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Iceberg Cold & Heat Technology Co., Ltd.

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Proposal for the Non-public Issuance of A Shares by Daren Co., Ltd.

Stock Abbreviation: Daling Shares; Daling B Stock Code: 000530; 200530

Dalian Refrigeration Co., Ltd.

Proposal for a Non-public Issuance of A Shares

June 2015

Table of Contents

Table of Contents 2

Issuer’s Statement 4

Important Notice 5

Definition 7

Section 1: Overview of the Proposed Non-public Issuance of A Shares 8

I. Basic Information of the Issuer 8

II. Background and Purpose of This Non-public Offering 8

III. Subscribers and Their Relationship with the Company 11

IV. Issue Price and Pricing Principles, Number of Shares to Be Issued, and Lock-Up Period 11

V. Use of Proceeds 12

VI. Whether This Offering Constitutes a Related-Party Transaction 12

VII. Whether This Offering Results in a Change in the Company’s Control 12

VIII. Approval Procedures for This Non-public Offering 13

Section 2: Feasibility Analysis by the Board of Directors on the Use of Funds Raised in This Offering 14

I. Plan for the Use of Funds Raised in This Offering 14

II. Basic Information on the Fund-Raising Investment Projects 14

III. Impact of This Offering on the Company’s Operations, Management, and Financial Condition 17

Section 3: Discussion and Analysis by the Board of Directors on the Impact of This Offering on the Company 18

I. Changes in the Company’s Business and Assets, Articles of Association, Shareholder Structure, Senior Management Structure, and Business Structure Following This Offering 18

II. Changes in the Company’s Financial Condition, Profitability, and Cash Flows Following This Offering 19

III. Changes in the Business Relationships, Management Relationships, Related-Party Transactions, and Competing Interests Between the Company and Its Controlling Shareholder and Affiliates 20

IV. Following the completion of this issuance, are there any instances in which the company’s funds or assets have been appropriated by the controlling shareholder and its affiliates, or in which the company has provided guarantees for the controlling shareholder and its affiliates? 20

V. Impact of This Offering on the Company’s Debt Position 20

VI. Disclosure of Risks Related to This Offering 20

Section 4: The Issuer’s Dividend Policy 23

I. Current Profit Distribution Policy of the Company 23

II. Shareholder Return Plan for the Next Three Years (2015–2017) 25

III. Profit Distribution and Utilization of Undistributed Profits over the Past Three Years 27

Section 5: Other Material Matters Required to Be Disclosed 29

Issuer’s Statement

I. The Company and all members of the Board of Directors hereby warrant that the contents of this contingency plan are true, accurate, and complete, and confirm that there are no false records, misleading statements, or material omissions, and shall each and jointly bear individual and joint liability for the truthfulness, accuracy, and completeness of such contents.

II. Following the completion of this non-public issuance of A-shares, the Company shall be solely responsible for any changes in its operations and earnings; investors shall bear sole responsibility for any investment risks arising from this non-public issuance.

III. This contingency plan constitutes the Company’s Board of Directors’ explanation regarding the proposed non-public issuance of A-shares, and any statement to the contrary shall be deemed a false representation.

IV. Investors with any questions should consult their stockbroker, attorney, certified public accountant, or other professional advisor.

V. The matters set forth in this Plan do not constitute any substantive judgment, confirmation, or approval by the competent approving authority with respect to the proposed non-public issuance of A-shares; the effectiveness and completion of such issuance remain subject to approval by the Company’s Shareholders’ Meeting and approval by the China Securities Regulatory Commission.

Important Notice

I. The matters related to this non-public issuance of A-shares have been reviewed and approved at the 17th meeting of the 6th Board of Directors of the Company. The proposed non-public issuance of A-shares still requires approval by the Company’s Shareholders’ Meeting and subsequent approval by the China Securities Regulatory Commission.

II. The subscribers for this non-public offering shall be investors who comply with applicable laws, regulations, and the provisions of the China Securities Regulatory Commission, including mutual fund management companies, securities firms, trust investment companies, finance companies, insurance institutional investors, asset management companies, qualified foreign institutional investors, other domestic corporate investors, and natural persons, with the total number of such specific investors not exceeding ten.

Securities investment fund management companies and other entities that subscribe using two or more funds under their management shall be deemed a single subscriber. Trust companies, when acting as subscribers, may only subscribe with their own funds.

The specific subscribers shall be determined by the Board of Directors, upon authorization from the Shareholders’ Meeting, following the approval of this non-public offering by the China Securities Regulatory Commission, in accordance with the Provisions for the Implementation of Non-Public Offerings of Shares by Listed Companies and based on the subscription bids submitted by the respective subscribers. All subscribers shall subscribe for the shares issued in this non-public offering in cash at the same price. This non-public offering will not result in any change in the controlling shareholder or the actual controller of the Company.

III. The pricing benchmark date for this non-public offering is the date of the announcement of the resolution passed at the 17th meeting of the Company’s Sixth Board of Directors, namely June 5, 2015. The issue price shall not be lower than 90% of the average trading price of the Company’s shares over the 20 trading days preceding the pricing benchmark date, i.e., not less than RMB 15.09 per share.

The final offering price will be determined through negotiation between the Company’s Board of Directors and the sponsor (lead underwriter) based on the results of the bidding process, in accordance with the Implementation Rules for Non-public Issuances of Shares by Listed Companies and other relevant regulations, following the Company’s receipt of the approval document from the China Securities Regulatory Commission for this issuance. If, during the period from the pricing benchmark date to the issuance date, the Company’s shares undergo any rights adjustments or dividend distributions—such as cash dividends, stock dividends, or capitalization of capital reserves into share capital—the floor price for this issuance will be adjusted accordingly.

IV. The number of shares to be issued in this non-public offering shall not exceed 38,436,050 shares (inclusive). Within this cap, the final number of shares to be issued shall be determined by the Board of Directors upon authorization from the Shareholders’ Meeting, following consultation with the sponsor (lead underwriter) and based on actual subscription results. If, between the pricing benchmark date and the issuance date, the Company declares dividends, issues bonus shares, capitalizes capital reserves to increase share capital, or undertakes other rights- or dividend-adjusting actions, the upper limit on the number of shares to be issued in this non-public offering shall be adjusted accordingly, based on the total funds to be raised and the post-adjustment issue floor price.

