NETDRAGON (00777) and Jiuzhou entered into a memorandum to establish and operate a joint venture group and proposed the issuance of warrants.

NETDRAGON (00777) announced that on September 28, 2026, NetDragon Websoft Inc., a wholly-owned subsidiary of the Company, entered into a legally binding memorandum with Jiuzhou in relation to the establishment and operation of a joint venture group and the proposed issuance of warrants. Jiuzhou will undergo a restructuring and establish the JV Company as its wholly-owned limited company. The JV Company, together with its subsidiaries, will principally engage in the development of foundational artificial intelligence software, large-scale AI models and technology platforms; the operation of a content creation platform and the provision of model API, FDE and translation services; and the provision of other digital technology services such as software development, data annotation and cleansing, information system integration, and operation and maintenance services. Prior to completion, Jiuzhou will inject and deliver into the JV Company the Target IP and Assets, including all intellectual property rights relating to the Harness system business. Subject to the fulfillment of the conditions to completion, NetDragon BVI will contribute cash in Hong Kong dollars equivalent to RMB50 million to the JV Company in exchange for new shares representing 51% equity interest. Jiuzhou will retain 49% equity interest and will have transferred and delivered the Target IP and Assets prior to completion. At completion, the Company will issue 25 million unlisted warrants to Jiuzhou or its designated entity at a price of HK$0.10 per warrant share as a performance incentive. The three tranches comprise 8 million, 8 million and 9 million warrants respectively, with initial exercise prices of HK$10, HK$12 and HK$15 respectively. Subject to the fulfillment and confirmation of the applicable exercise conditions, the warrants carry the right to subscribe for up to 25 million new shares at their respective initial exercise prices. Each tranche has an independent exercise period commencing from the date on which its exercise conditions are fulfilled and expiring 12 months thereafter; such exercise period may be further extended by 12 months upon agreement between the Company and the warrant holders. The Group has been actively seeking business opportunities to enhance its long-term competitiveness, broaden its revenue sources and create sustainable value for the Company and its shareholders. The proposed establishment of the joint venture group is expected to provide the Group with a dedicated platform to leverage the resources, experience and expertise of both the Group and the joint venture partner to develop and expand the relevant business. The Board believes that the joint venture group will enable the Group to capture new market opportunities, enhance its operational capabilities and accelerate the commercialization and development of the Target IP, Assets and business contributed by the joint venture partner. Through the joint venture structure, the Group can combine its capital resources, corporate governance experience and strategic management capabilities with the joint venture partner's industry expertise, content creation capabilities and operational know-how. This cooperation is expected to generate synergies, enhance the Group's business ecosystem and support its medium- to long-term growth. The proposed issuance of warrants is intended to serve as a performance-based incentive mechanism for the joint venture partner and/or the relevant management team. Unlike ordinary warrants, which are typically priced primarily by reference to the prevailing market price, these warrants are subject to explicit performance-based vesting and exercise conditions. These warrants may only be exercised after the joint venture group achieves specified key performance indicators (including monthly annualized recurring revenue targets at different stages after establishment and cumulative loss control thresholds). Accordingly, the warrant transaction is designed to ensure that the joint venture partner and/or the relevant management team can only realize value from the warrants after delivering measurable business performance and financial results. This structure aligns their interests with those of the Company and its shareholders, incentivizes them to devote resources and efforts to successfully develop and operate the joint venture group, and helps reduce the risk of value leakage or unreasonable dilution before the agreed performance targets are achieved. In particular, the warrants are divided into three tranches with progressively higher subscription prices and more challenging performance targets. This structure is expected to encourage the joint venture partner and/or the relevant management team to focus on the sustainable growth of the joint venture group, including revenue growth, strict cost control and long-term value creation. The subscription prices of HK$10.00, HK$12.00 and HK$15.00 per share for the respective tranches also reflect an escalating incentive structure and link the warrant holders' potential equity participation to the progressive development and performance of the joint venture group. The Board further believes that the proposed issuance of warrants will not cause any immediate dilution to existing shareholders, as dilution will only occur upon the exercise of the warrants and the allotment and issuance of the underlying shares. If and when the warrants are exercised, the Company will receive additional cash proceeds from the warrant shares, which can further strengthen its capital base and financial flexibility and support the future business development of the Group. Overall, the Board considers that the establishment of the joint venture group and the proposed issuance of warrants constitute an integrated commercial arrangement. The joint venture group provides a platform for business expansion and value creation, while the warrants provide a performance-driven incentive mechanism to align the interests of the joint venture partner and/or the relevant management team with those of the Group. The Board considers that the terms of the joint venture arrangement and the warrant transaction are entered into on normal commercial terms, are fair and reasonable and are in the overall interests of the Company and its shareholders.