costs.

23

Risks of conducting business in People’s Republic of China (“PRC”)

As we derived a substantial portion of our revenue from PRC, we face risks of conducting businessin PRC.

General risks associated with doing business in PRC

The PRC economy has primarily been a planned and centralised economy, characterised by stateownership of productive assets. However, PRC has experienced significant economic growth andsocial progress since its adoption of the “open door” reform policy in 1978 and the “socialist marketeconomy” policy in 1993, even though such growth has been uneven across geographic andeconomic sectors. Even in the wake of the recent Asian economic crisis, the PRC government hascontinued to adopt an economic expansion policy. We cannot assure you that such growth will notdecrease or that any slowdown will not have a negative effect on our business.

It is recognised that PRC lacks an adequate infrastructure and a well-established financial system tokeep pace with its rapidly growing economy. These conditions could have the effect of limiting ourgrowth potential in PRC. For instance, PRC has experienced various periods of severe inflationarypressures as a result of an over-heated economy, and the Chinese government had to introduceanti-inflationary measures from time to time. These measures, which included credit tighteningpolicies and adjustment to interest rates, may affect the demand of our products and services inPRC.

Any significant change in PRC laws and regulations and legal system may affect us

Our business and operations in PRC are governed by the legal system of PRC. The PRC legalsystem is a codified system with written laws, regulations, circulars, administrative directives andinternal guidelines. Prior decisions by PRC courts may be cited as authority but they do not haveany effect as binding precedents. As a result, the administration of PRC laws and regulations byPRC government agencies may be subject to considerable discretion. For example, theAdministrative Body of State Council in charge of Environmental Protection regulates under the PRCEnvironmental Protection Law of 1989. Under this law, the Administrative Body of the State Councilhas developed a system of water standards which comprises five levels of quality standards. Ourrole is to assist our customers to achieve these standards pertaining to the discharge of watertreated by our plants. The fabrication and commissioning of our plants is based on ourunderstanding of the standards required. Should the interpretation of these standards be subject todiscretion, our customers may be found to be non-compliant with the regulatory standards. Asmentioned on page 22, there is no assurance that our customers or the relevant authorities will notseek recourse from us in the event of non-compliance with such regulatory laws and regulations,even if our plants were commissioned and tested to be satisfactory at the point of hand-over to ourcustomers.

Experience in the implementation, interpretation and enforcement of such laws and regulations andof commercial contracts, undertakings and commitments entered into are also limited. An applicationfor approval to conduct certain activities in PRC may be unduly protracted with the involvement ofseveral government agencies or the enforcement of laws and regulations and the outcome of adispute resolution may not be as predictable as in more developed jurisdictions. Consequently, ourbusiness and operations and hence, our financial performance, will be adversely affected byunnecessary delays in obtaining approvals from the governmental bodies in PRC, the introduction ofnew laws, changes to existing laws or interpretations thereof, and pre-emption of provincial or locallaws by national laws.

24

PRC foreign exchange control may limit our ability to utilise our revenue effectively

Our PRC subsidiary is subject to PRC rules and regulations on currency conversion. In PRC, theState Administration for Foreign Exchange (“SAFE”) regulates the conversion of Renminbi intoforeign currencies. Currently, foreign investment enterprises (“FIEs”) are required to apply to theSAFE for “Foreign Exchange Registration Certificates for FIEs”. With such registration certifications(which need to be renewed annually), FIEs are allowed to open foreign currency accounts includingthe “basic account” and “capital account”. Currency translation within the scope of the “basicaccount” (for example, remittance of foreign currencies for payment of dividends, etc.) can beeffected without requiring the approval of the SAFE. However, conversion of currency in the “capitalaccount” (for example, for capital items like direct investments, loans, securities, etc.) still requiresthe approval of the SAFE.

Although the Directors do not presently anticipate any difficulty in meeting our foreign exchangeneeds, there can be no assurance that the current foreign exchange rulings will not be changed toour detriment. As such, there can be no assurance that we will continue to be able to obtainsufficient foreign exchange to pay dividends or to satisfy our foreign exchange requirements.

Risks relating to an investment in shares

Future sale of Shares could adversely affect our Share price

Any future sale or availability of Shares can have a downward pressure on our Share price. The saleof a significant amount of Shares in the public market after the Invitation, or the perception that suchsales may occur, could materially and adversely affect the market price of our Shares. These factorsalso affect our ability to sell additional equity securities. Except as otherwise described in“Moratorium” (see page 79 of this Prospectus), there will be no restriction on the ability of thesubstantial shareholders to sell their Shares either on the SGX-ST or otherwise.

Investors in our Shares would face immediate and substantial dilution in the book value per Shareand may experience future dilution

Our Issue Price of $0.32 is substantially higher than our Group’s net tangible assets per share of10.11 cents (adjusted for the net proceeds from the Invitation) as at 31 October 2000. Thus, thereis an immediate and substantial dilution in the book value per Share (please refer to page 42 on“Dilution”).

Our Share price may be volatile, which could result in substantial losses for investors purchasing ourShares in this Invitation

The market price of our Shares could be subject to significant fluctuations in response to variousfactors and events, including the liquidity of the market for our Shares, differences between ouractual financial or operating results and those expected by investors and analysts, changes inanalysts’ recommendations or projections, changes in general market conditions and broad marketfluctuations.

In addition, our Share price will be under downward pressure if certain of our Directors ormanagement staff or employees sold their respective Shares immediately after the Invitation orMoratorium.

No prior market for our Shares

Prior to this Invitation, there has been no public market for our Shares. The Issue Price may not beindicative of the market price for our Shares after the completion of this Invitation. We have appliedto the SGX-ST for the listing and quotation of our Shares on the Official List of the SGX Sesdaq.However, no assurance can be given that an active trading market for the Shares will develop or, ifdeveloped, will be sustained.

25

ISSUE STATISTICS

Issue Price for each Invitation Share S$0.32

NET TANGIBLE ASSETS

NTA per Share based on the consolidated balance sheet of our Group as at 31October 2000, after taking into account the Restructuring Exercise referred to onpages 79 to 82 of this Prospectus and the Stock Split:-

(a) before adjusting for the estimated net proceeds from the issue of the NewShares based on the pre-flotation share capital of 144,687,994Shares 5.35 cents

(b) after adjusting for the proceeds from the issue of new shares to ourStrategic Investors (please refer to pages 81 to 82 of this Prospectus), andthe estimated net proceeds from the issue of the New Shares based on thepost-flotation share capital of 169,687,994 Shares 10.11 cents

Premium of Issue Price per Share over the NTA per Share as at 31 October2000:-

(a) before adjusting for the estimated net proceeds from the issue of the NewShares based on the pre-flotation share capital of 144,687,994Shares 498%

(b) after adjusting for the proceeds from the issue of new shares to ourStrategic Investors (please refer to pages 81 to 82 of this Prospectus), andthe estimated net proceeds from the issue of the New Shares based on thepost-flotation share capital of 169,687,994 Shares 217%

EARNINGS

Historical net EPS of our Group for the financial year ended 31 December 1999based on the pre-flotation share capital of 144,687,994 Shares 0.05 cents

Historical net EPS of our Group had the Service Agreements (as definedon pages 76 to 77 of this Prospectus) been in effect for the financial year ended 31 December 1999 based on the pre-flotation share capital of 144,687,994Shares (0.01) cents(1)

Estimate net EPS of our Group for the financial year ended 31 December 2000based on the pre-flotation share capital of 144,687,994 Shares 4.40 cents

PRICE EARNINGS RATIO

Historical price earnings ratio based on the historical net EPS of our Group forthe financial year ended 31 December 1999 based on the pre-flotationshare capital of 144,687,994 Shares 640.00 times

Historical price earnings ratio based on the historical net EPS of our Group forthe financial year ended 31 December 1999 based on the pre-flotation sharecapital of 144,687,994 Shares, assuming the Service Agreements (as defined onpages 76 to 77 of this Prospectus) had been in effect for the financial yearended 31 December 1999 and taking into account the remuneration payable toExecutive Directors, Executive Officers and employees who are related tosubstantial shareholders and based on the pre-flotation share capitalof 144,687,994 Shares NA

Estimate price earnings ratio based on the estimate net EPS of our Group forthe financial year ended 31 December 2000 based on the pre-flotationshare capital of 144,687,994 Shares 7.27 times

26

NET OPERATING CASH FLOW(2)

Historical net operating cash flow per Share for the financial year ended 31December 1999 based on the pre-flotation share capital of 144,687,994Shares 0.15 cents

Estimate net operating cash flow per Share for the financial year ended 31December 2000 based on the pre-flotation share capital of 144,687,994 Shares 4.58 cents

PRICE TO NET OPERATING CASH FLOW RATIO

Historical price to net operating cash flow based on the historical net operatingcash flow per Share for the financial year ended 31 December 1999 basedon the pre-flotation share capital of 144,687,994 Shares 213.33 times

Estimate price to net operating cash flow based on the estimate net operatingcash flow per Share for the financial year ended 31 December 2000 basedon the pre-flotation share capital of 144,687,994 Shares 6.99 times

Notes:-

(1) Had the Service Agreements (as defined on pages 76 to 77 of this Prospectus) been in effect for the financial yearended 31 December 1999, the proforma consolidated profit before tax and profit after taxation would have beenapproximately $295,000 and $(21,000) instead of $430,000 and $79,000 respectively.

(2) Net operating cash flow is defined as net profit after tax with provision for depreciation added back.

27

SUMMARY OF PROFORMA GROUP FINANCIAL INFORMATION

The following selected financial information should be read in conjunction with the full text of thisProspectus, including the Accountants’ Report set out on pages 109 to 128 of this Prospectus.

Operating Results of the Proforma Group(1)

Financial Year Ended 31 December Unaudited Audited10 months 10 months

ended ended31 October 1999 31 October 2000

(S$’000) 1997 1998 1999

Turnover 3,870 6,391 6,929 4,293 15,775

Operating profit beforedepreciation, interest &taxation 235 1,184 408 293 6,013

Other Income — — 186 113 181

Profit before depreciation,interest & taxation 235 1,184 594 406 6,194

Depreciation (74) (106) (143) (110) (220)

Interest expense (24) (20) (21) (11) (20)

Profit before taxation 137 1,058 430 285 5,954

Taxation (12) (377) (351) (233) (1,596)

Profit after taxation attributable to shareholdersof the Company(2) 125 681 79 52 4,358

EPS (cents)(3) 0.09 0.47 0.05 0.04 3.01

Notes:-

(1) The financial results of the Proforma Group for the periods under review have been prepared on the basis that theProforma Group had been in existence throughout the periods under review.

(2) Had the Service Agreements as described on pages 76 to 77 of this Prospectus been in effect for the financial yearended 31 December 1999, the profit before taxation, the profit after taxation and EPS for FY1999 would have been$0.30 million, $(0.02 million) and (0.01) cents respectively. The profit before tax, the profit after taxation and EPS forperiod ended 31 October 2000 would have been $5.83 million, $4.27 million and 2.95 cents respectively. The adjustedprice earnings ratio would have been 10.85 times based on the Issue Price of S$0.32.

(3) For comparative purposes, the EPS is calculated using profit after taxation and divided by the pre-flotation sharecapital of 144,687,994 Shares.

28

Financial Position of the Proforma Group(1)

AuditedAs at 31 December as at

(S$’000) 1997 1998 1999 31 October 2000

Fixed assets 362 332 795 4,726

Preliminary expenses 46 27 9 20

Current assets

Stocks 553 450 648 452

Trade debtors 516 1,739 1,024 3,587

Work-in-progress — — — 3,968

Other debtors, deposits and prepayments 621 506 160 980

Amount due from Directors 68 15 24 —

Fixed deposits 57 60 61 659

Short term notes — — — 500

Cash and bank balances 325 1,469 2,550 298

2,140 4,239 4,467 10,444

Current liabilities

Trade creditors 433 614 1,307 905

Other creditors and accruals 743 1,032 982 1,349

Bank overdraft & bills payable 297 545 575 561

Amount due to Directors — 242 209 —

Proposed dividend — 37 894 1,700

Provision for taxation — 120 427 1,948

Hire purchase creditors — — 80 216

Finance lease creditors — 5 5 4

Term loan due within a year — — — 295

(1,473) (2,595) (4,479) (6,978)

Net current assets/(liabilities) 667 1,644 (12)(2) 3,466

Non-current liabilities — (284) (482) (447)

1,075 1,719 310 7,765

Shareholders’ equity 1,075 1,719 310 7,765

NTA per Share (cents)(3) 0.71 1.17 0.21 5.35

Notes:-

1. The financial positions of the Proforma Group for the periods under review have been prepared on the basis that theProforma Group had been in existence throughout the periods under review.

2. Our Group incurred negative working capital of $0.01 million for FY1999 mainly due to an increase in proposeddividend of $0.86 million.

3. For comparative purposes, the NTA per Share is calculated based on the pre-flotation share capital of 144,687,994Shares.

29

REVIEW OF RESULTS

The information in this section, except for the historical information, contains forward-lookingstatements. These statements are subject to risks and uncertainties. You should not place unduereliance on these forward-looking statements as our actual results could differ materially. We do notassume any obligation to publicly release the results of any revision or updates to these forward-looking statements to reflect future events or unanticipated occurrences. However, we are subject tothe corporate disclosure policy of the SGX-ST Listing Manual.

This discussion and analysis should be read in conjunction with our consolidated financialstatements and the related notes, which are included elsewhere in this Prospectus.

OVERVIEW

Revenue

Our main sources of revenue are as follows:-

Unaudited10 months 10 months

ended ended31 October 31 October

FY1997 FY1998 FY1999 1999 2000$’000 % $’000 % $’000 % $’000 % $’000 %

Designing, installing and commissioning 3,447 89.1 5,824 91.1 6,489 93.6 3,935 91.7 15,212 96.4

Service and maintenance 423 10.9 567 8.9 440 6.4 358 8.3 563 3.6

TOTAL REVENUE 3,870 100 6,391 100 6,929 100 4,293 100 15,775 100

Designing, installing and commissioning of water treatment systems and advanced membranefiltration plants

The majority of our revenue is project-based and these contracts are secured through our marketingefforts and referrals from our customers as well as engineering consultants and companies. Ourcontract price is determined after having budgeted for all cost components, which consist mainly ofmaterial costs and labour costs. Our contract revenue is recognised using the percentage-of-completion method, measured by reference to the value of work performed to total estimatedcontract value.

Service and maintenance

This source of revenue arises after hand-over of a completed system. Customers will either sign ayearly service contract with us or engage us on an on-call basis. Yearly service contracts accountfor approximately 10% of this source of revenue while the balance is from on-call service. Thetypical nature of work in a yearly service contract comprises mainly analysis of water quality,servicing of instruments and checking of system performance. In addition, such servicing may alsoinvolve the changing of consumables, wearable parts and water treatment chemicals, whichconstitute about 2-3% of our total revenue.

The main factors affecting our revenue are as follows:-

1. we derive a majority of our revenue from projects. Hence, our revenue will fluctuate with thenumber and size of the projects secured and completed;

2. the value of each project is dependent on the range of services required by our customers. Forexample, some customers may appoint us to provide a full range of services from design toconstruction and maintenance while others may contract us just to build and install the plant;

30

3. the size of our capital base will affect our success in securing projects as this is often one ofthe considerations of our potential customers. This will in turn affect our revenue; and

4. any delays in the completion of a project may delay the recognition of the revenue associatedwith the project. In addition, being able to deliver a project as scheduled will allow us tocommence or plan for another project quickly.

Please refer to page 21 on “Risk Factors” for more details.

As more than 90% of our revenue is derived from designing, installing and commissioning of plants,it is less meaningful for our results to be classified by activity. As such, we do not classify our directcosts and expenses, and thus profit, according to activity.

Direct Costs

Our direct costs comprise mainly material costs and direct labour costs such as salaries andbonuses.

Material costs

Material costs consist mainly of equipment, materials, component parts for water treatment andother membrane process systems. Material costs have increased from $1.74 million in FY1997 to$2.57 million for FY1998 and increased to $3.12 million for FY1999.

Material costs as a percentage of turnover was 45.0%, 46.7% and 45.0% for FY1997, FY1998 andFY1999 respectively. The turnover in FY1998 had been adjusted from $6.39 million to $5.49 millionafter the exclusion of one project with Dandong Synthetic Fiber Co. Ltd as further explained on page35 of the Prospectus.

For the ten months ended 31 October 2000, material costs accounted for 34.9% of total revenue ascompared to 45.0% in FY1999. This is due to the fact that in FY2000, we manufactured most of thecomponents instead of subcontracting the manufacturing process, thus allowing us to control andlower our material costs.

The proportion of components manufactured in-house versus components purchased from thirdparties will thus affect our material costs.

Labour costs

Direct labour costs consist of salaries, bonuses and other staff-related costs of engineers,technicians and contract workers who are working on the projects or providing maintenanceservices. Such costs had increased from $0.26 million in FY1997 to $0.38 million and $0.41 millionin FY1998 and FY1999 respectively. The increase was due to an increase in manpower,corresponding to a higher turnover as we took on more projects in FY1998 and FY1999. For the tenmonths ended 31 October 2000, our direct labour costs have reached 172.0% of that for the wholeof FY1999. This was due to our efforts to manufacture most of our components in-house.

Factors that will affect our direct labour costs include:-

1. any delay in the completion of a project will incur additional manpower costs, especially whenwe have employed contract workers for the project;

2. inability to retain our trained engineers and technicians for membrane filtration. As we focus onmembrane filtration, a specialised technology of water treatment, we will need to train ourengineers and technicians for an average of 6 and 12 months respectively before they can beput on a project. If we are unable to retain such trained staff, we have to incur high trainingcosts for the new employees; and

31

3. any changes in the levies imposed by the Singapore government on the employment of foreignworkers in Singapore which would affect our labour costs. As we employ foreign workers forour operation in Singapore, any changes in governmental policies that restrict the employmentof foreign workers in Singapore would also affect our labour costs if we have to employ morelocals in Singapore, who are relatively more costly compared to workers from low costcountries such as India.

Gross Profit Margin

Contracts with fixed prices constitute a significant portion of our revenue. Prior to entering into suchcontracts, we have to estimate the number of man-hours and materials required. If our estimatesdeviate widely from the actual time and resources required for a project, our actual profit margin willbe affected.

Factors that increase our revenue and/or lower our direct costs will increase our gross profit marginaccordingly. Please refer to pages 30 to 32 for factors affecting our revenue and direct costs.

Expenses

Operating expenses

For the past three financial periods and the ten months ended 31 October 2000, our operatingexpenses were as follows:-

Unaudited10 months 10 months

ended endedYear Ended 31 December 31 October 31 October

1997 1998 1999 1999 2000$’000 % $’000 % $’000 % $’000 % $’000 %

Pilot plants and marketing 124 7.2 355 14.9 461 14.6 280 13.5 91 2.4

R&D 131 7.5 191 8.0 387 12.3 285 13.8 539 14.2

Manpower 508 29.4 699 29.3 679 21.6 480 23.2 1,247 32.9

General and administration (“G&A”) 868 50.2 1,015 42.5 1,458 46.3 903 43.7 1,677 44.2

Depreciation 74 4.3 106 4.5 143 4.5 110 5.3 220 5.8

Interest 24 1.4 20 0.8 21 0.7 11 0.5 20 0.5

Total 1,729 100 2,386 100 3,149 100 2,069 100 3,794 100

Pilot plants and marketing expenses

These expenses include direct material and manpower costs for building pilot plants, relatedtransportation and freight costs, and other ancillary expenses such as exhibitions, seminars andmarketing material expenses.

Pilot plants are small-scale plants, normally representing approximately 2% to 5% of the actualindustrial size and are built to test certain new processes or to demonstrate to customers thecapabilities and the effectiveness of the systems before concluding contracts. We will bear the costof building pilot plants and any subsequent manpower costs incurred to demonstrate theperformance of pilot plants. Such a marketing approach was essential during our initial entrance tothe market as we intended to serve customers such as VTS Batteries Pte Ltd (“VTS Batteries”) andHitachi Chemical Asia Pacific Pte Ltd.

However, not all pilot plants built will result in secured contracts. There may be instances where thepilot plant results were not satisfactory to the potential customers, or where the customers decide toabort the planned investment regardless of the pilot test outcome.

32

Whether or not a pilot plant results in a sales contract, its construction costs are expensed whenincurred. These expenses have increased from $0.12 million in FY1997 to $0.36 million in FY1998,and have further increased to $0.46 million in FY1999. These expenses represented 7.2%, 14.9%and 14.6% of our total operating expenses for FY1997, FY1998 and FY1999 respectively. Theincrease in FY1998 and FY1999 was a result of our emphasis on more pilot testing in these twoyears to increase market awareness of our services and capabilities, to have wider applications ofmembrane used in different processes and to strive for market share in the membrane filtrationindustry.

For the ten months ended 31 October 2000, our pilot plants and marketing expenses declined to$0.09 million, representing 19.7% of that for the whole of FY1999. Despite this decrease, ourturnover for the same period had reached $15.78 million, an increase of 127.7% over the whole ofFY1999. This was because we have established our presence in this industry and hence, we nolonger need to use pilot plants to market our systems to every customer. In addition, we need notbuild every pilot plant from scratch. Over the years, we have built up a database of pilot plants andwe are usually able to modify an existing pilot plant for demonstration to a new customer.

R&D expenses

R&D expenses consist primarily of salaries of R&D personnel, equipment and related material costs.Our R&D expenses have increased from $0.13 million in FY1997 to $0.19 million in FY1998 andfurther increased to $0.39 million in FY1999.

R&D expenses in FY1997 and FY1998 were primarily incurred for membrane applications ondifferent types of processes. In FY1999, in addition to continuing development of membraneapplications, we embarked on the research of producing specialised application membranes. Goingforward, we expect to spend up to 80% of our R&D expenses on developing a greater variety ofspecialised application membranes that are suitable for diverse applications in the pharmaceuticaland biotechnology industries. As a result, for the ten months ended 31 October 2000 we havealready incurred R&D expenses amounting to 139.3% of our R&D expenses for FY1999. We believethat our R&D work is crucial in ensuring our competitiveness.

As we implement our strategy to develop our R&D capability, especially in membrane technology, wewill need to increase the number of research staff (please refer to page 67 on “Future Plans” formore details). This will increase our R&D expenses accordingly.

Manpower costs

Manpower costs consist mainly of salaries, bonuses and staff-related costs of general management,logistics, financial and administrative personnel. As we are in a specialised industry, such costs aremajor cost components. Manpower costs have increased from $0.51 million in FY1997 to $0.70million in FY1998 and remained relatively constant at $0.68 million for FY1999. For the ten monthsended 31 October 2000, we have already incurred indirect manpower costs amounting to 183.7% ofour indirect manpower costs for the whole of FY1999.

General and administrative expenses

Our general and administrative expenses consist mainly of office rental, professional fees, travellingexpenses and provision for doubtful debts. These expenses have increased from $0.87 million inFY1997 to $1.02 million in FY1998 and to $1.46 million in FY1999. The increase in general andadministrative expenses in FY1999 was mainly due to the general provision and write-off of doubtfuldebts amounting to $0.26 million. Of this amount, $0.18 million was due to the write-off of non-tradebad debts and the balance was for general provision. For the ten months ended 31 October 2000,we had incurred general and administrative expenses amounting to $1.68 million, representing115.0% of our general and administrative expenses for FY1999. The increase in our general andadministrative expenses was largely due to an increase in travelling and entertainment expenses.

33

Depreciation of fixed assets

Our Group’s fixed assets consist primarily of leasehold property, motor vehicles and plant andmachinery.

Depreciation of fixed assets of our Group had increased from $0.07 million in FY1997 to $0.11million in FY1998 due to the purchase of office equipment and furniture when we moved to largeroffice premises at Kaki Bukit Industrial Terrace.

For FY1999, depreciation of fixed assets increased to $0.14 million due to our Group’s acquisitionof additional plant and machinery to meet the increase in demand of our products and services.

Depreciation expenses for the ten months ended 31 October 2000 amounted to $0.22 million,accounting for 153.8% of the depreciation expenses for the whole of FY1999. Depreciationexpenses increased as we acquired more plant and machinery for the manufacture of ourcomponents instead of subcontracting the manufacturing process. The increase was also due to theacquisition of motor vehicles during that period.

RESULTS OF OPERATIONS

Our segmental results can be classified by customers’ industry; namely electronics, pharmaceuticaland others. As more than 90% of our revenue is derived from designing, installing andcommissioning of plants, it is less meaningful for our results to be classified by activity. As such, wedo not classify our direct costs and expenses, and thus profit, according to activity.

Our segmental results by geographical region are based on the location of our customers, and canbe classified into Singapore, PRC and others.

Review of Past Performance by Customers’ IndustryUnaudited10 months 10 months


1997 1998 1999 1999 2000$’000 % $’000 % $’000 % $’000 % $’000 %

TurnoverElectronics 1,908 49.3 2,671 41.8 2,277 32.9 1,579 36.8 5,996 38.0

Pharmaceutical 1,427 36.9 159 2.5 2,301 33.2 2,219 51.7 8,169 51.8

Others(1) 535 13.8 3,561 55.7 2,351 33.9 495 11.5 1,610 10.2

Total 3,870 100 6,391 100 6,929 100 4,293 100 15,775 100

PBT

Electronics 41 30.0 64 6.1 140 32.6 109 38.3 1,958 32.9

Pharmaceutical 75 54.7 11 1.0 143 33.2 142 49.8 3,460 58.1

Others(1) 21 15.3 983 92.9 147 34.2 34 11.9 536 9.0

Total 137 100 1,058 100 430 100 285 100 5,954 100

PBT Margin (%)

Electronics 2.1 2.4 6.1 6.9 32.7

Pharmaceutical 5.3 6.9 6.2 6.4 42.4

Others(1) 3.9 27.6 6.3 6.9 33.3

Total 3.5 16.6 6.2 6.6 37.7

Note:-

1. Others include biotechnology, textile, sugar and edible oil refinery, food and beverage, chemical processing, paper andpulp and battery manufacturing.

34

Review of Past Performance by Geographical RegionUnaudited10 months 10 months


1997 1998 1999 1999 2000$’000 % $’000 % $’000 % $’000 % $’000 %

Turnover

Singapore 1,756 45.4 2,388 37.4 2,450 35.4 1,731 40.3 8,519 54.0

PRC 1,647 42.5 2,678 41.9 4,147 59.8 2,410 56.1 6,310 40.0

Others(1) 467 12.1 1,325 20.7 332 4.8 152 3.6 946 6.0

Total 3,870 100 6,391 100 6,929 100 4,293 100 15,775 100

PBT

Singapore 38 27.7 37 3.5 140 32.6 113 39.6 3,254 54.7

PRC 79 57.7 966 91.3 274 63.7 159 55.8 2,480 41.6

Others(1) 20 14.6 55 5.2 16 3.7 13 4.6 220 3.7

Total 137 100 1,058 100 430 100 285 100 5,954 100

PBT Margin

Singapore 2.2 1.5 5.7 6.5 38.2

PRC 4.8 36.1 6.6 6.6 39.3

Others(1) 4.3 4.2 4.8 8.6 23.3

Total 3.5 16.6 6.2 6.6 37.7

Note:-

1. Others include Malaysia and Taiwan.

FY1997 to FY1998

For FY1998, turnover increased by 65.1% over FY1997 to $6.39 million. This was due to anincrease in turnover from the electronics industry by 40.0% from $1.91 million in FY1997 to $2.67million in FY1998. In FY1998, we had secured and completed projects for EPCOS Pte Ltd(“EPCOS”), Hewlett Packard Singapore (Pte) Ltd (“HP”) and Hyundai Electronics (Shanghai) Co,.Ltd. Our work for EPCOS also contributed to the increase in sales activities in Singapore from $1.76million for FY1997 to $2.39 million for FY1998.

In addition, turnover from other industries increased from $0.54 million in FY1997 to $3.56 million inFY1998 as we secured and commenced a few major projects in FY1998, such as Ramatex TextilesIndustrial Sdn Bhd (“Ramatex”) with a contract value of approximately $1.10 million. This accountedfor the increase in our sales to other regions from $0.47 million to $1.33 million in FY1998. Anotherreason for the increase in turnover from other industries was due to the project with DandongSynthetic Fiber Co. Ltd (“Dandong”) of about $0.90 million (the “Dandong Project”), which wascompleted in FY1997 and project revenue was recognised only in FY1998. The recognition ofrevenue was made only in FY1998, instead of in the year of completion, due to uncertainty inrealisation of revenue in the year of project completion. Dandong had experienced difficulties inpaying us the contract sum. In FY1998, we reached an agreement with Dandong to honour thecontract sum (please refer to page 43 on “Credit Policy on Sales and Purchases” for more details).This also resulted in an increase of our sales to PRC from $1.65 million in FY1997 to $2.68 millionin FY1998.

The increase in turnover was partially offset by the decline in turnover from the pharmaceuticalindustry from $1.43 million in FY1997 to $0.16 million in FY1998 as we had completed a non-recurring $1.20 million project in FY1997 with Jiangsu Jiangan Pharmaceutical Co. Ltd. In addition,our resources were committed to meet the growth in new projects that we have secured from theelectronics and other industries. Thus, we had not actively sought new projects from thepharmaceutical industry and the contribution of the pharmaceutical industry to our turnover declined.

35

Our PBT increased from $0.14 million in FY1997 to $1.06 million in FY1998 as a result of theDandong Project. Although the project was completed in FY1997, the revenue generated of $0.90million was recognised in FY1998 due to uncertainty in revenue realisation in the year the projectwas completed. The costs associated with this project had been charged in earlier years. Therefore,the full amount of $0.90 million contributed to the profit for FY1998.

Our operating expenses increased from $1.73 million in FY1997 to $2.39 million in FY1998. Theincrease in operating expenses is mainly due to an increase in pilot plants and marketing expensesof $0.23 million and manpower costs of $0.19 million, corresponding to the increase in turnover inFY1998.

Our PBT margin increased from 3.5% in FY1997 to 16.6% in FY1998. The increase was mainly dueto the Dandong Project. Had such a non-recurring transaction been excluded from the FY1998results, the PBT margin would have been 2.5% for FY1998.

FY1998 to FY1999

Turnover for FY1999 increased by 8.4% to $6.93 million. There was an increase in turnover from thepharmaceutical industry from $0.16 million in FY1998 to $2.30 million in FY1999, due to a newcontract that we secured from Amway (China) Co. Ltd (“Amway”). The contract value amounted toapproximately $4.00 million, of which we had recognised progressive billing of about $2.00 million inFY1999. As such, our turnover from PRC also increased from $2.68 million in FY1998 to $4.15million in FY1999.

The increase in turnover was offset, to some extent, by a decline in turnover from the electronicsand other industries. Turnover from the electronics industry decreased marginally from $2.67 millionin FY1998 to $2.28 million in FY1999. The turnover from other industries decreased by $1.21 millionfrom $3.56 million in FY1998 to $2.35 million in FY1999. However, FY1998 was an exceptional yeardue to the recognition of revenue for the Dandong Project. Had the turnover for the Dandong Projectbeen excluded for FY1998, the decline in turnover from other industries would have been $0.31million instead, from $2.66 million in FY1998 to $2.35 million in FY1999.

Our sales in Singapore remained stable from FY1998 to FY1999. Sales in other countriesdecreased by 74.9% due to the completion of the Ramatex project of $1.10 million in FY1998.

Despite the increase in turnover, our PBT decreased from $1.06 million in FY1998 to $0.43 millionin FY1999. This was mainly due to the decline in PBT from other industries from $0.98 million inFY1998 to $0.15 million in FY1999. For FY1998, the PBT was exceptionally high due to therecognition of revenue and profits associated with the Dandong Project, which was completed inFY1997. If the revenue from the Dandong Project were excluded, the PBT for FY1998 would havebeen about $0.16 million and we would have recorded an increase in our PBT of $0.27 million inFY1999 instead.

Operating expenses increased by $0.76 million from $2.39 million in FY1998 to $3.15 million inFY1999. This was mainly due to the increase of $0.44 million in general and administrative costs,largely due to the general provision and write off of doubtful debts of $0.26 million. As mentioned onpage 33, $0.18 million arose from the write-off of non-trade doubtful debts.

PBT margin declined from 16.6% in FY1998 to 6.2% in FY1999. Had the Dandong Project beenexcluded for the purpose of analysis, our PBT margin would have shown an increase from 2.5% inFY1998 to 6.2% in FY1999.

36

Ten months ended 31 October 2000 versus unaudited ten months ended 31 October 1999

For the 10 months ended 31 October 2000, our turnover of $15.78 million surpassed the sales forthe whole of FY1999 by $8.85 million or an increase of 127.7%; and by $11.48 million or anincrease of 267.5% over the ten months ended 31 October 1999. The increase in turnover wasmainly due to an increase in turnover from the pharmaceutical industry from $2.22 million for the tenmonths ended 31 October 1999 to $8.17 million for the ten months ended 31 October 2000. Thiswas mainly attributable to the $4.60 million total contract value secured in March 2000 from Jacobs-Lend Lease, which was substantially completed as at 31 October 2000. As a result, turnover fromSingapore increased to $8.52 million for the ten months ended 31 October 2000, compared to $1.73million for the corresponding period in FY1999. The realisation of the balance of the contract valuefor Amway’s project that amounted to $2.00 million also contributed to the increase in turnover forthe pharmaceutical industry for the period ended 31 October 2000. This also resulted in an increasein sales from the PRC market.

In addition, the turnover from the electronics industry also grew from $1.58 million for the tenmonths ended 31 October 1999 to $6.00 million for the ten months ended 31 October 2000. Thiswas mainly attributable to new projects such as EPCOS (phase 5) and WUS Printed Circuit (S) PteLtd in Singapore. In addition, we also secured a project for Gultech (Suzhou) Electronics Co Ltd(“Gultech”) in PRC with a contract value of $1.5 million. This also partially accounted for theincrease in turnover from PRC to $6.31 million for the ten months ended 31 October 2000,compared to $2.41 million for the corresponding period in FY1999.

Turnover from other industries also increased from $0.50 million for the ten months ended 31October 1999 to $1.61 million for the 10 months ended 31 October 2000.

Sales to other countries for the 10 months ended 31 October 2000 were $0.95 million as comparedto $0.15 million for the 10 months ended 31 October 1999. This was mainly due to the increase inthe number of projects secured in Malaysia, such as Malayan Sugar Manufacturing Sdn Bhd with acontract value of about $0.50 million and Flextronics (Malaysia) Sdn Bhd (“Flextronics”) with acontract value of about $0.20 million.

Our PBT margin was 37.7% for the period ended 31 October 2000, an increase of 31.1% over thecorresponding period in FY1999. The improvement in our PBT margin was because we (1) began tomanufacture filtration membranes and components used in our plant instead of buying them fromexternal suppliers, thus leading to cost savings of up to 50%; (2) undertake more fabrication of ourtreatment plant in-house leading to cost savings of up to 40%. The total cost savings resulting fromthe manufacture of more components in-house amounted to approximately $1.30 million for the tenmonths ended 31 October 2000. In addition, the increase in our G&A expenses were proportionallyless than the increase in turnover, resulting in higher margins. Our expenses on building pilot plantsfor the first 10 months ended 31 October 2000 amounted to $0.09 million, compared to $0.46 millionfor the whole of FY1999 and $0.28 million for the corresponding period in FY1999.

PROFIT ESTIMATE

Barring any unforeseen circumstances, our Directors estimate that our Group will achieve a profitbefore tax and profit after tax of $8.72 million and $6.37 million respectively, on a turnover of $20.14million for FY2000.

Our Directors believe that our Group will be able to achieve the profit estimate as most of ourrevenue is secured by existing contracts with our customers. Based on the audited results for theten months ended 31 October 2000, our Group had already achieved a turnover, profit before taxand profit after tax of $15.78 million, $5.95 million and $4.36 million respectively, representing78.4%, 68.2% and 68.4% of the respective estimates.

37

Our turnover is estimated to increase by 190.6% from $6.93 million in FY1999 to $20.14 million inFY2000 due to higher demand for water treatment systems from our customers (please see“Prospects” on page 66 of this Prospectus). A significant part of such increase was derived fromexisting customers requiring additional water treatment systems. Our efforts in conducting pilot planttrials and marketing also yielded additional revenue. We have maintained the level of referrals andrecommendations from our existing clients and engineering consultants and companies. There hasalso been an increase in the number of contracts with value of more than $1.00 million in FY2000.

