Basis of determination of the proposed annual caps The selling prices payable by Hongri under the Hongri Purchase Agreement are determined with reference to the costs of the products, the prices of comparable products offered by at least two independent third party competitors in the market and the consumers’ likely perception of the values of the products. Although it is not part of the terms of the Hongri Sales Agreement, the Group follows its price quotation management system under its relevant internal standard operating procedure to determine the selling prices of the products under the Hongri Sales Agreement. The price quotation management system requires the relevant internal sales team of the Group to consider and evaluate various factors including the business objectives, strategy and operational factors of the Group on an ongoing basis. In particular, in determining the selling prices of such products, the relevant internal sales team of the Group considers the costs of the products, the prices of comparable products offered by at least two independent third party competitors in the market and the consumers’ likely perception of the values of the products. As the specifications of the integrated circuits and other semiconductor products sold to Hongri under the Hongri Sales Agreement are customized to meet the specific requirements of end customers, the actual demand of the end customers of Hongri and the development of the chips application industry in the PRC will also affect the determination of the selling prices for such products. The Group also adheres strictly to its internal approval procedure under the price quotation management system for the pricing of such products which applies equally to independent third party customers as well as its connected persons to ensure that the transactions under the Hongri Sales Agreement shall be conducted on normal commercial terms. The relevant internal sales team of the Group will review the selling prices of the products under the Hongri Sales Agreement on a regular and ongoing basis. Having reviewed the terms and the pricing basis of the Hongri Sales Agreement, the Directors (including the independent non-executive Directors) consider that:
Basis of determination of the proposed annual caps The proposed CKDs and Automobile Components Purchase Annual Caps were determined by the Directors with reference to:
