The frozen snow in Shenyang in March has not completely melted, but spring has arrived. As the car drove into Daoyi North Street, the open street scenery presented a different scene from the bustling urban area.
"Do you know about dependent organisms?" "I really don't know, it's the first time I've heard of this place."
Although in the ears of local drivers, this company is far less well-known than companies such as Hefeng Group and Northeast Pharmaceuticals, as the first Chinese concept stock Biotech to land on NASDAQ through SPAC (overseas shell listing), Yisheng Biotech once gained attention in the primary market with its Picasso technology. Liaoning Yisheng Biopharmaceutical Co., Ltd. (referred to as "Liaoning Yisheng") integrates scientific research, production, sales, and services. It is a major taxpayer in the Shenbei New Area and also the most important company of Yisheng Biotech in mainland China.
But what founder Zhang Yi did not expect was that from the day the company was listed for trading on March 17, 2023, his days on the board of directors began to count down. The "takeover incident" that erupted on March 8, 2024 officially opened a tug of war between new and old forces, leaving only over a month for the company to recover from the "one dollar delisting".
On March 9th, a reporter from the Daily Economic News rushed to the location of Liaoning Yisheng and met 67 year old Zhang Yi. In his eyes, he was dismissed from the position of Chairman of the Board (i.e. Chairman of the Board, the same below) by a temporary resolution of the board of directors of Yisheng Biotechnology without prior notice, which was not in accordance with the company's articles of association; Liaoning Yisheng's industrial and commercial changes also have procedural flaws.
However, in the view of the "takeover faction" led by CE0 Shao Hui of Yisheng Biotechnology, Zhang Yi refused to sign and implement a series of SOX internal control compliance policies that must be implemented by US listed companies, suspected of embezzling public funds and using his position to fabricate contracts for the benefit of relatives; The change of chairman of Yisheng Biotechnology and the subsequent industrial and commercial registration of Liaoning Yisheng have been completed. Liaoning Yisheng should have smoothly handed over, but Zhang Yi's refusal to cooperate led to the conflict.
On March 15th, according to insiders of the company, Liaoning Yisheng has been officially taken over by the "takeover delegation". Zhang Yi returned to Beijing on March 13th to prepare for the next round of "negotiations". As of the time of publication, the business information of the Beijing subsidiary of Yisheng Biotechnology has not been changed. The dispute surrounding this vaccine adjuvant technology company, which holds the industry's neck, has not yet been resolved.
Liaoning Yisheng's Takeover Incident
March 8th was an ordinary Friday for Zhang Yi. That day, he arranged for Tang Zhizhong, the head of Liaoning Yisheng External Relations Department, to visit the Shenbei New District Government Service Center again, while he went to the Liaoning Provincial Drug Administration for a meeting with the middle-level managers. What broke his plan was a message popping up on his phone after the meeting ended: they're here.
They mainly refer to Shao Hui and Li Gang. The former is the President and CEO of Yisheng Biotechnology. After joining the company in 2010, they are responsible for financial operations and strategic planning of international business. The latter is the current legal representative of Liaoning Yisheng. According to the information provided by Zhang Yi, around 1:50 pm on March 8th, dozens of people, including Shao Hui and Li Gang, gathered at the company gate and claimed to have taken over the company. Another familiar face also appeared in the crowd, he was Teng Honggang, former vice president of production at Liaoning Yisheng, who left Liaoning Yisheng in 2022.
On the urgent way to the company, Wang Jimin, Executive Vice General Manager of Liaoning Yisheng, accompanied Zhang Yi. According to his understanding, before the group returned, more than 50 people had already rushed into the factory and office building, not only driving the finance department staff out of the office, but also taking away the keys to the office. During this period, more than 100 workshop workers were rushed to the square, and the scene was very chaotic. At around 2:17 pm, the "takeover team" was stationed in front of the office building and collided with Zhang Yi, who had returned to the company.
"We need to talk to you about how to hand over."
"I am the major shareholder, so you can dismiss me as the chairman of the board of directors at the board meeting of (Yisheng Biotechnology) at will?"
"We won't discuss this, let's discuss how to hand it over."
"You're handing over, what are you handing over?"
"They are here to grab the official seal and the (original) business license." On March 9th, Zhang Yi angrily told the Daily Economic News reporter that he had a dispute with the "takeover team" and had sent employees to the local government center several times in the past week to add a supervisor to Liaoning Yisheng in order to file a legal lawsuit, but the process was not smooth.
At the same time, the industrial and commercial changes of Liaoning Yisheng are still ongoing. On March 9th, the reporter searched the National Enterprise Credit Information Publicity System and found that the legal representative of Liaoning Yisheng is Zhang Yi, and the chairman is Li Gang; On the 10th, the legal representative of the company changed to Li Gang.
Company Structure of Yisheng Biotechnology. Yisheng Biotechnology Prospectus
On March 5th, Yisheng Biotechnology released a major personnel appointment and removal decision for its wholly-owned subsidiary Yisheng Biotechnology (Hong Kong) Holdings Limited (referred to as "Hong Kong Yisheng") regarding its domestic subsidiary. Regarding Beijing Yisheng Biotechnology Co., Ltd. (referred to as "Beijing Yisheng"), Yu Zhen's legal representative and executive director positions have been relieved, and Liu Yuan's supervisory position has been relieved; Appointed Wu Chunyuan as the new legal representative and executive director, and appointed Zhao Haitao as the new supervisor; For Liaoning Yisheng, the former legal representative and chairman Zhang Yi, as well as directors Mi Rui and Du Xiansong, have been relieved of their directorial positions. Li Gang serves as the new legal representative, chairman, and director; Li Gang, Zhao Haitao, and Zhang Lei have been appointed as members of the new board of directors.
A document from Liaoning Yisheng, signed on March 9th and stamped with the official seals of Liaoning Yisheng and Hong Kong Yisheng, also shows that Hong Kong Yisheng made a shareholder decision on March 2nd, 2024 to remove Zhang Yi from his position as the legal representative, chairman, and director of Liaoning Yisheng. But from the evening of March 8th to March 10th, more than ten employees of Liaoning Yisheng were on duty in the office building to cope with possible emergencies.
On March 11th, the reporter met Mr. Shi, who claimed to be a shareholder of the company, in the Liaoning Yisheng Communication Room. On the afternoon of March 8th, he acted together with Shao Hui and others. Mr. Shi expressed his attitude to the reporter: "After the company goes public, the company is the shareholder, it is the entire team of Yisheng Biotechnology. It is not his (Zhang's translation) alone, this is not a family business. He must abide by the listing rules from the day of going public and accept the decisions of the board of directors. He no longer has any positions, and we must take over. We are reasonable, legal, and compliant, which is the right granted to us shareholders by law."
Inconsistent board resolution
Shao Hui: On December 9, 2023, the company held a board of directors, replacing Mr. Zhang from his position as chairman to become a director of the company. This is a resolution completed through a board meeting.
Zhang's translation: The company's articles of association clearly stipulate that the removal of the chairman and the removal of directors must be (passed) by the shareholders' meeting. Why did you pass (the board of directors)?
Shao Hui: Your understanding is incorrect. If it is correct, the court will not make a decision like an injunction from the beginning. Why? Because we didn't remove you from the board of directors, it's just that you're not a "long" person, you're still a director.
Zhang's translation: The articles of association clearly state that the chairman can only be dismissed by special resolution.
Shao Hui: If it was such an obvious mistake, why did the court agree to do so at that time?
Zhang Yi: So why did you agree to hold a shareholder meeting in the end?
On the afternoon of March 8th, Zhang Yi and Shao Hui walked into the company's communication room for a meeting, and the trigger for the takeover incident - the board of directors of Yisheng Biotechnology on December 9th, 2023- surfaced.
In Zhang Yi's account, at 7:40 am on December 9, 2023, Shao Hui notified the board of directors of the time and attendance arrangements for the evening meeting through WeChat. In the afternoon, he proposed to replace a new director in the evening meeting, but was rejected by himself. At the board meeting held at 10 pm, the proposal to add new directors and suddenly remove the chairman was approved and ultimately passed.
Zhang Yi believes that Article 88 of the Articles of Association of Yisheng Biotechnology Company clearly stipulates that the dismissal of the chairman is a special resolution, which requires the consent of more than two-thirds of the shareholders in the shareholders' meeting before adding this issue. Shao Hui and others' actions violate the company's articles of association.
Starting from March 8th, the reporter has repeatedly attempted to contact Shao Hui through phone, WeChat, other shareholder representatives, or relevant third parties, but as of the time of publication, no response has been received. However, a document provided by an employee of Liaoning Yisheng titled "Explanation on the Review of Recent Events in the Company" (hereinafter referred to as the "Document") shows Shao Hui's attitude. The employee told the reporter that he received the relevant text message after the takeover incident occurred.
