09:30 FOREFRONT INT'L<00885> - Announcement (1) The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. FOREFRONT INTERNATIONAL HOLDINGS LIMITED * (incorporated in the Cayman Islands with limited liability) (Stock Code: 885) TAIWAN OPERATIONS AND SCANIA DISTRIBUTION AND ASSEMBLY AGREEMENTS This announcement is made to further inform the Company's shareholders and the public about certain matters regarding the Group's operations in Taiwan and the Group's agreements with Scania in relation to the distribution and assembly of Scania Products. FIAL is a wholly owned subsidiary of the Company and contributed to approximately 64% of the Group's consolidated turnover in 2003. The Group is reviewing certain arrangements FIAL has entered into and issues impacting the Group's control over its operations in Taiwan. Scania is the principal supplier to the Group and is also a shareholder in the Company with an interest in approximately 4.8% of the Shares. On 19 April 2005 Scania served notice on the Group of the termination of all existing licensing arrangements with the Group to take effect from 26 April 2006. In the event that new licensing arrangements are not entered into prior to 26 April 2006, the termination of the existing licences will have a material adverse impact on the operations and financial performance of the Group. Based on continuing discussions with Scania, the Group is confident that it retains the support of Scania and that new arrangements will be in place prior to 26 April 2006 when the existing licences will expire. Trading in the shares of the Company on the Stock Exchange was suspended from 9:30 a.m. on 14 May 2004 at the request of the Company. Shareholders of the Company and potential investors should exercise caution when dealing in the shares of the Company. BACKGROUND Shareholders of the Company will be aware that a number of changes have taken place in the composition of the Board and the boards of directors of the Company's subsidiaries. Since the resignation of Mr. Selwyn Mar from the Board on 16 September 2004 there has been no change to the constitution of the Board. Reference is made to the Company's announcements dated 21 July 2004, 14 September 2004 and 22 September 2004 respectively for further details in relation to the above. A priority of the New Board was to obtain the full support of Scania and to reconstitute the boards of directors of the Company's subsidiaries, in order to better reflect the composition of the New Board. This process was accomplished quickly and effectively throughout the majority of the Group's subsidiaries. A further priority of the New Board was to investigate various transactions entered into by the Group concerning the Group's operations in Taiwan. The findings of these investigations are described below. In reviewing these matters the New Board engaged the services of RSM Nelson Wheeler. Details of the engagement of RSM Nelson Wheeler were set out in the Company's announcement dated 27 January 2005. The New Board wishes to advise the Company's shareholders and the public concerning certain issues impacting the Group's operations in Taiwan arising principally out of issues reported to the New Board by RSM Nelson Wheeler as a result of its investigations. SALE OF 51% INTEREST HELD BY FIAL IN FAI TO NEO CHINA The New Board continues to investigate the Disposal. Having conducted initial investigations the New Board has formed a preliminary view that the Disposal was completed at undervalue and that subsequent arrangements entered into between FIAL Taiwan and FAI on 20 July 2004, pursuant to which FAI was granted the right to assemble Scania Products in Taiwan for supply to FIAL Taiwan, are uncommercial. The New Board is in the process of engaging financial advisers in Taiwan to prepare an expert opinion as to whether the Disposal was for proper value. The New Board has made a number of requests to re-negotiate the pricing terms pursuant to which FAI supplies assembled Scania Products to FIAL Taiwan for supply in Taiwan. To-date FAI has refused to meet to discuss these and other related issues despite the pricing terms being subject to review on 31 December 2004. The New Board is of the view that the