We achieved savings in material costs through the manufacture of components in-house instead ofsubcontracting. These savings were offset by more favourable terms granted to our existingcustomers for new projects secured in the second half of FY2000 for the purpose of maintaininggoodwill. Consequently, the gross profit and the gross profit margin for FY2000 are estimated to bein line with that of FY1999. In addition, the increase in operating expenses is less than the increasein turnover. Pre-tax profit is expected to increase by $8.29 million, in line with the increase inturnover. Profit after tax is estimated to increase correspondingly by $6.29 million to $6.37 million.

For the ten months ended 31 October 2000, we have achieved profit after tax of $4.36 million. Forthe remaining two months of FY2000, we expect to recognise additional profit of $2.01 million basedon the projects secured and completed.

REVIEW OF FINANCIAL POSITION

The following discussion is to be read in conjunction with “Financial Position of the Proforma Group”on page 29 of this Prospectus.

Fixed Assets

Our Group’s fixed assets consist primarily of leasehold property, motor vehicles, plant andmachinery.

For FY1997 to FY1998, we have no significant capital expenditure and disposal. The increase in netbook value from $0.33 million in FY1998 to $0.80 million in FY1999 was mainly due to the purchaseof motor vehicles and plant and machinery for the expansion of our Group’s business.

For the ten months ended 31 October 2000, we acquired a leasehold property located at 40 ChangiSouth Street 1 for a cash consideration of $2.80 million. The purchase was financed by our owncash resources and a term loan (please see page 39 for more details). The property is acquired forthe expansion of our business and is used for office, production and research purposes. Togetherwith other capital additions, our Group’s fixed asset net book value has accordingly increased by$3.93 million from $0.80 million as at 31 December 1999 to $4.73 million as at 31 October 2000.

Preliminary expenses

Preliminary expenses for FY1997 to FY1999 relate to expenses incurred by our subsidiary,Hydrochem Engineering (Shanghai) Co., Ltd (“HES”), which were amortised over three years. InFY2000, we recorded a preliminary expense for the incorporation of our Company.

Current Assets

Current assets comprise mainly stocks, trade debtors, work-in-progress, other debtors, deposits andprepayments, fixed deposits, short term notes and cash and bank balances.

Our current assets increased by $2.10 million from $2.14 million in FY1997 to $4.24 million inFY1998 mainly due to the increase in cash and bank balances, and trade debtors. The increase incash and bank balances by $1.14 million from $0.33 million in FY1997 to $1.47 million in FY1998was mainly due to cash generated from operating profits. Trade debtors increased from $0.52 millionto $1.74 million in FY1998, which was consistent with the increase in number of day sales in tradedebtors from 1.6 months in FY1997 to 3.3 months in FY1998.

38

Current assets increased from $4.24 million in FY1998 to $4.47 million in FY1999. This wasattributed mainly to an increase in cash and bank balances, after accounting for a decrease in tradedebtors. Cash and bank balances increased from $1.47 million in FY1998 to $2.55 million in FY1999mainly due to an improvement in debt collection, evidenced by the decrease in the number of daysales in trade debtors from 3.3 months in FY1998 to 1.8 months in FY1999. This has alsocontributed to the decrease in trade debtors from $1.74 million in FY1998 to $1.02 million inFY1999, despite the increase in turnover in FY1999.

As at 31 October 2000, current assets increased by $5.98 million from $4.47 million in FY1999 to$10.44 million. During this period, we issued new shares to DBS Capital Investments Ltd (“DBSCapital”) and Gimmill Industrial (Pte) Ltd (“Gimmill”) for cash amounting to $4.80 million (please seepages 79 to 82 on “Restructuring Exercise” for more details of the Shareholders’ Agreement). Thecash was utilised to finance our business expansion, as indicated by the increase in work-in-progress by $3.97 million and trade debtors by $2.56 million. The higher trade debtors was also dueto an increase in number of day sales in trade debtors from 1.8 months in FY1999 to 2.3 monthsfor the ten months ended 31 October 2000. We also utilised cash of about $2.20 million in relationto the repayment of term loan for purchase of the leasehold property at 40 Changi South Street 1.In addition, we utilised our cash to invest in short term notes of $0.50 million and placed $0.66million in fixed deposits.

Current Liabilities

Current liabilities comprise mainly trade creditors, bank overdraft and bills payable, other creditorsand accruals, proposed dividend, and provision for taxation.

Current liabilities increased by $1.13 million from $1.47 million in FY1997 to $2.60 million inFY1998. This was due primarily to an increase in other creditors and accruals from $0.74 million inFY1997 to $1.03 million in FY1998 as a result of higher accrued operating expenses. Bank overdraftand bills payable increased from $0.30 million in FY1997 to $0.55 million in FY1998 and tradecreditors increased from $0.43 million in FY1997 to $0.61 million in FY1998. The overall increase inbills payable and trade creditors was in line with the increased purchase of stocks and theexpansion of operations. Increase in provision for taxation by $0.12 million was due to higher netprofits for FY1998.

In FY1999, current liabilities increased by $1.88 million to $4.48 million. This was attributable mainlyto a $0.70 million increase in trade creditors. Bank overdraft and bills payable also increased by$0.03 million to $0.58 million. The increase in trade creditors and bills payable was in line with theincrease in the stock balances as at the end of FY1999 to support the Group’s sales. This was alsodue to an increase in the number of days purchases in trade creditors from 2.9 months in FY1998to 5.0 months in FY1999 because proportionately more purchases were made in last quarter ofFY1999. Creditor’s payment period increased despite an increase in cash and bank balances ascash was used by Hydrochem (S) Pte Ltd (“HSPL”) for the purchase of the 50.5% equity interest inHydrochem Engineering (S) Pte Ltd (“HEPL”). Our Group also declared a net dividend of $0.89million for FY1999.

Current liabilities increased during the ten months ended 31 October 2000 by $2.50 million to $6.98million. This was due mainly to an increase in provision of dividend by $0.81 million and an increasein provision for taxation by $1.52 million due to higher profits for the ten months ended 31 October2000. In addition, we have an outstanding term loan of $0.30 million, which was due within a yearas at 31 October 2000, in relation to the purchase of a leasehold property at 40 Changi SouthStreet 1. The increases were partially offset by the decrease in trade creditors by $0.40 million to$0.91 million and decrease in bank overdraft and bills payable by $0.01 million. This was in line withthe lower purchase of stocks and decrease in number of days purchases in trade creditors from 5.0months in FY1999 to 1.6 months for the ten months ended 31 October 2000.

39

Non-current liabilities

Non-current liabilities comprise leasing and hire purchase creditors and deferred taxation.

There were no non-current liabilities in FY1997. In FY1998, there were non-current liabilities of$0.28 million due to deferred tax liabilities. In FY1999, non-current liabilities increased by $0.20million to $0.48 million. For the period ended 31 October 2000, non-current liabilities decreasedmarginally from $0.48 million for FY1999 to $0.45 million as at 31 October 2000.

Shareholders’ equity

Shareholders’ equity increased from $1.08 million in FY1997 to $1.72 million in FY1998. This was inline with the retention of our Group’s profit after taxation for the year. A net dividend of $0.04 millionwas declared in FY1998. In FY1999, shareholders’ equity decreased by $1.41 million to $0.31million. This was mainly a result of declaration of net dividend amounting to $0.89 million.

Shareholders’ equity increased from $0.31 million in FY1999 to $7.77 million during the periodended 31 October 2000 pursuant to the issue of shares by our Company for cash amounting to$4.80 million and retained profits for the period amounting to $2.66 million (after declaring an interimdividend of $1.70 million for the first six months ended 30 June 2000).

Taxation

In FY1997, there was no provision for taxation as we had tax losses carried forward from earlieryears. Provision for taxation increased from $0.12 million in FY1998 to $0.43 million in FY1999. Oursubsidiary in Shanghai, HES, had incurred net losses in FY1999 while our Singapore subsidiariesrecorded profits and were liable to pay taxes. As the tax losses for HES could not be used to offsetthe tax liabilities of the profitable subsidiaries, our provision for taxation increased despite thedecrease in our PBT from $1.06 million in FY1998 to $0.43 million in FY1999. For the ten monthsended 31 October 2000, provision for taxation increased to $1.95 million, in line with the higher PBTof $5.95 million recorded for that period.

Liquidity and Capital Resources

Since our inception, we have funded our operations through operating cash flow, existing and newshareholders and supplemented by banking facilities.

The cash generated from our operations are mainly from progress billing of contracts. Our principaluses of cash have been for meeting expenses such as purchase of materials, staff-related expensesand selling and administrative costs. Cash generated from operations, borrowings from financialinstitutions and admission of new shareholders finance our capital expenditure and working capitalrequirement.

In FY1999, we experienced a net current liabilities position largely due to the declaration ofdividends amounting to $0.89 million. However, considering our existing banking facilities, we are ofthe opinion that we have sufficient working capital for our present operational requirements. Inaddition, we have obtained additional banking facilities of $2.20 million, which are secured by ourleasehold property at 40 Changi South Street 1 and joint and several personal guarantees from ourDirectors, Ms Lum Ooi Lin Olivia and Dr Deirdre Murugasu.

40

As at 31 October 2000, our working capital stood at $3.47 million compared to $(0.01) million at theend of FY1999. This was attributable to a cash injection of $4.80 million from the issuance of newshares to DBS Capital and Gimmill. These cash balances were subsequently used to financebusiness growth, invest in short term notes of $0.50 million and fixed deposits of $0.66 million. Wehave also utilised cash of about $2.00 million to partially repay the banking facilities which aresecured by our leasehold property. The cash injection by the two Strategic Investors is subject tocertain conditions (please see pages 81 to 82 for details). Specifically, the agreement stipulates thatshould the Issue Price of our Shares at the Invitation be below an amount of approximately $0.20per Share, we will have to pay back an amount to the Strategic Investors, based on an agreedformula. On the other hand, if the Issue Price is above an amount of approximately $0.20 per Share,we will receive a top-up payment from the two Strategic Investors, based on an agreed formula.Based on the actual Issue Price of $0.32 per Share, we will receive a total amount of approximately$2.60 million from the two Strategic Investors (please refer to pages 81 to 82 for details).

Subsequent to the Invitation, DBS Bank is agreeable to releasing the personal guarantees from ourDirectors, Ms Lum Ooi Lin Olivia and Dr Deirdre Murugasu, to secure our Group’s banking facilities.These will be substituted by the corporate guarantee of our Company. We do not foresee that ourexisting facilities will be affected. Our Directors are confident that with our Company’s listing statusand its strengthened financial position from the expected net proceeds from the issue of the NewShares, our credit rating should improve and we should be able to secure further or alternativesources of credit facilities at the then prevailing interest rates should the above mentioned facilitiesbe terminated.

CAPITALISATION AND INDEBTEDNESS

The following table shows our cash and cash equivalents and capitalisation as at 31 October 2000:-

1. on an actual basis; and

2. as adjusted for the issue of Shares to our two Strategic Investors and from the Invitation.

You should read this table in conjunction with our financial statements and the related notesincluded in this Prospectus.

As at 31 October 2000Actual Adjusted$’000 $’000

Cash and cash equivalents 957 10,365

Hire purchase creditors(1) (369) (369)

Finance lease creditors(1) (13) (13)

Term loan(2) (295) (295)

Shareholders’ equity:

Issued and paid up capital 3,042 8,484

Share premium 4,192 8,158

Revenue reserve 1,254 1,254

Translation reserve (2) (2)

Total Shareholders’ Equity 8,486 17,894

Total Capitalisation 9,163 18,571

Notes:

(1) Please refer to pages 124 to 125 of the Accountants’ Report for more details.

(2) Term loan was for the purchase of leasehold property 40 Changi South Street 1. Please refer to page 125 of theAccountants’ Report for more details.

41

DIVIDENDS

Our Directors have declared an interim dividend of $1.70 million for the first six months ended 30June 2000 to our existing shareholders. The declaration and payment of dividends will bedetermined at the sole discretion of the Board subject to shareholders’ approval, and will dependupon our Group’s operating results, financial conditions, other cash requirements including capitalexpenditures, the terms of its borrowing arrangements (if any), and other factors deemed relevant byour Directors. We currently do not have any dividend policy. Therefore, there can be no assurancethat dividends will be paid in the future. We intend to distribute another interim dividend of up to12% of profit after tax (of which profit after tax is net of the first interim dividend of $1.70 million) toour existing shareholders, as well as new shareholders after the Invitation.

DILUTION

Dilution is the amount by which the Issue Price paid by the purchasers of our Shares in thisInvitation exceeds our NTA per Share after the Invitation. The audited NTA per Share of our Groupas at 31 October 2000 before adjusting for the net proceeds from the Invitation and based on pre-Invitation issued and paid-up share capital of 144,687,994 Shares was 5.35 cents.

On 3 June 2000, our Strategic Investors, DBS Capital and Gimmill, paid $0.7889096 per share for3,042,174 ordinary shares of $0.10 each. Subsequently, on 21 June 2000, an agreement wasentered into by our Company and the Strategic Investors, which provides for the cost of investmentto each of these Strategic Investor in our Company to be at a 20% discount to the Issue Price(please refer to pages 79 to 82 on “Restructuring Exercise” for more details).

Pursuant to the Invitation in respect of 25,000,000 New Shares at the Issue Price of $0.32 perShare, our Group’s NTA per Share after adjusting for the top-up payment from our two StrategicInvestors and the estimated net proceeds from the Invitation and based on the post-Invitation issuedand paid-up share capital of 169,687,994 Shares would have been 10.11 cents. This represents animmediate increase in NTA per Share of 4.76 cents per Share to our existing shareholders and animmediate dilution in NTA per Share of 21.89 cents per Share to our new investors.

The following table illustrates this per Share dilution:-

As at 31 October 2000 Cents

Issue price 32.00

NTA per Share based on the pre-Invitation issued Share capital of 144,687,994 Shares 5.35

NTA per Share after the top-up by our two Strategic Investors and the Invitation 10.11

Increase in NTA per Share attributable to existing shareholders 4.76

Dilution in NTA per Share to new investors 21.89

The following table summarises as at the date of this Prospectus, the total number of Shares Issuedby us, the total consideration paid to us and the average price paid per Share by our existingshareholders and by our new public investors in the Invitation.

Average priceNo. of Consideration per ShareShares % ($’000) % (cents)

Existing shareholders 144,687,994 85.3 7,234 47.5 5.00

New public investors 25,000,000 14.7 8,000 52.5 32.00

Total 169,687,994 100.0 15,234 100.0

42

CREDIT POLICY ON SALES AND PURCHASES

For our project contracts, depending on the contractual terms, there could be an initial downpayment of 20% to 30%, with another 30% to 50% payment upon delivery of equipment and beforeinstallation, and the balance to be settled upon installation and commissioning. The average numberof day sales in trade debtors for the past three financial years from FY1997 to FY1999 is 2.2months.

In November 2000, we introduced a new “build, own, operate and transfer” arrangement with onecustomer, under which we will build the plant at the premises of the customer. We own the plant andupon its commissioning, we will operate the plant and our customer will purchase the treated waterfrom us. The contract is for a five-year period. At the end of each year, the customer has the optionto purchase the plant from us at a pre-specified price. At the end of the five years, the customer hasto purchase the plant from us. Under this arrangement, we do not collect any down payment fromour customer. We will, however, earn income from the sale of treated water. There is a specifiedminimum amount that the customer has to pay us on a monthly basis, regardless of the actualamount of water purchased from us during the month. Full payment is due to us only upon the saleof the plant to our customer. However, we require our customer to issue a banker’s guarantee in ourfavour to cover our estimated costs for the project. We intend to introduce this arrangement to morecustomers, in accordance with their needs.

Normally, we offer a guarantee of one year and we provide 2% of the contract sum as warrantyexpense. For the PRC projects, we request a letter of credit to secure the contract sum except formulti-national corporations (“MNCs”). For the past three financial years, we have been able tomaintain our doubtful debts at less than 5% of our turnover.

In FY1997, our collections for a project that we had completed for one of our customers, Dandong,were delayed as Dandong faced cash flow problems. Subsequently, in FY1998, Dandong managedto pay the full amount of the outstanding sum to us.

It is our practice to monitor and follow up on the payment status of our customers. We may considerlegal action if a debtor fails to respond to our payment request followed by a letter of demand. Forthe last three financial years, there were no such legal actions.

We have typically 30 to 90 days payment terms from our suppliers.

FOREIGN EXCHANGE EXPOSURE

Please refer to “Risk Factors” on page 22 for the discussion on our exposure to foreign exchangefluctuations. The proportion of our turnover and purchases and expenses in the respective foreigncurrency are as follows:-

Turnover10 months

ended31 October

FY1997 FY1998 FY1999 2000% % % %

Singapore Dollar 58.3 57.4 28.3 52.4

US Dollar 37.8 37.7 53.5 41.8

RMB 3.9 4.9 18.2 5.8

Total 100.0 100.0 100.0 100.0

43

Purchases and expenses10 months

ended31 October

FY1997 FY1998 FY1999 2000% % % %

Singapore 64.1 79.6 67.6 60.5

US Dollar 31.1 13.8 24.1 29.3

RMB 3.0 6.6 8.3 9.6

Others(1) 1.8 0.0 0.0 0.6

Total 100.0 100.0 100.0 100.0

Note:

(1) Others include Malaysian ringgit, Deutschemark and Italian lira.

Our net foreign exchange gain or loss as a proportion of turnover and PBT for the last threefinancial years and for the ten months ended 31 October 2000 are as follows:-

10 months ended

31 OctoberFY1997 FY1998 FY1999 2000

Net foreign exchange gain (loss) ($’000) 27 (9) (9) 42

Percentage of turnover 0.7% (0.1%) (0.1%) 0.3%

Percentage of PBT 19.7% (0.9%) (2.1%) 0.7%

We provide quotations to our customers mainly in S$ and US$ and make purchases also mainly inS$ and US$. In FY1999, the proportion of our turnover in S$ and US$ was 28.3% and 53.5%respectively while the proportion of purchases and expenses in S$ and US$ was 67.6% and 24.1%respectively. For the ten months ended 31 October 2000, the proportion of our turnover in S$ andUS$ was 52.4% and 41.8% respectively while the proportion of purchases and expenses in S$ andUS$ was 60.5% and 29.3% respectively. Any significant fluctuation in foreign exchange rates duringthe course of our projects will have an impact on our Group’s profits. For example, profits derivedfrom our projects denominated in US$ would be lower in S$ should there be any depreciation in theexchange rate of US$ against S$.

We have not used any financial hedging instruments to manage our foreign exchange risk as ourforeign exchange gain/losses over the past three financial years had been relatively low. We willcontinue to monitor our foreign exchange exposure in the future and will consider hedging anymaterial foreign exchange exposure should the need arise.

44

SHARE CAPITAL

At an Extraordinary General Meeting held on 18 December 2000, our shareholders approved, interalia, the following:-

(i) the sub-division of each ordinary share of $0.10 in our authorised as well as our issued andpaid-up share capital into two ordinary shares of $0.05 each (the “Stock Split”);

(ii) the capitalisation of $4,192,225 from share premium by way of a bonus issue of 83,844,500Shares credited as fully paid to our existing shareholders (the “Bonus Issue”);

(iii) our conversion into a public limited company and the change of our name to “Hyflux Ltd”;

(iv) the adoption of a new set of Articles of Association;

(v) the issue of 25,000,000 New Shares pursuant to the Invitation. The New Shares, when issuedand fully paid, will rank pari passu in all respects with our existing Shares; and

(vi) the authorisation of our Directors, pursuant to Section 161 of the Act, to issue Shares in ourCompany (whether by way of rights, bonus or otherwise) at any time and upon such terms andconditions and for such purposes and to such persons as our Directors may in their absolutediscretion deem fit provided that the aggregate number of Shares issued pursuant to suchauthority shall not exceed 50% of the issued share capital of our Company immediately priorto the proposed issue and provided that the aggregate number of such Shares to be issuedother than on a pro rata basis to the existing shareholders shall not exceed 20% of the issuedshare capital of our Company immediately prior to the proposed issue, and, unless revoked orvaried by our Company in general meeting, such authority shall continue in force until theconclusion of the next Annual General Meeting of our Company or the date by which the nextAnnual General Meeting of our Company is required by law to be held, whichever is theearlier.

Capitalisation

Save as fully described under the section titled “General and Statutory Information - Share Capital”,details of the changes in the issued and paid-up capital of the Company since 31 March 2000 aresummarised as follows:-

Number of $Shares

Issued and fully paid-up ordinary shares of $0.10 eachas at 31 March 2000 20 2.00

Issue of Shares pursuant to Restructuring Exercise and to Strategic Investors 30,421,726 3,042,172.60

30,421,746 3,042,174.60

Subdivision of one ordinary share of $0.10 each into two shares of $0.05 each 60,843,492 3,042,174.60

New ordinary shares of $0.05 each pursuant to the Bonus Issue 83,844,500 4,192,225.00

Issue of Shares pursuant to Shareholders’ Agreement 2 0.10

Total issued and paid-up share capital prior to Invitation 144,687,994 7,234,399.70

Issue of New Shares pursuant to Invitation 25,000,000 1,250,000.00

Issued and paid-up capital after the Invitation 169,687,994 8,484,399.70

45

The authorised share capital and the shareholders’ funds of our Company as at 31 October 2000,after the Restructuring Exercise and the issue of New Shares are set out below. These statementsshould be read in conjunction with the Accountant’s Report set out in pages 109 to 128 of thisProspectus.

AfterRestructuring

Exercise, issueAs at to Strategic

31 October Investors and After2000 Bonus Issue Invitation($) ($) ($)

Authorised Share Capital

Ordinary shares of $0.10 each 50,000,000 — —

Ordinary shares of $0.05 each — 50,000,000 50,000,000

Shareholders’ Funds

Share capital 3,042,174 7,234,399 8,484,399

Share premium 4,192,225(1) 2,608,024 8,158,024(2)

7,234,399 9,842,423 16,642,423

Notes:-

(1) This share premium arose from the issue of 435,840 fully paid ordinary shares of $0.10 each at a premium of $3.65per share for our Company’s acquisition of 49.5% equity interest in HEPL and the issue of 6,084,348 ordinary sharesto DBS Capital and Gimmill (3,042,174 ordinary shares each) at a premium of $0.689 per share, net of expenses of$550 and an issue of bonus shares via capitalisation of share premium amounting to $1,590,156.

(2) Net issue proceeds of approximately $6.80 million less par value of the New Shares and taking into account Note (1)above and the bonus issue via capitalisation of share premium amounting to $4,192,225.

46

HISTORY

We started operations with the incorporation of Hydrochem (S) Pte Ltd (“HSPL”) on 30 June 1989.Founded by our Managing Director, Ms Olivia Lum and a few other minority shareholders, theprincipal activity of HSPL then was to provide general water treatment, using traditional watertreatment technologies such as media filtration, chemical treatment and softening of raw water forpotable water and boiler/cooling tower water usage. We started business at Block 9012, TampinesIndustrial Park with a 1,200 sq ft office.

In 1992, we obtained the distribution rights from Membrane Products Kiryat Weizman Ltd (“MPW”),to distribute their membranes and membrane filtration plants to industrial customers. Through thesedistribution rights, we acquired from MPW the knowledge to install the membranes and membranefiltration plants, which we subsequently used in our water treatment processes. Through our ownR&D, we were able to use the membrane filtration technology for other processes such as removingprotein from fermentation broths in pharmaceutical plants. We believe that we are the first tointroduce the process for this particular use in PRC.

In 1994, HEPL and HES were incorporated to penetrate the PRC market. Our presence in Shanghaiallowed us to service our existing customers in Singapore such as MMI Holdings Ltd and GoldtronLimited who were setting up manufacturing facilities in PRC. In the same year, we built our first hotwater recycling plant for VTS Batteries using the membrane filtration technology acquired from MPWin 1992. In this year, we also moved from Tampines Industrial Park to a larger premise at CitimacIndustrial Complex at Macpherson which had a built-in area of 3,000 sq ft, as we expanded ouroperations.

In 1995 and 1996, we concentrated on building brand awareness for our services by buildingindustrial-sized pilot plants to demonstrate the capability and effectiveness of membrane filtrationtechnology which we believe was not practised in the industry then. We conducted more than 100pilot plant trials of membrane applications and water treatment technologies for the pharmaceutical,food and electronics industries.

In 1997, we provided our first integrated water treatment system for the then Siemens MatsushitaComponents Pte Ltd (“Siemens”, now known as EPCOS) manufacturing facility in Kallang. Weinstalled the deionisation (“DI”) water system, water system for dicing machines, chemical supplyand collection system and wastewater treatment system. We also installed for Siemens thedistribution piping from our plants to the point-of-use including equipment hook-up. This capability toprovide hook-up services enhanced our range of services and enabled us to position ourselves asan integrated water treatment provider. As our business expanded, we shifted to a larger factoryspace at 34 Kaki Bukit Industrial Terrace in December 1997 and eventually extended to another unitat 43 Kaki Bukit Industrial Terrace one and a half years later.

In 1998, we saw our efforts in building pilot plants pay off as we secured larger projects such as the6,000 m3 per day river water treatment plant for Ramatex in Malaysia. In November of that year, wereceived a grant from the National Science and Technology Board (“NSTB”) under the Research andDevelopment Assistance Scheme (“RDAS”) to carry out research on (1) the purification of industrialwater as an alternative source to city water for industrial uses and (2) the ozonation method for thetreatment of dye effluent and refractory organics.

In November 1998, we also signed an agreement with E-Cell Corporation (“E-Cell”), a subsidiary ofGeneral Electric International to purchase E-Cell manufactured equipment. Pursuant to the signingof this agreement, E-Cell transferred to us the know-how to build an Electro-Deionisation (“EDI”)system for chemicals-free deionisation of water using an E-cell component called an E-cell stack.This enables us to offer a more comprehensive range of systems to our customers.

47

In 1999, we secured a contract from Amway, a pharmaceutical company in PRC, to construct a purewater treatment system and a high purity piping system in their Guangzhou manufacturing plant. Inthe same year, we also commenced R&D to develop our own filtration membranes. This allows usto customise the water treatment systems to the needs of our customers and also to control thequality and costs of filtration membranes, which is the key component in our systems. Our in-housemanufactured membranes saw their first industrial application in March 2000 in the Jurong Bird Parksewage water recycling project and the wastewater treatment of textile dyeing water in Suzhou forRamatex Industrial (Suzhou) Ltd (“Ramatex Suzhou”).

In March 2000, we received another grant from the Economic Development Board under theInnovative Development Scheme (“IDS) for the development of membranes. This scheme spans overa period of three (3) years and its aim is to encourage development work by subsidising some ofthe costs such as salaries of our R&D staff.

With effect from October 2000, we commenced operations from our new premises at 40 ChangiSouth Street 1 with a built-in area of 17,000 sq ft as our operations continued to grow and weneeded more factory and office space.

In November 2000, we incorporated a new subsidiary, Hyflux Engineering Pte Ltd (“HFPL”). As partof our marketing efforts, we introduced a new arrangement with one customer, under which we willbuild our plant in the premises of the customer. After commissioning, we will operate the plant for aperiod of five years, during which our customer will purchase the treated water from us. At the endof the five years, our customer will have to purchase the plant from us (please refer to page 43 on“Credit Policy on Sales and Purchases” for more details). HFPL is formed to handle such projects.

Hyflux Ltd was incorporated on 31 March 2000 to assume the role of an investment holdingcompany for our Group.

48

BUSINESS

PRINCIPAL ACTIVITIES

Our principal activities are project-based and comprise:-

(a) water treatment which involves water purification, wastewater treatment and water recyclingutilising mainly membrane filtration technology;

(b) advanced membrane filtration for process streams; and

(c) designing, engineering, installing, commissioning and maintenance of high purity pipingsystems and equipment hook-up.

Water Treatment

For water treatment processes, we carry out water purification, wastewater treatment, waterrecycling and advanced membrane filtration. The water treatment services we provide could be anyone of these processes or a combination of some or all of the processes.

Below is a diagrammatic illustration of our water treatment processes:-

Water Purification

Raw water (such as river water, seawater, well water and rainwater) is purified from its varioussources for consumption and industrial applications. Additional tertiary treatment using membranefiltration technology and ion exchanges will produce deionised water or even ultra-pure water for usein industries such as electronics, pharmaceuticals and biotechnology.

The technologies that are adopted by us for water purification include:-

(a) membrane filtration technology;

(b) sand filtration;

49

Raw WaterTreatment

DI/ Ultra-PureWater ("UPW")

Treatment

Production(EquipmentHook-up)

Waste WaterTreatment

WaterRecycling

DrainagePiping

Discharge of Treated WasteWater

(To sewer, sea, river, etc)

High Purity Piping

Raw Water

(From river, sea, lake,ground, etc)

City Water

ProcessRecovery

(Membranefiltration)

(c) multi-stage filtration;

(d) activated carbon filtration;

(e) ion exchanges;

(f) degasification;

(g) disinfection by ultraviolet light, ozone or chlorine;

(h) coagulation;

(i) flocculation; and

(j) sedimentation.

Wastewater Treatment

Treatment plants are built to process the wastewater of industries so that such water may bedischarged in accordance with the standards of the relevant regulatory authorities in the respectivecountries in which our clients operate. Besides treatment, we also review our customers’ waterstreams and recommend ways to minimise waste effluent and the number of subsequent treatments.

We use the following technologies for wastewater treatment:-

(a) pH adjustment;

(b) screening;

(c) sedimentation;

(d) granular media filtration;

(e) biological treatment;

(f) dissolved air flotation;

(g) sludge dewatering;

(h) membrane filtration;

(i) advanced chemical oxidation;

(j) oil and grease removal; and

(k) disinfection.

Water Recycling

Water recycling is the recovery of water for reuse. For companies that use substantial volumes ofwater, our water treatment systems assist them to recycle their wastewater. Depending on thecharacteristics of the wastewater, we can recover between 50% to 90% of the wastewater for reuseusing mainly membrane filtration technology.

Our water recycling processes are mainly utilised in our Singapore projects. Currently, the mainsource of city grade water for industries in Singapore is from the Public Utilities Board (“PUB”). Thiswater, although excellent in quality, is limited and costs S$2.12 per m3 as at 1 July 2000 (TheSunday Times 25 June 2000). To ease the demand for city grade water by the industries, theMinistry of Environment (“ENV”) has set up a supplementary source of water in the Jurong IndustrialEstate by setting up the Jurong Industrial Water Works (the “Works”). The Works treats the finaleffluent from the Ulu Pandan Sewage Treatment Works and has an original designed capacity of45,000 m3 per day which was increased to 125,000 m3 since year 2000 (brochure by the ENVentitled “Welcome to Jurong Industrial Water Works”). This water is cheap, at S$0.40 per m3, andcan be used for washing and other general purposes. However, because of its lower quality, someindustries such as the food and beverage and pharmaceutical industries are unable to use thiswater for their manufacturing processes. Using our water treatment systems, our customers are ableto purify such industrial water to city grade quality for as low as 55% of the cost of city grade watercharged by PUB (including the cost of industrial water).

50

Advanced Membrane Filtration

In advanced membrane filtration, we utilise advanced membrane technology to recover or purifyproducts such as antibiotics, Vitamin C, dyes and urea in process streams. Membrane filtrationinvolves four physical separation processes: purification, recovery, concentration and fractionation.We would select the appropriate type of membranes depending on the needs of our customers.Currently, we are able to manufacture some of the membranes used in our advanced membranefiltration plants.

The advantages of advanced membrane filtration are that customers are able to improve yield as aresult of less wastage and save cost on energy and space as the plant is smaller in size comparedto other conventional methods used.

Purification

This is the removal of unwanted elements from the useful material. In membrane separation, thepurification is carried out by the filtration process. The extent of purity and therefore the type ofmembranes used depend on the requirements of our customers.

Recovery

Recovery is the percentage of useful material gained from the feed stream expressed as follows:-

Amount in the permeate or the concentrateRecovery = × 100%

Amount in the feed

The useful material may be the permeate or the concentrate.

Concentration

This is the removal of liquid from the suspension or solution by membrane filtration process. Theadvantage of using membranes in concentration, as opposed to distillation, is that the solution neednot undergo any phase changes, thus ensuring no change in the physical and chemical nature ofthe concentrated products. This is extremely useful in the bio-pharmaceutical industries as theconcentration of organics are susceptible to heat and will be destroyed in distillation.

Fractionation

This is the separation of materials from the homogenous mixture or from the common parentalsource. Membranes are extensively used for this application in the bio-pharmaceutical and foodindustries.

Examples of applications of advanced membrane filtration are the removal of proteins fromfermentation streams for the pharmaceutical industry, recovery and purification of acids andalkalines in Cleaning-in-place (“CIP”) streams in the food and pharmaceutical industries and thedecolourisation of textile waste streams.

As an example of decolourisation of textile waste streams, we have built a wastewater treatmentplant for Ramatex Suzhou. We used a combination of our in-house manufactured membranes withother membranes to remove suspended solids such as fibres, insoluble additives, dissolved dyes,divalent salts and organics. The volume of solid sludge generated is minimised and the treatedwater is suitable for recycling.

51

High Purity Piping Systems And Equipment Hook-up

As an integrated service provider, we not only treat water but also design, build, install, commissionand maintain water treatment systems. After the water treatment process, especially in the case ofultra-pure water, it is important that such treated water is delivered through water systems to thepoint-of-use in an appropriate medium to prevent contamination. The water must also be deliveredin a controlled manner to ensure the desired pressure and flow. Our work in this area includes thefollowing:-

High-purity piping systems

We design, engineer and install high-purity piping systems to convey the extremely pure productssuch as water, gases and chemicals required to the production area. Special materials such asPolyvinylidene Floride (“PVDF”), Perfluoroalkoxy (“PFA”), electro-polished stainless steel andpolypropylene together with compatible fittings and valves are used so as to prevent contaminationand leaching of the contact surface. Trained and skilled installation teams operating appropriatewelding equipment are deployed to carry out the construction to ensure a defect-free installation.Our installation is documented and may be used by the relevant authorities for verification whennecessary.

Equipment hook-up

Most advanced production equipment and machinery employed in the microelectronics andpharmaceutical manufacturing processes require the supply of several types of services such ascompressed air, specialty gases, cooling water, ultra-pure water and vacuum for their operations.Proper hooking-up between the distribution piping and the equipment are crucial to guaranteeoptimised functions. Customised controls and instrumentation are used to properly monitor andoperate them. We have a team of 20 specially trained technicians and engineers to provide thisservice.

OUR WORK PROCESS

All our water treatment systems are handled by our engineering department in our premises understrict quality controls. Our engineering department of about 75 consists of seven (7) sections asfollows:-

The following is our work process which is carried out for each of our projects under regular qualitycontrol and checks to ensure that all materials, procedures and work are executed in accordancewith the customer’s internal good manufacturing practices and quality requirements.

52

Engineering Department

ProcessSection

ServiceSection

ProjectSection

ElectricalSection

ProductionSection

DesignSection

QA/QCSection

Design

After understanding and clarifying with our customers on their requirements and specifications, ourprocess and design engineers from our Process Section will produce a detailed Process andInstrumentation Diagram together with Functional Design Specifications of the proposed treatmentsystem. These will be checked and approved internally by our manager of the Process Sectionbefore submission to our customer or their consultants for confirmation. Once these diagrams andspecifications are approved, the Process Section together with the Electrical Section will produce theGeneral Arrangement Layout, the piping and electrical drawings and bill of materials plus datasheets. Our Design Section will also produce the construction drawings of individual equipment tobe fabricated and assembled. All these will be carried out in accordance with the overall projectschedule and timetable derived at the start of the project.

Procurement

Based on the materials prepared at the design stage, our purchasing officers of our PurchasingDepartment will send out enquiries and technical specifications of all relevant components andequipment to at least three vendors. All quotations received will be assessed and evaluated togetherwith the Project Manager from our Project Section. The main criteria for evaluation will be theappropriateness of the product, its cost-competitiveness, delivery, quality and after-sales support.Final negotiations will be conducted with the eventual selected vendor and the purchasing officer willissue the purchase order with agreed terms and conditions. The purchasing officer will then track thedelivery schedule of goods ordered and carry out visual inspection of the delivered goods with theassistance of the Project Manager or Engineer. The delivered goods are either put into our store orissued directly to the Production or Project Section.

