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Vermillion Shareholders File Suit Challenging Elimination of Board Seat


This story originally ran on June 12.

Vermillion shareholders have filed a complaint against the company challenging a change to its bylaws that eliminated a seat on its board of directors that otherwise would be up for election at the firm's 2012 annual meeting.

The shareholders – George Bessenyei and Robert Goggin – filed the complaint last month in the Court Chancery of the State of Delaware, seeking to void the bylaw amendment that eliminated the board seat and halt Vermillion's upcoming annual meeting until the number of seats up for election is determined.

Last week, the court granted a preliminary injunction stipulating that Vermillion not hold its annual meeting until at least 21 days after it rules on the plaintiffs' challenge of the amendment. A two-day evidentiary hearing on the challenge is scheduled to begin on July 31.

The complaint is the latest salvo in an ongoing effort by Bessenyei, Goggin, and their fellow Vermillion shareholder Gregory Novak to influence the direction of the company by winning control of seats on its board.

In February, the trio – asserting that Vermillion had been "plagued by gross mismanagement" – notified the company that they intended to nominate Goggin and Novak for election to the two board seats that were to be up for election at its 2012 annual meeting (PM 3/2/2012).

The two seats they sought to win were occupied by Vermillion president and CEO Gail Page and John Hamilton, a former executive at Depomed. The company has nominated Viracor-IBT Laboratories CEO Paul Sohmer to stand for election to Hamilton's seat. Upon Page's resignation from the board on May 15 – which coincided with the announcement of her impending resignation as CEO – the company eliminated this seat, reducing the number of directors to six from seven and the number up for election at the 2012 meeting to one from two (PM 5/18/2012).

In a form 8-K filed last month with the US Securities and Exchange Commission, Vermillion said that it reduced the number of directors as part of "ongoing attempts to streamline the organization of the company and to extend its cash runway."

In their complaint, the plaintiffs assert, however, that the company eliminated the seat so as to better retain control of the board in the face of the challenges from Goggin and Novak, and called the move "an unjustifiable interference with the shareholders' fundamental corporate rights, and [an] entrenchment of the incumbent directors at a time when the company's prospects are rapidly declining and the incumbent board has acknowledged that the company may not remain a going concern for much longer."

The plaintiffs are seeking a declaration that both original seats must stand for election at Vermillion's next annual meeting and a finding that the directors breach their fiduciary duties by eliminating Page's seat upon her resignation.

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