2012 Annual Report - ZTE

ANNUAL REPORT 2012Ruide will still be required to undergo the Group’s qualification and bidding procedures for the selection of suppliers.If Ruide succeeds in its bid to supply to the Group, the Group will issue purchase orders from time to time toRuide pursuant to the framework agreement entered into with Ruide. Purchase orders will specify product types,agreed quantities and prices, quality specifications, delivery times, places and modes, as well as contract details.Prices will be arrived at after arm’s length negotiations, with reference to the prices quoted by Ruide for sales ofsimilar quantities of the same or similar products to independent third parties at the relevant time.• Purpose of the transaction:The Group’s handset products have become one of the major sources of revenue for the Company. The Directorsof the Company consider it an important strategy of the Group to have a co-operative and reliable supplier forhandset batteries. The Group’s investment in Ruide was made with this purpose in mind. Through the Group’squalification and bidding procedures, Ruide was selected as one of our suppliers.(2) Purchase of liquid crystal modules (LCMs) by the Group from Lead• Description of the connected relationship between the parties to the transaction:The Company owned Lead, a wholly-owned subsidiary of the Company established on 17 June 2003, throughChangfei. Zhongxingxin is a substantial shareholder of Lead with a 22.5% interest. Given that Zhongxingxin is asubstantial shareholder of the Company and is therefore a connected person at the level of the Company and isa substantial shareholder of Lead, Lead constitutes the Company’s connected person pursuant to Rule 14A.11(5)of the Hong Kong Listing Rules.Changfei holds 62.5% equity interests in Lead. As considered and approved at the Thirty-sixth Meeting of the FifthSession of the Board of Directors of the Company held on 16 November 2012, the Company disposed of its 81%equity interests in Changfei to Guangdong All Access and CCBI. Registration of changes with the administrationof industry and commerce was completed on 26 December 2012, with effect from which the Company ceasedto hold any equity interests in Changfei and Lead was no longer a non-wholly owned subsidiary nor a connectedperson of the Company.• Total transaction amount in 2012:Approximately RMB638,044,000• Pricing and other terms:At the Twenty-third Meeting of the Fifth Session of the Board of Directors held on 27 October 2011, the Directorsapproved the 2012 connected transaction framework agreement between the Group and Lead in respect of thecontinuing purchase of LCMs from Lead by the Group. The purchase framework agreement shall be effective until31 December 2012. The purchase cap for 2012 was RMB1,050 million (before VAT).Lead will still be required to undergo the Group’s qualification and bidding procedures for the selection of suppliers.If Lead succeeds in its bid to supply to the Group, the Group will issue purchase orders from time to time to Leadpursuant to the framework agreement entered into with Lead. Purchase orders will specify product types, agreedquantities and prices, quality specifications, delivery times, places and modes, as well as contract details. Priceswill be arrived at after arm’s length negotiations, with reference to the prices quoted by Lead for sales of similarquantities of the same or similar products to independent third parties at the relevant time.83