Fabrication and Assembly

For systems which are fabricated in-house, our Production Section takes over after the procurement.The Production Superintendent will study in detail the relevant drawings, bill of materials andtimetable prepared by the Design Section before executing the manpower and resource planning. Amethod statement and the construction sequence are prepared before any physical work is carriedout. All materials and components received are also inspected at this stage before thecommencement of the fabrication and assembly works. Regular inspection by our Quality Assuranceand Control Section (“QA/QC Department”) will be executed to ensure zero defects due toworkmanship. Inspection is executed visually or by non-destructive testing, such as X-rays and dyepenetrant tests, both of which are used to check the integrity of the weldings. Pre-delivery Inspectionwill be jointly conducted with the Project Manager, the Designer and the QA officer before theassembled equipment are delivered to site.

Installation

The Project Manager of each project will carry out a site survey and study all relevant drawings anddocumentation before producing his own installation schedule and manpower and resource planning.He will also prepare the method statement and sequence of construction and provide input orfeedback to the Design Engineer. At the appropriate time, the installation team will be despatched tosite to prepare for the delivery of the equipment. The installation team will install all the equipment,piping, electrical and pneumatic connections in accordance with the site requirements and technicalspecifications. Regular coordination and progress meetings will also be carried out with thecustomer, their engineering consultants and other sub-contractors. A pre-commissioning inspectionwill be conducted with our Commissioning Engineer and any defects will be rectified.

53

Testing and Commissioning

An initial visual inspection will first be carried out before the commencement of testing of individualequipment. The mechanical, electrical, instrumentation and process performances of eachequipment is first tested and verified by the Commissioning Engineer of the Process Section beforethe performance of the whole plant is tested. Upon the successful testing and commissioning of thewhole plant, the Commissioning Engineer will then compile the Owner’s Manual comprising theOperation and Maintenance Instructions. This will be handed to the customer and at the same timethe operation and maintenance training will be conducted by our Process Section for the operatorsand facilities staff of the customer. Our plants are also subject to performance verification by ourcustomers. Verification by external parties is not required, unless specifically required by ourcustomers. For example, we have engaged SETSCO Services Pte Ltd to provide inspection andtesting services on the process pipelines that we have installed. Both classroom and hands-on planttraining will be conducted before the final hand-over of the whole plant.

Service and Maintenance

We provide a one year warranty on all our water treatment systems. Our service and maintenanceteam from our Service Section will follow-up with the operational and servicing aspects of the plantduring this period. Very often, they also assist the Commissioning Engineer during the trainingphase and after hand-over, they will make regular visits to the plant to ensure that the operators arefamiliar with the running of the plant as well as to guide them on regular servicing and maintenance.If the water treatment systems manufactured by us are of a value of more than S$1 million, we willalso chart the performance of our system based on critical parameters such as temperature, pH ofliquid and operating pressure and despatch our technicians to attend to any problems after detaileddiagnosis from our office.

After the one year warranty period, we provide various levels of maintenance and servicing workdepending on the needs of our customers. We have contracts ranging from the provision of fullservice (whereby we operate and maintain the plant) to an on-call basis. Currently, we are also ableto fit our water treatment systems with the Supervisory Control and Data Acquisition (“SCADA”)system. This system allows us to monitor, from our office, the performance of the plant located atthe customer’s premises. We are thus able to maintain on-line, real-time tracking of the plantoperation. Should there be any problems detected, we can conduct remote troubleshooting from ouroffice instead of having to travel to the customer’s premises. This will enable a shorter turnaroundtime to the customer.

54

MAJOR PROJECTS COMPLETED

Through the years we have managed to enlarge our customer base especially among the MNCs.This is evidenced by the following major projects (in terms of contract value of more than $1 millionor new innovations through our R&D efforts) successfully completed or currently undertaken by us:-

Completed Projects

Year End-User/Project (Sector) Industry Country

1994 VTS Batteries Pte Ltd Electronics Singapore

Recycling of hot water100 m3 per day of recycled water

1996 (Shanghai Sunve Pharmaceutical Pharmaceutical PRCLtd)

Removal of protein from fermentation broth using UF membranetechnology

Processed 100 tonnes of fermentation broth per day

1997 Siemens Matsushita Components Pte Ltd Electronics Singapore

DI Water Production, Wastewater Treatment, recycling andchemical delivery system

120 m3 per day

1998 Ramatex Textiles Industrial Sdn Bhd Textile Malaysia

River Water Treatment System using Nano-filtration membrane6,000m3 per day

1998 (Hyundai Electronics Electronics PRC(Shanghai) Co Ltd)

DI Water Production20m3 per hour

2000 (Amway (China) Co Limited) Pharmaceutical PRC

DI Water (USP grade) Production200 gallons per minute

2000 Hewlett Packard Singapore Pte Ltd Electronics Singapore

Further upgrading of DI Water System160 gallons per minute

2000 FCI Singapore Pte Ltd Electronics Singapore

DI Water Production and Wastewater Treatment System180 m3 per day

2000 Jurong BirdPark Theme park Singapore

Recycling of sewage water using UF and Reverse Osmosis (“RO”) membranes

480 m3 per day

2000 Shanghai Liquid Crystal Co. Ltd Electronics PRC

DI Water Production20m3 per hour

2000 Flextronics (M) Sdn Bhd Electronics Malaysia

DI Water Production180m3 per day

2000 EPCOS Pte Ltd Electronics Singapore

DI Water Production – 2 systems120 m3 per day each system

55

Year End-User/Project (Sector) Industry Country

2000 Gultech (Suzhou) Electronics Co Ltd of China Electronics PRC

Pure water production and Wastewater Treatment System5,000 m3 per day

2000 China BBCA Biochemical Group Corp of China Pharmaceutical PRC

Membrane separation of fermentation products

Projects currently undertaken by us and expected to be completed by year 2001

End-User/Project (Sector) Industry Country

Wyeth Pharmaceuticals (Singapore) Pte Ltd (“Wyeth”) Pharmaceutical Singapore

Installation of high-purity and utility piping system including equipment setup

Dovechem Terminals Sdn Bhd Port Malaysia

Wastewater Treatment Plant 10 m3 per hour

Compass Technology Singapore Pte Ltd Electronics Singapore

Production of filtered and DI Water Wastewater treatment136 m3 per hour

WUS Printed Circuit (S) Pte Ltd Electronics Singapore

Jurong Industrial Water Treatment Plant, RO-DI Water Treatment Plant and Wastewater Treatment Plant113m3 per hour, 45m3 per hour and 68m3 per hour, respectively

Hewlett Packard Singapore (Pte) Ltd Electronics Singapore

Supply and installation of Ultra-pure waterdistribution system

As at 31 December 1999, the total value of the projects for which we have commenced work andwere expected to be completed in FY2000 was approximately $3.0 million. As at 31 December2000, the total value of the projects for which work was on-going and expected to be completed inFY2001 amounted to approximately $4.9 million.

OUR BUSINESS STRATEGY

Provide fully integrated services

Our Group’s mission is to be one of the market leaders in treating liquids utilising mainly membranefiltration technology. To achieve this, we strive to continue to provide a wide range of water treatmentservices from water purification, wastewater treatment, water-recycling, piping and distribution toequipment hook-up. We also plan to provide emergency recovery units, which are specially designedtruck-trailers containing water treatment systems to provide uninterrupted water treatment whileservicing or upgrading is carried out on our customers’ water treatment systems.

Lower direct costs

In order to remain competitive, we will continue to lower our direct costs by moving towards themanufacturing of more materials in-house. We currently aim to manufacture up to 30% to 50% ofthe materials used in our systems. We will also seek to further automate our manufacturing process.

56

Incorporate information technology into our system

We also intend to develop and incorporate information technology to further enhance the operationalcapability of our systems. At the moment, we are capable of monitoring our customers’ plantsthrough the Internet, interfacing our computer monitoring systems with that of our customers’ centralcontrol system via the SCADA system (please refer to page 54 for more details) and providing on-line analysis and charting the performance of our plant on critical parameters such as temperature,pH of liquid and operating pressure. In the future, we intend to allow our customers to purchasecomponents from us online.

Strengthen and cultivate relationships with engineering consultants and companies

Our fourth strategy is to strengthen and cultivate relationships with major international engineeringconsultants and companies such as Siegle and Epple and Jacobs-Lend Lease, both specialists inthe design and building of pharmaceutical plants, electronics manufacturing plants, chemicalprocessing plants and other industrial plants so as to keep abreast of new projects. Currently, about30% of our work is obtained through such engineering companies. However, we are not reliant onany particular engineering company.

Increase the value of the projects

Since we commenced our business, the average value of each project undertaken by us hasincreased from $10,000 to $20,000 in our first two years to $1,000,000 to $2,000,000 in value in thelast two years. In 1999 and 2000, we secured 3 projects of between $3,000,000 to $5,000,000 eachin value. Based on what we have achieved so far, we intend to develop the next phase of ourbusiness by tendering and obtaining projects each of value of $5,000,000 and above.

Increase R&D and improve quality standards

To remain competitive and be at the fore-front of the water treatment and advanced membranefiltration businesses, we will continue to commit our resources in R&D both internally and also incollaboration with the universities and environmental institutes. Our R&D department will continue todevelop proprietary membranes and improve existing membranes to enhance their performance invarious applications. Our R&D efforts have received support from the government shown through thegrants from EDB and NSTB. With such grants, we intend to develop new and better products forapplication in our water treatment and advanced membrane filtration systems.

To meet the rising demand of our customers for quality products and services, we shall seek to driveour quality system to ISO standards by 2001. Since the beginning of 2000, we have commenced theprocess of ensuring that our products and services meet the requirements of ISO.

MARKETING

We position ourselves as a fully integrated water treatment and advanced membrane filtrationcompany and all our three (3) executive Directors are actively involved in marketing with theassistance of 6 sales personnel. The value of our services lies in providing a one-stop shop withinnovative products and applications which ultimately results in cost savings and qualityimprovement.

We believe in cultivating long-term relationships with engineering consultants and companies such asSiegle and Epple and Jacobs-Lend Lease and the ultimate users of our systems. We dedicateourselves to ensure that all supply, quality and operational issues are expeditiously resolved. Weconsult our customers, at least on a quarterly basis, on the development of new products andprojects in the industry so as to be able to respond appropriately and in a pro-active manner.

We raise our public profile and awareness of our services by engaging in advertising through directmailers to potential customers. These potential customers are obtained from lists maintained by theEDB and other investment agencies, and various industrial directories. We also participate inselected exhibitions held in PRC and Singapore.

57

To avoid the cyclical trend of business, we do not over-rely on any particular customer or industry.Our water treatment and advanced membrane filtration systems are applicable in many industriesand we have built relationships in the electronics, food and beverage, biotechnology, pharmaceutical,textile and chemical industries.

PRODUCTION

Production Facilities and Capacity

We have two manufacturing facilities, one located in Changi South with a land area of 2,436 sq mand another in Shanghai with an area of 1,499 sq m. We are able to carry out the fabrication andassembly of water treatment and advanced membrane filtration systems, conduct pilot trials andfabricate special components and parts at both our facilities. We also carry out the manufacture ofmembranes in Singapore.

The size of our production facilities in Singapore for the last three years are shown below:-

FY1997 FY1998 FY1999

Production facilities (sq m) 483 483 967(1)

Note:

(1) Excludes factory in Shanghai which we leased for six years, commencing in August 1999.

We have operated at close to full capacity for the past three years. Thus, we have to move to alarger premise at Changi South in order to handle more projects.

We have invested in advanced equipment to ensure quality fabrication and assembly of our watertreatment and advanced membrane filtration systems. In our Changi South facility, we have a 214 sq m cleanroom (Class 100K) for the manufacture of systems to be installed in high-purityfacilities. We also have a laboratory to carry out analysis of water samples and to conduct trials forour customers. For the purpose of testing membranes, we have a membrane testing plant that willallow us to test individual membranes. Both the membrane testing unit and pilot plants are portableand can be easily deployed to various sites to carry out the same functions.

Quality Assurance and Control

We are committed to product quality. Work procedures are clearly spelt out and checks and controlsare implemented at every step. Work is documented to keep proper records which allow futureverifications.

We continually look to improving our workflow, procedures and methodology for each stage of ourwork process to attain (i) zero defects; (ii) on-time delivery and (iii) customer satisfaction.

At the onset of a project, our quality engineers will review all requirements of our customers andcome up with a checklist specific to the project in addition to the usual checks listed in our qualitymanual. This is to ensure that each customer’s demands which are unique to itself and its industryare addressed by all our various departments from design, fabrication, installation, commissioning tomaintenance. These factors will form the basis by which our quality engineers check each processof work. Periodic internal audits are conducted to measure progress, anticipate quality problems andmeasure compliance with established procedures.

All materials, components and equipment purchased will be scrutinised and inspected by ourstorekeeper and jointly with the project engineer, if necessary. Any defective item will be rejectedand kept aside or returned. Only approved items are accepted into the store.

58

In all the stages of our work process, we have a system of self-assessment by which the personexecuting the task will check his work against the checklist before it is passed to the next party. Alloperators of our machines are trained and certified to ensure that they can perform minor setting-up, adjustments, trouble-shooting and simple maintenance on the machines they operate.

During the installation stage of our systems, all works will be measured against the InspectionTesting Plan (ITP) as prepared by our quality engineers. Guidelines on remedial action and retestare also listed. Prior to the handing over of the plant to the client, a series of pre-commissioningchecks and commissioning tests will be carried out. All these are recorded in the commissioning logwhich will form part of the owner’s manual. Our commissioning and service teams will follow-up onthe plant’s operation for at least two (2) weeks after handing over to allow for a smooth transition toour customer.

Work Safety and Environmental Issues

Besides quality of product, our work procedures also strive to maintain a safe working environmentfor our workers. Our workers are briefed on safety procedures and the supervisors are responsiblefor ensuring compliance with these safety procedures. We have also designated a supervisor tooversee safety in the production area and the workshop. We do not have any incident of fatalitiesover the past five years.

In the course of our work process, we generate industrial wastes which consist of non-toxic solidssuch as scrap metal, plastic pipes and other plastic materials. Our liquid wastes include organicsolvents and additives which are classified as non-toxic in small quantities. These are disposed inaccordance with regulations.

Insurance Coverage

We are covered by insurance policies for risks such as damage to property, third party liability andworkmen’s compensation. In addition, we effect all-risk insurance coverage for each project carriedout at our customers’ premises.

DISPUTES

To date, we have not encountered any major industrial disputes with our customers and suppliers.

STAFF TRAINING

We have 135 full-time employees in Singapore and PRC as at 15 December 2000. We place greatemphasis on staff training as we rely on the skills and extensive experience of our staff.

All new staff undergo a one-day orientation programme where they are familiarised with our generalworking environment, our products and services as well as the quality requirements. This is followedby a carefully matched mentoring scheme to impart technical knowledge on the job. In-houseseminars are conducted regularly by the various heads of department to keep everyone updatedwith their area of work.

We also adopt a multi-disciplinary approach by rotating our staff to different departments to enablethem to acquire skills in at least two (2) different disciplines. Our staff in Shanghai are occasionallyposted to Singapore to learn from our senior engineers and enhance their working experience. Wealso send our engineers to PRC for job exposure and to help train their counterparts there.

59

In order to enable our technicians and engineers to keep abreast of new developments andtechnologies in the field of water treatment and advanced membrane filtration, we sponsor oursenior engineers and technicians for external courses conducted by local institutions such as theEnvironmental Engineering Research Centre (EERC), ENV and Environment Technology Institute(ETI). Our workers attend skill courses conducted by the Building Construction Authority (BCA) andother training institutes to upgrade their skills. We have also sent our senior engineers overseas toattend international conferences and seminars to enable them to exchange information with otherexperts.

We allocate about $60,000 to $80,000 a year for external staff training or about $444 to $593 peremployee.

RESEARCH AND DEVELOPMENT

A team of six (6) full-time R&D staff runs this department. Headed by a scientist with a PhD inChemistry and assisted by one (1) engineer, one (1) chemist and four (4) technicians, our R&Dteam develops proprietary membranes and also works on improving existing membranes to improvetheir performance in various applications.

Since the second quarter of 2000, we have developed in-house membranes manufacturingcapabilities and we are able to customise both our plants and treatment to suit the needs of ourcustomers.

We continually seek new uses for membrane filtration technology in industries such as electronics,food and pharmaceutical. The areas of application include wastewater treatments, water purification,water recycling and separation of liquids.

To improve the operations of our water treatment and advanced membrane filtration systems, ourR&D team also researches on ways of optimising instrumentation and controls.

We have received two (2) grants from NSTB and EDB respectively to be used for R&D purposes. InNovember 1998, we received a grant from NSTB under RDAS which we used to carry out researchon (1) the purification of industrial water as an alternative source to city water for industrial user and(2) the ozonation method for the treatment of dye effluent and refractory organics. This grant, whichis now administered by EDB, will expire in May 2001.

In March 2000, we received another grant from the EDB under IDS for our work in the developmentof hollow-fibre membranes. This scheme spans over a period of 3 years.

Our R&D expenses for the last three years and for the ten months ended 31 October 2000, whichwere partially financed by the grants, are as follows:-

10 months endedFY1997 FY1998 FY1999 31 October 2000

$131,000 $191,000 $387,000 $357,000

TRADEMARK

HSPL is the registered owner of the trademark “HYFLUX” with effect from 19 August 1999 underClass 11 in Singapore for a period of 10 years. HSPL has also applied for the registration of thename “HYDROCHEM” as trademark under Class 11 in Singapore on 11 May 2000. As at the dateof this Prospectus, this application is still pending.

60

COMPETITION

To the best of our Directors’ knowledge, our main competitors in water treatment business are USFilter (Asia) Pte Ltd, Ionics Asia-Pacific Pte Ltd, Kurita (S) Pte Ltd, Chemitreat Pte Ltd, UnitedProfessional Services (S) Pte Ltd and Scottscentre Pte Ltd, all based in Singapore; Phillip Muller -Hager + Elsasser GmbH of Germany and Organo Corporation of Japan. Our main competitors inthe advanced membrane filtration business are Osmonics Inc., Koch Membranes Systems Inc. andCuno Incorporated, all of which are US-based.

COMPETITIVE STRENGTHS

Our Directors consider the following to be our competitive strengths:-

Integrated Services

We offer a one-stop shop service to our customers and provide integrated services of designing,engineering, installing, commissioning and maintenance of systems that treat liquid streams utilisingmainly membrane filtration technology. Starting from the design of the water treatment plants, weprovide the full range of services in the procurement of components, fabrication and assembly,installation and commissioning of the completed plants. As we employ about 75 technicians andengineers with relevant expertise in each stage of our work process, we are now able to design andinstall completed plants within a shorter time frame of between two (2) months to a year, dependingon the complexity of the project.

Diverse Industries

Through our R&D efforts, we have managed to utilise membrane filtration for water purification,wastewater treatment, water recycling and liquid separation as opposed to conventional methods.This has allowed us to meet the diverse needs of various industries such as electronics,pharmaceutical and biotechnology. This provides us with a competitive edge over some of ourcompetitors who utilise other technology and hence focus on specific industries.

Though our current focus is on the electronics, pharmaceutical and biotechnology industries, we donot rely on a single industry or customer. We have always adopted an approach of serving at least3 to 4 industries that are not closely linked, such as electronics and pharmaceutical. For FY1999,33% of our sales were derived from the electronics industry, 33% from the pharmaceutical industryand 34% from other industries such as biotechnology and food and beverage. Therefore, we havenot been affected by a downturn in any specific industry for the past three (3) years.

Experienced Management

We have an experienced management team who is familiar with the business and whom we believewould be able to lead our Group forward to continued growth and profitability. We are led by ourManaging Director, Ms Lum Ooi Lin Olivia, who has more than ten (10) years of hands-onexperience in all aspects of our business. Ms Lum has been instrumental in propelling the Group’sgrowth over the years. Believing that a strong management team is a key factor in ensuring thecontinued success of our Group, Ms Lum has also groomed a dedicated and dynamic managementteam to assist her in the daily management of the business operations of our Group.

61

Ability to Meet International Standards

Our products and services are able to meet international standards for different industries. Forexample, we are able to produce water, which meets USP standards and our equipment can bemanufactured to meet the ASME standards. If required by our customers, our compliance with thesestandards is certified by independent third parties and these certifications are provided to ourcustomers. From the procurement of materials and components to the manufacturing and assemblyof the complete water treatment and advanced membrane filtration system, we have controls andassurances to check and ensure quality of our products. We have also instituted a system ofmonitoring and assessing the service of our staff both internally as well as by our customers tofurther improve our services. As a testimony and acceptance of our quality products and services,we have supplied and installed our systems for big MNCs such as EPCOS, Amway, HP, Wyeth andFCI.

Customised Systems

A key feature of our water treatment systems is the identification and adoption of the latesttechnologies to provide solutions to the various needs faced by our customers. We are now able tomanufacture the membranes used in membrane filtration and this allows us to customise themembrane filtration plants to the diverse needs required by different industries.

Our application of membrane technology for wastewater treatment also provided benefits overconventional treatments such as coagulation. Some of these benefits are the saving of space andenergy as the size of our treatment plants using membrane technology are smaller. There is alsolittle or no addition of chemicals, reduction of solid waste generated and overall increasedeffectiveness. Membrane filtration technology is also adopted for the recovery of precious mineralsin certain process streams.

Established relationship with customers and suppliers

We estimate that 70% of our business is obtained through referrals and recommendations by ourexisting customers and engineering consultants and companies whom we have worked with. We arean approved vendor of several of our customers. This allows us to tender for jobs from thesecustomers without having to undergo a pre-selection process, which typically involves the evaluationof track record and capital base. This has enabled us to secure new projects without having toincrease our marketing activities and thus, our marketing expenses.

With a track record established with our customers, we are able to build systems for our customersfor each progressive stage of their expansion. For example, we have serviced EPCOS for each ofits phases of business expansion.

We have been dealing with most of our suppliers since the commencement of our business andhave strived to have a minimum of two (2) local and/or international suppliers for each of theproducts we purchase. This is to minimise the disruption in supply from any one supplier.

The equipment which we source from our suppliers to incorporate into our customers’ watertreatment and advanced membrane filtration systems require a high degree of expertise ininstallation and commissioning. Most of the suppliers of such high technology equipment sell themselectively to solution providers as they must be confident that the solution provider can successfullyinstall their products for the benefit of the end-users. We have entered into a supply agreement withE-Cell Corporation of Canada, a subsidiary of General Electric International, to purchaseelectrochemical liquid purification apparatus known as “Stacks” which is patented worldwide andused in industries requiring ultra-pure water. The addition of this apparatus widens our range ofproducts and services and enhances our position as an integrated water treatment provider.

62

MAJOR SUPPLIERS

The suppliers who accounted for 5% or more of our Proforma Group’s purchases for the past threefinancial years ended 31 December 1997 to 1999 are as follows:-

Year ended 31 December1997 1998 1999

% % %

Membrane Products Kiryat Weizmann Ltd (“MPW”) 5.6 — —

Nitto Denko (S) Pte Ltd 6.9 3.4 0.4

Osmonics Inc. 0.9 4.3 9.7

We purchase mainly Selro membranes from MPW until 1998 when the company ceased operations.We purchased reverse osmosis membranes from Nitto Denko (S) Pte Ltd but also sourced thesemembranes from other suppliers. Since 1998, we were able to purchase substitutes from OsmonicsInc., which accounted for the increase in purchases from this supplier in 1998 and 1999. Thisincrease was also due to our buying directly from Osmonics Inc. instead of going through theiragents. We also purchase other components such as pumps from Osmonics Inc.

None of the Directors or substantial shareholders has any interests, direct or indirect, in thesuppliers mentioned above.

63

MAJOR CUSTOMERS

The customers which accounted for 5% or more of our Group’s turnover for the past three financialyears ended 31 December 1997 to 1999 are listed below. Customers who are related to oneanother have been grouped together and treated as a single customer.

Year ended 31 December1997 1998 1999

% % %

Jiangsu Jiangan Pharmaceutical Corp. Ltd 30.3 — —

SGS Thomson Microelectronics Pte Ltd 17.7 0.5 0.2

Everlight Chemical Industrial Corporation 10.3 — —

Hitachi Chemical Asia-Pacific Pte Ltd 8.9 2.2 0.2

Sanyo Air-Conditioners Manufacturing (S) Pte Ltd 5.7 0.1 0.01

Ramatex Textiles Industrial Sdn Bhd — 17.2 1.0

Dandong Chemical Fiber Co. Ltd — 14.2 —

Takasago Thermal Engineering Co. Ltd — 7.6 —

Tee Yih Jia Food Manufacturing Pte Ltd — 5.5 0.7

Matsushita Refrigeration Industries (S) Pte Ltd — 5.6 0.4

Siegle + Epple Asia Pte Ltd — 5.5 3.3

Amway (China) Co. Ltd — — 28.5

Ramatex Industrial (Suzhou) Ltd — — 16.9

ACP Construction Pte Ltd — — 9.1

FCI Singapore Pte Ltd — — 8.3

As our business is project based, our major customers vary from year to year depending on theproject obtained.

As at 31 October 2000, Gimmill1 holds a 10% equity stake in Hyflux. Gimmill also owns 29.15% ofRamatex Berhad which in turn owns 100% of our customers, Ramatex and Ramatex Suzhou(Please refer to page 85 on “Interested Person Transactions” for more details).

Save as disclosed above and in page 85, none of the Directors or substantial shareholders has anyinterests, direct or indirect, in the customers mentioned above.

64

1 Gimmill is a Singapore-incorporated investment holding company. It has an authorised share capital of $10,000,000comprising 10,000,000 shares of $1 each of which 9,600,008 shares have been issued and paid-up. The shareholders ofGimmill are Ma Wong Ching (Malaysian) who owns 70% of Gimmill, Wong Lang Piow (Malaysian) who owns 10% andMa On May (Singaporean) who owns the balance 20%. These shareholders are not related to the Directors and/or othersubstantial shareholders of our Company.

GOVERNMENT REGULATIONS

We are not directly regulated by any government regulations. However, our customers’ businessesare regulated by various environmental regulations and our role is to assist our customers to meetthose standards pertaining to the discharge of water treated by our plant. In Singapore, the Ministryof Environment regulates under the Environmental Pollution Act 1999, Environmental PollutionControl (Trade Effluent) Regulations 1999, Sewerage and Drainage Act 1999 and the Sewerage andDrainage (Trade Effluent) Regulations 1999. These legislations set out the laws and regulations onthe license and use of certain premises and the pollution control, including water pollution control.In Malaysia the Kementrian Sains Dan Teknologies (the Ministry of Science & Technology) regulatesunder the Environmental Quality Act 1974 and the Environmental Quality (Sewerage and IndustrialEffluents) Regulations 1979. The latter was issued under the Environmental Quality Act, 1974 andset the standards of effluent on parameters such as its temperature, pH value and mineral contents.In PRC, the Administrative Body of the State Council in charge of Environmental Protectionregulates under the PRC Environmental Protection Law of 1989. Under this law, the AdministrativeBody of the State Council in charge of Environmental Protection has developed a system of waterstandards which comprises five levels of quality standards. We assist our customers in PRC to meetthese standards according to the level of quality desired.

To the best of our knowledge, we have not encountered any violation of regulations by ourcustomers in relation to our water treatment plants over the last three years.

65

PROSPECTS AND FUTURE PLANS

PROSPECTS

Water treatment business

Of all water on earth, 97.5% is salt water. Of the remaining 2.5% of fresh water, 70% is frozen inthe polar icecaps and 30% is mostly present as soil moisture or lies in underground acquifers. As aresult, less than 1% of the world’s fresh water is readily accessible for human use (source:http://strategis.ic.gc.ca, “Water Conservation and Recycling Systems”, Publication Date: 1/11/98, theUS department of commerce). Aggravating the shortage of fresh water supply are higher populationgrowth, urbanisation, global climate changes and degradation of natural purification capacities.

According to World Bank’s figures, the number of people living in water-stressed countries will risefrom 500 million to 3 billion by 2025. It is estimated that the investment required to meet theincrease will amount to some US$270 billion by the year 2015 in Asia Pacific alone. There is agrowing trend towards using alternative cost-effective water sources including desalinated water andrecycled industrial and sewage waste streams (source: quoted by Asian Water, Volume 16, 6 June2000).

In Singapore, water consumption is about 1,300,000m3 daily of which 52% is imported fromMalaysia. Singapore’s water consumption has been growing at an annual rate of 4.6% over the pastdecade with the manufacturing sector growing at a faster rate of 7.3% a year. To boost Singapore’swater supply, the Singapore government is implementing various measures including conservationand recycling of water. The market for conservation and recycling of water is expected to expand by10% to 15% annually over the next three (3) years and by 20% to 25% a year in the longer term.According to a report “Water Conservation and Recycling Systems” published in November 1998 bythe US Department of Commerce, the market size of this industry is estimated at US$330 million.

With about 20% of the world’s population, PRC has only 8% of the global fresh water resources.Water consumption is estimated to be growing at an annual rate of 5%. The brisk pace of PRC’sindustrial development has further compounded the shortage of potable water. PRC is taking severalmeasures to tackle her water problem such as stricter enforcement of environmental regulations andexpanding infrastructure projects like water treatment facilities (source: http://infoserv2.ita.doc.gov“Water Treatment in China”, the US Department of Commerce International Trade AdministrationTrade Development).

In view of the increasing water demand globally, especially in Singapore and PRC where ourbusiness is mainly carried out, we expect a continual rise in demand for all our water treatmentsystems.

Advanced membrane technology

According to a study entitled “Membrane Separation Technologies to 2004” published in August 2000by the Freedonia Group, an industrial market research firm based in Ohio, USA, demand formembrane materials in the US totalled US$1.2 billion in 1999 and is projected to grow by 7.8% perannum to US$1.8 billion in 2004. Consumption will be driven by expanding use in food processing,medical applications and on-going development of new uses in hazardous waste remediation, airpollution control and radioactive wastewater testing and treatment. The US currently constitutesabout 60% of the global market, with the balance of the world demand divided approximately evenlybetween Europe and Asia (inclusive of Oceania). Asia’s demand is now largely met by the USproducers and our proximity to this market provides opportunities for us to increase our marketshare in Asia. Our Directors are of the view that our competitive position has been enhanced sincewe started manufacturing our own customised membranes as we are now able to better control costand quality of the membranes, which is a key component in our treatment plants.

66

FUTURE PLANS

To remain competitive and to take advantage of the growing trend towards using alternative cost-effective water sources and the growth in the membrane industry, we intend to adopt the followingstrategies and future plans using the Invitation proceeds:-

Increase overseas sales and service centres

Currently, we have sales personnel stationed in Guangzhou and Beijing. In order to provide quickerresponse to our existing customers, we intend to set up sales and service centres in Guangzhouand Beijing within one to two years by employing and deploying more sales and service staff tosupport the current personnel. We estimate the setup costs to be $0.5 million.

To increase our sales channel and to increase the ease of the availability of our services, we intendto set up our own website to enable business-to-business (“B2B”) e-commerce by our customers bythe end of 2001. Our customers would be able to obtain quotations, purchase components andparts and obtain updates and status on their projects through our website. We are currentlynegotiating with an e-business consultant to design our website.

Expansion of manufacturing and research facilities

To increase the production and productivity of the installation of our water treatment and advancedmembrane filtration systems, we will acquire more sophisticated equipment such as computerisedorbital welding machines, infrared welding machines and plasma cutting machine for our Singaporefacilities.

In the area of membrane filtration technology, we will intensify our R&D efforts to further developand manufacture different types of membranes using various materials for use in new applicationssuch as in fermentation processes. The research is in a preliminary stage. We have purchased newequipment such as mixing vessels and testing equipment and are in the process of increasing ourproduction facilities in the clean room to assist us in this area. With the increased floor space at ourChangi South facility, we are also in the position to further increase our production capacity in thefuture. We will also be increasing our manufacturing facilities in Shanghai in 2001. The costs ofthese expansion plans are estimated to be between $2.0 million to $2.5 million.

Acquisition of new filtration technologies

As we are in a specialised industry, we continually seek to acquire new technologies to complementand improve our current products and services. In this respect, we are in constant contact, throughregular visits, with renowned universities that conduct R&D on membranes or companies that havesuch technologies. In particular, we intend to acquire the technology to manufacture membranes foruse in the biotechnology industry. As at the date of this Prospectus, we have not entered into anyagreements.

67

CORPORATE GOVERNANCE

The business and operations of the Group are presently under the management and closesupervision of the executive directors. The overall management of the Group is overseen by Ms LumOoi Lin, Olivia.

After listing, the Directors and Executive Officers will continue to manage the business andoperations of the Group. The Audit Committee will assist the Board with regard to discharging itsresponsibility to safeguard the Company’s assets, maintain adequate accounting records, anddevelop and maintain effective systems of internal control. The Audit Committee shall have theoverall objective to ensure that the management has created and maintained an effective controlenvironment in the Company, and that the management demonstrates and stimulates the necessaryaspects of the Group’s internal control structure among all parties.

The Audit Committee comprises Messrs Teo Kiang Kok, Lee Joo Hai and Ms Lum Ooi Lin, Olivia.The Audit Committee will be chaired by Mr Lee Joo Hai. Ms Lum Ooi Lin, Olivia is an ExecutiveDirector of the Company while Messrs Teo Kiang Kok and Lee Joo Hai are Independent Directorsof the Company.

The Audit Committee will meet periodically to discuss and review the following:-

(a) review with the external auditors the audit plan, their evaluation of the system of internalcontrols, their audit report, their management letter and the management’s response;

(b) review the half-year and annual financial statements and balance sheet and profit and lossaccounts before submission to the Board for approval, focusing in particular, on changes inaccounting policies and practices, major risk areas, significant adjustments resulting from theaudit, the going concern statement, compliance with accounting standards as well ascompliance with any stock exchange and statutory/ regulatory requirements;

(c) review the internal control and procedures and ensure co-ordination between the externalauditors and the management, reviewing the assistance given by the management to theauditors, and discuss problems and concerns, if any arising from the interim and final audits,and any matters which the auditors may wish to discuss (in the absence of the managementwhere necessary);

(d) review and discuss with the external auditors any suspected fraud or irregularity, or suspectedinfringement of any relevant laws, rules or regulations, which has or is likely to have a materialimpact on the Group’s operating results or financial position, and the management’s response;

(e) consider the appointment or re-appointment of the external auditors and matters relating toresignation or dismissal of the auditors;

(f) review transactions falling within the scope of Chapter 9A and Clause 1006 of the SGX-STListing Manual;

(g) undertake such other reviews and projects as may be requested by the Board and will reportto the Board its findings from time to time on matters arising and requiring the attention of theAudit Committee; and

(h) generally undertake such other functions and duties as may be required by statute or theListing Manual, and by such amendments made thereto from time to time.

68

DIRECTORS, MANAGEMENT AND STAFF

Directors

The Board of Directors is responsible for the overall management of the Company. The names,ages, addresses and principal occupations of the Directors are listed below:-

Name Age Address Country of Position heldPrincipalResidence

Lum Ooi Lin Olivia 39 17 Whitley Road Singapore Managing DirectorSingapore 297803

Deirdre Murugasu 39 25 Sunset Heights Singapore Executive DirectorSingapore 597411

Foo Hee Kiang 38 58 Burghley Drive Singapore Executive DirectorSingapore 559029

Teo Kiang Kok 44 481 Pasir Panjang Road Singapore Independent Director#02-06 Singapore 117621

Lee Joo Hai 44 95 Paya Lebar Crescent Singapore Independent DirectorSingapore 536179

The business and working experience of our Directors are as follows:-

Ms Lum Ooi Lin Olivia is the Managing Director and the founder of our Group. Prior toincorporating HSPL, Ms Lum was a chemist with Glaxo Pharmaceuticals Pte Ltd for about threeyears, where she supervised a team of laboratory supervisors and technicians. Ms Lum hasacquired experience in the water treatment and advanced membrane filtration industry from hermanagement of our Group for more than 10 years. She is the main driving force behind the growthand business expansion of our Group and is overall responsible for our Group’s strategic planning,policies and corporate directions. Ms Lum holds a Bachelor of Science (Hons) degree from theNational University of Singapore.

Ms Deirdre Murugasu, an Executive Director of our Group, is primarily responsible for thedevelopment, application and marketing of new products and services of our Group to relevantmarket sectors. Dr Deirdre Murugasu holds a Masters of Medicine (Family Medicine) from theNational University of Singapore. Prior to joining our Group in 1996, Dr Deirdre Murugasu was aRegistrar with the Ministry of Health where she worked for nine years. Her last appointment therewas as a senior doctor specialising in family medicine.

