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Manchester Management Accuses Vermillion of Changing Meeting Date to Discourage Shareholder Action

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One of Vermillion's largest shareholders this week accused the firm's board of directors of shifting forward its annual meeting in order to discourage shareholder action aimed at replacing members of Vermillion's board and management team.

On April 29, James Besser, a managing member of Manchester Management — a Boston-based hedge fund that holds a nearly 10 percent stake in Vermillion — addressed a letter to the company's board and shareholders asserting that management had moved the date of the company's annual meeting from June 23 to June 6 "to make any kind of shareholder action more difficult."

Vermillion announced the June 6 date in a document filed this week with the US Securities and Exchange Commission. However, in Besser's letter — also filed this week with the SEC — he said that in two previous interactions with the company's management he was informed that the date for the annual meeting was set for June 23.

"Under the current bylaws the shareholders can never call a special meeting, so after the meeting on the 6th shareholders could potentially be waiting until December 2012 to have another vote on management's actions and execution," Besser said in the letter, adding that he believes "management is playing for time because most shareholders are unaware that it could be 18 months before shareholders are able to hold management and the board accountable, and that shareholders will only be able to vote on half the board."

Besser's dissatisfaction with Vermillion's board and management has come to light over the past several weeks in a series of letters filed with the SEC in which he expressed concern about the 90 percent drop in the company's share price in the last year and called for changes to the company bylaws to make it easier for shareholders to make changes to the board (PM 04/22/2011).

The dispute began on April 12 with a letter Besser sent to Vermillion's management and board, claiming they had eroded the value of the company's shares and asking that they make three changes to the company's corporate governance "as soon as possible."

The first change was to eliminate a bylaw that prohibits shareholders from calling special meetings under any circumstance. He also called for the removal of a so-called "poison pill" that prevents shareholders from making changes in Vermillion's management and/or board. And lastly, he demanded that Vermillion hold a special meeting where the company's six directors would be up to a vote "so that all shareholders can weigh in on their continuing service in light of events since the last shareholder meeting."

The company answered with a letter to shareholders in which it said it was reviewing its bylaws and rights plan to determine if changes were needed and taking Besser's views into account.

It also said it had "spoken with [Besser] on multiple occasions in an attempt to address a number of his concerns" and suggested that he was aiming to create "a short-term stock price for his own benefit."

It said it had offered to provide Besser non-public information about the company's operations to help address his concerns, but that he had turned down the offer "because coming over the wall would have necessarily required a confidentiality agreement and limited his ability to obtain 'liquidity' for his position."

In a response filed on April 21, Besser disputed this characterization, saying that liquidity issues were not the only reason he declined the information. The refusal "also had to do with us wanting to preserve our right to weigh in and vote as a substantial holder of the [company's] equity."

This week, Besser again urged Vermillion's management to suspend the rights plan for shareholders as of April "for the purposes of allowing shareholders to collaborate on providing the company with the best possible mix of representatives on the board, and allowing shareholders to vote on the entire board of directors and their efforts on our behalf over the last year."

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