In re Vaxart, Inc. Stockholder Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE VAXART, INC. ) CONSOLIDATED
STOCKHOLDER LITIGATION ) C.A. No. 2020-0767-PAF

MEMORANDUM OPINION

Date Submitted: August 24, 2021
Date Decided: November 30, 2021
Corrected: December 1, 2021

Stephen E. Jenkins, F. Troupe Mickler, IV, ASHBY & GEDDES, P.A., Wilmington,
Delaware; Gregory V. Varallo, BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP, Wilmington, Delaware; Jeroen van Kwawegen, Daniel E.
Meyer, Margaret Sanborn-Lowing, BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP, New York, New York; Gustavo F. Bruckner, Samuel J.
Adams, Daryoush Behbood, POMERANTZ LLP, New York, New York; Sascha N.
Rand, Rollo C. Baker, IV, Silpa Maruri, Jesse Bernstein, Charles H. Sangree,
QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York;
Stanley D. Bernstein, Matthew Guarnero, BERNSTEIN LIEBHARD LLP, New
York, New York; William J. Fields, Christopher J. Kupka, Samir Shukurov, FIELDS
KUPKA & SHUKUROV LLP, New York, New York; Attorneys for Plaintiffs.

Brock E. Czeschin, Andrew L. Milam, RICHARDS LAYTON & FINGER, P.A.,
Wilmington, Delaware; Riccardo DeBari, Renee Zaytsev, Mendy Piekarski,
THOMPSON HINE, New York, New York; Attorneys for Andrei, Wouter W.
Latour, Todd Davis, Michael J. Finney, Robert A. Yedid, Anne M. VanLent, and
Nominal Defendant Vaxart, Inc.

Matthew F. Davis, Abraham C. Schneider, POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware; Douglas A. Rappaport, Kaitlin D. Shapiro, Elizabeth
C. Rosen, Madeleine R. Freeman, AKIN GUMP STRAUSS HAUER & FELD LLP,
New York, New York; Attorneys for Defendants Steven Boyd, Keith Maher,
Armistice Capital, LLC.

FIORAVANTI, Vice Chancellor
 Vaxart, Inc. (“Vaxart” or the “Company”) is a small biotechnology company

that embarked on developing a vaccine for COVID-19 in the early stages of the

pandemic. In early June 2020, the Company’s board of directors agreed to amend

two warrant agreements between the Company and its one-time majority

stockholder. The warrant amendments permitted the stockholder to beneficially own

a greater number of Vaxart shares upon exercise of the warrants. In effect, it enabled

the stockholder to exercise and dispose of the warrant shares faster than under the

terms of the original warrants. A few days later, Vaxart stockholders voted on an

amendment to the Company’s incentive compensation plan to increase the number

of shares eligible for grant. A few weeks after those two events, the Company

announced that it had been selected to participate in a non-human primate study

sponsored by Operation Warp Speed, the federal government’s program to

accelerate the development and distribution of a COVID-19 vaccine. The

Company’s stock price jumped upon the announcement.

The plaintiffs in this action are Vaxart stockholders who have asserted a

variety of claims arising from the three events described above. Plaintiffs allege that

the Company’s board and former majority stockholder had knowledge of Vaxart’s

selection to participate in the non-human primate study before the board approved

the warrant agreement amendments and before the stockholder vote on the

amendment to the equity incentive plan. Plaintiffs allege the board withheld the

2
disclosure of that information until after those two events so as to benefit themselves

in the form of spring-loaded option grants, and to benefit the former majority

stockholder, which exercised the warrants and sold most all of the underlying shares

within two days of the public announcement of Vaxart’s participation in the non-

human primate study. Plaintiffs have asserted claims for breach of fiduciary duty,

unjust enrichment, and aiding and abetting. All defendants have moved to dismiss

the complaint in its entirety. In this opinion, I grant the motion as to certain claims,

and I request additional briefing on two discrete issues.

I. BACKGROUND

Unless otherwise specified, the facts recited in this Memorandum Opinion are

drawn from the Verified Complaint (the “Complaint” or “Compl.”) and documents

integral thereto. 1

1
Dkt. 1. Exhibits attached to the Complaint will be cited as “Ex.” Exhibits entered into
the record by the Armistice Defendants (defined below) will be cited as “Armistice Defs.’
Ex.” Exhibits entered into the record by the Vaxart Defendants (defined below) will be
cited as “Vaxart Defs.’ Ex.” Plaintiffs have objected that Defendants have introduced into
the record “extraneous documents” produced to Plaintiffs in response to books and records
demands under 8 Del. C. § 220. Pls.’ Ans. Br. at 34. Plaintiffs’ characterization of Vaxart’s
participation in Operation Warp Speed have prompted the Defendants to request that I
“review the actual documents to ensure that the plaintiff has not misrepresented their
contents and that any inference the plaintiff seeks to have drawn is a reasonable one.” In
re CBS Corp. S’holder Class Action & Deriv. Litig., 2021 WL 268779, at *18 (Del. Ch.
Jan. 27, 2021) (citations omitted). The Plaintiffs’ respective Confidentiality Agreements
with the Company governing the production of Section 220 documents each provide that
all “documents” produced pursuant to the agreements “will be deemed incorporated by
reference in any complaint relating to the subject matter referenced in the Demand[s].”
Armistice Defs.’ Exs. 1 ¶ 11, 2 ¶ 13. The Confidentiality Agreement between the Company

3
 A. The Parties

Plaintiffs Cynthia Jaquith and Paul Bergeron have been Vaxart stockholders

since April 2020. 2 Plaintiff Kenny Galjour alleges to have been a Vaxart stockholder

“at all relevant times.” 3 They are collectively referred to as “Plaintiffs” herein.