Mr Foo Hee Kiang, an Executive Director of our Group, is also currently our Sales Director. He isprimarily responsible for the marketing and sales of the products and services of our Group. Mr Foohas more than 14 years of marketing and sales experience. Prior to joining our Group in 1998, MrFoo was a Sales Manager with Multico System Engineers Pte Ltd from 1990 to 1998, a companythat deals in construction equipment and building materials, where he was in charge of the buildingmaterials and light construction equipment divisions. Mr Foo holds a Bachelor of Engineering degreefrom the National University of Singapore.

Mr Teo Kiang Kok was appointed an Independent Director of our Group on 19 December 2000. Heis a senior partner of Shook Lin & Bok, a firm of advocates and solicitors. He has more than 16years of experience in legal practice and is currently the head of the corporate finance and Chinapractice groups of Shook Lin & Bok. His main areas of practice are corporate finance, internationalfinance and securities.

69

Mr Lee Joo Hai was appointed as an Independent Director of our Group on 19 December 2000. Heis a certified Public Accountant of Singapore and is a member of the Institute of CharteredAccountants in England and Wales. He has more than 20 years of experience in accounting,auditing, taxation and company secretarial work. Mr Lee is currently a partner in a public accountingfirm in Singapore.

Mr Teo Kiang Kok is a senior partner of Shook Lin & Bok, which will be receiving a fee paid by usand the Vendors for legal services rendered in connection with the Invitation. It is envisaged that wemay continue to engage the services of Shook Lin & Bok as and when the need arises. OurDirectors are of the view that the provision by Shook Lin & Bok of such services will not interferewith Mr Teo Kiang Kok’s independent judgement in his role as a member of the Audit Committee asmatters involving the Group will be handled by other partners and associates of the firm. In theevent that Mr Teo Kiang Kok is interested in any matter handled by Shook Lin & Bok involving ourGroup, including and not limited to the Invitation, he will adhere to the guidelines for interestedperson transactions as listed on pages 85 and 86 of this Prospectus and abstain from reviewing andvoting on that particular transaction.

The list of present and past directorships of each Director for the last five years, other than that heldin the Company, as at the date of this Prospectus, is set out below:-

Name Present Directorships Past Directorships

Lum Ooi Lin Olivia Group Companies Group CompaniesHydrochem (S) Pte Ltd NilHydrochem Engineering (S) Pte LtdHydrochem Engineering (Shanghai)

Co., LtdHyflux Engineering Pte Ltd

Other Companies Other CompaniesKimic Technologies (S) Pte Ltd Expertech Resources Pte Ltd

Expertech Resources (M) Sdn BhdKimic Technologies (M) Sdn BhdKimic Chemitech (S) Pte LtdSelro Technology Sdn BhdFinest Flavors Pte Ltd

Deirdre Murugasu Group Companies Group CompaniesHydrochem (S) Pte Ltd NilHydrochem Engineering (S) Pte LtdHydrochem Engineering (Shanghai)

Co., LtdHyflux Engineering Pte Ltd

Other Companies Other CompaniesKimic Technologies (S) Pte Ltd Kimic Chemitech (S) Pte LtdPeople’s Surgery Pte Ltd

Foo Hee Kiang Group Companies Group CompaniesHydrochem (S) Pte Ltd NilHydrochem Engineering (S) Pte LtdHydrochem Engineering (Shanghai)

Co., Ltd

Other Companies Other CompaniesNil Nil

70

Name Present Directorships Past Directorships

Teo Kiang Kok(1) Group Companies Group CompaniesNil Nil

Other Companies Other CompaniesAsean Emerging Companies Growth GRP LtdFund Ltd IPC Corporation LtdCircuits Plus Holdings Ltd Malaysian Emerging CompaniesGiant Wireless Technology Ltd Growth Fund LtdKingboard Copper Foil Holdings Ltd Solid Resources Investment LtdMayfran International LtdMiyoshi Precision LtdNew Wave Technologies LtdPraxair Surface Technologies Pte LtdSLAB Services Pte LtdSM Summit Holdings LtdTeamsphere LtdThe Vittoria Fund LtdThe Vittoria One LtdUnisteel Technology Ltd

Lee Joo Hai(1) Group Companies Group CompaniesNil Nil

Other Companies Other CompaniesFDS Networks Group Ltd Solid Resources Investment LtdIPC Corporation LtdKian Ho Bearings LtdKingboard Copper Foil Holdings LimitedLung Kee Metal Holdings LimitedMiyoshi Precision LimitedPSL Holdings LimitedTeamsphere LimitedUnisteel Technology Limited

Note:-

(1) Companies in which Mr Teo Kiang Kok and Mr Lee Joo Hai were appointed as Directors for the purpose ofincorporation or as nominee director only and in the course of their professional practice have not been included.

Independent Directors/Audit Committee

The Independent Directors are Messrs Teo Kiang Kok and Lee Joo Hai. The Audit Committeecomprises Messrs Teo Kiang Kok, Lee Joo Hai and Ms Lum Ooi Lin Olivia. Mr Lee Joo Hai is theChairman of the Audit Committee.

71

MANAGEMENT

The day-to-day operations of the Group are entrusted to the Executive Directors and an experiencedand qualified team of Executive Officers responsible for the different functions of our Group. Theparticulars of the Executive Officers are set out below:-

Name Age Address Position Held

Lim Kim Seng 49 65 Taman Bedok General ManagerSingapore 487105

Chin Tain Min 50 Blk 862A Tampines Street 83 Finance Manager#09-414Singapore 521862

Jennifer Hoalim 41 82H Lorong J Telok Kurau Office ManagerSingapore 425901

Simon Niels Matterson 36 16 Amber Gardens #10-03 Senior Engineering ManagerAmber Park Singapore 439961

Ricky Chew Ann Meng 30 Blk 429 Tampines Street 41 Construction Manager#06-507Singapore 520429

Govindharaju Venkidachalam 36 Blk 367 Bukit Batok Street 31 R&D Manager#10-227Singapore 650367

Yap Kiam Wu 28 Blk 453 Pasir Ris Drive 6 Chief Designer#08-224Singapore 510453

Bruce Sim Lian Huat 30 Blk 634 Hougang Avenue 8 Electrical Manager#12-41Singapore 530634

Tan Yu Ming 27 Blk 437 Yishun Ave 6 Senior Engineer#08-2072Singapore 760437

Ge Wen Yue 32 Room 301, No. 3, Head of Sales and MarketingAvenue 123, (Shanghai)Zhijiangxi Road,Shanghai

72

73

Man

agin

g D

irec

tor

Lum

Ooi

Lin

Oliv

ia

Gen

eral

Man

ager

Lim

Kim

Sen

gE

xecu

tive

Dir

ecto

rFo

o H

ee K

iang

Exe

cutiv

e D

irec

tor

Dei

rdre

Mur

ugas

u

Off

ice

Man

ager

Jenn

ifer H

oalim

Fina

nce

Man

ager

Chi

n Ta

in M

in

Hea

d - S

ales

&M

arke

ting

(Sha

ngha

i)G

e W

en Y

ue

R&

D M

anag

erG

ovin

dhar

aju

Ven

kida

chal

am

Sen

ior

Eng

inee

ring

Man

ager

Sim

on N

iels

Mat

ters

on

Sen

ior

Eng

inee

rTa

n Y

u M

ing

Ele

ctri

cal

Man

ager

Bru

ce S

im L

ian

Hua

t

Chi

ef D

esig

ner

Yap

Kia

m W

uC

onst

ruct

ion

Man

ager

Ric

ky C

hew

Ann

Men

g

MA

NA

GE

ME

NT

ST

RU

CT

UR

E

Mr Lim Kim Seng is our Group’s General Manager responsible for finance, human resource,information technology, purchasing and logistics management of our Group. Mr Lim has over 25years of experience in the banking sector and relevant industries. Prior to joining our Group on 1October 2000, Mr Lim was a Vice President with DBS Bank’s Private Equity Department for close totwo years, where he was responsible for developing and managing a portfolio of private equityinvestments on behalf of the bank or its subsidiaries. Prior to that, he was with the PhillipsPetroleum group of companies in Singapore for 17 years, holding senior managerial positions infinancial management and human resource administration, besides being the Company Secretary.Mr Lim has a degree in accountancy from the University of Singapore and a Master of BusinessAdministration from the National University of Singapore. He is a non-practicing member of theInstitute of Certified Public Accountants of Singapore.

Mr Chin Tain Min is our Group’s Finance Manager responsible for the financial management,internal control and accounting system of the Group. Mr Chin joined our Group in November 1999.Mr Chin has 20 years of experience in various positions such as public accountant, consultant andfinancial controller in Malaysia and Singapore. The last position he held was as director of his ownconsultant firm in 1999. Mr Chin graduated from the Nanyang University with a Bachelor ofCommerce (Accountancy) degree. Mr Chin is a public accountant with the Malaysian Institute ofAccountants and is also a Certified Public Accountant of CPA Australia.

Ms Jennifer Hoalim is our Group’s Office Manager responsible for the administration and humanresource management of the Group, and also for organising manpower for projects. Ms Hoalimjoined our Group in June 1994. From 1990 to 1994, Ms Hoalim has worked at Cockpit Hotel asExecutive Housekeeper and Front Office Manager. Ms Hoalim is a Certified HospitalityHousekeeping Executive of the Educational Institute of the American Hotels and Motels Association.She holds a Certificate in Hygiene of Food Retailing and Catering from the Royal Society of Health(London) and a General Diploma from the Business Education Council of Britain. She is a memberof City and Guilds of London in the areas of General Catering, Alcoholic Beverage andAccommodation Services.

Mr Simon Niels Matterson is our Group’s Senior Engineering Manager responsible for theengineering services of projects. These services range from design, mechanical, electrical,fabrication and installation. He joined our Group in April 2000, after having managed his own designconsultancy business, of which water treatment system is one aspect, in Malaysia for the last five(5) years. Mr Matterson is a Professional Chemical Engineer and he has more than 13 years’experience in the water and wastewater industry, having worked as Project Engineer for companiessuch as Biwater International in UK and Southern Water McDowells in UK and Malaysia. MrMatterson has acquired knowledge in design, construction and marketing aspects of the wastewatertreatment business. He has also gained exposure to the wastewater treatment industry in Europe,Africa, the Middle East and Far East. Mr Matterson holds a Bachelor of Science in EngineeringProduct Design from the Polytechnic of the South Bank in London, England.

Mr Ricky Chew Ann Meng is our Group’s Construction Manager responsible for projectmanagement, training of staff and the execution of projects. Mr Chew joined our Group in July 1999.After his graduation in 1995, Mr Chew worked as a Project Engineer with ETAS Pte Ltd andacquired project management and technical knowledge in regional wastewater treatment projects.Leaving ETAS Pte Ltd in 1998 as Senior Project Engineer, he joined Lindeteves Jacoberg Ltd asProject Engineer. His past experience includes mechanical design, co-ordination of projects,supervision of plant installation and the commissioning of plants. Mr Chew holds a Diploma inMechanical Engineering from Ngee Ann Polytechnic.

Dr Govindharaju Venkidachalam (PhD) is our Group’s R&D Manager responsible for thedevelopment of hollow fiber membranes, pilot studies for water treatment systems, feasibility studies,trouble-shooting of membrane separation systems and the commissioning of water and wastewatertreatment systems. Dr Venkidachalam joined our Group in April 1999. From 1994 to 1997, DrVenkidachalam was Senior Executive of Ion Exchange (India) Ltd, where he was responsible for thedesign, organisation and successful completion of membrane development and its applicationprojects. From 1997 to 1998, he was Senior Membrane Scientist of Membrane Research TechnologySingapore Ltd, and was responsible for managing the research and development activity relating to

74

the development of hollow fiber membranes for various applications. He holds a Doctor ofPhilosophy degree from the Indian Institute of Technology (IIT) in Bombay, India, a Master ofScience from the University of Hyderabad, India and a Bachelor of Science from the University ofMadras, India.

Mr Yap Kiam Wu is our Group’s Chief Designer responsible for the design and development of newequipment as well as serving as an in-house co-ordinator. Mr Yap started his career with AUPrecision Pte Ltd from 1992 as a Machinist and rose to the position of Shift Leader in 1994. Hethen joined Tempco Manufacturing (S) Pte Ltd in 1994 as a CNC machinist and was subsequentlypromoted to Engineering Assistant. Mr Yap subsequently joined Nortrans Engineering Group Pte Ltd(now known as Nortrans Offshore (S) Pte Ltd) as a draughtsman for two years before joining ourGroup in October 1999. He holds a Diploma in Mechanical Engineering from the SingaporePolytechnic.

Mr Bruce Sim Lian Huat is our Group’s Electrical Manager responsible for project management,electrical control systems for water treatment plants and also for leading a group of electricians forproject execution of electrical installations. In 1993, Mr Sim started working as Assistant Engineer inFlexible Automation Pte Ltd and was promoted to Electrical Engineer one year later. Hisresponsibilities in Flexible Automation Pte Ltd include panel design and software development forintegrated circuit encapsulation machines. In 1997, Mr Sim joined Takara Engineering (S) Pte Ltd asElectrical Engineer and was involved in the improvement and development of existing integratedcircuit moulding systems. In 1998, when Takara Engineering (S) Pte Ltd was acquired by HongguanTechnologies (S) Pte Ltd, he was further assigned to various automation projects. Mr Sim joined ourGroup in November 1999. Mr Sim holds a Diploma in Electrical Engineering from the SingaporePolytechnic.

Mr Tan Yu Ming is our Group’s Senior Engineer responsible for the implementation of projects forultra pure water treatment and wastewater treatment. In April 1997, Mr Tan started working as anEnvironmental Engineer with Envilab Sdn Bhd where he worked for two and a half years and wasresponsible for the implementation of projects for wastewater treatment. Mr Tan holds a Bachelor ofScience (Hons) degree from the University Technology of Malaysia. Mr Tan joined our Group inSeptember 1999.

Mr Ge Wen Yue is the Head of Sales and Marketing of HES responsible for overseeing theresearch, development and sales of the advanced membrane filtration technology in PRC. Mr Gehas worked as a Technician in Shanghai Dazhonghua Rubber Factory No. 5 in 1990 and advancedin ranks to Sales Department personnel, then to Technological Development Department personneland finally to the position of Technical Deputy. Mr Ge joined our Group in September 1994. Mr Geholds a Bachelor of Chemistry from the Shanghai University.

Save as disclosed below, none of the Executive Officers currently hold directorships or held any pastdirectorships for the last five (5) years:-

Name Present Directorships

Other companies

Chin Tain Min Fidelity Capital Consultants Pte LtdRemajaya Sdn BhdOptimum Bonus Sdn Bhd

None of our Directors and Executive Officers have any family relationships with one another or withany substantial Shareholder of our Company.

75

STAFF

We have 135 full-time employees in Singapore and PRC as at 15 December 2000. Of theseemployees, 20 are administration staff, 9 are electrical engineers, 17 are mechanical engineers, 9are chemical engineers, 4 are chemists and the remaining are technicians and other generalworkers. We have not experienced any significant seasonal fluctuations in the number of full-timeemployees. The employees are not unionised. The relationship between management and staff hasbeen good. We have not experienced any industrial disputes in the past three years. Please refer topage 59 on “Staff Training” for details on our training policy for staff.

DIRECTORS’ REMUNERATION

The remuneration of our Directors on an aggregate basis and in remuneration bands for FY1998and FY1999 are as follows:-

Aggregate Directors’ Remuneration

FY1998 FY1999$ $

Executive Directors 725,940 427,600

Non-Executive Directors — 7,200

Total 725,940 434,800

Number of Directors in Each Remuneration Bands

FY1998 FY1999

Non- Non-Executive Executive Executive ExecutiveDirectors Directors Total Directors Directors Total

$500,000 and above — — — — — —

$250,000 to $499,999 — — — — — —

$0 to $249,999 4 — 725,940 2 1 434,800

Total 4 725,940 2 1 434,800

REMUNERATION OF EMPLOYEES RELATED TO DIRECTORS AND SUBSTANTIALSHAREHOLDERS

None of our employees are related to our Directors and substantial shareholders.

In the event that any of our employees are related to our Directors and substantial shareholders inthe future, the total remuneration of such employees who are related to the Directors and substantialshareholders shall be subject to the annual review and majority approval of the Audit Committee.The total remuneration paid to our Directors, substantial shareholders and employees who arerelated to our Directors and substantial shareholders will be disclosed in the annual report of ourCompany.

SERVICE AGREEMENTS

On 29 December 2000, the Company entered into separate service agreements (“ServiceAgreements”) with Messrs Lum Ooi Lin Olivia, Deirdre Murugasu and Foo Hee Kiang (the “ExecutiveDirectors”). The Service Agreements will continue for a term of three (3) years unless otherwiseterminated by either party giving not less than six (6) months’ notice in writing to the other. TheService Agreements cover the terms of employment, specifically salaries and bonuses. Directors’fees do not form part of the terms of the Service Agreements as these require the approval ofshareholders in the Company’s annual general meeting.

76

Under the Service Agreements, the monthly salary payable to Ms Lum Ooi Lin Olivia, Dr DeirdreMurugasu and Mr Foo Hee Kiang will be $20,000, $15,000 and $10,000 respectively. They will eachbe entitled to annual increments as decided by our Board.

In addition, the Executive Directors will each be entitled to participate in a profit sharing scheme(“PSS”). The amount to be set aside by our Company for the PSS (the “PSS Amount”) shall be inaccordance with the following scale:-

Profit After Tax (“PAT”) Incentive bonus

(in relation to any financial year of our Group, the combined profit after taxof our Group calculated based on the consolidated audited accounts inrespect of such financial year)

Where PAT is between $3,000,000 and $5,000,000 1.0% of PAT

Where PAT is more than $5,000,000 but less than or equal to $7,000,000 3.0% of PAT

Where PAT is above $7,000,000 5.0% of PAT

Ms Lum Ooi Lin Olivia, Dr Deirdre Murugasu and Mr Foo Hee Kiang are entitled to 60%, 20% and20% of the PSS Amount respectively.

The Service Agreements also state that the Executive Directors will be entitled to a car, the valueof which shall be not more than $300,000 for Ms Lum Ooi Lin Olivia and $150,000 for each of DrDeirdre Murugasu and Mr Foo Hee Kiang. All travelling and travel-related expenses, entertainmentexpenses and other out-of-pocket expenses reasonably incurred by the Executive Directors in theprocess of discharging their duties on behalf of our Group will be borne by our Company.

Save as disclosed above, there are no other existing or proposed service agreements between theCompany or its subsidiaries and any Director of the Company.

Had the Service Agreements been in place for FY1999, the aggregate remuneration payable to theExecutive Directors (including CPF, year-end bonus, profit sharing and benefits in kind) would havebeen $562,000 instead of $427,600 and the PBT of our Group for FY1999 would have been$295,000 instead of $430,000 (please refer to page 28, footnote (2)). The Executive Directors’aggregate remuneration of $562,000 represents approximately 66% of the PBT of the Group (withthe aforesaid remuneration added back) in FY1999 had the Service Agreements been in effect forFY1999.

77

GENERAL INFORMATION ON THE GROUP

SHAREHOLDERS

The shareholders of the Company and their respective direct shareholdings immediately before andafter the Invitation, after taking into account the Restructuring Exercise, Bonus Issue and Stock Split,are set out below:-

Before Invitation After InvitationNumber of Number of

Shares % Shares %

Directors

Lum Ooi Lin Olivia 101,023,092 69.82 98,691,576 58.16

Deirdre Murugasu 6,886,016 4.76 6,886,016 4.05

Foo Hee Kiang 2,572,326 1.78 2,572,326 1.52

Teo Kiang Kok — — — —

Lee Joo Hai — — — —

Substantial Shareholders(5% or more)

DBS Capital 14,468,797 10.00 8,399,555 4.95

Gimmill(1) 14,468,797 10.00 8,399,555 4.95

Other Shareholders

Minority Shareholders(2) 5,268,966 3.64 5,268,966 3.11

Reserved Shares to beoffered to non-public(3) — — 110,000 0.06

Public(4) — — 39,360,000 23.20

Total 144,687,994 100.00 169,687,994 100.00

Notes:-

(1) Gimmill Industrial (Pte) Ltd is owned by Ma Wong Ching (70%), Wong Lang Piow (10%) and Ma On May (20%). Theseparties are not related to the Directors and other substantial shareholders of our Company. Please refer to page 64 formore details on Gimmill.

(2) The minority shareholders comprise Wong Ming Keong, Chen Yue Feng, Ng Koon Hwi, Gan Leong Ming, Koh Lip Lin,Chin Siong Wee, Tan Jin Bee, and Ge Wen Yue, each holding less than 5% of the Company’s share capital (Pleasesee page 80, paragraph (2) under “Restructuring Exercise” of this Prospectus). These shareholders are not related tothe Directors and substantial shareholders of our Company.

(3) We intend to offer two of our Executive Directors, Dr Deirdre Murugasu and Mr Foo Hee Kiang, Reserved Shares of55,000 each in view of their past contributions to our Group. This represents 0.06% of our post-float share capital. Anyexcess Reserved Shares not subscribed for by other management, employees and others who have contributed to thesuccess of our Group will be allotted to these two Executive Directors. Should these two Executive Directors acceptthe Reserved Shares, they may hold, dispose of or transfer all or part of their respective shareholdings in ourCompany after the Shares are listed on the SGX Sesdaq.

(4) Excluding the 110,000 Reserved Shares to be offered to our Directors (please see note 3 above).

78

Vendors

The names of the Vendors and the number of Vendor Shares which they will offer pursuant to theInvitation are set out below:-

Name No. of Shares No. of sharesheld before the No. of Vendor held after the

Invitation Shares Invitation

DBS Capital 14,468,797 6,069,242 8,399,555

Gimmill 14,468,797 6,069,242 8,399,555

Lum Ooi Lin Olivia 101,023,092 2,331,516 98,691,576

Total 129,960,686 14,470,000 115,490,686

MORATORIUM

To demonstrate her commitment to our Group, Ms Lum Ooi Lin Olivia, who will own 58.16% of ourCompany’s issued share capital after the Invitation, has undertaken not to dispose of or transfer anypart of her interests in our Company for a period of twelve (12) months commencing from the dateof admission of our Company to the Official List of SGX Sesdaq and in the twelve (12) monthsthereafter shall not reduce her shareholding to below 50% of her original interest in our Company.

RESTRUCTURING EXERCISE

The following Restructuring Exercise was effected in preparation for the Invitation and the listing ofthe Company on SGX Sesdaq. Hyflux became the holding company of our Group after theRestructuring Exercise, which involved the following transactions:-

(1) On 1 June 2000 and 31 August 2000 respectively, Hyflux entered into a sale and purchaseagreement (the “HSPL Sale and Purchase Agreement”) and a supplemental agreement theretowith the following persons to acquire the entire issued and paid-up capital of HSPL to becomethe holding company of HSPL with effect from 31 March 2000, consideration of which wassatisfied by the issue of 7,999,980 ordinary shares of $0.10 each in Hyflux:-

Name Number of Number ofHSPL Hyflux Shares

Shares Sold % Issued %

Lum Ooi Lin Olivia 736,252 92.0 7,362,510 92.0

Deirdre Murugasu 45,001 5.6 450,000 5.6

Foo Hee Kiang 18,747 2.4 187,470 2.4

800,000 100.0 7,999,980 100.0

79

(2) On 1 June 2000 and 31 August 2000 respectively, Hyflux entered into a Sale and PurchaseAgreement (the “HEPL Sale and Purchase Agreement”) and a supplemental agreement theretowith the following persons to acquire 544,800 ordinary shares of $1.00 each constituting 49.5%of the issued and paid-up capital of HEPL with effect from 31 March 2000, consideration ofwhich was satisfied by the issue of 435,840 ordinary shares of $0.10 each in Hyflux:-

Name (the “HEPL Number of Number ofShareholders”) HEPL Shares Hyflux Shares

Sold % Issued %

Wong Ming Keong 80,000 14.7 64,000 14.7

Chen Yue Feng 10,000 1.8 8,000 1.8

Ng Koon Hwi 100,000 18.4 80,000 18.4

Gan Leong Ming 97,000 17.8 77,600 17.8

Koh Lip Lin 88,000 16.2 70,400 16.2

Chin Siong Wee 70,000 12.8 56,000 12.8

Deirdre Murugasu 64,800 11.9 51,840 11.9

Tan Jin Bee 25,000 4.6 20,000 4.6

Ge Wen Yue 10,000 1.8 8,000 1.8

544,800 100.0 435,840 100.0

(3) On 1 June 2000, the sum of $1,590,155.80 was capitalised from the share premium accountof our Company for a bonus issue of 15,901,558 ordinary shares of $0.10 each fully paid tothe shareholders as at 1 June 2000.

(4) Pursuant to a subscription agreement dated 3 June 2000, DBS Capital and Gimmill eachsubscribed for 3,042,174 ordinary shares of $0.10 each in the capital of our Company at aconsideration of $0.7889096 per said share, totalling an aggregate of $4,800,000 or$2,400,000 each.

80

(5) On 21 June 2000, the HEPL Shareholders, DBS Capital, Gimmill and Hyflux entered into ashareholders’ agreement (the “Shareholders’ Agreement”) to effect their intentions and toregulate their relationship inter se and in the conduct of the business and affairs of theCompany. The Shareholders’ Agreement is intended to provide for the Strategic Investors’ costof investment in our Company to be at a 20% discount to the fair value of their shareholdings,based on the IPO Price. This price was determined on a willing buyer, willing seller basis. Wehave sought the investment of these two investors to finance the purchase of a new factory atChangi South and working capital. In addition, the capital injection will increase our capitalbase, putting us in a better position to tender for projects of larger values. We have thusoffered the Strategic Investors a discount of 20% to the fair value in view of the potentialbenefits that would arise from their capital investments. We will benefit from the professionaladvice provided by DBS Capital in areas such as business strategy and restructuring, whichaid our efforts to achieve a public listing. Gimmill is a business associate of our Group throughits associate company, Ramatex Berhad. We have provided services to the subsidiaries ofRamatex Berhad, Ramatex and Ramatex (Suzhou), from FY1998 (please see page 85 on“Interested Person Transactions” for details). We believe that the inclusion of Gimmill as ourshareholder will strengthen our business relationship with the Ramatex Group.

At the point of cash injection by the Strategic Investors, the fair value of one ordinary share ofour Company was intended to be based on the IPO Price. As the IPO Price was notdeterminable then, the Shareholders’ Agreement was drawn up to align the capital investmentof the Strategic Investors to the intended fair value of our Company’s Shares.

The Shareholders’ Agreement provides, inter alia, that in the event our Company achieves aninitial public offering (“IPO”) at any time on or before 30 November 2001 at an offer price (“IPOPrice”) that results in a First Top-up Price (as defined below) greater than zero, our Companyshall issue and allot to DBS Capital and Gimmill, and the two Strategic Investors shall, inconsideration, within five (5) Business Days of fixing the IPO Price subscribe and pay for, oneordinary share each at a price (“First Top-up Price”) computed as follows:-

First Top-up Price = $(N x 0.8 x IPO Price) - $2,400,000

A B C

where N represents the number of ordinary Shares held by such Strategic Investor prior toits subscribing for the one Share under this Clause;B represents the value of the Strategic Investor’s shareholdings in our Company,based on a 20% discount to the IPO Price; andC represents the cost of investment of each Strategic Investor (please refer toparagraph 4 above).

Where A is greater than zero, the Strategic Investor’s earlier cash investment of $2,400,000 isless than the agreed value, implied by a 20% discount to the IPO Price. In such a scenario,the Strategic Investor will have to top-up the difference determined as A above. Inconsideration for this top-up, our Company will issue one share to each of the StrategicInvestors.

81

In the event that the Company achieves an IPO at any time on or before the 30 November2001 at an IPO Price that results in the First Top-up Price being negative, our Company shallas soon as possible buy back one Share each from DBS Capital and Gimmill, via a sharebuyback, a capital reduction or such other form of arrangement as may be permitted by theAct or any other law in existence at the relevant time and upon such terms and conditionsreasonably satisfactory to each of the Strategic Investors. The price of such Share to bebought back by our Company (“First Buy-back Price”) shall be computed on the followingbasis:-

First Buy-back Price = $2,400,000 - $(N x 0.8 x IPO Price)

A B C

where N represents the number of ordinary Shares held by such Strategic Investor prior toits subscribing for the one Share under this Clause;B represents the cost of investment of each Strategic Investor (please refer toparagraph 4 above); andC represents the value of the Strategic Investor’s shareholdings in our Company,based on a 20% discount to the IPO Price;

Where A is less than zero, the Strategic Investor’s earlier cash investment of $2,400,000 ismore than the agreed value, implied by a 20% discount to the IPO Price. In such a scenario,our Company will have to pay the difference determined as A above to each of the StrategicInvestors. In consideration for this payment, our Company will buy back one (1) share eachfrom the Strategic Investors.

Based on the actual IPO Price of $0.32, the first top-up price will be positive and will bedetermined as follows:-

A=$(14,468,796 x 0.8 x 0.32) - $2,400,000 = approximately $1.30 million

Thus, we will receive approximately $1.30 million from each of the Strategic Investors or a totalof about $2.60 million. In consideration of this top-up, we will then issue one (1) new ordinaryshare to each of the Strategic Investors. Our issued share capital prior to the Invitation willincrease correspondingly by two (2) shares to 144,687,994. Our cash will increase by theamount of top-up by the Strategic Investors and our share premium account will also increaseby the same amount.

Each of the Strategic Investors shall be entitled to sell as vendor shares up to one-half of itsshareholding in the Company at IPO or 7,234,399 shares each. After the IPO, there will be norestriction on the ability of the Strategic Investors to sell their remaining interest in theCompany (please refer to “Risk Factors” on page 25 for details).

Other than as disclosed above, we have not entered into any other agreements with ourStrategic Investors.

(6) On 7 September 2000, Hyflux entered into a sale and purchase agreement with HSPL for theacquisition by Hyflux of 555,700 ordinary shares of $0.10 each constituting 50.5% of theissued and paid-up capital of HEPL at a consideration of $646,120, representing HSPL’s costof investment in HEPL.

82

GROUP STRUCTURE

Our Group structure after the Restructuring and prior to listing is as shown below:-

Subsidiaries

The details of our Company’s subsidiaries are as follows:-

Name of company Date and Issued Effective Principal businessplace of and paid-up interest owned owned by

incorporation capital by the Group the Group

Hydrochem (S) Pte Ltd 30 Jun 1989 $800,000 100% Manufacturing, processing Republic of and dealing in water Singapore treatment equipment and

turnkey engineeringinstallation of industrialequipment and machinesand other related activities

Hydrochem Engineering 9 Mar 1994 $1,100,500 100% Consulting in the installation(S) Pte Ltd Republic of of equipment for chemical

Singapore processing, application ofchemicals and chemicalpreparation for commercialor industrial use andwholesale of chemical andfabricated products

Hydrochem Engineering 24 Nov 1994 US$420,000 100% Development, manufacture of(Shanghai) Co., Ltd PRC equipment and parts primarily

for membrane filtrationtechnology, sale ofmanufactured equipmentand ancillary parts,provision of installation andcommissioning of relevantprojects and provision oftechnical services andconsultation

83

Hyflux Ltd

100% 100% 100%

Hydrochem (S) PteLtd

(ÒHSPLÓ)

HyfluxEngineering Pte

Ltd (ÒHFPLÓ)

HydrochemEngineering (S) Pte

Ltd (ÒHEPLÓ)

100%

HydrochemEngineering

(Shanghai) Co., Ltd(ÒHESÓ)

Name of company Date and Issued Effective Principal businessplace of and paid-up interest owned owned by

incorporation capital by the Group the Group

Hyflux Engineering Pte 18 November $2.00 100% Operating of water andLtd 2000 liquid treatment plants

Republic of and sale of treated waterSingapore

None of our subsidiaries are listed on any stock exchange.

Note:-

(1) Application to wind up Hydrochem Membrane Technology (Shanghai) Co., Ltd (“HMTS”) has been made in PRC asHMTS has been dormant since incorporation.

84

INTERESTED PERSON TRANSACTIONS

Save as disclosed below, none of our Directors, substantial shareholders or Executive Officers wereor are interested in any material transactions undertaken by our Group within the last three financialyears.

Interested Person Transactions

(a) Gimmill, which has a 10.00% and 4.95% equity stake in our Company prior to and after theInvitation respectively, owns 29.15% of Ramatex Berhad, a listed company in Malaysia. Two ofour major customers, Ramatex and Ramatex (Suzhou) are wholly-owned subsidiaries ofRamatex Berhad. We have provided the following services to the Ramatex Group:-

(i) treatment of river water using nano-filtration membranes in Malaysia;

(ii) wastewater treatment of textile dyeing water in Suzhou;

(iii) installation of a wastewater treatment plant in Suzhou; and

(iv) sale of membranes, chemicals and filters.

There were no maintenance and service contracts with Ramatex and Ramatex Suzhou. Asummary of our sales to the Ramatex Group is as follows:-

Ten monthsended

Sales FY1997 FY1998 FY1999 31 October2000

Ramatex — $1,160,437 $71,000 $182,520

Ramatex Suzhou — — $1,169,000 $450,000

— $1,160,437 $1,240,000 $632,520

Gimmill was not a shareholder of our Company when these projects with the Ramatex Groupwere secured. If further services are provided by our Company to the Ramatex Group, wewould ensure that such transactions continue to be on arms’ length basis.

(b) Pursuant to a lease agreement dated 1 November 1997 between our Executive Director, DrDeirdre Murugasu, as landlord and Hydrochem (S) Pte Ltd (“HSPL”), our wholly-ownedsubsidiary, as tenant, HSPL leased the whole of the premises at 34 Kaki Bukit IndustrialTerrace (the “Property”) from Dr Murugasu for a term of one (1) year commencing 1 November1997 to 31 October 1998 at a monthly rental of $9,000. The Property is owned jointly by DrDeirdre Murugasu and our Managing Director and substantial Shareholder, Ms Lum Ooi LinOlivia with each holding equal stakes. Dr Deirdre Murugasu, representing the owners, signedthe lease agreement. The lease was extended on the same terms until 31 October 2000 whenwe moved into our new premises at 40 Changi South Street 1. The lease was not renewedupon its expiry on 31 October 2000.

Guidelines for Future Interested Person Transactions

Our Audit Committee, when formed, will review and approve all interested person transactions asdefined by the SGX-ST Listing Manual (“Interested Person Transactions”) to ensure that they are onarms’ length basis, that is, the transactions are transacted on terms and prices not more favourableto the interested persons than if they were transacted with a third party and we have not beendisadvantaged in any other way.

We will prepare relevant information to assist our Audit Committee in its review.

85

Before any agreement or arrangement that is not in the ordinary course of business of our Group istransacted, prior approval must be obtained from the Audit Committee. In the event that a memberof the Audit Committee is interested in any of the Interested Person Transactions, he will abstainfrom reviewing and voting on that particular transaction. Any decision to proceed with such anagreement or arrangement would be recorded for review by the Audit Committee.

We will also comply with the provisions in Chapter 9A of the SGX-ST Listing Manual in respect ofall future Interested Person Transactions, and if required under the SGX-ST Listing Manual or theAct, we will seek our Shareholders’ approval for such transaction.

Potential conflicts of interest

As at the date of this Prospectus, save as disclosed in the section on “Interested PersonTransactions” and “Directors”:-

(a) No Director, substantial shareholder or Executive Officer of the Group has any interest, director indirect, in any material transactions to which our Group was or is to be a party;

(b) No Director, substantial shareholder or Executive Officer of our Group has any interest, director indirect, in any company carrying on the same business or carrying on a similar trade as ourGroup; and

(c) No Director, substantial shareholder or Executive Officer of our Group has any interest, director indirect, in any enterprise or company that is our Company’s customer or supplier of goodsor services.

86

PROPERTY, PLANTS AND EQUIPMENT

Our Group currently owns the following property:-

Cost as at Accumulated Net bookDescription/Location, Area, 31 October Depreciation as at value as atTenure, Unexpired term and Date of 2000 31 October 2000 31 October 2000Annual rental if leasehold Purchase ($) ($) ($)

Description

A 2-storey factory at 22 June 2000 2,884,000 Nil 2,884,00040 Changi South Street 1Singapore 486764

Land area/Built-in area

2,436 sq m/1,580 sq m

Tenure

30 years commencing1 December 1996

Annual Rental

$69,627 per annum, payable to JTC(1)

Note:

(1) A 30-year lease constitutes a legal interest. Nonetheless, an annual land rent is payable under JTC’s terms andconditions of lease.