Respondents provide
According to the document, Shao Hui believes that the decision of the board of directors of Yisheng Biotechnology is based on Article 90 of the company's articles of association, which states that "a majority of board members who form a resolution have the right to elect and appoint a chairman, and the term of office of the appointed chairman is determined by the majority of board members.". On December 9, 2023, the board of directors passed a majority resolution to elect Ajit Shetty as the interim chairman of Yisheng Biotechnology for a term of 6 months. The purpose of this move is to expedite the signing and implementation of SOX compliance policies, and to avoid the company facing penalties and shareholder lawsuits. After the six-month period expires and the internal control structure is completed, the temporary appointment will be terminated.
At this point, the discord between the two sides has officially been brought to the forefront, and a "battle" of rotating the recall and replacement of directors has begun.
Translated by journalist Liu Guomei
On March 9th, Zhang Yi told reporters that he still firmly believed in the effectiveness of Article 88 of the company's articles of association, believed that the second injunction from the Cayman Court was unreasonable, and is currently preparing funds to "fight".
On the morning of March 11th, the public area television on the third floor of Liaoning Yisheng Office Building broadcasted an open letter to all employees, signed by Liaoning Yisheng Labor Union Committee and on March 4th, 2024. The document reiterated Zhang Yi's position, stating that "the board members led by Shao Hui took the initiative to illegally dismiss Chairman Zhang Yi, who holds more than 50% of the shares, without convening a shareholders' meeting. Later, without the consent of the shareholders' meeting, they issued company stocks at a low price, harming the interests of many shareholders." "Their ultimate goal is to quickly cash out, earn capital benefits, and damage the development of the enterprise and the interests of employees.".
It is worth noting that at this time, Zhang Yi's shareholding in Yisheng Biotechnology has decreased from 52.24% at the time of listing to around 20% (estimated by Zhang Yi). This change starts with the collection letters from R-Bridge, a subsidiary of Kangqiao Capital, which have reset the balance on both sides of the balance, causing Yisheng Biotechnology to slide to the brink of bankruptcy.
$40 million triggers bankruptcy crisis
According to the aforementioned document, on December 15, 2023, when R-Bridge Fund routinely inquired about the financial status of Yisheng Biotechnology, it was found that there was a significant deviation between the budget and the actual situation; 12 days later, R-Bridge Fund informed the company that the company's financial data may trigger a default; On January 24, 2024, R-Bridge Fund began sending letters requesting the company to repay. During this period, Zhang Yi had paid $15 million to R-Bridge Fund, but multiple letters flooded in afterwards, demanding the company to repay in full.
This loan can be traced back to two years ago. On March 16, 2022, Yisheng Group signed a financing agreement with R-Bridge Healthcare Fund, LP to raise $40 million (with a term of 54 months and an annual interest rate of 4%), with a maturity date of September 15, 2026. Yisheng Group will repay the loan in installments on each repayment date (i.e. the fifth business day after the end of each fiscal quarter), with an amount equal to the relevant percentage of the total outstanding principal of the loan at the end of the available period.
Eisen-R Bridge installment repayment schedule data source: EisenBio US stock prospectus
According to public information, this $40 million is an investment from R-Bridge in the form of a "drug franchise" for Biotech. Drug franchise refers to investors providing a fixed amount of advance payment and subsequent payments related to specific milestones to pharmaceutical companies. In return, pharmaceutical companies promise to pay investors a certain proportion of future drug revenue.
However, R-Bridge Fund may not be satisfied with the subsequent performance of Yisheng Biotechnology. From 2021 to 2023 fiscal years, Yisheng Biotechnology's operating revenue was 257 million yuan, 503 million yuan, and 687 million yuan, respectively, with net losses of 208 million yuan, 237 million yuan, and 146 million yuan, and almost all of its revenue came from the rabies vaccine approved for listing in 2003.
According to the financial performance (unaudited) of the first half of fiscal year 2024 announced by Bionics on January 22, the company's revenue in the first half of fiscal year 2024 was 273.1 million yuan (RMB, the same below), a year-on-year decrease of 31.6%, mainly because the interruption related to the COVID-19 affected the raw material supply chain, manufacturing business and production of YSJA rabies vaccine production facilities; The net loss was 174.5 million yuan, an increase of 1472.07% year-on-year. As of September 30, 2023, the company had cash and cash equivalents of 259.9 million yuan, compared to 370.4 million yuan as of March 31, 2023.
The company expects that the second quarter of fiscal year 2024 will be the last quarter affected by previous production delays, and rabies vaccine revenue for the third quarter ending December 31, 2023 will increase by approximately 50% compared to the second quarter ending September 30, 2023.
On February 13th, Yisheng Biotechnology announced that it had signed a stock purchase agreement with an institutional investor and issued approximately 95.2698 million shares of common stock. At this point, the company has issued over 188 million shares of common stock. On February 16th, Apex officially replaced Zhang Yi as the first controlling shareholder of the company.
