NetDragon Websoft Holdings Limited (00777) has announced that on September 28, 2026, its wholly-owned subsidiary NetDragon Websoft Inc. entered into a legally binding memorandum with Jiuzhou regarding the establishment and operation of a joint venture group and the proposed issuance of warrants.
Jiuzhou will undergo a restructuring and establish the joint venture company as its wholly-owned limited company. The joint venture company, together with its subsidiaries, will primarily 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 APIs, FDE, and translation services; and the provision of other digital technology services such as software development, data annotation and cleaning, information system integration, and operations and maintenance services.
Prior to completion, Jiuzhou will inject and deliver the target IP and assets into the joint venture company, including all intellectual property related to the Harness system business. Upon satisfaction of the completion conditions, NetDragon BVI will contribute cash in Hong Kong dollars equivalent to RMB 50 million to the joint venture company in exchange for new shares representing a 51% equity interest. Jiuzhou will retain a 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. Upon achievement 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 its exercise conditions are met and expiring 12 months thereafter; subject to agreement between the company and the warrant holders, such exercise period may be further extended by 12 months.
The group has been actively seeking commercial 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 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 collaboration 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 effort 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 met.
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, rigorous cost control, and long-term value creation. The subscription prices of HK$10.00, HK$12.00, and HK$15.00 per share for each tranche also reflect an escalating incentive structure and link the warrant holders' potential equity participation to the joint venture group's progressive development and performance.
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 group's future business development.
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 believes 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.