87

In addition, our Group currently leases the following property:-

Cost as at Accumulated Net bookDescription/Location, Area, 31 October Depreciation as at value as atTenure, Unexpired term and Date of 2000 31 October 2000 31 October 2000Annual rental if leasehold Purchase ($) ($) ($)

Description

Ground floor factory at NA NA NA NA

No 77 E-Shan Road,Jin Niu Building,Pudong New District,Shanghai

Land area/Built-in area

1,498.58 sq m

Tenure

6 years commencing1 August 1999 to31 July 2005

Annual Rental

RMB481,344 per annum for the firsttwo (2) years and an adjusted rentalto be agreed by the parties for theremaining four (4) years subject to anupward or downward adjustment ofnot more than ten per cent (10%) ofthe rental for the first two (2) years

Rental is payable to Shanghai Jin NiuProperty Development Co Ltd(1)

Notes:

(1) Shanghai Jin Niu Property Development Co Ltd, the landlord of the factory at No 77 E-Shan Road, Jin Niu Building,Pudong New District, Shanghai, is a third party unrelated to our Group.

Our plant and machinery, motor vehicles and furniture, fittings and office equipment, had a net bookvalue of approximately $1.14 million as at 31 October 2000.

88

GENERAL AND STATUTORY INFORMATION

INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS

1. The names, ages, addresses and current occupations of the Directors of the Company andExecutive Officers of the Group are set out on pages 69 to 72 of this Prospectus.

2. Information on the business and working experience of the Directors is set out on pages 69 to70 of this Prospectus.

3. The list of present and past directorships of each Director for the last five years, other than theCompany, is set out on pages 70 to 71 of this Prospectus.

4. Information on the business and working experience of the Executive Officers of the Group isset out on pages 74 to 75 of this Prospectus:-

5. The list of present and past directorships of each Executive Officer for the last five years is setout on page 75 of this Prospectus.

6. None of the Directors or Executive Officers is or was involved in any of the following events:-

(a) a petition under any bankruptcy laws filed in any jurisdiction against him or anypartnership in which he was a partner or any corporation of which he was a director or anexecutive officer in the last 10 years;

(b) unsatisfied judgements outstanding against him;

(c) a conviction of any offence, in Singapore or elsewhere, involving fraud or dishonestypunishable with imprisonment for three months or more, or charged for violation of anysecurities laws or any such pending criminal proceeding against him;

(d) a conviction of any offence, in Singapore or elsewhere, involving a breach of any securitiesor financial market laws, rules or regulations;

(e) the subject of judgement in any civil proceeding in Singapore or elsewhere in the last 10years involving fraud, misrepresentation or dishonesty or any such pending civilproceeding against him;

(f) a conviction in Singapore or elsewhere of any offence in connection with the formation ormanagement of any corporation;

(g) disqualification from acting as a director of any company, or from taking part in any waydirectly or indirectly in the management of any company;

(h) the subject of any order, judgement or ruling of any court of competent jurisdiction, tribunalor governmental body permanently or temporarily enjoining him from engaging in any typeof business practice or activity; and

(i) the management or conduct of affairs of any company or partnership which has beeninvestigated by an inspector appointed under the provisions of the Companies Act, orother securities enactment or by any other regulatory body in connection with any matterinvolving the company or partnership occurring or arising during the period when he wasso concerned with the company or partnership.

7. The aggregate emoluments (including CPF contributions thereon) paid to the then existingDirectors for services rendered in all capacities to the Company and its subsidiaries in FY1999amounted to approximately $434,800. The aggregate emoluments payable to the presentDirectors in FY2000 under the arrangements in force at the date of this Prospectus, includingthe Service Agreements referred to on pages 76 to 77 of this Prospectus, is approximately$862,000.

89

8. Save as disclosed on pages 76 to 77 of this Prospectus, there are no existing or proposedservice contracts between the Directors and the Company or its subsidiaries.

9. The Directors and Executive Officers are unrelated by blood or marriage to one another norare they so related to any substantial shareholder of the Company.

10. No option to subscribe for shares in, or debentures of, the Company or its subsidiaries hasbeen granted to, or was exercised by, any Director or Executive Officer within the last financialyear.

11. Save as disclosed on pages 81 to 82 of this Prospectus, no person has been, or is entitled tobe, given an option to subscribe for any shares in or debentures of the Company or itssubsidiaries.

12. Save as disclosed on page 85 of this Prospectus, no Director or expert is interested, directlyor indirectly, in the promotion of, or in any assets acquired or disposed of by, or leased to, theCompany or its subsidiaries within two years preceding the date of this Prospectus, or in anyproposal for such acquisition or disposal or lease as aforesaid.

13. No Director has any interest in any existing contract or arrangement that is significant inrelation to the business of the Group taken as a whole.

14. No Director, substantial shareholder or Executive Officer has any interest, direct or indirect, inany business carrying on a similar trade as the Company or its subsidiaries.

15. There is no shareholding qualification for Directors in the Articles of Association of theCompany.

16. The interests of the Directors and substantial shareholders in the Company at the date of thisProspectus and as recorded in the Register of Directors’ Shareholdings and the Register ofSubstantial Shareholders maintained under the provisions of the Companies Act (Chapter 50)are as follows:-

Number of Shares Number of Sharesregistered in the in which the Directors

names of Directors and substantialand substantial shareholders are deemed

shareholder % to have an interest %

Directors

Lum Ooi Lin Olivia 101,023,092 69.82% — —

Deirdre Murugasu 6,886,016 4.76% — —

Foo Hee Kiang 2,572,326 1.78% — —

Teo Kiang Kok — — — —

Lee Joo Hai — — — —

Holders of 5% or more

DBS Capital 14,468,797 10.00% — —

Gimmill 14,468,797 10.00% — —

Save as disclosed above, no Director has any interest in the Shares, including the NewShares, which are the subject of this Invitation (please refer to “Shareholders” on page 78 formore details).

17. Save as disclosed below, no sum has been paid or has been agreed to be paid to any Directoror to any firm in which a Director is a partner in cash or in shares or otherwise by any personto induce him to become a Director in connection with the promotion or formation of theCompany.

90

Mr Teo Kiang Kok is a senior partner of Shook Lin & Bok which will be receiving a fee paid byus and the Vendors for legal services rendered in connection with the Invitation. It is envisagedthat we may continue to engage the services of Shook Lin & Bok as and when the needarises. Our Directors are of the view that the provision by Shook Lin & Bok of such serviceswill not interfere with Mr Teo Kiang Kok’s independent judgement in his role as a member ofthe Audit Committee.

SHARE CAPITAL

18. As at the date of this Prospectus, there is only one class of shares in the capital of theCompany. All of the shares are in registered form. The rights and privileges attached to theShares are stated in the Articles of Association of the Company. There are no founder,management or deferred shares. There are no limitations imposed by Singapore law or theArticles of Association of the Company on the rights of non-resident shareholders to hold orvote on the ordinary shares of the Company.

19. Save as disclosed herein and on page 45 of this Prospectus, there were no changes in theissued and paid-up share capital of the Company or its subsidiaries within the three yearspreceding the date of this Prospectus:-

Number of Issue price Purpose of issue/ Resultant issuedDate of issue shares issued per Share consideration share capital

Hyflux Ltd

31 March 2000 20 ordinary shares $0.10 Incorporation $2.00of $0.10 each

1 June 2000 7,999,980 ordinary $0.10 Pursuant to $800,000shares of $0.10 each Restructuring Exercise

1 June 2000 435,840 ordinary $3.75 Pursuant to $843,584shares of $0.10 each Restructuring Exercise

1 June 2000 15,901,558 ordinary $0.10 Capitalisation of $2,433,739.80shares of $0.10 each share premium account

3 June 2000 6,084,348 ordinary $0.789 Working capital $3,042,174.60shares of $0.10 each

18 December 2000 83,844,500 ordinary $0.05 Capitalisation of $7,234,399.60shares of $0.05 each share premium account

8 January 2001 2 ordinary shares of $1.30 Pursuant to the $7,234,399.70$0.05 each million Shareholders’ Agreement

Hydrochem (S) Pte Ltd

10 May 1999 400,000 ordinary $1.00 Capitalisation of $750,000shares of $1.00 each revenue reserve account

10 May 1999 50,000 ordinary $1.00 Capitalisation of $800,000shares of $1.00 each Director’s loan

Hydrochem Engineering (S) Pte Ltd

10 August 1999 10,000 ordinary $1.00 Working capital $1,100,500shares of $1.00 each

Hyflux Engineering Pte Ltd

18 November 2000 2 ordinary $1.00 Incorporation $2.00shares of $1.00 each

91

20. Save as disclosed above, no shares or debentures were issued or were agreed to be issuedby the Company or its subsidiaries for cash or for a consideration other than cash during thelast three years preceding the date of this Prospectus.

21. MEMORANDUM AND ARTICLES OF ASSOCIATION

Memorandum of Association

Objects and Purposes

The Memorandum of Association of the Company states, among others, that the liability ofmembers of the Company is limited, and that the objects for which the Company is establishedinclude those of a holding and investment company.

The objects of the Company are set out in full in Clause 3 of the Memorandum of Associationwhich is available for inspection at our registered office as stated in the section titled“Documents Available for Inspection”.

The complete listing of our objects and purposes can be found at page 1 to 5 of ourCompany’s Memorandum of Association.

Articles of Association

Provisions relating to Directors

The provisions in the Articles of Association with respect to: (a) a Director’s power to vote ona proposal, arrangement or contract in which the Director is materially interested; (b) theDirectors’ power, in the absence of an independent quorum, to vote compensation tothemselves or any members of their body; (c) borrowing powers exercisable by the Directorsand how such borrowing powers can be varied; (d) retirement or non-retirement of Directorsunder an age limit requirement; and (e) number of shares, if any, required for Directors’qualification, are as follows:-

Article 76

A Director shall not be required to hold any shares of the Company by way of qualification. ADirector who is not a member of the Company shall nevertheless be entitled to receive noticeof and to attend and speak at General Meetings.

Article 77

The ordinary remuneration of the Directors, which shall from time to time be determined by anOrdinary Resolution of the Company, shall not be increased except pursuant to an OrdinaryResolution passed at a General Meeting where notice of the proposed increase shall havebeen given in the notice convening the General Meeting and shall (unless such resolutionotherwise provides) be divisible among the Directors as they may agree, or failing agreement,equally, except that any Director who shall hold office for part only of the period in respect ofwhich such remuneration is payable shall be entitled only to rank in such division for aproportion of remuneration related to the period during which he has held office. The ordinaryremuneration of an executive Director may not include a commission on or a percentage ofturnover and the ordinary remuneration of a non-executive Director shall be a fixed sum, andnot by a commission on or a percentage of profits or turnover.

92

Article 78

Any Director who holds any executive office, or who serves on any committee of the Directors,or who otherwise performs services which in the opinion of the Directors are outside the scopeof the ordinary duties of a Director, may be paid such extra remuneration by way of salary,commission or otherwise as the Directors may determine, other than by a commission on orpercentage of commission or turnover, Provided that such extra remuneration in case of anexecutive Director shall not by way of commission on or a percentage of turnover and in thecase of a non-executive Director shall be by a fixed sum, and not by a commission on or apercentage of profits or turnover.

Article 90

The Directors to retire by rotation shall include (so far as necessary to obtain the numberrequired) any Director who is due to retire at the meeting by reason of age or who wishes toretire and not to offer himself for re-election. Any further Directors so to retire shall be those ofthe other Directors subject to retirement by rotation who have been longest in office since theirlast re-election or appointment and so that as between persons who became or were last re-elected Directors on the same day, those to retire shall (unless they otherwise agree amongthemselves) be determined by ballot. A retiring Director shall be eligible for re-election.

Article 91

The Company at the meeting at which a Director retires under any provision of these presentsmay by Ordinary Resolution fill the office being vacated by electing thereto the retiring Directoror some other person eligible for appointment. In default, the retiring Director shall be deemedto have been re-elected except in any of the following cases:-

(A) where at such meeting it is expressly resolved not to fill such office or a resolution for there-election of such Director is put to the meeting and lost; or

(B) where such Director has given notice in writing to the Company that he is unwilling to bere-elected; or

(C) where the default is due to the moving of a resolution in contravention of the next followingArticle; or

(D) where such Director has attained any retiring age applicable to him as Director.

The retirement shall not have effect until the conclusion of the meeting except where aresolution is passed to elect some other person in the place of the retiring Director or aresolution for his re-election is put to the meeting and lost and accordingly a retiring Directorwho is re-elected or deemed to have been re-elected will continue in office without a break.

Article 100

A Director shall not vote in respect of any contract or arrangement or any other proposalwhatsoever in which he has any interest, directly or indirectly. A Director shall not be countedin the quorum at a meeting in relation to any resolution on which he is debarred from voting.

Article 108

Subject as hereinafter provided and to the provisions of the Statutes, the Directors mayexercise all the powers of the Company to borrow money, to mortgage or charge itsundertaking, property and uncalled capital and to issue debentures and other securities,whether outright or as collateral security for any debt, liability or obligation of the Company orof any third party.

93

Provisions relating to rights, preferences and restrictions attaching to Shares

The provisions in the Articles of Association relating to the rights, preferences and restrictionsattaching to each class of the shares, including: (a) dividend rights, including the time limit afterwhich dividend entitlement lapses and an indication of the party in whose favour thisentitlement operates; (b) voting rights, including whether Directors stand for re-election atstaggered intervals and the impact of that arrangement where cumulative voting is permitted orrequired; (c) rights to share in the company’s profits; (d) rights to share in any surplus in theevent of liquidation; (e) redemption provisions; (f) sinking fund provisions; (g) liability to furthercapital calls by the Company; and (h) any provision discriminating against any existing orprospective holder of such securities as a result of such shareholder owning a substantialnumber of shares, are as follows:-

Article 4(A)

Subject to these presents, no shares may be issued by the Directors without the prior approvalof the Company in General Meeting pursuant to Section 161 of the Act, but subject theretoand the terms of such approval, and to Article 5, and to any special rights attached to anyshares for the time being issued, the Directors may allot (with or without conferring a right ofrenunciation) or grant options over or otherwise dispose of the same to such persons on suchterms and conditions and for such consideration and at such time and whether or not subjectto the payment of any part of the amount thereof in cash or otherwise as the Directors maythink fit, and any shares may, subject to compliance with Sections 70 and 75 of the Act, beissued with such preferential, deferred, qualified or special rights, privileges, conditions orrestrictions, whether as regards dividend, return of capital, participation in surplus, voting,conversion or otherwise, as the Directors may think fit, and preference shares may be issuedwhich are or at the option of the Company are liable to be redeemed, the terms and mannerof redemption being determined by the Directors in accordance with the Act, Provided Alwaysthat:-

(A) no shares shall be issued to transfer a controlling interest in the Company without thespecific prior approval of the Company in General Meeting; and

(B) no shares shall be issued at a discount or options granted over unissued shares except inaccordance with the Act.

Article 18

The Directors may from time to time make calls upon the members in respect of any moneysunpaid on their shares (whether on account of the nominal value of the shares or, whenpermitted, by way of premium) but subject always to the terms of issue of such shares. A callshall be deemed to have been made at the time when the resolution of the Directorsauthorising the call was passed and may be made payable by instalments.

Article 19

Each member shall (subject to receiving at least fourteen days’ notice specifying the time ortimes and place of payment) pay to the Company at the time or times and place so specifiedthe amount called on his shares. The joint holders of a share shall be jointly and severallyliable to pay all calls in respect thereof. A call may be revoked or postponed as the Directorsmay determine.

94

Article 21

Any sum (whether on account of the nominal value of the share or by way of premium) whichby the terms of issue of a share becomes payable upon allotment or at any fixed date shall forall the purposes of these presents be deemed to be a call duly made and payable on the dateon which by the terms of issue the same becomes payable. In the case of non-payment, all therelevant provisions of these presents as to payment of interest and expenses, forfeiture orotherwise shall apply as if such sum had become payable by virtue of a call duly made andnotified.

Article 23

The Directors may if they think fit receive from any member willing to advance the same all orany part of the moneys (whether on account of the nominal value of the shares or by way ofpremium) uncalled and unpaid upon the shares held by him and such payment in advance ofcalls shall extinguish pro tanto the liability upon the shares in respect of which it is made andupon the moneys so received (until and to the extent that the same would but for suchadvance become payable) the Company may pay interest at such rate (not exceeding eight percent. per annum) as the member paying such sum and the Directors may agree. Capital paidon shares in advance of calls shall not, whilst bearing interest, confer a right to participate inprofits.

Article 63

Subject to any special rights or restrictions as to voting attached by or in accordance withthese presents to any class of shares, on a show of hands every member who is present inperson or by proxy shall have one vote, the chairman of the meeting to determine which proxyshall be entitled to vote where a member is represented by two proxies, and on a poll everymember who is present in person or by proxy shall have one vote for every share of which heis the holder. A member who is bankrupt shall not, while his bankruptcy continues, be entitledto exercise his rights as a member, or attend, vote or act at any meeting of the Company.

Article 89

At each Annual General Meeting, one-third of the Directors for the time being (or, if theirnumber is not a multiple of three, the number nearest to but not less than one-third) shall retirefrom office by rotation, Provided that no Director holding office as Managing Director shall besubject to retirement by rotation or be taken into account in determining the number ofDirectors to retire. For the avoidance of doubt, each Director (other than a Director holdingoffice as Managing Director) shall retire at least once every three years.

Article 90

The Directors to retire by rotation shall include (so far as necessary to obtain the numberrequired) any Director who is due to retire at the meeting by reason of age or who wishes toretire and not to offer himself for re-election. Any further Directors so to retire shall be those ofthe other Directors subject to retirement by rotation who have been longest in office since theirlast re-election or appointment and so that as between persons who became or were last re-elected Directors on the same day, those to retire shall (unless they otherwise agree amongthemselves) be determined by ballot. A retiring Director shall be eligible for re-election. ADirector shall be subject to such age limit as may be prescribed under the Act for purposes ofretirement or re-election.

95

Article 122

The Directors may from time to time set aside out of the profits of the Company and carry toreserve such sums as they think proper which, at the discretion of the Directors, shall beapplicable for any purpose to which the profits of the Company may properly be applied andpending such application may either be employed in the business of the Company or beinvested. The Directors may divide the reserve into such special funds as they think fit andmay consolidate into one fund any special funds or any parts of any special funds into whichthe reserve may have been divided. The Directors may also, without placing the same toreserve, carry forward any profits. In carrying sums to reserve and in applying the same, theDirectors shall comply with the provisions of the Statutes.

Article 124

If and so far as in the opinion of the Directors, the profits of the Company justify suchpayments, the Directors may declare and pay the fixed dividends on any class of sharescarrying a fixed dividend expressed to be payable on fixed dates on the half-yearly or otherdates prescribed for the payment thereof and may also from time to time declare and payinterim dividends on shares of any class of such amounts and on such dates and in respectof such periods as they think fit.

Article 125

Unless and to the extent that the rights attached to any shares or the terms of issue thereofotherwise provide, all dividends shall (as regards any shares not fully paid throughout theperiod in respect of which the dividend is paid) be apportioned and paid pro rata according tothe amounts paid on the shares during any portion or portions of the period in respect ofwhich the dividend is paid. For the purposes of this Article, no amount paid on a share inadvance of calls shall be treated as paid on the share.

Article 126

No dividend shall be paid otherwise than out of profits available for distribution under theprovisions of the Statutes or, pursuant to Section 69 of the Act and in the form of stockdividends, out of the share premium account. Any dividend unclaimed after six (6) years fromthe date of declaration shall be made forfeit and revert to the Company.

Article 134

The Directors may, with the sanction of an Ordinary Resolution of the Company, capitalise anysum standing to the credit of any of the Company’s reserve accounts as representing profitsavailable for distribution under the provisions of the Statutes or, pursuant to Sections 69 or 70of the Act, the Company’s share premium account or capital redemption reserve, byappropriating such sum to the persons registered as the holders of shares in the Register ofMembers or (as the case may be) the Depository Register at the close of business on the dateof the resolution (or such other date as may be specified therein or determined as thereinprovided) in proportion to their then holdings of shares and applying such sum on their behalfin paying up in full unissued shares or (subject to any special rights previously conferred onany shares or class of shares for the time being issued) unissued shares of any other classnot being redeemable shares, for allotment and distribution credited as fully paid up to andamongst them as bonus shares in the proportion aforesaid. The Directors may do all acts andthings considered necessary or expedient to give effect to any such capitalisation, with fullpower to the Directors to make such provisions as they think fit for any fractional entitlementswhich would arise on the basis aforesaid (including provisions whereby fractional entitlementsare disregarded or the benefit thereof accrues to the Company rather than to the membersconcerned). The Directors may authorise any person to enter on behalf of all the membersinterested into an agreement with the Company providing for any such capitalisation andmatters incidental thereto and any agreement made under such authority shall be effective andbinding on all concerned.

96

Article 146

If the Company shall be wound up (whether the liquidation is voluntary, under supervision, orby the court) the Liquidator may, with the authority of a Special Resolution, divide among themembers in specie or in kind the whole or any part of the assets of the Company and whetheror not the assets shall consist of property of one kind or shall consist of properties of differentkinds, and may for such purpose set such value as he deems fair upon any one or more classor classes of property and may determine how such division shall be carried out as betweenthe members of different classes of members. The Liquidator may, with the like authority, vestany part of the assets in trustees upon such trusts for the benefit of members as the Liquidatorwith the like authority shall think fit, and the liquidation of the Company may be closed and theCompany dissolved, but so that no contributory shall be compelled to accept any shares orother property in respect of which there is a liability.

Provisions relating to variation of rights of Shareholders

The provisions in the Articles of Association relating to the actions necessary to change therights of holders of the stock, are as follows:-

Article 9

(A) Whenever the share capital of the Company is divided into different classes of shares, thevariation or abrogation of the special rights attached to any class may, subject to theprovisions of the Act, be made either with the consent in writing of the holders of three-quarters in nominal value of the issued shares of the class or with the sanction of aSpecial Resolution passed at a separate General Meeting of the holders of the shares ofthe class (but not otherwise) and may be so made either whilst the Company is a goingconcern or during or in contemplation of a winding-up. To every such separate GeneralMeeting all the provisions of these presents relating to General Meetings of the Companyand to the proceedings thereat shall mutatis mutandis apply, except that the necessaryquorum shall be two or more persons holding at least one-third in nominal value of theissued shares of the class present in person or by proxy or attorney and that any holderof shares of the class present in person or by proxy or attorney may demand a poll andthat every such holder shall on a poll have one vote for every share of the class held byhim where the class is a class of equity shares within the meaning of Section 64(1) of theAct or at least one vote for every share of the class where the class is a class ofpreference shares within the meaning of Section 180(2) of the Act, Provided Always thatwhere the necessary majority for such a Special Resolution is not obtained at suchGeneral Meeting, the consent in writing, if obtained from the holders of three-quarters innominal value of the issued shares of the class concerned within two months of suchGeneral Meeting, shall be as valid and effectual as a Special Resolution carried at suchGeneral Meeting.

(B) The provisions in Article 9(A) shall mutatis mutandis apply to any repayment of preferencecapital (other than redeemable preference capital) and any variation or abrogation of therights attached to preference shares or any class thereof.

(C) The special rights attached to any class of shares having preferential rights shall notunless otherwise expressly provided by the terms of issue thereof be deemed to be variedby the creation or issue of further shares ranking as regards participation in the profits orassets of the Company in some or all respects pari passu therewith but in no respect inpriority thereto.

97

Provisions relating to Annual General Meeting and Extraordinary General Meetings

The provisions in the Articles of Association relating to the manner in which annual generalmeetings and extraordinary general meetings of shareholders are convoked, including theconditions of admission, are as follows:-

Article 42

A reference to a member shall be a reference to a registered holder of shares in the Company,or where such registered holder is CDP, the Depositors on behalf of whom CDP holds theshares, Provided that:-

(A) a Depositor shall only be entitled to attend any General Meeting and to speak and votethereat if his name appears on the Depository Register maintained by CDP forty-eight (48)hours before the General Meeting as a Depositor on whose behalf CDP holds shares inthe Company, the Company being entitled to deem each such Depositor, or each proxy ofa Depositor who is to represent the entire balance standing to the Securities Account ofthe Depositor, to represent such number of shares as is actually credited to the SecuritiesAccount of the Depositor as at such time, according to the records of CDP as supplied byCDP to the Company, and where a Depositor has apportioned the balance standing to hisSecurities Account between two proxies, to apportion the said number of shares betweenthe two proxies in the same proportion as previously specified by the Depositor inappointing the proxies; and accordingly no instrument appointing a proxy of a Depositorshall be rendered invalid merely by reason of any discrepancy between the proportion ofDepositor’s shareholding specified in the instrument of proxy, or where the balancestanding to a Depositor’s Securities Account has been apportioned between two proxiesthe aggregate of the proportions of the Depositor’s shareholding they are specified torepresent, and the true balance standing to the Securities Account of a Depositor as atthe time of the General Meeting, if the instrument is dealt with in such manner as isprovided above;

(B) the payment by the Company to CDP of any dividend payable to a Depositor shall to theextent of the payment discharge the Company from any further liability in respect of thepayment;

(C) the delivery by the Company to CDP of provisional allotments or share certificates inrespect of the aggregate entitlements of Depositors to new shares offered by way of rightsissue or other preferential offering or bonus issue shall to the extent of the deliverydischarge the Company from any further liability to each such Depositor in respect of hisindividual entitlement; and

(D) the provisions in these presents relating to the transfers, transmissions or certification ofshares shall not apply to the transfer of book-entry securities (as defined in the Statutes).

Article 47

An Annual General Meeting shall be held once in every year, at such time (within a period ofnot more than fifteen months after the holding of the last preceding Annual General Meeting)and place as may be determined by the Directors. All other General Meetings shall be calledExtraordinary General Meetings.

Article 48

The Directors may whenever they think fit, and shall on requisition in accordance with theStatutes, proceed with proper expedition to convene an Extraordinary General Meeting.

98

Article 49

Any Extraordinary General Meeting at which it is proposed to pass a Special Resolution or(save as provided by the Statutes) a resolution of which special notice has been given to theCompany, shall be called by twenty-one days’ notice in writing at the least and an AnnualGeneral Meeting or any other Extraordinary General Meeting, by fourteen days’ notice inwriting at the least. The period of notice shall in each case be exclusive of the day on whichit is served or deemed to be served and of the day on which the meeting is to be held andshall be given in manner hereinafter mentioned to all members other than such as are notunder the provisions of these presents entitled to receive such notices from the Company,Provided that a General Meeting notwithstanding that it has been called by a shorter noticethan that specified above shall be deemed to have been duly called if it is so agreed:-

(A) in the case of an Annual General Meeting by all the members entitled to attend and votethereat; and

(B) in the case of an Extraordinary General Meeting by a majority in number of the membershaving a right to attend and vote thereat, being a majority together holding not less than95 per cent. in nominal value of the shares giving that right;

Provided also that the accidental omission to give notice to or the non-receipt of notice by anyperson entitled thereto shall not invalidate the proceedings at any General Meeting. At leastfourteen days’ notice of any General Meeting shall be given by advertisement in the daily pressand in writing to any stock exchange upon which the shares in the Company may be listed,Provided Always that in the case of any Extraordinary General Meeting at which it is proposedto pass a Special Resolution, at least twenty-one days’ notice in writing of such ExtraordinaryGeneral Meeting shall be given to any stock exchange upon which the Shares may be listed.

Article 50

(A) Every notice calling a General Meeting shall specify the place and the day and hour of themeeting, and there shall appear with reasonable prominence in every such notice astatement that a member entitled to attend and vote is entitled to appoint a proxy to attendand vote instead of him and that a proxy need not be a member of the Company.

(B) In the case of an Annual General Meeting, the notice shall also specify the meeting assuch.

(C) In the case of any General Meeting at which business other than routine business(“special business”) is to be transacted, the notice shall specify the general nature of suchbusiness, and if any resolution is to be proposed as a Special Resolution, the notice shallcontain a statement to that effect.

Provisions relating to rights of non-resident or foreign Shareholders

The provisions in the Articles of Association relating to the rights to own Shares, including therights of non-resident or foreign shareholders to hold or exercise voting rights on their Shares,are as follows:-

Article 5

(A) Subject to any direction to the contrary that may be given by the Company in GeneralMeeting and as permitted by the rules of the Designated Stock Exchange, all new sharesshall before issue be offered to such persons who as at the date (as determined by theDirectors) of the offer are entitled to receive notices from the Company of GeneralMeetings in proportion, as nearly as the circumstances admit, to the amount of theexisting shares to which they are entitled. The offer shall be made by notice specifying thenumber of shares offered, and limiting a time within which the offer, if not accepted, will bedeemed to be declined, and, after the expiration of that time, or on the receipt of anintimation from the person to whom the offer is made that he declines to accept theshares offered, the Directors may dispose of those shares in such manner as they thinkmost beneficial to the Company. The Directors may likewise so dispose of any new shareswhich (by reason of the ratio which the new shares bear to shares held by personsentitled to an offer of new shares) cannot, in the opinion of the Directors, be convenientlyoffered under this Article 5(A).

99

(B) The Company may, notwithstanding Article 5(A) above, authorise the Directors not to offernew shares to members to whom by reason of foreign securities laws, such offers may notbe made without registration of the shares or a prospectus or other document, but to sellthe entitlements to the new shares on behalf of such members on such terms andconditions as the Company may direct.

Article 35

(A) There shall be no restriction on the transfer of fully paid up shares (except where requiredby law or by the rules, bye-laws or listing rules of any stock exchange on which the sharesin the Company may be listed) but the Directors may in their discretion decline to registerany transfer of shares upon which the Company has a lien, and in the case of shares notfully paid up, may refuse to register a transfer to a transferee of whom they do notapprove, Provided Always that in the event of the Directors refusing to register a transferof shares, the Company shall within ten market days after the date on which theapplication for a transfer of shares was made, serve a notice in writing to the applicantstating the facts which are considered to justify the refusal as required by the Statutes.

(B) The Directors may decline to register any instrument of transfer unless:-

(i) such fee not exceeding S$2.00 as the Directors may from time to time require is paidto the Company in respect thereof;

(ii) the instrument of transfer, duly stamped in accordance with any law for the time beingin force relating to stamp duty, is deposited at the Office or at such other place (ifany) as the Directors may appoint accompanied by the certificates of the shares towhich it relates, and such other evidence as the Directors may reasonably require toshow the right of the transferor to make the transfer and, if the instrument of transferis executed by some other person on his behalf, the authority of the person so to do;and

(iii) the instrument of transfer is in respect of only one class of shares.

Article 43

Except as required by the Statutes or law, no person shall be recognised by the Company asholding any share upon any trust, and the Company shall not be bound by or compelled in anyway to recognise (even when having notice thereof) any equitable, contingent, future or partialinterest in any share, or any interest in any fractional part of a share, or (except only as bythese presents or by the Statutes or law otherwise provided) any other right in respect of anyshare, except an absolute right to the entirety thereof in the registered holder and nothing inthese presents contained relating to CDP or to Depositors or in any depository agreementmade by the Company with any common depository for shares shall in any circumstances bedeemed to limit, restrict or qualify the above.

Provisions relating to delay, deferment or prevention of a change in control our Company

The provision of our Articles of Association that would have an effect of delaying, deferring orpreventing a change in control of the company and that would operate only with respect to amerger, acquisition or corporate restructuring involving our Company is as follows:-

100

Article 4(A)

Subject to these presents, no shares may be issued by the Directors without the prior approvalof the Company in General Meeting pursuant to Section 161 of the Act, but subject theretoand the terms of such approval, and to Article 5, and to any special rights attached to anyshares for the time being issued, the Directors may allot (with or without conferring a right ofrenunciation) or grant options over or otherwise dispose of the same to such persons on suchterms and conditions and for such consideration and at such time and whether or not subjectto the payment of any part of the amount thereof in cash or otherwise as the Directors maythink fit, and any shares may, subject to compliance with Sections 70 and 75 of the Act, beissued with such preferential, deferred, qualified or special rights, privileges, conditions orrestrictions, whether as regards dividend, return of capital, participation in surplus, voting,conversion or otherwise, as the Directors may think fit, and preference shares may be issuedwhich are or at the option of the Company are liable to be redeemed, the terms and mannerof redemption being determined by the Directors in accordance with the Act, Provided Alwaysthat:-

(i) no shares shall be issued to transfer a controlling interest in the Company without thespecific prior approval of the Company in General Meeting; and

(ii) no shares shall be issued at a discount or options granted over unissued shares except inaccordance with the Act.

BANK BORROWINGS AND WORKING CAPITAL

22. Save as disclosed on page 41 of this Prospectus and in the Accountants’ Report, theCompany and its subsidiaries had as at 31 October 2000, no other borrowings or indebtednessin the nature of borrowings including bank overdrafts and liabilities under acceptances (otherthan normal trading bills) or acceptance credits, mortgages, charges, hire purchasecommitments, guarantees or other contingent liabilities.

23. In the opinion of the Directors, there are no minimum amounts which must be raised by theInvitation in order to provide for the following items:

(a) the purchase price of any property purchased or to be purchased which is to be defrayedin whole or in part out of the proceeds of the Invitation;

(b) estimated preliminary and issue expenses (including underwriting and placementcommission) for the Invitation payable by the Company;

(c) the repayment of any money borrowed by the Company in respect of any of the foregoingmatters; and

(d) working capital.

No amount is required to be provided in respect of the matters aforesaid otherwise than out ofthe proceeds of the Invitation.

24. The Directors are of the opinion that, after taking into account the present banking facilities,the Group has adequate working capital for its present requirements.

101

MATERIAL CONTRACTS

25. The following contracts not being contracts entered into in the ordinary course of business ofthe Company and its subsidiaries (as the case may be) have been entered into by theCompany and its subsidiaries (as the case may be) within the two years preceding the date ofthis Prospectus and are or may be material:-

(a) A lease agreement effective 1 August 1999 between Shanghai Jin Niu PropertyDevelopment Co Ltd as landlord and HES as tenant for the lease of No 77 Jin NiuBuilding, E-Shan Road, Pudong New District, Shanghai having a built-in area of 1,498.58sq m for a term of six (6) years commencing 1 August 1999 at a monthly rental ofRMB40,112 for the first two (2) years, subject to an upward or downward revision up to amaximum of ten per cent (10%) of RMB40,112 for the next four (4) years. A maintenancefee of RMB2.00 per sq m is payable per month;

(b) Tenancy agreement dated 5 April 1999 between Lim Bok Yong Investment Pte Ltd aslandlord and HSPL as tenant for the lease the premises known as 43 Kaki Bukit IndustrialTerrace Singapore 416099 having a built-in area of 5,212 sq ft for a term of two (2) yearscommencing 15 April 1999 to 14 April 2001 at a rental of $5,000 per month;

(c) A 5-week option to purchase dated 14 March 2000 for the purchase of the whole of thepremises known as 40 Changi South Street 1, Singapore 486764 (the “Property”) byApplied Industries (S) Pte Ltd (“Applied Industries”) to HSPL of an option exercise price of$260,400 (inclusive of Goods and Services Tax);

(d) The HSPL Sale and Purchase Agreement dated 1 June 2000 between the Company andthe following persons (the “HSPL Shareholders”) to acquire the entire issued and paid-upordinary shares in HSPL, consideration of which was satisfied by the issue of 7,999,980Shares in the capital of the Company (the “HSPL Acquisition”):-

Name No. of No. ofHSPL shares sold Hyflux Shares issued

Lum Ooi Lin Olivia 736,252 7,362,510

Deirdre Murugasu 45,001 450,000

Foo Hee Kiang 18,747 187,470

800,000 7,999,980

(e) The HEPL Sale and Purchase Agreement dated 1 June 2000 between the Company andthe HEPL Shareholders to acquire 544,800 ordinary shares of $1.00 each constituting49.5% of the issued and paid-up ordinary shares in HEPL, consideration of which wassatisfied by the issue of 435,840 Shares in the capital of the Company (the “HEPLAcquisition”):-

Name No. of No. ofHEPL shares sold Hyflux shares Issued

Wong Ming Keong 80,000 64,000

Chen Yue Feng 10,000 8,000

Ng Koon Hwi 100,000 80,000

Gan Leong Ming 97,000 77,600

Koh Lip Lin 88,000 70,400

Chin Siong Wee 70,000 56,000

Deirdre Murugasu 64,800 51,840

Tan Jin Bee 25,000 20,000

Ge Wen Yue 10,000 8,000

544,800 435,840

102

(f) Subscription agreement dated 3 June 2000 between Wong Ming Keong, Chen Yue Feng,Ng Koon Hwi, Gan Leong Ming, Koh Lip Lin, Chin Siong Wee, Deirdre Murugasu, Tan JinBee, Ge Wen Yue, Foo Hee Kiang, Lum Ooi Lin Olivia (the “Existing Shareholders”), DBSCapital and Gimmill and the Company, for the subscription by each of the StrategicInvestors of 3,042,174 Shares in the capital of the Company at a consideration of$0.7889096 per Share, totalling an aggregate of $4,800,000 (the “Subscription”);

(g) Shareholders’ agreement dated 21 June 2000 between the Existing Shareholders, theStrategic Investors and the Company to give effect to their intentions and to regulate theirrelationship inter se and in the conduct of the business and affairs of the Companypursuant to the Subscription;

(h) A deed of assignment dated 22 June 2000 between Applied Industries as assignor andHPSL as assignee for the assignment of the lease of the Property with JTC dated 26November 1999 at a consideration of $2,800,000;

(i) A deed of assignment dated 22 June 2000 between HSPL as mortgagor and DBS Bankas mortgagee for the mortgage of the Property;

(j) A Supplemental Agreement dated 31 August 2000 between the Company and HSPLShareholders confirming the effective date of the HSPL Acquisition as 31 March 2000 andthe consideration of the same as $799,998;

(k) A Supplemental Agreement dated 31 August 2000 between the Company and HEPLShareholders confirming the effective date of the HEPL Acquisition as 31 March 2000 andthe consideration of the same as $1,634,400;

(l) A sale and purchase agreement dated 7 September 2000 between the Company andHSPL for the acquisition by the Company of 555,700 ordinary shares of $0.10 eachconstituting 50.5% of the issued and paid-up capital of HEPL at a consideration of$646,120.