V. The total proceeds to be raised in this non-public offering (including issuance expenses) shall not exceed RMB 580 million; after deducting issuance expenses, the proceeds will be used for the Company’s relocation and renovation project.

VI. Upon completion of this issuance, in order to balance the interests of both new and existing shareholders, the Company’s accumulated undistributed profits as of the date prior to this issuance shall be shared by all shareholders, both new and existing.

In accordance with the requirements of relevant documents, including the China Securities Regulatory Commission’s “Notice on Further Implementing Matters Related to Cash Dividends by Listed Companies” (CSRC Document No. [2012]37) and “Regulatory Guidance No. 3 for Listed Companies—Cash Dividends by Listed Companies” (CSRC Announcement No. [2013]43), the 17th meeting of the 6th Board of Directors of the Company reviewed and approved the “Proposal on the Shareholder Return Plan of Dalian Refrigeration Co., Ltd. for the Next Three Years (2015–2017).” The aforementioned proposal shall take effect only upon approval by the General Meeting of Shareholders.

This contingency plan has already been described in “Section 4: The Issuer’s Dividend Policy,” which outlines the company’s articles of association regarding profit distribution policies, the shareholder return plan for the next three years (2015–2017), and the profit distribution practices over the most recent three years. Investors are advised to pay close attention to this information.

Definition

Company, this Company, Issuer, Daling Shares	to point	Dalian Refrigeration Co., Ltd.
This non-public offering, this issuance	to point	Dalian Refrigeration Co., Ltd. intends to issue, through a non-public offering, no more than 38,436,050 A-shares to specific investors.
This Contingency Plan	to point	Proposal for the Non-public Issuance of A Shares by Dalian Refrigeration Co., Ltd.
Pricing Benchmark Date	to point	Date of Announcement of Resolutions Adopted at the 17th Meeting of the Sixth Session of the Company’s Board of Directors
Iceberg Group, Controlling Shareholder	to point	Dalian Bingshan Group Co., Ltd.
Dalian State Investment	to point	Dalian State-owned Assets Investment and Management Group Co., Ltd.
Dalian Equipment	to point	Dalian Equipment Investment Group Co., Ltd.
Sanyo Electric	to point	Sanyo Electric Co., Ltd.
China Securities Regulatory Commission, CSRC	to point	China Securities Regulatory Commission
Shenzhen Stock Exchange	to point	Shenzhen Stock Exchange
yuan, ten thousand yuan, hundred million yuan	to point	RMB yuan, RMB ten thousand yuan, RMB hundred million yuan

Section 1: Overview of the Proposed Non-public Issuance of A Shares

I. Basic Information of the Issuer

Chinese Name: Dalian Refrigeration Co., Ltd.

English Name: Dalian Refrigeration Co., Ltd.

Registered Address: No. 888, Southwest Road, Shahekou District, Dalian City

Date of Establishment: December 18, 1993

Legal Representative: Ji Zhijian

Registered capital: RMB 360,164,975

Stock Listing Exchange: Shenzhen Stock Exchange

Stock Abbreviation: Daling Shares; Daling B

Stock codes: 000530; 200530

Company website: www.daleng.cn

Contact phone number: 0411-86538130

Scope of Business: Processing and manufacturing of refrigeration equipment and associated auxiliary machinery, valves, accessories, and other supporting products required for cold-storage projects; design, manufacturing, installation, maintenance, commissioning, technical consulting, and technical services for refrigeration and air-conditioning systems; commercial trade; and supply and marketing of materials and supplies.

II. Background and Objectives of This Non-public Offering

(1) Background of this Non-public Offering

1. In 2014, the overall performance of the economy remained stable, as economic development transitioned to a new normal.

In 2014, China’s economy grew by 7.4% year on year, broadly achieving the approximately 7.5% target set at the beginning of the year. Quarterly growth rates were 7.4%, 7.5%, 7.3%, and 7.3%, respectively, indicating overall stable economic performance for the year. However, the continued deceleration in fixed-asset investment had a certain negative impact on economic growth, particularly as the real estate sector reached a turning point in its long-cycle adjustment, accelerating the decline in investment growth. Despite this, several economic indicators stabilized, providing support for mitigating downward pressure on the economy and optimizing its structure: on the one hand, total new urban employment in 2014 exceeded 13 million, reflecting a favorable employment situation that fostered steady income growth; on the other hand, the consumer price index rose by 2.1% in 2014, meeting the年初 target and ensuring steady consumption growth.

China’s comprehensive transition to the new normal in its economy not only signifies a shift in economic growth from high speed to medium-high speed, but also entails structural transformation, changes in the development model, and institutional reforms.

2. In 2014, the refrigeration and air-conditioning industry experienced a slowdown in growth, increasing pressure to undergo transformation.

In 2014, the refrigeration and air-conditioning industry continued the growth trend observed in 2013. The impact of the new normal in economic development gradually became evident, leading to a general slowdown in industry-wide growth while prompting structural adjustments and transformation. Some enterprises intensified R&D efforts to deepen the transformation and upgrading of their traditional businesses, enhanced their adaptability to shifting demand patterns, and sought new areas of growth. According to data from the National Bureau of Statistics, the refrigeration and air-conditioning sector for commercial and industrial applications recorded cumulative main-business revenue of RMB 266.235 billion for the full year of 2014, representing an 11.23% year-on-year increase—down 1.46 percentage points from the 12.69% year-on-year growth reported for the first three quarters of 2014.

3. The establishment of a cold-chain logistics system is urgently needed, further propelled by urbanization and food-safety strategies.

As national consumption levels continue to rise, the circulation of agricultural products in China is increasingly characterized by large scale, long distances, and off-season supply. Consequently, consumers are placing higher demands on the scale and quality of agricultural logistics services—particularly on cross-regional refrigerated transportation and low-temperature storage and preservation. However, due to the low cold-chain penetration rate and the limited extent of end-to-end cold-chain coverage in China’s agricultural cold-chain logistics, coupled with severe deficiencies in cold-chain logistics infrastructure capacity, post-harvest losses of agricultural products amount to as much as RMB 100 billion annually. Therefore, the urgent development of a robust cold-chain logistics system is imperative.

