NetDragon (00777) signed a memorandum of understanding with Kyushu to establish and operate a joint venture group and propose the issuance of share warrants

Zhitong Finance App News, NetDragon (00777) issued an announcement. On September 28, 2026, NetDragon Websoft Inc., a wholly-owned subsidiary of the Company, signed a memorandum of understanding bound by law with Kyushu relating to the establishment and operation of a joint venture group and the proposed issuance of stock warrants.

Kyushu will be restructured and a joint venture company will be established as its wholly-owned limited company. The joint venture, together with its subsidiaries, will be mainly engaged in developing basic artificial intelligence software, large-scale AI models and technology platforms; operating content creation platforms and providing model APIs, FDE and translation services; and providing other digital technology services such as software development, data labeling and cleaning, information system integration, and operation and maintenance services.

Prior to completion, Kyushu will inject and deliver target IP and assets to the joint venture, including all intellectual property rights related to the Harness Systems business.

Once the conditions are met, NetDragon BVI will invest HK$50 million in cash equivalent to the joint venture in exchange for 51% of the new shares. Kyushu will retain 49% of the shares and has transferred and delivered the target IP and assets prior to completion.

Upon completion, the Company will issue 25 million unlisted warrants to Kyushu or its designated entities at a price of HK$0.10 per share of the warrants as a performance reward. The three batches include 8 million, 8 million and 9 million warrants, respectively. The initial usage price was HK$10, HK$12 and HK$15, respectively.

Subject to the fulfillment and confirmation of the applicable exercise conditions, the warrants include the right to subscribe for up to 25 million new shares at their respective initial use price. Each batch has an independent exercise period, which starts from the date the exercise conditions are met and expires 12 months thereafter; the exercise period can be further extended for 12 months upon agreement between the Company and the share warrant holder.

The Group has been actively seeking business opportunities to enhance its long-term competitiveness, broaden its revenue streams, and create sustainable value for the Company and its shareholders. The proposed establishment of a joint venture group is expected to provide a dedicated platform for the Group to utilize the resources, experience and expertise of the Group and its joint venture partners to develop and expand related businesses.

The Board believes that the joint venture group will enable the Group to seize new market opportunities, enhance its operating capabilities, and accelerate the commercialization and development of target IP, assets and businesses invested by joint venture partners. Through the joint venture structure, the Group can combine its capital resources, corporate governance experience and strategic management capabilities with the joint venture partners' industry expertise, content creation ability and operational expertise. The partnership is expected to create synergies, improve the Group's business ecosystem, and support medium- to long-term growth.

The proposed issuance of warrants is intended as a performance-based incentive mechanism for joint venture partners and/or related management teams. Unlike ordinary warrants, which are usually mainly priced with reference to the current market price, such warrants must clearly meet the conditions for attribution and exercise based on performance. Such warrants can only be implemented after the joint venture has met the specified key performance indicators (including monthly annualized recurring revenue targets and cumulative loss control thresholds at various stages after establishment).

Therefore, the purpose of a warrant transaction is to ensure that joint venture partners and/or related management teams can only realize value from the warrants after delivering measurable business performance and financial results. This structure aligns its interests with those of the Company and its shareholders, motivates them to invest resources and energy to successfully develop and operate the joint venture group, and helps reduce the risk of value loss or unreasonable dilution before the agreed performance targets are met.

In particular, the warrants are divided into three batches, the subscription price is gradually increasing, and the performance targets are more challenging. This structure is expected to encourage joint venture partners and/or relevant management teams to focus on the joint venture group's sustainable growth, including revenue growth, strict cost control, and long-term value creation. The subscription prices for each batch are HK$10.00, HK$12.00 and HK$15.00 per share. They also reflect an incremental incentive structure and link the potential equity participation of warrant holders 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 for existing shareholders, as dilution will only occur when exercising warrants and allocating and issuing related shares. Should the warrants be exercised, the Company will receive additional cash payments from the warrants shares, which can further strengthen its capital base and financial flexibility and support the Group's future business development.

Overall, the Board believes that the establishment of a joint venture group and the proposed issuance of warrants constitute an integrated commercial arrangement. Joint ventures provide a platform for business expansion and value creation, while warrants provide performance-driven incentives to align the interests of joint venture partners and/or related management teams with those of the Group. The board of directors believes that the terms of the joint venture arrangement and the share warrant transaction are based on normal commercial terms, are fair and reasonable, and conform to the overall interests of the Company and shareholders.