(m) An agreement dated 8 January 2001 made between the Company and CDP pursuant towhich CDP agreed to act as central depository for the Company’s securities for trades inthe securities of the Company through the SGX-ST;

(n) The Management and Underwriting Agreement dated 8 January 2001 made between theCompany, the Vendors and DBS Bank referred to in paragraph 27 on page 104 below;

(o) The Placement Agreement dated 8 January 2001 made between the Company, theVendors and DBS Bank referred to in paragraph 27 on page 104 below.

LITIGATION

26. HEPL entered into a pre-sale agreement dated 12 October 1999 (the “Pre-Sale Agreement’)with Shanghai Jinma Real Estate Co., Ltd (“Shanghai Jinma”) to purchase a residentialapartment at Block A, 9th Floor, No.2 Jinqiao Hotel Residence (the “Apartment”) in Shanghaifor a consideration of US$75,418 which has been paid in full by HEPL. A search wasconducted by us at Shanghai Real Estate Registry in August 2000 which stated that pursuantto the bankruptcy of Shanghai Jinma, its assets, including the Apartment, have been frozen bythe Shanghai Pudong New district People’s Court on 27 December 1999. As such, HEPL maytake action to procure the legal title of the Apartment or to recover the consideration paid forthe Apartment. We are currently seeking legal advice and will decide on the appropriate courseof action once we have considered the feasibility of the options.

Save as disclosed above, neither the Company nor any of its subsidiaries is engaged in anylitigation or arbitration either as plaintiff or defendant in respect of any claims or amounts whichmay have or have had during the previous 12 months a significant effect on the Group’sfinancial position and the Directors have no knowledge or are aware of any proceeding,litigation or claim of material importance which are pending or threatened against the Companyor any of its subsidiaries or of any facts likely to give rise to any such litigation, arbitration orclaim.

103

MANAGEMENT AND UNDERWRITING ARRANGEMENTS

27. (a) Pursuant to the management and underwriting agreement (“Management and UnderwritingAgreement”) dated 8 January 2001, the Company and the Vendors appointed DBS Bankto manage the Invitation and to underwrite the Invitation Shares. DBS Bank will receive amanagement fee from the Company and the Vendors in the proportion in which thenumber of Invitation Shares offered by each of them pursuant to the Invitation bears to thetotal number of Invitation Shares, for its services rendered in connection with the Invitation.

(b) Pursuant to the Management and Underwriting Agreement, the Underwriter agreed tounderwrite the Invitation Shares for a commission of 1.5% of the Issue Price for eachInvitation Share, payable by the Company and the Vendors in the proportion in which thenumber of Invitation Shares offered by each of them pursuant to the Invitation bears to thetotal number of Invitation Shares.

(c) Pursuant to the placement agreement (“Placement Agreement”) dated 8 January 2001, thePlacement Agent agreed to subscribe or procure subscriptions for the Placement Sharesfor a placement commission of 1.5% of the Issue Price for each Placement Share, payableby the Company and the Vendors in the proportion in which the number of InvitationShares offered by each of them pursuant to the Invitation bears to the total number ofInvitation Shares.

(d) Brokerage will be paid by the Company and the Vendors, in the proportion in which thenumber of Invitation Shares offered by each of them pursuant to the Invitation bears to thetotal number of Invitation Shares, to members of the Exchange, merchant banks andmembers of the Association of Banks in Singapore in respect of accepted applicationsmade on Application Forms bearing their respective stamps, or to Participating Banks inrespect of successful applications made through Electronic Applications at the ATMs of therelevant Participating Banks, at the rate of 1.0% of the Offer Price for each Offer Share.

(e) Save as aforesaid, no commission, discount or brokerage, has been paid or other specialterms granted within the two years preceding the date of this Prospectus or is payable toany Director, promoter, expert, proposed Director or any other person for subscribing oragreeing to subscribe or procuring or agreeing to procure subscriptions for any shares inor debentures of the Company.

(f) The Management and Underwriting Agreement may be terminated by the Underwriter atany time on or before the closing of the Application List on the occurrence of certainevents including, inter alia, changes in political, financial or economic conditions inSingapore or abroad which result, inter alia, in the Singapore stock market beingmaterially and adversely affected.

(g) The Placement Agreement is conditional upon the Management and UnderwritingAgreement not having been terminated or rescinded pursuant to the provisions of theManagement and Underwriting Agreement.

MISCELLANEOUS

28. The nature of the business of the Company is stated on pages 49 to 52 of this Prospectus. Atthe date of this Prospectus, all the corporations listed below are, by virtue of Section 6 of theCompanies Act (Chapter 50), deemed to be related to the Company:-

Subsidiaries of the Company

Hydrochem (S) Pte LtdHydrochem Engineering (S) Pte LtdHydrochem Engineering (Shanghai) Co., LtdHyflux Engineering Pte Ltd

29. The time of opening of the Application List is set out on page 11 of this Prospectus.

104

30. The amount payable on application is $0.32 for each Offer Share and $0.32 for eachPlacement Share. There has been no previous issue of Shares by the Company or offer forsale of its Shares to the public within the two years preceding the date of this Prospectus.

31. Application moneys received by the Company and the Vendors in respect of successfulapplications (including successful balloted applications which are subsequently rejected) will beplaced in a separate non-interest bearing account with DBS Bank (the “Receiving Bank”). Inthe ordinary course of business, the Receiving Bank will deploy these moneys in the interbankmoney market. Pursuant to an agreement contained in a letter dated 4 January 2001, theCompany, the Vendors and the Receiving Bank have agreed that the Company and theVendors will receive for its own account an aggregate of a 50% share of any net revenue inexcess of $50,000 earned by the Receiving Bank from the deployment of such monies in theinterbank money market to be shared between the Company and the Vendors in the proportionborne by the number of Invitation Shares each has offered to the total number of InvitationShares offered pursuant to the Invitation. Any refund of all or part of the application monies tounsuccessful or partially successful applicants will be made without any interest or any shareof such revenue or any other benefits.

32. No property has been purchased or acquired or proposed to be purchased or acquired by theCompany or its subsidiaries which is to be paid for wholly or partly out of the proceeds of theInvitation or the purchase or acquisition of which has not been completed at the date of theissue of this Prospectus other than property the contract for the purchase or acquisitionwhereof was entered into in the ordinary course of business of the Company or itssubsidiaries, the contract not being made in contemplation of the Invitation nor the Invitation inconsequence of the contract.

33. The estimated amount of the expenses of this issue and of the application for listing, includingunderwriting and placement commission, brokerage, management fee and all other incidentalexpenses in relation to this Invitation is approximately $1.2 million, which will be borne by theCompany and the Vendors in the proportion borne by the number of Invitation Shares eachhas offered to the total number of Invitation Shares offered pursuant to the Invitation. Thelisting fee and other fees payable to the SGX-ST for the listing are payable by the Company.

34. No amount of cash or securities or benefit has been paid or given to any promoter within thetwo years preceding the date of this Prospectus or is proposed or intended to be paid or givento any promoter at any time.

35. Save as disclosed in this Prospectus, the Directors are not aware of any relevant materialinformation including trading factors or risks not mentioned elsewhere in the Prospectus whichis unlikely to be known or anticipated by the general public and which could materially affectthe profits of the Company and its subsidiaries.

36. Save as disclosed in this Prospectus, the financial condition and operations of the Group arenot likely to be affected by any of the following:-

(a) known trends or known demands, commitments, events or uncertainties that will result inor are reasonably likely to result in the Group’s liquidity increasing or decreasing in anymaterial way;

(b) material commitments for capital expenditures;

(c) unusual or infrequent events or transactions or any significant economic changes thatmaterially affected the amount of reported income from operations; and

(d) known trends or uncertainties that have had or that the Group reasonably expects to havea material favourable or unfavourable impact on revenues or operating income.

105

CONSENTS

37. The Auditors and Reporting Accountants have given and have not withdrawn their writtenconsent to the issue of this Prospectus with the inclusion herein of the Accountants’ Reportand the letter relating to the profit estimate for the year ended 31 December 2000, in the formand context in which they appear in this Prospectus and references to their names in the formand context in which they appear in this Prospectus and to act in such capacity in relation tothis Prospectus.

38. The Manager, Underwriter and Placement Agent(s), the Solicitors, the Principal Banker and theShare Registrar have given and have not withdrawn their consent to the issue of thisProspectus with the inclusion herein of their names in the form and context in which theyappear in this Prospectus and to act in those capacities in relation to this Prospectus.

DOCUMENTS AVAILABLE FOR INSPECTION

39. Copies of the following documents may be inspected at the registered office of the Companyat, 40 Changi South Street 1 Singapore 486764 during normal business hours for a period ofsix months from the date of this Prospectus:-

(a) the Memorandum and Articles of Association of the Company;

(b) the Directors’ Report;

(c) the letter from the Auditors and Reporting Accountants in relation to the consolidatedproforma profit estimate for the financial year ended 31 December 2000;

(d) the Accountants’ Report (including statement of adjustments);

(e) the material contracts referred to on pages 102 to 103 of this Prospectus;

(f) the letters of consent referred to on page 106 of this Prospectus; and

(g) the audited accounts of the Company and its subsidiaries for the last two financial yearsended 31 December 1998 and 31 December 1999 and the ten months ended 31 October2000.

STATEMENT BY DIRECTORS OF THE COMPANY AND THE VENDORS

40. This Prospectus has been seen and approved by our Directors and the Vendors and theycollectively and individually accept full responsibility for the accuracy of the information given inthis Prospectus and confirm, having made all reasonable enquiries, that to the best of theirknowledge and belief, there are no other facts the omission of which would make anystatements herein misleading, and that this Prospectus constitutes full and true disclosure of allmaterial facts about the Invitation and the Company and its subsidiaries. Our Directors alsoconfirm that the profit estimate for the financial year ended 31 December 2000 has beenstated after due and careful enquiry.

STATEMENT BY DBS BANK

41. DBS Bank acknowledges that, to the best of its knowledge and belief, based on informationfurnished to it by the Group, this Prospectus constitutes a full and true disclosure of all thematerial facts about the Invitation and the Company and its subsidiaries and it is not aware ofany other facts the omission of which would make any statements herein misleading. It is alsosatisfied that the profit estimate of the Group for the financial year ended 31 December 2000has been stated by the Directors after due and careful enquiry.

106

APPENDIX A

DIRECTORS’ REPORT

8 January 2001

The ShareholdersHyflux Ltd40 Changi South Street 1Singapore 486764

Dear Sirs

This report has been prepared for inclusion in the Prospectus of Hyflux Ltd (the “Company”) to bedated 8 January 2001 in connection with the Invitation in respect of 39,470,000 ordinary shares of$0.05 each in the capital of the Company (the “Shares”) comprising 25,000,000 New Shares and14,470,000 Vendor Shares.

On behalf of the Directors of the Company, I report that, having made due inquiry in relation to theinterval between 31 October 2000, the date to which the last audited accounts of the Companywere made up, and the date hereof:-

(a) the business of the Company and its subsidiaries has, in the opinion of the Directors, beensatisfactorily maintained;

(b) no circumstances have, in the opinion of the Directors, arisen since the last Annual GeneralMeeting of the Company which would adversely affect the trading or the value of the assets ofthe Company or its subsidiaries;

(c) the current assets of the Company and its subsidiaries appear in the books at values whichare believed to be realisable in the ordinary course of business;

(d) save as disclosed on page 126 of this Prospectus, no contingent liabilities have arisen byreason of any guarantees given by the Company or its subsidiaries; and

(e) save as disclosed on page 116 of this Prospectus, there have been no changes in thepublished reserves or any unusual factors affecting the profit of the Company and itssubsidiaries since the last audited accounts.

Yours faithfullyfor and on behalf of theBoard of Directors

Lum Ooi Lin OliviaManaging Director Hyflux Ltd

107

APPENDIX B

LETTER FROM THE AUDITORS AND REPORTING ACCOUNTANTS IN RELATION TO THE CONSOLIDATED PROFORMA PROFIT ESTIMATE

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000

8 January 2001

The Board of DirectorsHyflux Ltd40 Changi South Street 1Singapore 486764

Dear Sirs

This letter has been prepared for inclusion in the Prospectus of Hyflux Ltd (the “Company”) to bedated 8 January 2001 in connection with the Invitation in respect of 39,470,000 ordinary shares of$0.05 each in the capital of the Company (the “Shares”) at $0.32 per Share comprising 25,000,000New Shares and 14,470,000 Vendor Shares, payable in full on application.

We have reviewed the profit estimate of the Proforma Group for the financial year ended 31December 2000 set out on pages 37 to 38 of the Prospectus in accordance with the SingaporeStandard on Auditing applicable to the examination of prospective financial information. TheDirectors are solely responsible for the profit estimate of the Proforma Group including the basesand assumptions on which the estimate is based.

The profit estimate of the Proforma Group includes results of the audited financial statements for theten months ended 31 October 2000.

Based on our examination of the evidence supporting the assumptions, nothing has come to ourattention which cause us to believe that these assumptions do not provide a reasonable basis forthe profit estimate of the Proforma Group. Further, in our opinion, the profit estimate of the ProformaGroup, so far as the accounting policies and calculations are concerned, is properly prepared on thebases and assumptions, is consistent with the accounting policies normally adopted by the ProformaGroup, and is presented in accordance with Statements of Accounting Standard in Singapore.

Yours faithfully

Arthur AndersenCertified Public AccountantsSingapore

Max Loh Khum WhaiPartner-in-charge

108

APPENDIX C

ACCOUNTANTS’ REPORT

8 January 2001The Board of DirectorsHyflux Ltd40 Changi South Street 1Singapore 486764

Dear Sirs

A. INTRODUCTION

This report has been prepared for inclusion in the Prospectus to be dated 8 January 2001 inconnection with the Invitation by Hyflux Ltd (the “Company”) in respect of 39,470,000 ordinaryshares of S$0.05 each, comprising 25,000,000 New Shares and 14,470,000 Vendor Sharespayable in full on application as follows:

1. 6,000,000 Offer Shares at S$0.32 for each Offer Share by way of public offer; and

2. 33,470,000 Placement Shares by way of placement, comprising:

(i) 32,430,000 Placement Shares at S$0.32 for each Placement Share; and

(ii) 1,040,000 Reserved Shares at S$0.32 for each Reserved Share reserved for theDirectors, management, employees and others who have contributed to the success of theGroup.

B. THE COMPANY

The Company was incorporated in Singapore on 31 March 2000 as a limited private companyunder the name of Hyflux Pte Ltd. On 20 December 2000, the Company was converted into apublic limited company and changed its name to Hyflux Ltd.

The principal activity of the Company is that of investment holding.

The Company was incorporated with an authorised share capital of S$50,000,000, comprising500,000,000 ordinary shares of S$0.10 each and an issued and paid-up share capital of S$2,comprising 20 initial subscriber shares of S$0.10 each.

The following was carried out by the Company:

(i) On 31 March 2000, the Company acquired the entire issued and paid-up share capital ofHydrochem (S) Pte Ltd for a consideration of $799,998 which was satisfied by the issueof 7,999,980 ordinary shares of S$0.10 each at par in the Company;

(ii) On 31 March 2000, the Company acquired 544,800 ordinary shares of S$1 each inHydrochem Engineering (S) Pte Ltd constituting 49.5% of the entire issued and paid-upordinary shares of Hydrochem Engineering (S) Pte Ltd for a consideration of S$1,634,400,which was satisfied by the issue of 435,840 ordinary shares of S$0.10 each at S$3.75 pershare in the Company, giving rise to a share premium of $1,590,816;

(iii) On 1 June 2000, the sum of S$1,590,155.80 was capitalised from the share premiumaccount of the Company for a bonus issue of 15,901,558 ordinary shares of S$0.10 eachcredited as fully paid to the existing shareholders;

(iv) On 3 June 2000, two investors (the “Investors”) each subscribed for 3,042,174 ordinaryshares of S$0.10 each in the capital of the Company at a consideration of S$0.789 pershare, raising an amount of S$4,800,000 for the Company;

109

(v) On 7 September 2000, the Company acquired the remaining 50.5% equity interest inHydrochem Engineering (S) Pte Ltd for a cash consideration of $646,120, representingHydrochem (S) Pte Ltd’s cost of investment in Hydrochem Engineering (S) Pte Ltd; and

(vi) On 8 January 2001, the two Investors each subscribed for 1 ordinary share of S$0.05each in the capital of the Company at a consideration of S$1,304,012 per share, raisingan amount of S$2,608,024 for the Company, pursuant to a shareholders’ agreement dated21 June 2000.

At an Extraordinary General Meeting held on 18 December 2000, the shareholders of theCompany approved, inter alia, the following:

(i) the sub-division of each of the ordinary shares of S$0.10 each in the authorised andissued and paid-up share capital into 2 ordinary shares of S$0.05 each (the “Stock Split”);

(ii) the capitalisation of S$4,192,225 from the share premium account of the Company by wayof a bonus issue of 83,844,500 ordinary shares of S$0.05 each credited as fully paid tothe existing shareholders;

(iii) the conversion of the Company into a public limited company and the change of its nameto Hyflux Ltd;

(iv) the adoption of the new Articles of Association of the Company;

(v) the issue of 25,000,000 New Shares which is part of the subject of this Invitation andwhich, when fully paid, allotted and issued, will rank pari passu in all respects with theexisting ordinary shares of the Company; and

(vi) that pursuant to Section 161 of the Companies Act, the Directors be authorised to issueshares in the Company (whether by way of rights, bonus or otherwise) at any time andupon such terms and conditions and for such purposes and to such persons as theDirectors may in their absolute discretion deem fit, provided that the aggregate number ofshares to be issued pursuant to this resolution shall not exceed 50% of the issued sharecapital of the Company immediately prior to the proposed issue and provided that theaggregate number of such shares to be issued other than on a pro-rata basis to the thenexisting shareholders shall not exceed 20% of the issued share capital of the Companyimmediately prior to the proposed issue, unless revoked or varied by the shareholders ina general meeting, such authority shall continue in force until the conclusion of the AnnualGeneral Meeting or the date by which the next Annual General Meeting is required by lawto be held, whichever is the earlier.

110

B. THE COMPANY (Continued)

C. THE PROFORMA GROUP

The Company and its subsidiaries are collectively referred to as the “Proforma Group”. Thesubsidiaries at the date of this report are as follows:

Issued and % equityPlace and date paid-up held by

Name of subsidiary of incorporation capital the Group Principal activities

Hydrochem (S) Pte Singapore S$800,000 100 Manufacturing, processingLtd 30 June 1989 and dealing in water treatment

equipment and turnkey engineeringinstallation of industrial equipment andmachines and other related activities

Hydrochem Engineering Singapore S$1,100,500 100 Consulting in the installation of(S) Pte Ltd 9 March 1994 equipment for chemical processing,

applications of chemicals and chemicalpreparations for commercial or industrialuse and wholesale of chemical andfabricated products

Hyflux Engineering Singapore S$2 100 Operating of water and liquidPte Ltd 18 November 2000 treatment plants and sale of treated

water

Held by a subsidiary

Hydrochem Engineering People’s US$420,000 100 Development, manufacture of equipment(Shanghai) Co., Ltd Republic of and parts primarily for membrane

China filtration technology, sale of24 November 1994 manufactured equipment and ancillary

parts, provision of installation andcommissioning of relevant projects andprovision of technical services andconsultation

We were appointed as auditors of the Company from the date of its incorporation. We haveacted as auditors of Hydrochem (S) Pte Ltd and Hydrochem Engineering (S) Pte Ltd witheffect from the financial year ended 31 December 1999. The financial statements ofHydrochem (S) Pte Ltd for the financial years ended 31 December 1995 to 1998 have beenaudited by another firm of public accountants, Casey Lim & Company. The financial statementsof Hydrochem Engineering (S) Pte Ltd for the financial periods from the date of incorporation,9 March 1994 to 30 June 1995 and that for 1 July 1995 to 31 December 1996, as well as thefinancial years ended 31 December 1997 to 1998 have been audited by Casey Lim &Company.

The financial statements of Hydrochem Engineering (Shanghai) Co., Ltd for the period from thedate of incorporation, 1 October 1994 to 31 December 1995 and the financial years ended 31December 1996 to 1999 were prepared in accordance with applicable accounting regulationsin the People’s Republic of China (PRC) and were audited by Guang Hua Certified PublicAccountants, a firm of certified public accountants in the PRC, for PRC statutory reportingpurposes. We have reviewed these financial statements and made adjustments as appropriate,for the purpose of inclusion in the Proforma Group financial statements.

The auditors’ reports on the financial statements of the Company and its subsidiariesincorporated in Singapore for all the periods under review were not qualified.

111

D. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

The financial statements set out in this report have been prepared on the basis that theProforma Group structure had been in place throughout the periods covered by this report. Ithas been prepared in accordance with the accounting policies of the Proforma Group set outin Section K of this report and is based on the audited financial statements of the companiesin the Proforma Group for the financial years ended 31 December 1995 to 31 December 1999and the financial period for the ten months ended 31 October 2000.

In arriving at the Proforma Group financial statements, we have made such adjustments as weconsidered necessary in order to present the financial statements on a consistent andcomparable basis, including notional adjustments to reflect the investments and share capital ofthe Company, as if the Proforma Group had existed from 1 January 1995.

The acquisition of Hydrochem (S) Pte Ltd and Hydrochem Engineering (S) Pte Ltd for a totalconsideration of S$2.4 million was effected via the issue of 7,999,980 ordinary shares ofS$0.10 each at par and 435,840 ordinary shares of S$0.10 each at S$3.75 per share. The nettangible assets acquired was S$1.6 million. This resulted in the creation of share premium andgoodwill on consolidation in the consolidated financial statements. In preparing the ProformaGroup financial statements, we have assumed that this restructuring took place as at 1January 1995. The Proforma Group has been accounted for as if the restructuring was doneon a net asset basis. Accordingly, we have assumed that there is no goodwill arising onconsolidation from the acquisition of these subsidiaries on a proforma basis.

E. STATEMENTS OF PROFORMA GROUP RESULTS

The results of the Proforma Group after making adjustments as we considered appropriate areset out below:

Ten monthsended

Year ended 31 December 31 OctoberNote 1995 1996 1997 1998 1999 2000

S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Turnover 1 1,437 3,073 3,870 6,391 6,929 15,775

(Loss) profit before taxation 2 (225) (258) 137 1,058 430 5,954

Taxation 3 (10) (14) (12) (377) (351) (1,596)

Net (loss) profit for theyear/period (235) (272) 125 681 79 4,358

112

F. NOTES TO THE STATEMENTS OF PROFORMA GROUP RESULTS

1. Turnover represents contract revenue recognised using the percentage-of-completion method,measured by reference to the value of work performed to total estimated contract value.Provision is made for any foreseeable losses as soon as they are known. Intra-grouptransactions have been excluded from Proforma Group turnover.

The Proforma Group has significant transactions with related parties on terms agreed betweenthe parties as follows:

Ten monthsended

Year ended 31 December 31 October1995 1996 1997 1998 1999 2000

S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Rental expenses paid to directors — — 18 108 108 90

2. (Loss) profit before taxation has been determined after charging (crediting) the following:

Ten monthsended


S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Amortisation of preliminary expenses 6 — 20 19 18 9

Bad trade debts written off — — — — — 71

Bad non-trade debts written off — — — — 184 —

Depreciation of fixed assets 57 90 74 106 143 220

Directors’ fees 9 60 — 355 107 83

Directors’ remuneration 213 181 287 371 328 307

Foreign exchange (gain) loss, net (8) (8) (27) 9 9 (42)

Grants received — — — — (108) (129)

Loss on disposal of fixed assets — — 2 — — —

Interest income on bank deposits — — — (8) (34) (61)

Interest expense

— bank overdrafts 14 18 21 10 8 2

— hire purchase 5 4 3 — 1 2

— finance lease — — — — 2 2

— bills payable — — — 10 10 9

— loan — — — — — 5

Provision for doubtful trade debts — — — — 73 178

Research and development costs — — 131 191 387 539

113

3. Taxation comprises:

Ten monthsended


S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Current tax

— current year 10 14 12 108 335 1,592

— underprovision in respect ofprior year — — — — — 4

Deferred tax

— current year — — — 269 (2) —

— underprovision in respect ofprior year — — — — 18 —

10 14 12 377 351 1,596

The taxation charge for the Proforma Group differs from the amount obtained by applying theapplicable income tax rate to the profit before taxation of the Proforma Group mainly due tothe utilisation of tax losses brought forward from prior year and no right of offset of taxableprofits of one subsidiary with tax losses of another.

G. STATEMENTS OF ADJUSTMENTS

The following adjustments have been made to the audited financial statements of the companiesin the Proforma Group for the respective financial years/period covered by this report:

Ten monthsended


S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Turnover

Turnover from summation ofaudited financial statements 1,437 3,205 3,990 6,664 9,078 20,276

Elimination of turnover withinProforma Group — (132) (120) (232) (2,149) (4,501)

Adjustment for overstatementof turnover — — — (41) — —

Adjusted turnover as stated inthe Statements of ProformaGroup Results 1,437 3,073 3,870 6,391 6,929 15,775

(Loss) profit before taxation

(Loss) profit before taxation fromsummation of audited financialstatements (225) (258) 137 1,108 430 5,954

Overstatement of trade debtors — — — (194) — —

Restatement of stocks — — — 144 — —

Adjusted (loss) profit beforetaxation as stated in theStatements of ProformaGroup Results (225) (258) 137 1,058 430 5,954

114

F. NOTES TO THE STATEMENTS OF PROFORMA GROUP RESULTS (Continued)

Ten monthsended


S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Taxation

Taxation from summation ofaudited financial statements 10 14 12 108 351 1,596

Understatement of deferredtax liability — — — 269 — —

Adjusted taxation as stated inthe Statements of ProformaGroup Results 10 14 12 377 351 1,596

H. SUMMARISED PROFORMA GROUP BALANCE SHEETS

The summarised balance sheets of the Proforma Group as at 31 December 1995 to 1999 andas at 31 October 2000 as set out below have been prepared based on the audited financialstatements after making adjustments as we considered appropriate and on the basis that theProforma Group had been in place since 1 January 1995.

As atAs at 31 December 31 October

1995 1996 1997 1998 1999 2000S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Proforma shareholders’ equity 927 940 1,075 1,719 310 7,765

Represented by:

Fixed assets 182 234 362 332 795 4,726

Preliminary expenses — — 46 27 9 20

Current assets 1,372 1,788 2,140 4,239 4,467 10,444

Current liabilities (606) (1,082) (1,473) (2,595) (4,479) (6,978)

Net current assets (liabilities) 766 706 667 1,644 (12) 3,466

Less:


Hire-purchase creditors

(non-current portion) 21 — — — 186 153

Finance lease creditors

(non-current portion) — — — 15 11 9

Deferred taxation — — — 269 285 285

927 940 1,075 1,719 310 7,765

115

G. STATEMENTS OF ADJUSTMENTS (Continued)

I. MOVEMENTS IN PROFORMA SHAREHOLDERS’ EQUITY

The movements in the shareholders’ equity of the Proforma Group for each of the five yearsended 31 December 1995 to 1999 and the ten months ended 31 October 2000 are as follows:

Ten monthsended


S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Balance brought forward — 927 940 1,075 1,719 310

Add (less):

Notional investment in subsidiariesvia the issue of shares by theCompany 1,162 285 10 — 60 —

Net (loss) profit attributable tothe Proforma Group (235) (272) 125 681 79 4,358

Dividends, net — — — (37) (894) (1,700)

Currency alignment — — — — (7) (3)

Issue of shares by theCompany for cash — — — — — 4,800

Purchase of 50.5% equityinterest in HydrochemEngineering (S) Pte Ltdby Hydrochem (S) PteLtd for cash — — — — (647) —

Balance carried forward 927 940 1,075 1,719 310 7,765

116

J. STATEMENTS OF NET ASSETS

The statements of net assets of the Proforma Group and of the Company as at 31 October2000 are set out below with the notes thereon, set out in Section L.

Proforma ProformaNote Group Company

S$’000 S$’000

Proforma shareholders’ equity 7,765 5,009

Represented by:

Fixed assets 1 4,726 150

Investment in subsidiaries 2 — 870

Preliminary expenses 3 20 20

Current assets

Stocks 4 452 —

Trade debtors 5 3,587 —

Work-in-progress 6 3,968 —

Other debtors, deposits and prepayments 7 980 161

Due from subsidiaries (non-trade) 8 — 3,307

Dividend receivable — 1,700

Short term notes 9 500 500

Fixed deposits 10 659 —

Cash and bank balances 298 97

10,444 5,765

Less:

Current liabilities

Trade creditors 905 —

Other creditors and accruals 11 1,349 —

Proposed dividend 1,700 1,700

Provision for taxation 1,948 —

Hire purchase creditors (current portion) 12 216 96

Finance lease creditors (current portion) 13 4 —

Term loan, secured (current portion) 14 295 —

Bank overdraft, secured 14 561 —

6,978 1,796

Net current assets 3,466 3,969

Less:


Hire purchase creditors (non-current portion) 12 153 —

Finance lease creditors (non-current portion) 13 9 —

Deferred taxation 285 —

7,765 5,009

117

K. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies which have been consistently applied in the preparation ofthe financial statements of the Company and the Proforma Group are as follows:

Basis of accounting

The financial information, expressed in Singapore dollars, are prepared in accordance with thehistorical cost convention and Statements of Accounting Standard in Singapore to reflect theresults and financial positions of the Company and the Proforma Group.

Grants

These relate to grants received from the National Science and Technology Board (“NSTB”) andthe Economic Development Board (“EDB”) for certain projects undertaken by the Company.Such grants received are recognised as income through the profit and loss account andmatched against related costs incurred during the year which they are intended to compensate.

Income recognition

Income from contracts is recognised using the percentage-of-completion method, measured byreference to the value of work performed to total estimated contract value. Provision is madefor any foreseeable losses as soon as they are known.

Basis of consolidation

The Proforma Group financial statements include the financial statements of the Company andits subsidiaries made up to the end of the financial year. The results of subsidiaries acquiredor disposed of during the year are included in or excluded from the Proforma Group financialstatements as if the Proforma Group existed with effect from 1 January 1995. Significantintercompany balances and transactions have been eliminated on consolidation.

When subsidiaries are acquired, the difference between the fair value of net assets ofsubsidiaries acquired at the date of acquisition over the cost of acquisition represents goodwillor reserve on consolidation. This is amortised on a straight-line basis over 5 years through theprofit and loss account.

In the preparation of the Proforma Group financial statements, the financial statements offoreign subsidiaries are translated at the rates of exchange ruling at the balance sheet dateexcept for share capital and reserves which are translated at historical rates of exchange andprofit and loss items which are translated at average exchange rates for the year. Foreigncurrency translation differences are taken to translation reserve.

Investment in subsidiaries

Investment in subsidiaries is stated in the financial statements of the Company at cost.Provision is made where there is a decline in value that is other than temporary.

Preliminary expenses

Preliminary expenses are stated at cost less amounts amortised. These expenses are writtenoff to the statement of profit and loss over 3 years.

Work-in-progress

Work-in-progress is stated at cost plus attributable profit net of progress billings and provisionfor foreseeable losses. Costs include cost of materials, direct labour and direct and indirectoverheads incurred in connection with the contracts.

118

Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation.

Fixed assets are depreciated using the straight-line method to write-off the cost over theirestimated useful lives. The estimated useful lives have been taken as follows -

Years

Plant and machinery 4 - 5

Motor vehicles 4 - 5

Computers 1 - 4

Office equipment 4 - 5

Leasehold property over the lease period

Furniture and fittings 4 - 10

Renovations 4 - 5

Fully depreciated assets are retained in the financial statements until they are no longer in use.

During the financial year ended 31 December 1996, a subsidiary, Hydrochem (S) Pte Ltdchanged the estimated useful life of computers for depreciation purposes from 5 years to 1year. The Directors are of the opinion that the change is to more accurately reflect theeconomic useful life of the computers for depreciation purposes. The effect of the change inaccounting estimate is to increase the Group’s loss before taxation for the financial year ended31 December 1996 by approximately S$14,000.

Stocks

Stocks are stated at the lower of cost and net realisable value. Cost is determined on a first-in, first-out basis. In the case of finished goods and work-in-progress, cost includes rawmaterials, labour and an attributable portion of overhead costs. Provision is made fordeteriorated, damaged, obsolete and slow-moving stocks.

Hire purchase and finance lease

Where assets are financed by hire purchase contracts or finance leases that give rightsapproximating to ownership, the assets are capitalised as if they had been purchased outrightat the values equivalent to the present value of the total rental payable during the periods ofthe hire purchase or finance lease and the corresponding hire purchase commitments orfinance lease are included under liabilities. The excess of the hire purchase or finance leasepayments over the recorded hire purchase or finance lease obligations is treated as financecharges which are allocated over each hire purchase and finance lease term to give a constantrate of interest on the outstanding balance at the end of each period.

Taxation

Income tax expense is determined on the basis of tax effect accounting, using the liabilitymethod and is applied to all significant timing differences. Deferred tax benefits are notrecognised unless there is reasonable expectation of their realisation.

119

K. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign currency transactions and balances

The accounting records of the companies in the Proforma Group are maintained in theirrespective reporting currencies.

Transactions in foreign currencies during the year are recorded in the respective reportingcurrencies using exchange rates approximating those ruling at transaction dates. Foreigncurrency monetary assets and liabilities at the balance sheet date are translated into therespective reporting currencies at exchange rates approximating those ruling at that date. Allresultant exchange differences are dealt with through the profit and loss account.

Pension scheme

Hydrochem Engineering (Shanghai) Co., Ltd is required to provide certain staff pensionbenefits to their employees under existing People’s Republic of China legislation. Pensioncontributions are provided at 30% of total basic salary of contracted Chinese employees andare contributed to a pension fund managed by government agencies, which are responsible forpaying pensions to the company’s Chinese retired employees. These benefits are accounted foron an accrual basis and charged to the profit and loss account.

Value-added tax (“VAT”)

In accordance with the relevant People’s Republic of China tax laws, the subsidiary is subjectto Value-added Tax (“VAT”), which is charged on top of the selling price at a general rate of17%. An input credit is available whereby VAT previously paid on purchases of semi-finishedproducts or raw materials etc. can be offset against the VAT on sales to determine the net VATpayable.

Research and development costs

Expenditure on research and development is charged to the profit and loss account in the yearin which it is incurred except where a major project is undertaken and it is reasonablyanticipated that the development costs will be recovered through future commercial activity.Such development costs are written off over the life of the project from the date ofcommencement of commercial operation.