In 2011, China’s urbanization rate exceeded 50%, reaching 54.77% in 2014; that same year, per capita GDP reached US$7,458. Drawing on the experience of developed countries and taking into account the current state of cold-chain logistics development in China, it is anticipated that demand for cold-chain food will soon reach an inflection point, driving rapid growth in the market for food freezing and refrigeration equipment. The State Council has issued the National New Urbanization Plan (2014–2020) as a guiding document, encouraging the establishment of a cold-chain logistics system that covers all stages of agricultural product collection, storage, processing, transportation, and sales. The revision of the Food Safety Law signifies that the food industry—crucial to both national economic development and people’s livelihoods—is now at the forefront of government-led reform initiatives and has become an integral component of the national security strategy. Consequently, the development of food cold-chain logistics constitutes a vital part of China’s food safety strategy.

4. Deep integration of information technology enhances cold-chain transportation efficiency, while intelligent solutions create high-value-added opportunities.

The new normal of China’s economic development has led to the optimization and upgrading of the economic structure, as well as the deep integration of industrialization and informatization, making the shift from a factor- and investment-driven economy to an efficiency- and innovation-driven economy an inevitable trend. In documents such as the “Medium- and Long-Term Plan for the Development of the Logistics Industry (2014–2020)” issued by the State Council in 2014 and the “Guiding Opinions on Further Promoting the Healthy Development of Cold-Chain Transportation and Logistics Enterprises” issued by the National Development and Reform Commission, the application of advanced information technologies—including the Internet of Things, cloud computing, and big data—in the cold-chain transportation and logistics sector is encouraged and supported. These measures aim to achieve end-to-end monitoring and information sharing for both goods and cold-chain transport vehicles, optimize resource allocation, and enhance the overall efficiency of cold-chain transportation across society.

As traditional manufacturing enterprises undertake IT-driven reforms of their internal operations, they are also repositioning themselves from mere manufacturers and equipment suppliers to service providers and solution vendors. Leveraging advanced information technologies such as the Internet of Things and big data, unmanned, automated refrigeration systems and remote monitoring, data acquisition, and processing solutions for refrigeration equipment are poised to become the mainstream market trend, with enormous growth potential in the industry going forward.

5. “Made in China 2025” provides a favorable opportunity for the company’s transformation and upgrading.

To address the current situation in China’s manufacturing sector—large in scale but lacking in strength—the State Council issued “Made in China 2025” in May 2015 as the first ten-year action plan for implementing the national strategy of building a manufacturing powerhouse. The initiative underscores that China’s economic development has entered a new normal, posing fresh challenges to the manufacturing sector, and emphasizes the urgent need to adjust the industrial structure, promote transformation and upgrading, and enhance quality and efficiency.

As a Chinese manufacturer of industrial refrigeration equipment, the company operates at a facility originally constructed in the 1950s and 1960s. However, its current production processes, manufacturing capacity, and product portfolio no longer fully meet market demands. The company urgently needs to achieve a transformation—from a cost-based competitive advantage to one driven by quality and efficiency—and from a production-oriented manufacturing model to a service-oriented manufacturing model—by deeply integrating information technology with manufacturing technology and by converging products with services.

(II) Purpose of this Non-public Offering

To capitalize on the market opportunities presented by the development of the refrigeration and air-conditioning industry, align with current and future market demands, and keep pace with emerging technological trends in the sector, the proceeds from this non-public offering are intended to fund the company’s relocation and renovation project. Seizing this opportunity, the company will build an intelligent, networked, and digitalized manufacturing facility. By deploying new technologies, processes, and equipment—such as flexible production lines and industrial robots—the company will comprehensively upgrade its design and R&D capabilities, process engineering, and equipment standards; further refine its product mix; optimize its value chain; and enhance its solution offerings. These efforts will drive industrial, management, and quality upgrades, elevating the company’s overall performance and leveraging efficiency and innovation to foster sustainable development.

III. Subscribers and Their Relationship with the Company

The subscribers to this non-public offering shall be investors who comply with applicable laws, regulations, and the provisions of the China Securities Regulatory Commission, including mutual fund management companies, securities firms, trust investment companies, finance companies, insurance institutional investors, asset management companies, qualified foreign institutional investors, other domestic corporate investors, and natural persons, with the total number of such specific investors not exceeding ten.

IV. Issue Price and Pricing Principles, Number of Shares to Be Issued, and Lock-Up Period

(1) Issue Price and Pricing Principles

The pricing benchmark date for this non-public offering is the date of the announcement of the resolution passed at the 17th meeting of the Company’s Sixth Board of Directors, namely June 5, 2015. The issue price for this non-public offering shall not be lower than 90% of the average trading price of the Company’s shares over the 20 trading days preceding the pricing benchmark date, i.e., not less than RMB 15.09 per share.

On May 20, 2015, the “2014 Annual Profit Distribution Plan” was approved at the Company’s 2014 Annual General Meeting; however, it has not yet been implemented. The floor price for this non-public offering will be adjusted accordingly upon the implementation of the 2014 Annual Profit Distribution Plan.

(2) Number of Shares Issued

The number of shares to be issued in this non-public offering shall not exceed 38,436,050 shares (inclusive). Within this cap, the final number of shares to be issued shall be determined by the Board of Directors, upon authorization from the Shareholders’ Meeting, through consultation with the sponsor (lead underwriter) based on actual subscription results. If, between the pricing benchmark date and the issuance date, the Company undertakes any rights-adjustment or dividend-adjustment events, such as cash dividends, stock dividends, or capitalization of capital reserves into share capital, the upper limit on the number of shares to be issued in this non-public offering shall be adjusted accordingly, based on the total funds to be raised and the post-rights-and-dividend issue price floor.

On May 20, 2015, the “2014 Annual Profit Distribution Plan” was approved at the Company’s 2014 Annual General Meeting; however, it has not yet been implemented. The maximum number of shares to be issued in this non-public offering will be adjusted accordingly upon the implementation of the 2014 Annual Profit Distribution Plan.