Shao Hui believes that the injection of this fund has greatly improved and strengthened our balance sheet. It has enhanced our cash position, enhanced liquidity, and provided additional funds. The document shows that Zhang Yi can participate in the subscription before February 16th to avoid dilution of equity, but he did not exercise the proportional subscription right and unilaterally applied to the Cayman Court for liquidation of the company on February 12th, ultimately leading to the removal of Zhang Yi's director qualification by the board of directors in accordance with Article 110 of the company's articles of association.
But Zhang Yi believes that this is a "bureau" established by Shao Hui since the company went public.
"Chinese companies are being seized of power, short circuited, and diluted, which is equivalent to seizing. Liaoning Yisheng's net assets are all over ten billion yuan (RMB), resulting in its stock (market value) being short circuited to over 30 million US dollars. At this time, an increase of 40 million US dollars is absolutely controlling, consuming all of our assets, as well as intangible assets. When we went public, our value was over ten billion yuan, and it 'suppressed' this price."
However, as of the time of publication, Zhang Yi has not provided any information that can support the above speculation.
The reporter noticed that since its listing, the stock price of Yisheng Biotechnology has fallen for 9 consecutive days, with a decline of 84.28% in March 2023. At that time, the company's COVID-19 vaccine was still not approved for listing, and the global epidemic situation tended to be flat. Many domestic COVID-19 vaccine companies were challenged by "overcapacity". On September 13, 2023, after closing at $0.99 per share, the company's stock price has not yet returned to above $1 and is on the brink of delisting at $1. But since March this year, the company's stock price has entered an upward phase, with a 90.26% increase in March, the highest monthly increase since going public.
Wind screenshot of the stock price trend of Yisheng Biotechnology after its listing
The chairman and CEO who turned against each other
As former superiors and subordinates, it is difficult to summarize the relationship between Zhang Yi and Shao Hui in one word.
According to Zhang Yi, in 2010, I recruited Shao Hui from the United States into the company to go public. Before and after the company landed on NASDAQ, the capital operation was fully controlled by Shao Hui, and the board members had working or peer relationships with him, giving him full trust, and even allowing Shao Hui to preside over the board.
But the rupture of their relationship is not without warning. In 2021, when Yisheng Biotechnology rushed to the Hong Kong Stock Exchange, Shao Hui proposed to "shoulder the responsibility of the chairman and general manager" on the grounds of increasing the probability of successful listing. However, this matter ended due to Shao Hui's unwillingness to write a post listing "resignation report" in advance, and the listing on the Hong Kong Stock Exchange was also unsuccessful; At the board of directors one month after the company landed on NASDAQ, several independent directors had requested Zhang Yi to resign on the grounds of resignation and stock price decline. However, due to Zhang Yi being an absolute major shareholder, the resolution could not be passed at the shareholders' meeting.
Information of directors and executives at the time of listing of Yisheng Biotechnology. Yisheng Biotechnology US IPO prospectus
Another detail is that, according to the WeChat chat records provided by Zhang Yi, on December 9, 2023, Shao Hui conveyed that "several directors still insist on spending 15-20 minutes in today's meeting to discuss the director's agenda of Mr. Yu Rui." Zhang Yi said, "If we insist on discussing, today's board meeting does not need to be held."; An hour and a half before the board meeting, Zhang Yi asked Shao Hui, "The agenda of the meeting is not scheduled to discuss new directors, so there won't be any changes, will there?" The other party replied, "I have already conveyed it." However, everything that happened afterwards deviated from Zhang Yi's expectations.
What has left Zhang Yi with a grudge is also Shao Hui's delayed return to China to discuss company affairs. "I asked him to come back, but he said he couldn't buy a plane ticket. When I checked, the connecting tickets were everywhere; he finally came back and left silently in less than a month..."
However, in Shao Hui's eyes, the story may need to be told more fully.
According to the aforementioned document, starting from May 2023, Zhang Yi refused to sign and implement a series of SOX internal control compliance policies that must be implemented by US listed companies; In July 2023, without the approval of the board of directors, Zhang Yi privately distributed a huge R&D bonus of millions to himself and his daughter; On December 7, 2023, shareholders of the company received a report letter, reporting that Zhang Yi was suspected of embezzling public funds and using his position to fabricate contracts for the benefit of relatives... In Zhang Yi's signed liquidation application, it was mentioned that "the company was informed of the need to improve governance processes, and the petitioner (Zhang Yi) was complained of obstructing the implementation of the bill when obtaining an injunction.".
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