120

K. SIGNIFICANT ACCOUNTING POLICIES (Continued)

L. NOTES TO THE STATEMENT OF NET ASSETS

1. FIXED ASSETS

Furniture Plantand Office Motor and Leasehold

Group fittings equipment Renovations Computers vehicles machinery property TotalS$’000 S$’000 S$’000 S$’000 S$’000 S$’000 S$’000 S$’000

Cost

As at 1.1.00 45 152 133 66 565 273 97 1,331

Additions 27 52 568 52 278 287 2,884 4,148

Currency alignment — 2 — — 3 2 — 7

As at 31.10.00 72 206 701 118 846 562 2,981 5,486

Accumulateddepreciation

As at 1.1.00 25 97 87 55 235 33 5 537

Charge for the period 4 24 51 7 68 62 4 220

Currency alignment — 1 — — 2 — — 3

As at 31.10.00 29 122 138 62 305 95 9 760

Net book value

As at 31.10.00 43 84 563 56 541 467 2,972 4,726

MotorCompany vehicle

S$’000

Cost

As at 1.1.00 —

Additions 150

As at 31.10.00 150

Accumulated depreciation

As at 1.1.00 —

Charge for the period —

As at 31.10.00 —

Net book value

As at 31.10.00 150

As at 31 October 2000, the Group and Company had fixed assets under hire purchase andfinance lease with a net book value of approximately $582,000 and $150,000 respectively.

As at 31 October 2000, the Group’s leasehold residential property in the People’s Republic ofChina with a net book value of approximately S$87,000 was frozen by the Pudong New DistrictPeople’s Court arising from a dispute between the developers of the property with People’sRepublic of China authorities (please refer to page 103 on “Litigation” for details).

121

2. INVESTMENT IN SUBSIDIARIES

Country of Equity interest Proforma costincorporation held by the of investment

and place Proforma by theName of Subsidiary of business Principal Activities Group Company

% S$’000

Hydrochem (S) Pte Ltd Singapore Manufacturing, processing 100 453and dealing in watertreatment equipment andturnkey engineeringinstallation of industrialequipment and machinesand other related activities

Hydrochem Engineering Singapore Consulting in the installation 100 417(S) Pte Ltd of equipment for chemical

processing, applicationsof chemicals and chemicalpreparations for commercialor industrial use andwholesale of chemicaland fabricated products

Held by a subsidiary

Hydrochem Engineering People’s Development, manufacture of 100 —(Shanghai) Co., Ltd Republic of equipment and parts primarily

China for membrane filtrationtechnology, sale ofmanufactured equipmentand ancillary parts, provisionof installation andcommissioning of relevantprojects and provision oftechnical services and consultation

870

122

L. NOTES TO THE STATEMENT OF NET ASSETS (Continued)

3. PRELIMINARY EXPENSES

Group CompanyS$’000 S$’000

Preliminary expenses incurred 86 20

Less accumulated amortisation (66) —

Balance at end of the period 20 20

Movements in accumulated amortisation during the financial period are as follows:

At beginning of the period 57 —

Amortisation for the period 9 —

At end of the period 66 —

4. STOCKS


Raw materials 452 —

5. TRADE DEBTORS


Trade debtors 3,765 —

Less provision for doubtful trade debts (178) —

3,587 —

Movements in provision for doubtful trade debts during the period are as follows:

At beginning of the period — —

Provision for the period 178 —

At end of the period 178 —

6. WORK-IN-PROGRESS


Project cost and attributable profits 10,118 —

Less progress billings (6,150) —

3,968 —

123


7. OTHER DEBTORS, DEPOSITS AND PREPAYMENTS


Other debtors 252 —

Deposits 41 —

Prepayments 687 161

980 161

8. DUE FROM SUBSIDIARIES (NON-TRADE)

These balances are unsecured, interest-free and have no fixed terms of repayment.

9. SHORT TERM NOTES

These short term notes bear variable interest rates from 2.825% to 2.9% per annum withmaturities within one year.

10. BANKING FACILITIES

Banking facilities from a bank, consisting of letters of credit and letters of guarantee, aresecured against fixed deposits of approximately $61,000 placed with the bank and personalguarantees from two Directors.

11. OTHER CREDITORS AND ACCRUALS


Other creditors 414 —

Accrued operating expenses 602 —

Advance payments from customers 333 —

1,349 —

12. HIRE PURCHASE CREDITORS


Minimum payable under hire purchase agreements:

— within one year 236 105

— between two to five years 172 —

408 105

Less finance charges allocated to future years (39) (9)

369 96

Classified as follows:

— current portion 216 96

— non-current portion 153 —

369 96

124


13. FINANCE LEASE CREDITORS


Minimum payable under finance lease agreements:

— within one year 5 —

— between two to five years 11 —

16 —

Less finance charges allocated to future years (3) —

13 —

Classified as follows:

— current portion 4 —

— non-current portion 9 —

13 —

14. TERM LOAN AND BANK OVERDRAFT (SECURED)

The term loan and bank overdraft of Hydrochem (S) Pte Ltd are secured by the following:-

(i) A legal mortgage on the leasehold property at 40 Changi South Street 1 with a net bookvalue as at 31 October 2000 of approximately S$2.9 million,

(ii) A joint and several personal guarantee from the Directors, and

(iii) Deed of Assignment of the lease agreement between the Company and Jurong TownCorporation.

The term loan is repayable within one year and interest is payable at 1.25 % per annum abovethe prevailing prime rate.

The term loan of Hydrochem Engineering (Shanghai) Co., Ltd is secured by letter of creditgranted by Hydrochem Engineering (S) Pte Ltd.

The term loan is repayable within one year and interest is payable at approximately 6% perannum.

125


15. COMMITMENTS AND CONTINGENCIES

(a) Lease commitments

As at 31 October 2000, the Group has aggregate minimum lease commitments in respectof rental of land amounting to approximately S$2,275,000, payable as follows:


Within one year 171 —

Between two to five years 628 —

Later than five years 1,476 —

2,275 —

(b) Contingent liabilities, secured

As at 31 October 2000, the Group had contingent liabilities secured against fixed depositsand personal guarantees from the Directors.

GroupS$’000

Letter of credit 598

Letter of guarantee 457

1,055

16. SUBSEQUENT EVENTS

At an Extraordinary General Meeting held on 18 December 2000, the shareholders of theCompany approved, inter alia, the following:

(i) the sub-division of each of the ordinary shares of S$0.10 each in the authorised andissued and paid-up share capital into 2 ordinary shares of S$0.05 each (the “Stock Split”);

(ii) the capitalisation of S$4,192,225 from the share premium account of the Company by wayof a bonus issue of 83,844,500 ordinary shares of S$0.05 each credited as fully paid tothe existing shareholders;

(iii) the conversion of the Company into a public limited company and the change of its nameto Hyflux Ltd;

(iv) the adoption of the new Articles of Association of the Company;

(v) the issue of 25,000,000 New Shares which is part of the subject of this Invitation andwhich, when fully paid, allotted and issued, will rank pari passu in all respects with theexisting ordinary shares of the Company; and

(vi) that pursuant to Section 161 of the Companies Act, the Directors be authorised to issueshares in the Company (whether by way of rights, bonus or otherwise) at any time andupon such terms and conditions and for such purposes and to such persons as theDirectors may in their absolute discretion deem fit, provided that the aggregate number ofshares to be issued pursuant to this resolution shall not exceed 50% of the issued sharecapital of the Company immediately prior to the proposed issue and provided that theaggregate number of such shares to be issued other than on a pro-rata basis to the thenexisting shareholders shall not exceed 20% of the issued share capital of the Companyimmediately prior to the proposed issue, unless revoked or varied by the shareholders ina general meeting, such authority shall continue in force until the conclusion of the AnnualGeneral Meeting or the date by which the next Annual General Meeting is required by lawto be held, whichever is the earlier.

Subsequent to the financial period, the Company incorporated Hyflux Engineering Pte Ltd as awholly-owned subsidiary in Singapore with an issued and paid-up capital of S$2.

126


M. NET TANGIBLE ASSET BACKING OF THE PROFORMA GROUP

The net tangible asset backing of the Proforma Group for each ordinary share of S$0.05 eachis based on the statement of net assets of the Proforma Group as at 31 October 2000 andafter taking into consideration the issue of 2 ordinary shares at S$1,304,012 per share and theissue of 25,000,000 New Shares at S$0.32 per share, which forms part of the subject of theInvitation, and the proceeds and estimated expenses in connection therewith.

S$’000Net tangible assets

Net tangible assets as at 31 October 2000 7,745

Proceeds from the issue of 2 ordinary shares of S$0.05 each at S$1,304,012 per share 2,608

Proceeds from the issue of 25,000,000 New Shares of S$0.05 each at S$0.32 per share,which forms part of the subject of this Invitation 8,000

Less estimated expenses of the Invitation payable by the Company (1,200)

17,153

Number ofshares

’000Issued share capital

Issued and paid-up share capital as at 31 October 2000 30,422

Sub-division of ordinary shares of S$0.10 each into 2 ordinary shares of S$0.05 each 60,844

Bonus issue of 83,844,500 ordinary shares of S$0.05 each 83,844

Issue of 25,000,000 New Shares of S$0.05 each in connection with the Invitation 25,000

Post-Invitation issued share capital 169,688

Net tangible asset backing per S$0.05 share 10.11 cents

N. DIVIDENDS

Dividends declared by the companies in the Proforma Group during the periods under reviewwere as follows:

Year/period ended Gross dividend per share Net dividend(S$’000)

Ordinary dividend

Hyflux Pte Ltd

30 June 2000 $0.075 1,700

Hydrochem (S) Pte Ltd

31 December 1999 $1.00 596

30 June 2000* $2.85 1,700

Hydrochem Engineering (S) Pte Ltd

31 December 1999 $0.3635 298

31 December 1998 $0.0459 37

* Payable to Hyflux Pte Ltd

127

O. AUDITED FINANCIAL STATEMENTS

No audited financial statements have been prepared for the Company or its subsidiaries forany period subsequent to 31 October 2000.

Yours faithfully,

Arthur AndersenCertified Public AccountantsSingapore

Max Loh Khum WhaiPartner-in-charge

128

APPENDIX D

DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES

The following statements are brief summaries of the rights and privileges of shareholders conferredby the laws of Singapore and the Articles of Association (the “Articles”) of the Company. Thesestatements summarise the material provisions of the Articles but are qualified in entirety byreference to the Articles.

Ordinary Shares

All of the ordinary shares are in registered form. The Company may, subject to the provisions of theAct and the rules of the SGX-ST purchase its own ordinary shares. However, it may not, except incircumstances permitted by the Act, grant any financial assistance for the acquisition or proposedacquisition of its own ordinary shares.

New Ordinary Shares

New ordinary shares may only be issued with the prior approval in a general meeting of theshareholders of the Company. The aggregate number of shares to be issued pursuant to suchapproval may not exceed 50% (or such other limit as may be prescribed by the SGX-ST) of itsissued share capital for the time being, of which the aggregate number of shares to be issued otherthan on a pro-rata basis to its shareholders may not exceed 20% (or such other limit as may beprescribed by the SGX-ST) of its issued share capital for the time being. The approval, if granted,will lapse at the conclusion of the annual general meeting following the date on which the approvalwas granted. Subject to the foregoing, the provisions of the Act and any special rights attached toany class of shares currently issued, all new ordinary shares are under the control of the Board ofDirectors who may allot and issue the same with such rights and restrictions as it may think fit.

Shareholders

Only persons who are registered in the register of shareholders of the Company and, in cases inwhich the person so registered is CDP, the persons named as the depositors in the depositoryregister maintained by CDP for the ordinary shares, are recognised as shareholders of theCompany. The Company will not, except as required by law, recognise any equitable, contingent,future or partial interest in any ordinary share or other rights for any ordinary share other than theabsolute right thereto of the registered holder of that ordinary share. The Company may close theregister of shareholders for any time or times if it provides the SGX-ST at least 10 clear marketdays’ notice. However, the register may not be closed for more than 30 days in aggregate in anycalendar year. The Company typically closes the register to determine shareholders’ entitlement toreceive dividends and other distributions.

129

Transfer of Ordinary Shares

There is no restriction on the transfer of fully paid ordinary shares except where required by law orthe listing rules or the rules or bye-laws of any stock exchange on which the Company is listed. TheBoard of Directors may decline to register any transfer of ordinary shares which are not fully paidshares or ordinary shares on which the Company has a lien. Ordinary shares may be transferred bya duly signed instrument of transfer in a form approved by any stock exchange on which theCompany is listed. The Board of Directors may also decline to register any instrument of transferunless, among other things, it has been duly stamped and is presented for registration together withthe share certificate and such other evidence of title as they may require. The Company will replacelost or destroyed certificates for ordinary shares if it is properly notified and if the applicant pays afee which will not exceed S$2 and furnishes any evidence and indemnity that the Board of Directorsmay require.

General Meetings of Shareholders

The Company is required to hold an annual general meeting every year. The Board of Directors mayconvene an Extraordinary General Meeting whenever it thinks fit and must do so if shareholdersrepresenting not less than 10% of the total voting rights of all shareholders request in writing thatsuch a meeting be held. In addition, two or more shareholders holding not less than 10% of theissued share capital of the Company may call a meeting. Unless otherwise required by law or by theArticles, voting at general meetings is by ordinary resolution, requiring an affirmative vote of asimple majority of the votes cast at the meeting. An ordinary resolution suffices, for example, for theappointment of directors. A special resolution, requiring the affirmative vote of at least 75% of thevotes cast at the meeting, is necessary for certain matters under Singapore law, including voluntarywinding up, amendments to the Memorandum of Association and the Articles, a change of thecorporate name and a reduction in the share capital, share premium account or capital redemptionreserve fund. The Company must give at least 14 days’ notice in writing. The notice must be givingof notices and must set forth the place, the day and the hour of the meeting and, in the case ofspecial business, the general nature of that business.

Voting Rights

A shareholder is entitled to attend, speak and vote at any general meeting, in person or by proxy.Proxies need not be a shareholder. A person who holds ordinary shares through the SGX-ST book-entry settlement system will only be entitled to vote at a general meeting as a shareholder if hisname appears on the depository register maintained by CDP 48 hours before the general meeting.Except as otherwise provided in the Articles, two or more shareholders must be present in personor by proxy to constitute a quorum at any general meeting. Under the Articles, on a show of hands,every shareholder present in person and by proxy shall have one vote (provided that in the case ofa shareholder who is represented by two proxies, only one of the two proxies as determined by thatshareholder or, failing such determination, by the Chairman of the meeting in his sole discretionshall be entitled to vote on a show of hands), and on a poll, every shareholder present in person orby proxy shall have one vote for each ordinary share which he holds or represents. A poll may bedemanded in certain circumstances, including by the chairman of the meeting or by any shareholderpresent in person or by proxy and representing not less than 10% of the total voting rights of allshareholders having the right to attend and vote at the meeting or by any two shareholders presentin person or by proxy and entitled to vote. In the case of a tie vote, whether on a show of hands ora poll, the chairman of the meeting shall be entitled to a casting vote.

130

Dividends

The Company may, by ordinary resolution of its shareholders, declare dividends at a generalmeeting, but it may not pay dividends in excess of the amount recommended by the Board ofDirectors. The Company must pay all dividends out of its profits; however, the Company maycapitalise its share premium account and apply it to pay dividends, if such dividends are satisfied bythe issue of shares to shareholders of the Company. See “Bonus and Rights Issue”. The Board ofDirectors may also declare an interim dividend without the approval of its shareholders. All dividendsare paid pro rata among the shareholders in proportion to the amount paid up on eachshareholder’s ordinary shares, unless the rights attaching to an issue of any ordinary share providesotherwise. Unless otherwise directed, dividends are paid by cheque or warrant sent through the postto each shareholder at his registered address. Notwithstanding the foregoing, the payment by theCompany to CDP of any dividend payable to a shareholder whose name is entered in thedepository register shall, to the extent of payment made to CDP, discharge the Company from anyliability to that shareholder in respect of that payment.

Bonus and Rights Issues

The Board of Directors may, with approval of the shareholders at a general meeting, capitalise anyreserves or profits (including profit or moneys carried and standing to any reserve or to the sharepremium account) and distribute the same as bonus shares credited as paid-up to the shareholdersin proportion to their shareholdings. The Board of Directors may also issue rights to take upadditional ordinary shares to shareholders in proportion to their shareholdings. Such rights aresubject to any conditions attached to such issue and the regulations of any stock exchange onwhich the Company is listed.

Takeovers

The Act and the Singapore Code on Takeovers and Mergers regulate the acquisition of ordinaryshares of public companies and contain certain provisions that may delay, deter or prevent a futuretakeover or change in control of the Company. Any person (the “Offeror”) acquiring an interest, eitheron his own or together with parties acting in concert with him, in 25% or more of the voting sharesin the Company must extend a mandatory takeover offer for the remaining voting shares inaccordance with the provisions of the Singapore Code on Takeovers and Mergers (the “Takeovercode”). “Parties acting in concert” include a company and its related and associated companies, acompany and its directors (including their relatives), a company and its pension funds, a person andany investment company, unit trust or other fund whose investment such person manages on adiscretionary basis, and a financial advisor and its client in respect of shares held by the financialadvisor and shares in the client held by funds managed by the financial advisor on a discretionarybasis. An offer for consideration other than cash must be accompanied by a cash alternative at notless than the highest price paid by the offeror or parties acting in concert with the offeror within thepreceding 12 months. A mandatory takeover offer is also required to be made if the Offeror holding,either on his own or together with parties acting in concert with him, between 25% and 50% of thevoting shares acquires additional voting shares representing more than 3% of the voting shares inany 12 month period. Approval of the Securities Industry Council (the “Council)” must be obtainedin advance for partial offers (which must not be mandatory takeover offers) for less than 100% ofthe equity share capital of the Company not already owned by the Offeror and his concert parties.In the case of a partial offer which could not result in the Offeror and parties acting in concert withhim holding shares carrying 25% or more of the voting rights of the Company, consent will normallybe granted. In the case of a partial offer which could result in the Offeror and his concert partiesholding shares carrying not less than 25% but not more than 50% of the voting rights of theCompany, consent will not be granted. In the case of a partial offer which could result in the Offerorand his concert parties holding shares carrying more than 50% but less than 100% of the votingrights of a company, consent will not normally be granted unless conditions as set out in theTakeover Code are complied with. Any partial offer which could result in the Offeror and his concertparties holding 50% or more of the voting rights of the Company must be conditional, not only onthe specified number or percentage of acceptances being received but also on approval by theCompany’s shareholders. The Offeror, parties acting in concert with him and their associates are notallowed to vote on the partial offer. The Offeror and his concert parties may not deal in shares of

131

the Company during the offer period nor, in the case of a successful partial offer, may the Offeroror his concert parties, except with the consent of the Council, purchase such shares during a periodof 12 months after the end of the offer period. The Council’s consent will normally be granted if suchpurchases are proposed to be made more than 6 months after the close of the partial offer. TheCouncil will not normally give consent to partial offers for the Company within 12 months from thedate of the close of a previous partial offer (whether successful or not) unless the subsequentpartial offer is, as would normally be required, recommended by the board of the Company, and theoffer is proposed to be made by a person not acting in concert with the previous offeror.

Liquidation or Other Return of Capital

If the Company liquidates or in the event of any other return of capital, holders of ordinary shareswill be entitled to participate in any surplus assets in proportion to their shareholdings, subject toany special rights attaching to any other class of shares.

Indemnity

As permitted by Singapore law, the Articles provide that, subject to the Act, the Board of Directorsand officers shall be entitled to be indemnified by the Company against any liability incurred indefending any proceedings, whether civil or criminal, which relate to anything done or omitted tohave been done as an officer, Director or employee and in which judgement is given in their favouror in which they are acquitted or in connection with any application under any statute for relief fromliability in respect thereof in which relief is granted by the court. The Company may not indemnifyDirectors and officers against any liability which by law would otherwise attach to them in respect ofany negligence, default, breach of duty or breach of trust of which they may be guilty in relation tothe Company.

Limitations on Rights to Hold or Vote Shares

Except as described in “Voting Rights” and “Takeovers” above, there are no limitations imposed bySingapore law or by the Articles on the rights of non-resident shareholders to hold or vote ordinaryshares.

Minority Rights

The rights of minority shareholders of Singapore-incorporated companies are protected underSection 216 of the Act, which gives the Singapore courts a general power to make any order, uponapplication by any shareholder of the Company, as they think fit to remedy any of the followingsituations:-

(a) the affairs of the Company are being conducted or the powers of the Board of Directors arebeing exercised in a manner oppressive to, or in disregard of the interests of, one or more ofthe shareholders; or

(b) the Company takes an action, or threatens to take an action, or the shareholders pass aresolution, or propose to pass a resolution, which unfairly discriminates against, or is otherwiseprejudicial to, one or more of the shareholders, including the applicant.

Singapore courts have wide discretion as to the reliefs they may grant and those reliefs are in noway limited to those listed in the Act itself. Without prejudice to the foregoing, Singapore courtsmay:-

(a) direct or prohibit any act or cancel or vary any transaction or resolution;

(b) regulate the conduct of the affairs of the Company in the future;

(c) authorise civil proceedings to be brought in the name of, or on behalf of, the Company by aperson or persons and on such terms as the court may direct;

(d) provide for the purchase of a minority shareholder’s shares by the other shareholders or by theCompany and, in the case of a purchase of shares by the Company, a corresponding reductionof its share capital;

(e) provide that the Memorandum of Association or the Articles be amended; or

(f) provide that the Company be wound up.

132

APPENDIX E

DESCRIPTION OF SINGAPORE LAW AND REGULATIONSRELATING TO TAXATION

The discussion below is not intended to constitute a complete analysis of all tax consequencesrelating to ownership of our Ordinary Shares. Prospective purchasers of our Ordinary Sharesshould consult their tax advisors concerning the tax consequences of their particularsituations. This description is based on laws, regulations and interpretations now in effectand available as of the date of this Prospectus. The laws, regulations and interpretations,however, may change at any time, and any change could be retroactive to the date of issuance ofour ordinary shares. These laws and regulations are also subject to various interpretations and therelevant tax authorities or the courts could later disagree with the explanations or conclusions setout below.

Singapore Taxation

The following discussion describes the material Singapore income tax, capital gains tax, stamp dutyand estate duty consequences of the purchase, ownership and disposal of our ordinary shares.

Income Tax

General

Singapore resident taxpayers, which include individuals who are residing in Singapore andcompanies which are controlled or managed in Singapore, are subject to Singapore income tax on:-

(a) income accruing in or derived from Singapore; and

(b) foreign income received in Singapore.

A company will be regarded as being resident in Singapore if the control and management of itsbusiness is exercised in Singapore (for example, if the company’s board of directors meets andconducts the business of the company in Singapore). An individual will be regarded as beingresident in Singapore in a year of assessment if, in the preceding year, he was physically presentin Singapore or exercised employment in Singapore (other than as a director of a company) for 183days or more, or if he resides in Singapore.

Non-Singapore resident corporate taxpayers, subject to certain exceptions, are subject to Singaporeincome tax on:-

(a) income that is accrued in or derived from Singapore; and

(b) foreign income received in Singapore.

Non-Singapore resident individuals, subject to certain exceptions, are subject to Singapore incometax only on income accruing in or derived from Singapore.

The corporate tax rate in Singapore is currently 26%. The rate shall be reduced to 25.5% with effectfrom the year of assessment 2001 (financial year ended in 2000).

Subject to the provisions of any applicable tax treaty, non-Singapore resident taxpayers who derivecertain types of income from Singapore are subject to a withholding tax currently at 25.5% orgenerally 15% in the case of interest, royalty and rental of movable equipment income.

133

Dividend Distributions

Under Singapore’s taxation system, the tax paid by the Company at the prevailing corporate tax rateis in effect imputed to, and deemed to be paid on behalf of its shareholders. Shareholders receivedividends net of such tax. Shareholders are taxed on the gross amount of dividends (that is, on theamount of net dividends plus an amount equal to the amount of gross dividends multiplied by theprevailing corporate tax rate). The tax paid by the Company effectively becomes available to itsshareholders as a tax credit to offset their Singapore income tax liability on the gross amount ofdividends paid by the Company.

Singapore does not impose withholding tax on dividends paid to Singapore citizen or non-Singaporeresident shareholders. As the tax paid by the Company at the prevailing corporate tax rate isdeemed to be paid by its shareholders, no further Singapore income tax liability is imposed ondividends received by such non-resident shareholders. Conversely, such non-resident shareholderswho do not have deductible expenses which are accepted by the Inland Revenue Authority ofSingapore (“IRAS’’) as attributable to such dividend income will normally not receive any refund fromthe IRAS. Singapore taxpayers are taxed on dividends received from the Company at the incometax rates applicable to each taxpayer. Where their income tax liabilities on the dividends are lower(or, as the case may be, higher) than the tax deducted at source from such dividends at theprevailing corporate rate, such resident shareholders may receive a refund from (or, as the casemay be, have to pay further tax to) the IRAS.

Where the Company receives foreign income that has not been subject to full Singapore income taxdue to the availability of foreign tax credits, the Company may pay tax exempt dividends out of theforeign income received in Singapore. The amount of tax exempt dividend is equal to (i) the foreigntax credit allowed divided by the prevailing corporate tax rate less (ii) the foreign tax paid. TheCompany will credit such amounts to a special account (known as the “Section 13E account”). Anysubsequent dividends paid by the Company out of this account to its shareholders (other than onany shares of a preferential nature) will be tax exempt subject to certain conditions.

Gains on disposal of the ordinary shares

Singapore does not impose tax on capital gains. However, gains may be construed to be of anincome nature and subject to tax if:-

(a) they arise from activities which the IRAS regards as the carrying on of a trade in Singapore;or

(b) they are short-term gains from the sale of real property and shares in unlisted companies withsubstantial real property or real property related assets in Singapore.

Any profits from the disposal of ordinary shares are not taxable in Singapore unless the seller isregarded as having derived gains of an income nature, in which case, the disposal profits would betaxable.

Stamp Duties

No stamp duty is payable on the issue of new ordinary shares of the Company.

Stamp duty is payable on the instrument of transfer of ordinary shares of the Company at the rateof S$2.00 for every S$1,000 market value of such ordinary shares. The purchaser is liable for stampduty, unless otherwise agreed. No stamp duty is payable if no instrument of transfer is executed orif the instrument of transfer is executed outside Singapore. However, stamp duty may be payable ifthe instrument of transfer which is executed outside Singapore is received in Singapore. The abovestamp duty is not applicable to scripless transfers of the ordinary shares through CDP system.

134

Further, stamp duty is payable at a rate of S$0.50 for every S$1,000 or any part thereof of thetransaction value on the contract note for the sale or purchase of ordinary shares in Singaporeunless certain conditions are met. Stamp duty on contract notes has been suspended for the saleor purchase of any stocks or shares made between June 30, 1998 to June 29, 2000.

Estate Duties

Singapore estate duty is imposed on the value of most movable and immovable property situated inSingapore owned by individuals who are not domiciled in Singapore, subject to specific exemptionlimits. Singapore estate duty is imposed on the value of most immovable property situated inSingapore and on most movable property, wherever it may be, owned by individuals who aredomiciled in Singapore, subject to specific exemption limits. The Company’s ordinary shares areconsidered to be movable property situated in Singapore as the Company is a companyincorporated in Singapore and the share register is maintained in Singapore.

Accordingly, the Company’s ordinary shares held by an individual are subject to Singapore estateduty upon such individual’s death, whether or not such individual is domiciled in Singapore.Singapore estate duty is payable to the extent that the value of the ordinary shares aggregated withany other assets subject to Singapore estate duty exceeds S$600,000. Unless other exemptionsapply to the other assets, for example, the separate exemption limit for residential properties, anyexcess beyond S$600,000 will be taxed at 5% on the first S$12,000,000 of the individual’sSingapore chargeable assets and thereafter at 10%. Individuals should consult their own taxadvisors regarding the Singapore estate duty consequences of their ownership of the Company’sordinary shares.

135

APPENDIX F

TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION

Applications are invited for the subscription of the Invitation Shares at the Issue Price, subject to thefollowing terms and conditions:-

1. Applications for the Offer Shares (other than Reserved Shares) may be made by way of theOffer Shares Application Forms or by way of electronic applications through the AutomatedTeller Machine (“ATMs”) belonging to the Participating Banks (“ATM Electronic Applications”) orthe Internet Banking (“IB”) websites of the relevant Participating Banks (“Internet ElectronicApplications”, which together with ATM Electronic Applications, shall be referred to as“Electronic Applications”). Applications for Placement Shares may only be made by way of thePlacement Shares Application Forms, and applications for Reserved Shares may only be madeby way of the Reserved Shares Application Forms. Applicants may not use their CPF Fundsto apply for the Invitation Shares.

2. Only one application may be made for the benefit of one person for either the OfferShares (other than the Reserved Shares) or the Placement Shares in his own name. Aperson submitting an application for the Offer Shares (other than Reserved Shares) byway of a printed application form may not submit another application for Offer Sharesby way of Electronic Application and vice versa. A person submitting an application forthe Offer Shares by way of an ATM Electronic Application may not submit anotherapplication for Offer Shares by way of an Internet Electronic Application and vice versa.Such separate applications will be deemed to be multiple applications and shall berejected.

A person, other than an approved nominee company, who is submitting an applicationin his own name should not submit any other applications, whether on a printedapplication form or through an Electronic Application, for any other person. Suchseparate applications will be deemed to be multiple applications and shall be rejected.

An applicant who has agreed with the Placement Agents to subscribe for PlacementShares or who otherwise subscribes for Placement Shares shall not make or procureany separate application for Offer Shares either by way of an Offer Shares ApplicationForm or through an Electronic Application. Such separate applications will be deemedto be multiple applications and shall be rejected.

Conversely, an applicant who has made an application for Offer Shares (other than forReserved Shares) either by way of the Offer Shares Application Form or through anElectronic Application shall not make any separate application for Placement Shares.Such separate applications will be deemed to be multiple applications and shall berejected.

Joint or multiple applications will be rejected. Persons submitting or procuringsubmission of multiple share applications (whether for Offer Shares, Placement Sharesor both Offer Shares and Placement Shares) may be deemed to have committed anoffence under the Penal Code (Chapter 224) of Singapore and the Securities IndustryAct (Chapter 289) of Singapore, and such applications may be referred to the relevantauthorities for investigation. Applications appearing to be or suspected of being multipleapplications will be liable to be rejected at the discretion of the Company.

136

An applicant making an application for the Reserved Shares using the Reserved SharesApplication Form may submit one separate application for Offer Shares (other thanReserved Shares) in his own name either by way of an Offer Shares Application Formor through an Electronic Application or submit one separate application for PlacementShares by way of a Placement Share Application Form, provided he adheres to theterms and conditions of this Prospectus. Such separate applications will not be treatedas multiple applications.

3. Applications will not be accepted from any person under the age of 21, undischargedbankrupts, sole proprietorships, partnerships, chops or non-corporate bodies, joint SecuritiesAccount holders of CDP and applicants whose addresses (furnished in their printed ApplicationForms or, in the case of Electronic Applications, contained in the records of the relevantParticipating Banks, as the case may be) bear post office box numbers.

4. The existence of a trust will not be recognised. Any application by any person must thereforebe made in his/her/their own name(s) and without qualification or, where the application ismade by way of a printed Application Form by a nominee, in the name(s) of approved nomineecompany or companies after complying with paragraph 5 below.

5. Nominee applications may be made by approved nominee companies only. Approvednominee companies are defined as banks, merchant banks, finance companies, insurancecompanies, licensed securities dealers in Singapore and nominee companies controlled bythem. Applications made by persons acting as nominees other than approved nomineecompanies will be rejected.

6. For non-nominee applications, each applicant must maintain a Securities Account withCDP in his own name at the time of application. An applicant without an existing SecuritiesAccount with CDP in his own name at the time of application will have his application rejected(in the case of an application by way of an Application Form) or will not be able to completehis Electronic Application (in the case of an Electronic Application). An applicant with anexisting Securities Account with CDP who fails to provide his Securities Account number orwho provides an incorrect Securities Account number in section B of the Application Form orin his Electronic Application, as the case may be, is liable to have his application rejected.Subject to paragraph 7 below, an application may be rejected if the applicant’s particulars suchas his name, NRIC or passport number, nationality and permanent residence status providedin his Application Form or, in the case of an Electronic Application, contained in the records ofthe relevant Participating Bank at the time of his Electronic Application, as the case may be,differ from those particulars in his Securities Account as maintained with CDP. If the applicantpossesses more than one individual direct Securities Account with CDP, his application will berejected.

7. If the address of an applicant stated on the Application Form or, in the case of anElectronic Application, contained in the records of the relevant Participating Bank, asthe case may be, is different from the address registered with CDP, the applicant mustinform CDP of his updated address promptly, failing which the notification letter onsuccessful allotment and other correspondence from CDP will be sent to his addresslast registered with CDP.

8. The Company reserves the right to reject or accept, in whole or in part, or to scale down orballot, any application without assigning any reason therefore, and no enquiry and/orcorrespondence on the decision of the Company will be entertained. This right applies toapplications made by way of printed Application Forms and by way of Electronic Applications.In deciding the basis of allotment which shall be at the discretion of the Company, dueconsideration will be given to the desirability of allotting the Invitation Shares to a reasonablenumber of applicants with a view to establishing an adequate market for the Shares.

137

9. The Company reserves the right to reject any application which does not conform strictly to theinstructions set out in the Application Forms and this Prospectus or which does not complywith the instructions for Electronic Applications or with the terms and conditions of thisProspectus or, in the case of applications by way of printed Application Form, which is illegible,incomplete, incorrectly completed or which is accompanied by an improperly drawn up orimproper form of remittance. The Company further reserves the right to treat as valid anyapplications not completed or submitted or effected in all respects in accordance with theterms and conditions of this Prospectus, the instructions set out in the Application Forms andthis Prospectus or the instructions for Electronic Applications and also to present for paymentor other processes all remittances at any time after receipt and to have full access to allinformation relating to, or deriving from, such remittances or the processing thereof.

10. Share certificates will be registered in the name of CDP and will be forwarded only to CDP. Itis expected that CDP will send to each successful applicant at his own risk, within 15 MarketDays after the close of the Application List, a statement showing that his Securities Accounthas been credited with the number of Invitation Shares allotted to him. This will be the onlyacknowledgement of application moneys received and is not an acknowledgement by theCompany. Each applicant irrevocably authorises CDP to complete and sign on his behalf astransferee or renouncee any instrument of transfer and/or other documents required for theissue or transfer of the Invitation Shares allotted to the applicant. This authorisation applies toapplications made both by way of printed Application Forms and by way of ElectronicApplications.

11. By completing and delivering an Application Form and, in the case of an ATM ElectronicApplication, by pressing the “Enter” or “OK” or “Confirm” or “Yes” or any other relevant key onthe ATM or, in the case of an Internet Electronic Application, by clicking “Submit” or “Continue”or “Yes” or “Confirm” or any other relevant button on the IB website screen in accordance withthe provisions herein, each applicant:–

(a) irrevocably offers to subscribe for the number of Invitation Shares specified in hisapplication (or such smaller number for which the application is accepted) at the IssuePrice for each Invitation Share and agrees that he will accept such Shares as may beallotted to him, in each case on the terms of, and subject to the conditions set out in, thisProspectus and the Memorandum and Articles of Association of the Company; and

(b) warrants the truth and accuracy of the information in his application.

12. Applications must be made in lots of 1,000 Invitation Shares or higher integral multiples of1,000 Invitation Shares. Applications for any other number of Invitation Shares will be rejected.

13. No Shares will be allotted on the basis of this Prospectus later than six months after the dateof this Prospectus.

14. In the event of an under-subscription for the Offer Shares as at the close of the ApplicationList, that number of Offer Shares under-subscribed shall be made available to satisfyapplications for the Placement Shares to the extent there is an over-subscription for thePlacement Shares as at the close of the Application List. Any of the Reserved Shares nottaken up will be made available to satisfy applications for the Offer Shares to the extent thatthere is an over-subscription for the Offer Shares as at the close of the Application List. In theevent of an under-subscription for the Placement Shares as at the close of the Application List,that number of Placement Shares under-subscribed shall be made available to satisfyapplications for the Offer Shares to the extent that there is an over-subscription for the OfferShares as at the close of the Application List.