(3) Lock-up Period

Shares subscribed by investors shall not be transferred within 12 months from the date of completion of the offering; thereafter, such transfers shall be governed by the relevant regulations of the China Securities Regulatory Commission and the Shenzhen Stock Exchange.

V. Use of Proceeds

The proposed total proceeds from this non-public offering (including issuance expenses) shall not exceed RMB 580 million, and the net proceeds, after deducting issuance expenses, will be allocated to the following projects:

Project	Total project investment (in ten thousand yuan)	Proposed Use of Raised Funds (in RMB 10,000)
Company Relocation and Renovation Project	93,500	58,000

The net proceeds from this offering will not exceed the funding requirements of the projects. If the actual proceeds raised in this offering are insufficient to meet the investment needs of the aforementioned projects, the resulting funding shortfall will be financed by the Company through its own internal resources.

Prior to the receipt of the funds raised in this offering, the Company will finance the initial project expenditures on a self-funded basis in accordance with the actual progress of the projects. Upon receipt of the proceeds from the offering, such funds will be used, in compliance with applicable laws, regulations, and procedures, to pay the remaining project costs and to reimburse the previously incurred expenditures.

VI. Does This Offering Constitute a Related-Party Transaction?

This issuance does not constitute a related-party transaction.

VII. Will This Offering Result in a Change in the Company’s Control?

Prior to this non-public offering, the company’s equity control structure is as shown in the following diagram:

Prior to this offering, the Company’s controlling shareholder was Bingshan Group, which held 76,855,683 shares, representing 21.34% of the Company’s total share capital. Bingshan Group is a Sino-foreign joint venture limited liability company, with Sanyo Electric holding a 30% equity interest and Dalian Equipment and Dalian State Investment each holding a 30% equity interest. The remaining 15%, 15%, and 10% of Bingshan Group’s equity are held by Daoyang Co., Ltd., Yida Holdings Co., Ltd., and Dalian Zhonghuida Refrigeration Technology Co., Ltd., respectively. As such, Bingshan Group does not have a controlling shareholder; nor does the Company have an ultimate controlling person.

Based on the maximum number of shares to be issued in this offering (38,436,050 shares), following completion of the issuance, Bingshan Group’s shareholding in Daling Shares will decrease to 19.28%. This non-public offering will not result in any change in the company’s controlling interest.

VIII. Approval Procedures for This Non-public Offering

This issuance plan was reviewed and approved at the 17th meeting of the Company’s Sixth Board of Directors, held on June 4, 2015.

In accordance with applicable laws and regulations, this non-public offering is still subject to approval by the Company’s Shareholders’ Meeting and approval by the China Securities Regulatory Commission.

Section 2: Board of Directors’ Feasibility Analysis on the Use of Funds Raised in This Offering

I. Plan for the Use of Funds Raised in This Offering

Project	Total project investment (in ten thousand yuan)	Proposed Use of Raised Funds (in RMB 10,000)
Company Relocation and Renovation Project	93,500	58,000

II. Basic Information on the Fund-Raising Investment Projects

The proceeds from this non-public offering will be primarily used for the company’s relocation and renovation project.

(1) Project Background and Prospects

1. Project Background

In 2014, China’s economy grew by 7.4% year on year, a slight deceleration from 2013, yet overall economic performance remained stable. China’s economic development has comprehensively entered a new normal, with growth shifting from high speed to medium-high speed, continuous optimization of the economic structure, and a shift in growth drivers toward dual impetus from innovation and efficiency. The transformation of the domestic macroeconomic environment is compelling traditional manufacturing to undergo transformation and upgrading.

As a quintessential example of traditional manufacturing, the refrigeration equipment industry is at a pivotal juncture: while undergoing structural adjustment and transformation, it is also presented with significant strategic opportunities. Driven by urbanization and China’s food safety strategy, consumer demand for a comprehensive and reliable cold-chain logistics system is steadily increasing, opening up a new blue ocean for the development of refrigeration equipment enterprises. In particular, medium- and low-temperature freezing and refrigeration equipment holds tremendous growth potential in the agriculture, fisheries, and livestock sectors. Compared with developed countries, China still lags considerably in the construction of cold-storage, freezing, and logistics infrastructure for agricultural, fishery, and livestock products.

As a major manufacturing country, China’s refrigeration equipment industry has experienced rapid growth since the reform and opening-up. Today, domestic refrigeration equipment accounts for more than 15% of the global total output value of the refrigeration manufacturing sector, and China has maintained the world’s top position in both household and commercial–industrial refrigeration equipment production for many consecutive years. However, the current situation—large in scale but lacking in strength—urgently calls for transformation. In May 2015, the State Council issued “Made in China 2025,” the first ten-year action plan for implementing China’s strategy to become a manufacturing powerhouse. This initiative underscores the need to upgrade and transform traditional manufacturing by centering on smart manufacturing and service-oriented manufacturing, thereby creating substantial opportunities for industrial restructuring and business-model innovation in the refrigeration equipment sector. The application of advanced information technologies such as the Internet, cloud computing, and big data in cold-chain transportation and logistics will enable end-to-end monitoring and information sharing for both goods and cold-chain transport vehicles, facilitating the transition of refrigeration equipment firms from mere equipment suppliers to providers of comprehensive, automated, and intelligent cold-chain solutions spanning the entire value chain.

The company is a leading manufacturer of industrial refrigeration equipment in China and a full-chain player spanning both the cooling and heating sectors. Through independent R&D and strategic joint ventures, its business has expanded from equipment manufacturing and sales to engineering services. Its compressor product portfolio covers ammonia-based units, fluorinated refrigerant units, scroll compressors, reciprocating compressors, screw compressors, centrifugal compressors, and lithium bromide absorption chillers, serving downstream markets such as industrial freezing, cold storage, refrigerated trucks, supermarket display cases, and vending machines. However, with market evolution, the existing plant’s production processes, capacity, and product mix can no longer fully meet market demands or support the company’s future strategic positioning, making it imperative to seize opportunities for transformation and upgrading.