15. In the event of an over-subscription for the Offer Shares as at the close of the Application Listand/or the number of Placement Shares are fully subscribed or over-subscribed as at the closeof the Application List, the successful applications for the Offer Shares shall be determined byballot, or otherwise as determined by the Directors and approved by SGX-ST.

138

16. Acceptance of applications will be conditional upon the Company being satisfied that:–

(a) permission has been granted by SGX-ST to deal in, and for quotation for, all the existingShares and the New Shares on a “when issued” basis on SGX Sesdaq; and

(b) the Management and Underwriting Agreement and Placement Agreement referred to onpage 104 of this Prospectus have become unconditional and have not been terminated.

17. Additional terms and conditions for applications by way of printed Application Forms are set outon pages 139 to 142 of this Prospectus.

18. Additional terms and conditions for Electronic Applications are set out on pages 143 to 147 ofthis Prospectus.

19. Each applicant irrevocably authorises CDP to disclose the outcome of his application, includingthe number of Invitation Shares allotted to the applicant pursuant to his application, toauthorised operators.

20. Any reference to the “applicant” in this section shall include a person applying for the OfferShares by way of an Electronic Application or by way of an Offer Shares Application Form, aperson applying for the Placement Shares through the Placement Agent and a person applyingfor the Reserved Shares by way of a Reserved Shares Application Form.

21. The Issue Price for each New Share is $0.32.

22. No application will be held in reserve.

ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATIONFORMS

Applications by way of printed Application Forms shall be made on, and subject to, the terms andconditions of this Prospectus, including but not limited to the terms and conditions appearing belowand those set out under the section on “Terms and Conditions and Procedures for Application” foundon pages 136 to 139 of this Prospectus, as well as the Memorandum and Articles of Association ofthe Company.

1. Applications for the Offer Shares (other than for the Reserved Shares) must be made using theWHITE Application Forms and official envelopes “A” and “B”, and applications for thePlacement Shares must be made using the BLUE Application Forms, and applications for theReserved Shares must be made using the PINK Application Forms, accompanying andforming part of this Prospectus. Care must be taken to follow the instructions set out in therespective Application Forms and this Prospectus for the completion of the respectiveApplication Forms. Applications which do not conform strictly to these instructions or to theterms and conditions of this Prospectus or which are illegible, incomplete, incorrectlycompleted or which are accompanied by improperly drawn up or improper form of remittancesmay be rejected.

2. The Application Forms must be completed in English. Please type or write clearly in ink usingBLOCK LETTERS. All spaces in an Application Form, except those under the heading “FOROFFICIAL USE ONLY”, must be completed and the words “NOT APPLICABLE” or “N.A.” shouldbe written in any space that is not applicable.

139

3. Individuals, corporations and approved nominee companies must give their names in full.Applications must be made, in the case of individuals, in their full names as appearing in theiridentity cards (if applicants have such identification documents) or passports and, in the caseof corporations, in their full names as registered with a competent authority. Applicants, otherthan individuals, completing the Application Form under the hand of an official, must state thename and capacity in which that official signs. A corporation completing an Application Form isrequired to affix its Common Seal (if any) in accordance with its Memorandum and Articles ofAssociation or the equivalent constitutive documents of the corporation. If an application by acorporate applicant is successful, a copy of its Memorandum and Articles of Association or itsequivalent constitutive documents must be lodged with the Company’s Share Registrar. TheCompany reserves the right to require any applicant to produce documentary proof ofidentification for verification purposes.

4. (a) All applicants must complete Sections A and B and sign page 1 of the Application Form.

(b) All applicants are required to delete either paragraph 7(a) or 7(b) on page 1 of theApplication Form. Where paragraph 7(a) is deleted, the applicant must also completeSection C of the Application Form with particulars of the beneficial owner(s).

(c) Applicants who fail to make the required declaration in Paragraph 7(a) or 7(b) (as the casemay be) on page 1 of the Application Form are liable to have their applications rejected.

5. Applications for the Invitation Shares must be accompanied by payment in cash in the form setout below only. Each application must be accompanied by a cash remittance in Singaporecurrency for the full amount payable, in respect of the number of Invitation Shares applied for,in the form of a Banker’s Draft, Cashier’s Order or POSB Cashier’s Order drawn on a bank inSingapore and made out in favour of “HYFLUX SHARE ISSUE ACCOUNT” crossed “A/CPAYEE ONLY”, or in the form of a DBS Autobank Cashier’s Order Equivalent, and with thename and address of the applicant written clearly on the reverse side. Applications notaccompanied by any payment or accompanied by any other form of payment will not beaccepted. Remittances bearing “Not Transferable” or “Non Transferable” crossings will berejected. No acknowledgement of receipt will be issued by the Company or the Manager or thePlacement Agent for applications and application moneys received.

6. Individual applicants will be required to declare whether they are citizens or permanentresidents of Singapore. Corporate applicants, whether incorporated or unincorporated andwherever incorporated or constituted, will be required to declare whether they are corporationsin which citizens or permanent residents of Singapore or any body corporate constituted underany statute of Singapore have an interest in the aggregate of more than 50% of the issuedshare capital of or interests in such corporations. Approved nominee companies are requiredto declare whether the beneficial owner of the Invitation Shares is a citizen or permanentresident of Singapore or a corporation, whether incorporated or unincorporated and whereverincorporated or constituted, in which citizens or permanent residents of Singapore or any bodycorporate incorporated or constituted under any statute of Singapore have an interest in theaggregate of more than 50% of the issued share capital of or interests in such corporation.

7. Unsuccessful applications and those not successfully balloted or accepted are expected to bereturned to the applicants by ordinary post, at the risk of the applicants, within three MarketDays after the close of the Application List, without interest or any share of revenue or otherbenefit arising therefrom. Where an application is rejected or accepted in part only, the fullamount or the balance of the application moneys, as the case may be, will be refunded to theapplicant by ordinary post at his own risk (without interest or any share of revenue or otherbenefit arising therefrom) within 14 days after the close of the Application List provided that theremittance accompanying such application which has been presented for payment or otherprocesses has been honoured and the application moneys received in the designated shareissue account. Unsuccessful applicants using DBS Autobank Cashier’s Order Equivalent willhave the full amount of their application moneys (without interest or any share of revenue orother benefit arising therefrom) automatically credited to their accounts maintained with DBSBank.

140

8. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear themeanings assigned to them in this Prospectus.

9. In consideration of the Company having distributed the Application Form to the applicant andagreeing to close the Application List at 12.00 noon on 15 January 2001 or such later time ordate as the Directors may, in their absolute discretion, decide and by completing and deliveringthe Application Form, each applicant agrees that:–

(a) his application is irrevocable;

(b) his remittance will be honoured on first presentation and that any moneys returnable maybe held pending clearance of his payment and he will not be entitled to any interest or anyshare of revenue or other benefit arising therefrom;

(c) in respect of the Invitation Shares for which his application has been received and notrejected, acceptance of his application shall be constituted by written notification by or onbehalf of the Company and not otherwise, notwithstanding any remittance being presentedfor payment by or on behalf of the Company;

(d) he will not be entitled to exercise any remedy of rescission for misrepresentation at anytime after acceptance of his application;

(e) all applications, acceptances and contracts resulting therefrom under the Invitation shall begoverned by and construed in accordance with the laws of Singapore and that heirrevocably submits to the non-exclusive jurisdiction of the Singapore courts; and

(f) in making his application, reliance is placed solely on the information contained in thisProspectus and that none of the Company, the Manager, the Underwriter, the PlacementAgent or any other person involved in the Invitation shall have any liability for anyinformation not so contained.

10. Applications for Offer Shares (other than Reserved Shares)

(a) Applications for Offer Shares (other than Reserved Shares) must be made using theWHITE Application Forms and WHITE official envelopes “A” and “B”.

(b) The applicant must:–

(i) enclose the WHITE Offer Shares Application Form, duly completed and executed,together with the correct remittance in accordance with the terms and conditions ofthis Prospectus in the WHITE official envelope “A” which is provided;

(ii) in the appropriate spaces on the WHITE official envelope “A”:–

(1) write his name and address;

(2) state the number of Offer Shares (other than Reserved Shares) applied for;

(3) tick the relevant box to indicate the form of payment; and

(4) affix adequate Singapore postage;

(iii) SEAL THE OFFICIAL WHITE ENVELOPE “A”;

(iv) write, in the appropriate box provided, on the larger official WHITE envelope “B”addressed to DBS BANK, 6 SHENTON WAY #28-00, DBS BUILDING TOWER ONE,SINGAPORE 068809, the number of Offer Shares (other than Reserved Shares) forwhich the application is made; and

141

(v) insert WHITE official envelope “A” into WHITE official envelope “B”, seal WHITEofficial envelope “B”, affix adequate Singapore postage on “B” (if despatching byordinary post) and thereafter DELIVER BY HAND OR DESPATCH BY ORDINARYPOST at his own risk to DBS BANK, 6 SHENTON WAY #28-00, DBS BUILDINGTOWER ONE, SINGAPORE 068809, so as to arrive by 12.00 noon on 15 January2001 or such other time or date as the Directors and the Vendors may, in theirabsolute discretion, decide. Local Urgent Mail or Registered Post must NOT be used.

Applications that are illegible, incomplete or incorrectly completed or accompanied by animproperly drawn up or improper form of remittance are liable to be rejected.

(c) ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgement ofreceipt will be issued for any application or remittance received.

11. Applications for Placement Shares

(a) Applications for Placement Shares must be made using the BLUE Application Forms.

(b) The completed BLUE Placement Shares Application Form and the applicant’s remittancein accordance with the terms and conditions of this Prospectus for the full amount payablein respect of the number of Placement Shares applied for must be delivered by hand ordespatched by ordinary post enclosed and sealed in any envelope to be provided by theapplicant. The applicant must affix adequate Singapore postage (if despatching by ordinarypost) and thereafter the sealed envelope must be delivered by hand or despatched byordinary post at the applicant’s own risk to DBS Bank, 6 Shenton Way #28-00, DBSBuilding Tower One, Singapore 068809, for the attention of Capital Markets, to arrive by12.00 noon on 15 January 2001 or such other time or date as the Directors and theVendors may, in their absolute discretion, decide. Local Urgent Mail or Registered Postmust NOT be used.

(c) ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgement ofreceipt will be issued for any application or remittance received.

(d) Alternatively, the applicant may remit his application moneys by electronic transfer to theaccount of DBS Bank, Shenton Way Branch, Current Account No. 001-045686-5, infavour of “HYFLUX SHARE ISSUE ACCOUNT” for the number of Placement Sharesapplied for by 12.00 noon on 15 January 2001. Applicants who remit their applicationmoneys via electronic transfer should send a copy of the telegraphic transfer advice slip toDBS Bank, 6 Shenton Way #28-00, DBS Building Tower One, Singapore 068809, forthe attention of Capital Markets, to arrive by 12.00 noon on 15 January 2001 or suchother time or date as the Directors and the Vendors may, in their absolutediscretion, decide.

12. Applications for Reserved Shares

(a) Applications for Reserved Shares must be made using the PINK Application Forms.

(b) The completed PINK Reserved Shares Application Form and the applicant’s remittance inaccordance with the terms and conditions of this Prospectus for the full amount payable inrespect of the number of Reserved Shares applied for must be enclosed and sealed in anenvelope to be provided by the applicant. The applicant must affix adequate Singaporepostage (if despatching by ordinary post) and thereafter the sealed envelope must bedelivered by hand or despatched by ordinary post at the applicant’s own risk to DBSBank, 6 Shenton Way #28-00, DBS Building Tower One, Singapore 068809, so as toarrive by 12.00 noon on 15 January 2001 or such other time or date as the Directors andthe Vendors may, in their absolute discretion, decide. Local Urgent Mail or Registered Postmust NOT be used.

(c) ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgement orreceipt will be issued for any application or remittance received.

142

ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS

The procedures for Electronic Applications are set out on the ATM screens (in the case of ATMElectronic Applications) and the IB website screens (in the case of Internet Electronic Applications)of the relevant Participating Banks (the “Steps”). Currently, DBS Bank, OUB and UOB are the onlyParticipating Banks through which Internet Electronic Applications may be made. For illustrativepurposes, the procedures for Electronic Applications through ATMs and the IB website of DBS Bankare set out in the “Steps for ATM Electronic Applications through ATMs of DBS Bank (including itsPOSBank Services division)” and the “Steps for Internet Electronic Application through the IBwebsite of DBS Bank” (the “DBS Steps”) appearing on pages 148 and 149 of this Prospectusrespectively. Please read the terms of this Prospectus, the Steps and the terms and conditions forElectronic Applications set out below carefully before making an Electronic Application. An ATM cardissued by one Participating Bank cannot be used to apply for Offer Shares at an ATM belonging toother Participating Banks.

Any reference to the “Applicant” in these Terms and Conditions for Electronic Applications and theSteps shall mean the applicant who applies for the Offer Shares (other than the Reserved Shares)through an ATM of a Participating Banks or the IB website of a relevant Participating Bank.

For an ATM Electronic Application, an Applicant must have an existing bank account with, and bean ATM cardholder of, one of the Participating Banks before he can make an ATM ElectronicApplication at the ATMs of that Participating Bank. For an Internet Electronic Application, theApplicant must have an existing bank account with and a User Identification (“User ID”) and aPersonal Identification Number/Password (“PIN”) given by the relevant Participating Banks. The DBSSteps set out the actions that the Applicant must take at ATMs or the IB website of DBS Bank tocomplete an Electronic Application. The actions that the Applicant must take at the ATMs or the IBwebsites of the other Participating Banks are set out on the ATM screens or the IB websites of therelevant Participating Banks. Upon the completion of his ATM Electronic Application transaction, theApplicant will receive an ATM transaction slip (“Transaction Record”), confirming the details of hisATM Electronic Application. The Transaction Record is for the Applicant’s retention and should not besubmitted with any printed Application Form. Upon completion of his Internet Electronic Applicationthrough the IB website of DBS Bank, there will be an on-screen confirmation (“ConfirmationScreen”) of the application which can be printed out by the Applicant for his record. The printedrecord of the Confirmation Screen is for the Applicant’s retention and should not be submitted withany printed Application Form.

An Applicant must ensure that he enters his own Securities Account Number when using theATM card issued to him in his own name. Using his own Securities Account Number with anATM card not issued to him in his own name will render his ATM Electronic Application liableto be rejected. An Applicant, including one who has a joint bank account with a ParticipatingBank, must use an ATM card issued to him in his own name and must enter his ownSecurities Account number. An Applicant who fails to use his own ATM card or who does not keyin his own Securities Account Number will have his application rejected.

An Applicant must ensure, when making an Internet Electronic Application, that the mailing addressof his account selected for the application is in Singapore and the application is being made inSingapore. Otherwise, his application is liable to be rejected. In this connection, the Applicant will beasked to declare that he is in Singapore at the time when he makes his application.

An Electronic Application shall be made in accordance with, and subject to, the terms andconditions of this Prospectus including but not limited to the terms and conditions appearing belowas well as those set out under the section on “Terms and Conditions and Procedures forApplication” found on pages 136 to 139 of this Prospectus, as well as the Memorandum and Articlesof Association of the Company.

1. In connection with his Electronic Application for the Offer Shares, the Applicant is required toconfirm statements to the following effect in the course of activating the Electronic Application:–

143

(a) that he has received a copy of this Prospectus and has read, understood andagreed to all the terms and conditions of application for the Offer Shares and thisProspectus prior to effecting the Electronic Application and agrees to be bound bythe same;

(b) that he consents to the disclosure of his name, NRIC or passport number, address,nationality and permanent resident status, CDP Securities Account number, CPFInvestment Account number (if applicable) and share application amount (the“Relevant Particulars”) from his account with that Participating Bank to the ShareRegistrar, SCCS, CDP, CPF, the Company and the Manager (the “Relevant Parties”);and

(c) that that application is his only application for the Offer Shares (other thanReserved Shares) and it is made in his name and at his own risk.

His application will not be successfully completed and cannot be recorded as a completedtransaction unless he presses the “Enter” or “OK” or “Confirm” or “Yes” or any other relevantkey in the ATM or clicks “Confirm” or “OK” or “Submit” or “Continue” or “Yes” or any otherrelevant button on the IB website screen. By doing so, the Applicant shall be treated assignifying his confirmation of each of the above statements. In respect of statement 1(b) above,his confirmation shall signify, and shall be treated as, his written permission given inaccordance with the relevant laws of Singapore, including Section 47(4) of the Banking Act(Chapter 19) of Singapore, to the disclosure by that Participating Bank of the RelevantParticulars of his account(s) with that Participating Bank to the Relevant Parties.

2. An Applicant may make an ATM Electronic Application at an ATM of any Participating Bank oran Internet Electronic Application at the IB website of any relevant Participating Bank for theOffer Shares (other than Reserved Shares) in the form of cash only by authorising suchParticipating Bank to deduct the full amount payable from his account with such ParticipatingBank.

3. The Applicant irrevocably agrees and undertakes to subscribe for and to accept the number ofOffer Shares (other than Reserved Shares) applied for as stated on the Transaction Record oron the Confirmation Screen or any lesser number of Offer Shares (other than ReservedShares) that may be allotted to him in respect of his Electronic Application. In the event thatthe Company decides to allot any lesser number of such Offer Shares or not to allot any OfferShares to the Applicant, the Applicant agrees to accept such decision as final. If theApplicant’s Electronic Application is successful, his confirmation (by his action of pressing the“Enter” or “OK” or “Confirm” or “Yes” or any other relevant key on the ATM or clicking “Confirm”or “OK” or “Submit” or “Continue” or “Yes” or any other relevant button on the IB websitescreen) of the number of Offer Shares (other than Reserved Shares) applied for shall signifyand shall be treated as his acceptance of the number of Offer Shares (other than ReservedShares) that may be allotted to him and his agreement to be bound by the Memorandum andArticles of Association of the Company.

4. The Applicant irrevocably requests and authorises the Company to:–

(a) register the Offer Shares allotted to the Applicant in the name of CDP for deposit into hisSecurities Account;

(b) send the relevant Share certificate(s) to CDP;

(c) return or refund (without interest or any share of revenue or other benefit arisingtherefrom) the application moneys in Singapore currency should his Electronic Applicationnot be accepted, by automatically crediting the Applicant’s bank account with hisParticipating Bank with the relevant amount within three Market Days after the close of theApplication List; and

144

(d) return or refund (without interest or any share of revenue or other benefit arisingtherefrom) the balance of the application moneys in Singapore currency should hisElectronic Application be accepted in part only, by automatically crediting the Applicant’sbank account with his Participating Bank with the relevant amount within 14 days after theclose of the Application List.

5. BY MAKING AN ELECTRONIC APPLICATION, THE APPLICANT CONFIRMS THAT HE ISNOT APPLYING FOR THE OFFER SHARES AS NOMINEE OF ANY OTHER PERSON ANDTHAT ANY ELECTRONIC APPLICATION THAT HE MAKES IS THE ONLY APPLICATIONMADE BY HIM AS BENEFICIAL OWNER.

THE APPLICANT SHALL MAKE ONLY ONE ELECTRONIC APPLICATION AND SHALLNOT MAKE ANY OTHER APPLICATION FOR THE INVITATION SHARES (OTHER THANFOR THE RESERVED SHARES), WHETHER AT THE ATMs OF ANY PARTICIPATING BANKOR THE IB WEBSITES OF THE RELEVANT PARTICIPATING BANKS OR ON THEPRESCRIBED PRINTED APPLICATION FORMS. WHERE A PERSON HAS MADE ANAPPLICATION FOR INVITATION SHARES (OTHER THAN RESERVED SHARES) ON ANAPPLICATION FORM, HE SHALL NOT MAKE AN ELECTRONIC APPLICATION FOROFFER SHARES AND VICE VERSA.

6. The Applicant irrevocably agrees and acknowledges that his Electronic Application is subject torisks of electrical, electronic, technical and computer-related faults and breakdowns, fires, actsof God and other events beyond the control of the Participating Banks, the Company and theManager and if, in any such event, the Participating Banks and/or the Company and/or theManager do not record or receive the Applicant’s Electronic Application, or data relating to theApplicant’s Electronic Application or the tape or any other devices containing such data is lost,corrupted, destroyed or not otherwise accessible, whether wholly or partially for whateverreason, the Applicant shall be deemed not to have made an Electronic Application and theApplicant shall have no claim whatsoever against the Participating Banks, the Company or theManager for the Offer Shares applied for or for any compensation, loss or damage.

7. Electronic Applications shall close at 12.00 noon on 15 January 2001 or such other time asthe Directors and Vendors may in their absolute discretion, decide. Subject to the paragraphabove, an Internet Electronic Application is deemed to be received only upon its completion,that is, when there is an on-screen confirmation of the application.

8. All particulars of the Applicant in the records of his Participating Bank at the time he makeshis Electronic Application shall be deemed to be true and correct and the relevant ParticipatingBank and the Relevant Parties shall be entitled to rely on the accuracy thereof. If there hasbeen any change in the particulars of the Applicant after the time of the making of hisElectronic Application, the Applicant shall promptly notify his Participating Bank.

9. The Applicant must have sufficient funds in his bank account(s) with his Participating Bank atthe time he makes his Electronic Application, failing which his Electronic Application will not becompleted or accepted. Any Electronic Application which does not strictly conform to theinstructions set out in this Prospectus or on the screens of the ATM or the IB website throughwhich that Electronic Application was made will be rejected.

10. No application will be kept in reserve. Where an Electronic Application is not accepted, it isexpected that the full amount of the application moneys will be refunded in Singapore currency(without interest or any share of revenue or other benefit arising therefrom) to the Applicant bybeing automatically credited to the Applicant’s bank account with the relevant ParticipatingBank within three Market Days after the close of the Application List. Trading on a “whenissued” basis, if applicable, is expected to commence after such refund has been made.Where an Electronic Application is rejected or accepted in part only, the full amount or thebalance of the application moneys will be refunded in Singapore currency (without interest orany share of revenue or other benefit arising therefrom) to the Applicant by being automaticallycredited to the Applicant’s bank account with his Participating Bank within 14 days after theclose of the Application List.

145

The responsibility for timely refund of application moneys arising from unsuccessful or partiallysuccessful Electronic Application lies solely with the respective Participating Banks. Therefore,Applicants are strongly advised to consult their respective Participating Banks regarding thestatus of their Electronic Applications and/or refund of application moneys to them arising fromtheir unsuccessful or partially successful Electronic Applications, to determine the exactnumber of Shares, if any, which have been allotted to them. Neither the SGX-ST, CDP, SCCS,the Participating Banks, the Company nor the Manager assumes any responsibility for any losswhich may be incurred as a result of Applicants having to cover any net sell positions or frombuy-in procedures activated by the SGX-ST.

If the Applicant’s Electronic Application is made through the ATMs of UOB Group and isunsuccessful, it is expected that a computer-generated notice will be sent to the Applicant bythe relevant Participating Bank (at the address of the Applicant as stated in the records of therelevant Participating Bank at the date of his ATM Electronic Application) by ordinary post atthe Applicant’s own risk within three Market Days after the close of the Application List. If theApplicant’s ATM Electronic Application is made through the ATMs of OCBC Group, KTB,OUB or DBS Bank (including its POSBank Services division) and is unsuccessful, nonotification will be sent by the relevant Participating Bank.

If the Applicant’s Internet Electronic Application made through the IB website of UOB,OUB or DBS Bank is unsuccessful, no notification will be sent by such ParticipatingBank.

Applicants who make Electronic Applications through the ATMs of the following banks maycheck the provisional results of their ATM Electronic Applications as follows:–

Available at ATM/ Service expectedBank Telephone Internet Operating Hours from

DBS Bank 1800-222 2222 Internet Banking or 24 hours a day 7.00 p.m. on the327 4767 Internet Kiosk balloting day

www.dbs.com*

KTB 222 8228 ATM ATM-24 hours a day ATM - Evening ofthe balloting day

Phone Banking Phone Banking -Mon-Fri 0800-2200 8.00 a.m. on the daySat 0800-1500 after the balloting day

OCBC 1800-363 3333 ATM ATM-24 hours a day Evening of thePhone Banking - balloting day24 hours a day

OUB 1800-224 2000 OUB Personal Phone Banking/ Evening of the Internet Banking Internet Banking balloting daywww.oub2000.com. sg* 24 hours a dayOUB Mobile Buzz OUB Mobile Buzz**

24 hours a day

UOB 1800-533 5533 ATM(Other Phone Banking***/ 6.00 p.m. on the 1800-222 2121 Transactions – “IPO ATM 24 hours balloting day

Enquiry”) www.uobcyberbank.com.sg***

* Applicants who make Internet Electronic Applications through the IB websites of OUB or DBS Bank may alsocheck the results of their application through the same channels listed in the table above in relation to ATMElectronic Applications made at ATMs of DBS Bank or OUB.

** Applicants who make Electronic Applications through the ATMs or IB website of OUB and who have activatedtheir OUB Mobile Buzz service will be notified of the results of their Electronic Application via their mobilephones.

*** Applicants who make Electronic Applications through the ATMs of UOB Group or the IB website of UOB maycheck the results of their application through UOB CyberBank, UOB Group ATMs or UOB Phone BankingServices.

146

11. In consideration of the Company making available the Electronic Application facility, through theATMs and IB websites (if any) of the Participating Banks and agreeing to close the ApplicationList at 12:00 noon on 15 January 2001 or such later time or date as the Directors andVendors may in their absolute discretion decide, and by making and completing an ElectronicApplication, the Applicant agrees that:–

(a) his Electronic Application is irrevocable; and

(b) his Electronic Application, the acceptance of his Electronic Application by the Companyand the contract resulting therefrom under the Invitation shall be governed by andconstrued in accordance with the laws of Singapore and he irrevocably submits to thenon-exclusive jurisdiction of the Singapore courts.

(c) none of the Company, the Manager or the Participating Banks shall be liable for anydelays, failures or inaccuracies in the recording, storage or in the transmission or deliveryof data relating to his Electronic Application to the Company or CDP due to a breakdownor failure of transmission, delivery or communication facilities or any risks referred to inparagraph 6 on page 145 of this Prospectus or to any cause beyond their respectivecontrols;

(d) he will not be entitled to exercise any remedy of rescission for misrepresentation at anytime after acceptance of his application;

(e) in respect of the Offer Shares for which his Electronic Application has been successfullycompleted and not rejected, acceptance of the Applicant’s Electronic Application shall beconstituted by written notification by or on behalf of the Company and not otherwise,notwithstanding any payment received by or on behalf of the Company; and

(f) in making his application, reliance is placed solely on the information contained in thisProspectus and that none of the Company, the Manager, the Underwriter, the PlacementAgent or any other person involved in the Invitation shall have any liability for anyinformation not so contained.

12. The Applicant should ensure that his personal particulars as recorded by both CDP and therelevant Participating Banks are correct and identical. Otherwise his Electronic Application maybe rejected. The Applicant should promptly inform CDP of any change in his address, failingwhich the notification letter on successful allotment will be sent to his address last registeredwith CDP.

13. The existence of a trust will not be recognised. Any Electronic Application by a person must bemade in his/their own name(s) and without qualification. The Company will reject anyapplication by any person acting as nominee.

147

INSTRUCTIONS FOR ELECTRONIC APPLICATIONS THROUGH ATMS OF DBS BANK(INCLUDING ITS POSBANK SERVICES DIVISION) AND IB WEBSITE OF DBS BANK

Instructions for an Applicant using Electronic Application will appear on the ATM screens and the IBwebsite screens of the relevant Participating Banks.

Steps for ATM Electronic Application through ATMs of DBS Bank (including its POSBankServices division)

For illustrative purposes, the steps for making an ATM Electronic Application through a DBS Bankor POSBank ATM and through the IB website of DBS Bank are shown below. Certain wordsappearing on the screen are in abbreviated form (“A/c”, “amt”, “appln”, “ &”, “I/C” and “No.” refer to“Account”, “amount”, “application”, “and”, “NRIC” and “Number” respectively). Instructions for ATMElectronic Applications on the ATM screens of Participating Banks (other than DBS Bank(includingits POSBank Services division)) may differ slightly from those represented below.

Step 1: Insert your personal DBS or POSBank ATM Card.

2: Enter your Personal Identification Number

3: Select “CASHCARD & MORE SERVICES”

4: Select “ESA-IPO SHARE/BOND/RIGHTS”

5: Select “ELECTRONIC SECURITY APPLN (IPO-SHARE/BOND)” to “HYFLUX”

6: Press the “ENTER” key to acknowledge:-

— You have read, understood & agreed to all terms of the appln & theProspectus/Document

— You consent to disclose your name, I/C No., address, nationality, CDPSecurities A/c No., CPF Investment A/c No. & security appln amount from yourbank account(s) to share registrars, SCCS, CDP, CPF, issuer/vendor(s)

— For FIXED price security appln, this is your only appln and it is made in yourown name and at your own risk

— For TENDER security appln, this is your only appln at the selected tender priceand it is made in your own name and at your own risk

— You are not a US Person as referred to in the Prospectus/Document whereapplicable

7: Select your nationality

8: Select the DBS Bank account (Autosave/Current/Savings/Savings Plus) or the POSBankaccount (Current/Savings) from which to debit your application moneys

9: Enter the number of shares/securities you wish to apply for using cash

10: Enter your own 12-digit CDP Securities Account number or press “Enter” to confirm ifyour CDP Securities Account number is correct. (If your CDP Securities Account numberhas already been stored in the DBS Bank’s or POSBank’s records)

11: Check the details of your securities application, your CDP Securities Account number onthe screen and press the “ENTER” key to confirm application

12: Remove the Transaction Record for your reference and retention only

148

Steps for Internet Electronic Application through the IB website of DBS Bank

For illustrative purposes, the steps for making an Internet Electronic Application through the DBSBank IB website is shown below. Certain words appearing on the screen are in abbreviated form(“A/c”, “amt”, ‘appln”, “&”, “I/C” and “No.” refer to “Account”, “amount”, “application”, “and”, “NRIC” and“Number” respectively),

Step 1: Click on to DBS bank website (www.dbs.com)

2: Login to Internet banking

3: Enter your User ID and PIN

4: Select “Electronic Security Application”

5: Click “Yes” to proceed and to warrant that you have observed and complied with allapplicable laws and regulations

6: Click on “Hyflux”

7: Click “Confirm” to acknowledge:

(a) You have read, understood & agreed to all terms of application andProspectus/Document

(b) You consent to disclose your name, I/C No., address, nationality, CDP Securities A/cNo., CPF Investment A/c No. & security application amount from your DBS/POSBankaccount(s) to share registrars, SCCS, CDP, CPF Board and issuer(s)

(c) This application is made in your own name and at your own risk

(d) For FIXED price securities application, this is your only application. For TENDERsecurities application, this is your only application at the selected tender price

(e) You are not a US Person as referred to in the Prospectus/Document, whereapplicable.

8: Fill in details for share application and click “Submit”

9: Check the details of your securities application, your IC/passport No. and no. of shareson the screen and click “OK” to confirm your application

10: Print Confirmation Screen (optional) for your reference & retention only

149

This page has been intentionally left blank.

Turnover

Profit before tax

10 mths ended31 Oct ‘00

1997

12

10

8

6

4

2

0

14

16

18

20

0.137

1998 1999 2000(Estimate)

6.391

1.058

6.929

0.430

5.954

20.140

8.720

15.775

3.870

(’S$ mil)

Financial PerformanceFinancial Performance

Ourcompetitive

strengthsOurbusiness

strategies

For financialyear ended

December 31

Financialhighlights

Provide integrated services• Designing • Engineering• Installation • Commissioning• Maintenance

Ability to meet the diverse needs of various industries by utilisingmembrane filtration• Serve industries such as electronics, pharmaceutical and

biotechnology• Not reliant on a single industry or customer

Experienced management team• Led by founder and Managing Director, Ms Olivia Lum, for the past

10 years• Assisted by a dedicated management team

Ability to meet international standards• Produce water which meets USP standards• Manufacture equipment which meets ASME standards

Customised systems• Provide solutions to suit the various needs of customers• Customise membrane filtration plants for diverse applications

required by different industries

Established relationship with customers and suppliers• Approximately 70% of our business is obtained through referrals and

recommendations by our existing customers, engineering consultants and companies

• Supply agreement with E-Cell Corporation of Canada for a patented electrochemical liquid purification apparatus widely used in industries requiring ultra-pure water

Industryprospects

Rising demand for water treatment systems

Shortage of fresh water supply- less than 1% of world’s fresh water is readily accessible for human use

Growing market for conservation and recycling of water- Projected growth of 10% to 15% per annum over the next three years,

and by 20% to 25% per annum in the longer term in Singapore

Increasing water consumption- Water consumption in PRC estimated to grow at 5% per annum- Brisk pace of PRC‘s industrial development further compounds the

shortage of potable water

Demand for membrane materials in the US is projected to grow by 7.8% perannum from US$1.2 billion in 1999 to US$1.8 billion in 2004

•

•

•

Growth in membrane industry

•

Provide fully integrated services• Continue to provide a wide range of water treatment services

• Plan to provide emergency recovery units to provide uninterruptedwater treatment while servicing or upgrading customers’ watertreatment systems

Lower direct costs• Aim to manufacture in-house up to 30% to 50% of the

materials used in our systems

Incorporate information technology into systems• Enhance operational capabilities of our systems

Strengthen and cultivate relationships withengineering consultants and companies• Keep abreast of new projects

Tender for projects of larger value

Increase research & development andimprove quality standards• Develop proprietary membranes

• Improve existing membranes

• Find new uses and applications

• Drive quality system to ISO standards

Incorporated in the Republic of Singapore on 31 March 2000

SNP SPrint Pte Ltd 612004

Application has been made to the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for permission to deal in, and for quotation of, all of our ordinary shares of $0.05 each(the “Shares”) comprising existing issued and fully paid-up shares and the new Shares (the“New Shares”) which are the subject of this Invitation (as defined herein). Such permissionwill be granted when the Company has been admitted to the Official List of the SGX Sesdaq.Acceptance of applications will be conditional upon permission being granted to deal in, andfor quotation of, all the issued Shares and the New Shares. Moneys paid in respect of anyapplication accepted will be returned, without interest or any share of revenue or other benefitarising therefrom and at the applicant’s own risk, if the said permission is not granted.

The SGX-ST assumes no responsibility for the correctness of any of the statements made,opinions expressed or reports contained in this Prospectus. Admission to the Official List ofthe SGX Sesdaq is not to be taken as an indication of the merits of the Invitation, the Company,its subsidiaries, the Shares or the New Shares.

A copy of this Prospectus, together with copies of the Application Forms, has been lodgedwith and registered by the Registrar of Companies and Businesses in Singapore who takesno responsibility for its contents.

Invitation in respect of 39,470,000 Ordinary Shares of $0.05 each comprising25,000,000 New Shares and 14,470,000 Vendor Shares as follows:-

(1) 6,000,000 Offer Shares at $0.32 for each Offer Share by way of publicoffer, and

(2) 33,470,000 Placement Shares by way of placement, comprising:-

(i) 32,430,000 Placement Shares at $0.32 for each Placement Share; and

(ii) 1,040,000 Reserved Shares at $0.32 for each Reserved Share reservedfor our Directors, management, employees and others who havecontributed to the success of our Group,

payable in full on application.

Manager, Underwriter and Placement Agent

(Incorporated in the Republic of Singapore on 31 March 2000)

PROSPECTUS DATED 8 JANUARY 2001

HYFLUX LTD 40 Changi South Street 1 Singapore 486764

We build specialised systems for:

• Water Purification of raw water for public consumption and industrial applications

• Wastewater Treatment for industries

• Water Recycling of wastewater for reuse

• Advanced Membrane Filtration to recover or purify products, such as antibiotics, Vitamin C, dyes and urea in manufacturing process

• High-purity piping systems and equipment hook-up to convey pure products, such as compressedair, specialty gases, ultra-pure water and chemicals to manufacturing plants

Water Treatment Systemin an electronic factory

Membrane Filtration Plant for water recycling

Recycling of brine solutionin a sugar factory

businessCoreA one-stop shop service for the design, fabrication, installation,commissioning and maintenance of water treatment systems,specialising in advanced membrane filtration technologies thathave found diverse applications across industries and markets.

“A SPECIALIST IN INTEGRATED TREATMENTSYSTEMS FOR ADVANCED WATER TREATMENT ANDMEMBRANE FILTRATION”

EDI System in asemiconductor facility

Our headquarters in Singapore Our Shanghai Office

hyflux

Documents

recycling of water

placement shares

new shares

offer shares

reserved shares

issued shares

ordinary shares

advanced water treatment