2. Project Prospects and Necessity

According to preliminary statistics from the China Association of Refrigeration and Air-Conditioning Industries, the total output value of commercial and industrial refrigeration and air-conditioning equipment and their accessories in China was approximately RMB 268 billion in 2013 and RMB 290 billion in 2014, representing year-on-year growth of 7.37% and 8.21%, respectively. It is expected that in 2015 the market for commercial and industrial refrigeration and air-conditioning equipment in China will continue the growth trend observed in 2013 and 2014, with promising prospects. Upon completion of the relocation and upgrading project, the company’s production capacity will be significantly enhanced, reaching an annual output of 35,628 units of various commercial and industrial refrigeration and air-conditioning equipment and related components, thereby better meeting the market demand in the refrigeration equipment industry.

Through this relocation and renovation project, the company will further optimize its product mix and strengthen its core competitiveness. At the same time, taking “Made in China 2025” as an opportunity and leveraging next-generation information technologies, the company will fully develop a digitalized new manufacturing campus, elevate its design and R&D capabilities, process technology, and equipment standards, promote the intelligent transformation of all manufacturing processes—including design, production, management, and service—and foster deep integration between informatization and industrialization, thereby advancing the transition of traditional manufacturing toward the mid- to high-end market.

The company plans to relocate to the Dalian Jinpu New Area. As the only national-level new area in Northeast China, the Dalian Jinpu New Area will receive robust support from relevant national authorities in areas such as planning formulation, policy implementation, project deployment, institutional innovation, and opening-up, thereby providing a reliable guarantee for the company’s strategic initiative to achieve industrial upgrading and innovative transformation through the new plant site. The Jinpu New Area encompasses the Dalian Economic and Technological Development Zone, the Bonded Zone, and the Puyan New Area, boasting a superior geographic location and a strong economic foundation. Leveraging the existing public resources within the zone, the company will be able to accelerate the construction of the relocation and renovation project while reducing capital expenditures. Upon completion of this relocation and renovation project, the company’s current plant site will also provide ample room for internal resource integration and the development of innovative business models.

(II) Basic Project Information

1. Project Implementing Entity, Site Selection, and Building Scale

The implementing entity of the project is our company.

The project is located at No. 106 Liaohe East Road, Dalian Economic and Technological Development Zone, with Land Use Certificate No. Da Kai Guo Yong (2013) No. 372. The project covers a land area of 254,826 square meters and has a total floor area of 165,922.89 square meters.

2. Project Capacity Planning

Upon completion of this project, the Company’s headquarters will increase its production capacity to 35,628 units (sets) per year of various commercial and industrial refrigeration and air-conditioning equipment and related components.

(3) Project Implementation Schedule and Investment Estimate

The total investment for this project amounts to RMB 935 million. To expedite the completion and commissioning of the project, the Company has commenced the relocation and renovation works using its own funds. As of the date of the Board Resolution announcement regarding this non-public offering, RMB 133.3445 million has been invested in the project. The Company expects the relocation and renovation works to be completed in 2016.

(4) Approval Status Related to the Project

The Company has obtained the Enterprise Investment Project Filing Confirmation issued by the Dalian Economic and Technological Development Zone Bureau of Economy and Trade, as well as the Environmental Impact Assessment Approval issued by the Dalian Economic and Technological Development Zone Environmental Protection Bureau.

(5) Evaluation of the Project’s Economic Benefits

The project’s after-tax internal rate of return is 13.5%, and the after-tax payback period is 5.2 years (excluding the construction period).

III. Impact of This Offering on the Company’s Operations, Management, and Financial Condition

(1) Impact of this non-public offering on the company’s operations and management

Following the implementation of the investment projects financed by this fundraising, the Company will achieve significant improvements in product technology, production processes, and operational efficiency through business process reengineering, organizational optimization, and refined strategic positioning during the relocation and renovation phase, as well as through the adoption of new technologies, processes, and equipment. Consequently, manufacturing capacity and product quality will be markedly enhanced, management practices will become more precise and transparent, and financial performance will continue to improve.

(II) Impact of this Non-public Offering on the Company’s Financial Position

Upon completion of this non-public offering, the Company’s capital base, integration capabilities, and risk resilience will be further strengthened. This non-public offering will also improve the Company’s financial position and enhance its financial soundness.

Section 3: Discussion and Analysis by the Board of Directors on the Impact of This Offering on the Company

I. Changes in the Company’s Business and Assets, Articles of Association, Shareholder Structure, Senior Management Structure, and Business Structure Following This Offering

(1) Impact of this Offering on the Company’s Business and Assets

The investment projects financed by the proceeds of this offering are closely aligned with the Company’s development strategy and boast strong market prospects and robust economic returns. The construction and implementation of these projects will reinforce the Company’s leading position in its core business areas, facilitate its business transformation, further enhance its competitiveness and capacity for sustainable development, and ultimately create value for shareholders.

Upon completion of this non-public offering, the Company’s capital strength will be enhanced, its total assets and net assets will increase to a certain extent, its financial position will be further optimized and improved, and its financial structure will become more balanced. These developments will help strengthen the stability of the Company’s asset structure and enhance its risk resilience, thereby providing a solid foundation for its future growth.

(2) Amendments to the Company Charter Resulting from This Issuance

This issuance will increase the company’s total share capital, and the relevant provisions in the Company Charter regarding the total share capital will be adjusted accordingly based on the terms of the issuance.

(3) Impact of this Offering on the Shareholder Structure

The non-public offering is directed to no more than 10 specific investors.

The offering is directed to no more than ten specific investors, including securities investment fund management companies, securities firms, trust and investment companies, finance companies, insurance institutions, asset management companies, qualified foreign institutional investors, other domestic corporate investors, and natural persons, all of whom must comply with applicable laws, regulations, and the provisions of the China Securities Regulatory Commission.

Based on the total share capital prior to this offering, the expected shareholder equity structure before and after the offering is as follows (calculated on the basis of the maximum issuance limit of 38,436,050 shares):

Shareholder Name	Shareholding Structure of Pre-IPO Shareholders		Shareholding Structure After Issuance
Shareholder Name	Number of shares held (in ten thousand shares)	Shareholding ratio	Number of shares held (in ten thousand shares)	Shareholding ratio
Iceberg Group	7,685.57	21.34%	7,685.57	19.28%
Sanyo Electric	3,500.15	9.72%	3,500.15	8.78%
Other shareholders	24,830.78	68.94%	24,830.78	62.29%
New Shareholders in This Offering	-	-	3,843.61	9.64%
Total	36,016.50	100.00%	39,860.11

Upon completion of this non-public offering, the company’s controlling shareholder will remain unchanged.

(4) Impact of this Offering on the Executive Management Structure

This issuance will not have a material impact on the senior management structure.

(5) Changes in the Business Structure

The implementation of the investment projects funded by the proceeds of this non-public offering will further optimize the company’s core business structure.

II. Changes in the Company’s Financial Condition, Profitability, and Cash Flows Following This Offering

(1) Changes in Financial Position

Upon completion of this issuance, the Company’s capital base will be strengthened, the financial pressure associated with the construction funding required for its relocation and renovation project will be alleviated, and the asset–liability ratio will decline. In addition, given the anticipated strong profitability of the investment projects to be funded by the proceeds, once these projects are commissioned they will effectively enhance the Company’s profit levels, further optimize its financial structure, promote sound operations, and strengthen its ability to withstand financial risks.

(II) Changes in Profitability

Upon completion and commissioning of the investment projects financed by this fundraising, the Company is expected to further expand its business scale, enhance its technological capabilities and strengthen its market position, thereby continuously bolstering its core competitiveness. As the Company’s production capacity increases, its technological strength is reinforced, and its competitive advantages are strengthened, it will be better positioned to drive higher operating revenue and improved profitability.

(3) Changes in Cash Flows

Upon completion of this issuance, the Company’s cash inflows from financing activities will increase substantially, while cash outflows from investing activities will rise during the construction phase of the projects funded by the proceeds. As these projects commence operations and begin generating returns, the Company’s future cash inflows from operating activities are expected to increase.

III. Changes in the business relationships, management relationships, related-party transactions, and同业 competition between the Company and its controlling shareholder and its affiliated parties

The Company is wholly separate from its controlling shareholder in terms of business operations and management; the Company conducts its business and manages its operations independently and assumes independent responsibility for its operational performance and risks. Following the completion of this non-public offering, the business and management relationships between the Company and its controlling shareholder and related parties will remain unchanged. This offering will neither give rise to any direct competition in the same industry between the Company and its controlling shareholder and related parties, nor result in any new related-party transactions.

IV. Following the completion of this issuance, are there any instances in which the Company’s funds or assets have been appropriated by the controlling shareholder and its affiliates, or in which the Company has provided guarantees for the controlling shareholder and its affiliates?

Upon completion of this issuance, the Company’s controlling shareholder and other related parties under its control will not, as a result of this issuance, engage in any unauthorized appropriation of funds or assets, nor will the Company provide any unauthorized guarantees for the controlling shareholder or its related parties.

V. Impact of This Offering on the Company’s Debt Position

Upon completion of this issuance, the company’s asset-to-liability ratio will decrease; there will be no substantial increase in liabilities (including contingent liabilities) as a result of this issuance, nor will the debt-to-equity ratio fall to an excessively low level.

VI. Disclosure of Risks Related to This Offering

When evaluating the Company’s proposed non-public issuance of shares, investors should, in addition to the other materials provided in the preliminary proposal, give particular and careful consideration to the following risk factors:

(1) Risks Related to Fund-Raising Investment Projects

1. Market Risk

The company is committed to developing businesses in industrial refrigeration, food freezing and cold storage, central and commercial air conditioning, and refrigeration components, covering key segments of the refrigeration industry value chain. It is China’s largest manufacturer of industrial refrigeration equipment and possesses the design and manufacturing technologies essential for industrial refrigeration units. Its capabilities in the design, production, and integration of related products and supporting equipment are among the leading levels in the industry. The investment projects funded by this offering will help enhance the company’s production capacity and strengthen its competitive advantage.

Currently, the refrigeration equipment industry in China is characterized by low market concentration and intense competition. The market is often disrupted by low-quality, low-priced products that undermine market order, and the rapid growth of the cold-chain logistics sector has attracted substantial capital inflows from firms lacking core technologies, further exacerbating disorderly competition. In the future, developments such as technological upgrades and product obsolescence, significant market volatility, intensifying competition, changes in industry policies, and evolving customer demands could have a material impact on the company’s operating performance.

2. Return Risk of Investment Projects

Although the Company has conducted thorough market research and rigorous feasibility studies for the investment projects to be funded by this offering, and has made prudent projections and assessments of investment returns, payback periods, and future sales revenues, the implementation of these projects may nonetheless be subject to various factors—such as changes in market conditions, government policies, project schedules, competitive dynamics, and technological advancements—that could adversely affect project profitability and the Company’s overall performance.

(2) Operational and Management Risks

Following the completion of this issuance, as the company proceeds with the construction and operation of projects funded by the raised capital, its production and business scale will continue to expand, placing higher demands on its organizational structure, operational management, and workforce quality. Consequently, the complexity of management and operations will increase. If the company fails to enhance its capabilities in areas such as production and operations, internal control, quality management, and talent acquisition, it may face significant managerial risks.

(3) Risk of Dilution of Current Earnings

The number of shares to be issued in this offering shall not exceed 38,436,050, with the intended proceeds not exceeding RMB 580 million. Upon receipt of the raised funds, the company’s total assets, net assets, and share capital will increase substantially. During the project construction phase and the initial period after commissioning, the investment projects financed by the raised funds are expected to contribute only modestly to the company’s earnings growth, which may result in a decline in the return on net assets and expose the company to the risk of immediate earnings dilution.

(4) Risks Related to This Non-public Offering

1. Approval Risk

This issuance remains subject to approval by the Company’s Shareholders’ Meeting and approval by the China Securities Regulatory Commission. There is uncertainty as to whether such approvals will be obtained, as well as the timing of their eventual receipt.

2. Risk of Stock Price Fluctuations in the Secondary Market

The secondary-market trading price of the company’s shares is subject to influences from national political and economic policies, investor sentiment, and other unforeseen factors, and therefore does not solely reflect the company’s operating performance. Moreover, the degree to which the secondary market understands and approves the company’s strategic transformation can significantly affect its valuation. Investors should therefore give full consideration to the aforementioned risks when deciding whether to invest in the company’s shares.

Section 4: The Issuer’s Dividend Policy

I. Current Profit Distribution Policy of the Company

In order to further refine the Company’s internal decision-making procedures and mechanisms for profit distribution, better reward investors, and safeguard the legitimate rights and interests of all shareholders, the Company has revised the relevant provisions on profit distribution in its Articles of Association in accordance with the requirements of the China Securities Regulatory Commission’s “Regulatory Guidance No. 3 for Listed Companies—Cash Dividends of Listed Companies” and other applicable documents. Such revisions were approved at the Tenth Meeting of the Sixth Board of Directors held on April 22, 2014, and at the 2013 Annual General Meeting of Shareholders held on May 20, 2014.

According to the currently effective Articles of Association, the Company’s profit distribution policy is as follows:

Article 11.1: Taxation in Accordance with the Law

Our company complies with the state’s tax laws and regulations, pays taxes to the government in accordance with the law, and is subject to inspection and supervision by the state tax and financial authorities.

Article 11.2 Distribution of After-Tax Profits

The Company’s annual after-tax profits shall be distributed in the following order and proportions:

1. Offset losses from the previous year; 2. Appropriate 10% to the statutory reserve fund; 3. Appropriate to any discretionary reserve fund; 4. Declare and pay dividends.

The specific allocation ratio of after-tax profits shall be proposed by the Board of Directors based on the Company’s operating performance for the year and submitted to the Shareholders’ Meeting for approval.

If the cumulative amount of the company’s statutory reserve fund reaches 50% or more of the company’s registered capital, no further contributions to the reserve fund are required.

After the Company has offset losses and appropriated statutory reserve funds, any remaining after-tax profits shall be distributed among shareholders in proportion to the shares they hold, unless otherwise provided in these Articles of Association.

If the shareholders’ meeting violates the provisions of the preceding paragraph by distributing profits to shareholders before the company has offset its losses and made the statutory reserve fund, the shareholders shall be required to return the improperly distributed profits to the company.

Shares of the Company held by the Company shall not be entitled to profit distributions.

Following the resolution of the profit distribution plan by the company’s shareholders’ meeting, the board of directors shall complete the distribution of dividends (or shares) within two months after the convening of the shareholders’ meeting.

Company Shareholder Return Plan:

The company places great emphasis on delivering reasonable returns to shareholders while also safeguarding the company’s future sustainable development.

The company implements a proactive profit distribution policy and maintains its consistency and stability.

In principle, the company distributes dividends once a year and prioritizes cash dividends.

The company will strive to distribute cash dividends at a rate exceeding the minimum percentage stipulated in its Articles of Association.

Decision-making procedures and mechanisms for the company’s profit distribution:

When formulating the annual profit distribution plan, the Company shall comprehensively consider such factors as the characteristics of its industry, its stage of development, its business model, its profitability, its cash flow position, and whether there are any significant capital expenditure commitments. The aforementioned profit distribution plan may be submitted to the Shareholders’ Meeting for deliberation only after it has been approved by a majority of all directors and after the independent directors have expressed their clear opinions thereon.

When reviewing the aforementioned profit distribution proposal, the company’s board of directors shall conduct thorough research and deliberation on matters such as the timing, conditions, and minimum ratio for cash dividends.

When the Company convenes a shareholders’ meeting to deliberate the aforementioned profit distribution proposal, it shall proactively engage in communication and dialogue with shareholders, particularly small and medium-sized shareholders, through multiple channels, fully solicit their views and concerns, and promptly respond to the issues of concern to these shareholders.

Conditions, decision-making procedures, and mechanisms for the Company’s adjustment of its profit distribution policy:

In the event of force majeure, or if there are significant changes in the company’s external operating environment or in the company’s own operating conditions, the company may adjust its profit distribution policy.

The revised profit distribution policy may be submitted to the shareholders’ meeting for deliberation only upon approval by a majority of all directors and after independent directors have expressed their clear opinions. When the shareholders’ meeting deliberates the revised profit distribution policy, the voting procedures shall comply with the relevant regulations of the China Securities Regulatory Commission and the stock exchanges, and the proposal must be approved by more than two-thirds of the voting rights held by the shareholders present (including shareholder proxies).

Article 11.3 Dividends

In principle, the Company distributes dividends once annually, on a per-share basis, following the year-end financial statements; provided, however, that this shall not apply in the event of a special resolution passed by the General Meeting of Shareholders. No fixed dividend is payable on ordinary shares. Dividend distributions may be made in any one or any combination of the following forms:

1. Cash Dividends: Denominated and declared in Renminbi. Cash dividends on Renminbi ordinary shares shall be paid in Renminbi, while cash dividends on domestically listed foreign-invested shares shall be paid in Hong Kong dollars. The conversion rate shall be the mid-rate of the Renminbi-to-Hong Kong dollar exchange rate published by the People’s Bank of China on the first business day following the date of the resolution passed at the shareholders’ meeting.

2. Stocks. Shareholders are entitled, in accordance with the law and in proportion to the type of shares they hold, to receive dividend stocks of the corresponding type.

When distributing dividends, the Company shall give priority to cash dividends. Subject to compliance with the required cash dividend payout ratio, the Company may also distribute profits in the form of stock dividends. Any distribution of profits in the form of stock dividends shall be based on genuine and reasonable factors, such as the Company’s growth prospects and the potential dilution of net assets per share.

When the company distributes profits, the cash dividend shall account for at least 20% of the total profit distribution.

The Company shall distribute cash dividends each year in an amount no less than 10% of its net profit for the year, or, over the most recent three years, the cumulative cash dividends shall be no less than 30% of the average annual net profit realized during that period.

Article 11.4 Dividend Income Tax

When distributing dividends and bonuses, the Company shall, in accordance with applicable national laws, withhold and remit on behalf of each shareholder the taxes payable on such dividend income. Dividends and other income derived from foreign-invested shares listed domestically may, after lawful taxation, be remitted outside China.

Article 11.5 Announcement of Dividend Distribution

“The Company shall notify its shareholders of dividend distributions by way of public announcement in the newspapers specified in Chapter XIV of these Articles of Association.”

II. Shareholder Return Plan for the Next Three Years (2015–2017)

To further clarify the Company’s commitment to providing investors with reasonable investment returns, enhance the transparency and operational feasibility of profit distribution decisions, facilitate investor oversight of the Company’s operations and profit distribution practices, and promote a culture of long-term and rational investing among investors, the Company has formulated the “Shareholder Return Plan for the Next Three Years (2015–2017)” (hereinafter referred to as the “Plan” or “this Plan”) in accordance with the requirements of relevant documents, including the China Securities Regulatory Commission’s “Notice on Further Implementing Matters Related to Cash Dividends by Listed Companies” (CSRC Document No. [2012]37) and the “Regulatory Guidance No. 3 for Listed Companies—Cash Dividends by Listed Companies” (CSRC Announcement No. [2013]43). The specific contents of the Plan are set out below:

(1) Considerations in Planning and Formulation

From a sustainable development perspective, the Company comprehensively considers factors such as the characteristics of its industry, its stage of development, its business model, profitability, cash flow position, and any significant capital expenditure commitments.

(II) Principles for Formulating the Plan

This plan, while complying with applicable national laws and regulations as well as the Company’s Articles of Association, will fully consider and solicit the views of a broad base of investors—particularly small and medium-sized shareholders—and independent directors; place great emphasis on providing reasonable investment returns to shareholders; and strike a balance with the Company’s future sustainable development. To this end, the Company will adopt a proactive profit distribution policy that is both consistent and stable. In principle, the Company will declare dividends annually, giving priority to cash dividends and striving to exceed the minimum payout ratio stipulated in the Articles of Association.

(3) Specific Shareholder Return Plan for the Next Three Years (2015–2017)

Dividends may be distributed in any of the following forms, either separately or concurrently:

When the Company distributes profits, the proportion of cash dividends in each distribution shall be no less than 20%. The Company shall distribute cash dividends each year in an amount no less than 10% of its net profit for that year, or, over the most recent three years, the cumulative cash dividends shall be no less than 30% of the average annual net profit realized during that period.

2. Stocks: Shareholders are entitled, in accordance with the law and in proportion to the type of shares they hold, to receive dividends in the corresponding type of stock.

(4) Decision-Making and Oversight Mechanisms for Shareholder Return Planning

(5) Implementation of the Profit Distribution Plan

(6) Decision-making procedures and mechanisms for adjusting the profit distribution policy

In the course of reviewing and deliberating on adjustments to the profit distribution policy, the company’s board of directors shall give full consideration to the views of independent directors and minority shareholders; any adjusted profit distribution policy must comply with the relevant regulations of the China Securities Regulatory Commission and the stock exchanges. The adjusted profit distribution policy may be submitted to the general meeting of shareholders for consideration only after it has been approved by a majority of all directors and accompanied by clear opinions from the independent directors.

When the shareholders’ meeting deliberates the revised profit distribution policy, the voting procedure shall comply with the relevant regulations of the China Securities Regulatory Commission and the stock exchanges, and such resolution shall be adopted by a majority of at least two-thirds of the voting rights held by the shareholders present (including shareholder proxies).

(7) Matters not covered in this Plan shall be governed by applicable laws, regulations, normative documents, and the Articles of Association of the Company.

The aforementioned plan has been approved at the 17th meeting of the Company’s Sixth Board of Directors and is still subject to review and approval by the Company’s Shareholders’ Meeting.

III. Profit Distribution and Utilization of Retained Earnings Over the Past Three Years

(1) Profit Distribution for the Past Three Years

On May 20, 2015, the Company’s 2014 Annual General Meeting approved the “2014 Profit Distribution Plan,” under which, based on the total share capital of 360,164,975 shares following the completion of the grant of restricted shares, a cash dividend of RMB 1.50 per 10 shares (inclusive of tax) was declared to all shareholders, totaling RMB 54,024,746.25; the cash dividend for B shares was converted into Hong Kong dollars for payment. To date, the aforementioned profit distribution plan has not yet been implemented.

On May 20, 2014, the Company’s 2013 Annual General Meeting approved the “2013 Profit Distribution Plan,” under which, based on the total share capital of 350,014,975 shares as of the end of 2013, a cash dividend of RMB 1.50 per 10 shares (inclusive of tax) was distributed to all shareholders, totaling RMB 52,502,246.25; the cash dividend for B shares was converted into Hong Kong dollars for payment. The aforementioned profit distribution plan has now been fully implemented.

On May 21, 2013, the Company’s 2012 Annual General Meeting approved the “2012 Profit Distribution Plan,” under which, based on the total share capital of 350,014,975 shares as of the end of 2012, a cash dividend of RMB 1.50 per 10 shares (inclusive of tax) was distributed to all shareholders, totaling RMB 52,502,246.25 in cash dividends; the cash dividends for B shares were converted into Hong Kong dollars for payment. The aforementioned profit distribution plan has now been fully implemented.

The company’s dividend distribution over the past three years is as follows:

Dividend Year	Cash dividend amount (Tax included)	Net profit attributable to shareholders of the listed company in the consolidated financial statements for the dividend year	The ratio of net profit attributable to shareholders of the listed company in the consolidated financial statements
2014	5,402.47	11,543.97	46.80%
2013	5,250.22	15,300.61	34.31%
2012	5,250.22	11,714.21	44.82%
Over the most recent three years, the cumulative cash dividends paid represented 123.73% of the average annual distributable profit realized during that period.

Over the past three years, the company has placed great emphasis on delivering reasonable returns to investors through its profit distribution policy, with a relatively high cash dividend payout ratio. By utilizing the proceeds from this non-public offering to fund the relocation and renovation project, the company will further enhance its profitability and deliver even greater value to its shareholders.

(2) Use of Undistributed Profits Over the Past Three Years

At the end of each fiscal year in 2012, 2013, and 2014, the company’s retained earnings stood at RMB 404.2676 million, RMB 466.6089 million, and RMB 486.1677 million, respectively. Following the appropriation of dividends payable to shareholders in the subsequent year, these retained earnings were all utilized as part of the company’s working capital for business development and allocated to the company’s normal production and operational activities.

Section 5: Other Material Matters Required to Be Disclosed

There are no other material matters that require disclosure in connection with this non-public issuance of shares.

Board of Directors of Dalian Refrigeration Co., Ltd.

June 24, 2015