Vaxart is a Delaware corporation based in San Francisco, California. 4 The

Company is a “clinical-stage biotechnology company focused on vaccine

development.”5 “Vaxart has developed a proprietary delivery platform that allows

the vaccines it develops to be administered orally.” 6 Vaxart is the result of a 2018

reverse merger (the “Merger”) between Vaxart, Inc. (“Private Vaxart”), then a

and Jaquith and Bergeron makes incorporation conditional upon written confirmation from
the Company that it “believes in good faith that it has completed production” of all in-
scope documents within five business days of making a “good-faith determination” as to
such. Armistice Defs.’s Ex. 2 ¶ 14. Defendants have entered into the record an October 1,
2020 letter representing that “on September 1, 2020, the Company provided the written
certification required by Paragraph 14 of the Confidentiality Agreement, stating that it
believes in good faith that it has completed its production of the documents that the
Company stated it will produce, all of which are within the scope of the Demands.” Vaxart
Defs.’ Ex. 28. Plaintiffs have not disputed this representation. Nevertheless, the
incorporation by reference of documents produced under Section 220 “does not change the
pleading standard that governs a motion to dismiss.” Amalgamated Bank v. Yahoo! Inc.,
132 A.3d 752, 798 (Del. Ch. 2016), abrogated on other grounds by Tiger v. Boast Apparel,
Inc., 214 A.3d 933 (Del. 2019). “If there are factual conflicts in the documents or the
circumstances support competing interpretations, and if the plaintiff makes a well-pleaded
factual allegation, then the allegation will be credited. Id.
2
Compl. ¶ 20.
3
Galjour Compl. ¶ 17.
4
Compl. ¶ 21.
5
Id. ¶ 32.
6
Id.
4
privately held company, and Aviragen Therapeutics, Inc. (“Aviragen”). 7 As a result

of the Merger, Private Vaxart became a subsidiary of Aviragen and Aviragen

changed its name to Vaxart. 8 Certain Aviragen directors continued on after the

Merger as directors of the post-Merger parent company (“Vaxart”).9 Shares of

Vaxart’s common stock trade on the Nasdaq stock market under the symbol

“VXRT.” 10

Defendant Armistice Capital LLC, a Delaware limited liability company

(“Armistice”), is a hedge fund focused on the health and consumer sectors.11

Armistice was a Vaxart stockholder from September 26, 201912 until at least June

29, 2020, the date of its last publicly reported trade.13 Plaintiffs allege that

“Armistice was Vaxart’s controlling shareholder.” 14

7
Vaxart Defs.’ Ex. 3 at 95.
8
Id.
9
See Vaxart, Inc. Schedule 14A (Apr. 24, 2020) (“Proxy”) at 9–10, 12.
10
Vaxart Defs.’ Ex. 3.
11
Compl. ¶¶ 1, 22.
12
Vaxart Inc., Schedule 13D (Oct. 1, 2019). I take judicial notice of this and other SEC
filings cited in this Opinion to the extent they are “matters that are not subject to reasonable
dispute.” In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006). See
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 n.28 (Del. 2004) (noting that
courts may take judicial notice of contents of public documents such as SEC filings
required by law to be filed).
13
Vaxart Inc., Schedule 13D (June 30, 2020).
14
Compl. ¶ 22.
5
 Defendants Steven Boyd and Keith Maher are employees of Armistice.15

Boyd is the fund’s Chief Investment Officer and Maher is a Managing Director.16

Boyd and Maher joined Vaxart’s board of directors (the “Board”) in October 2019.17

Boyd and Maher are together the “Armistice Directors” and, together with

Armistice, the “Armistice Defendants.”

Defendant Wouter W. Latour is the Chairman of the Board.18 Latour served

as a director and Chief Executive Officer (“CEO”) of Private Vaxart since

September 2011 through the Merger, and has continued to serve as a director since

then.19 He also continued to serve as the CEO of Vaxart since the Merger until his

resignation on June 14, 2020.20

Defendant Andrei Floroiu is the current CEO of Vaxart. 21 Floroiu joined the

Board on April 13, 2020.22 The Board appointed him as CEO on June 15, 2020

effective June 14, 2020.23

15
Id. ¶ 36.
16
Id.
17
Id. ¶¶ 23–24.
18
Id. ¶ 25.
19
Proxy at 9.
20
Compl. ¶ 25.
21
Id.
22
Id. ¶¶ 38, 103.
23
Vaxart Inc., Current Report (Form 8-K) (June 15, 2020). The Complaint alleges that
Floroiu “served as . . . CEO of the Company since June 15, 2020.” Compl. ¶ 26.
6
 Michael J. Finney was on the board of Private Vaxart since July 2007 and has

stayed on after the Merger as a Vaxart director.24 He also served as the CEO of

Private Vaxart from 2009 until 2011.25

Defendants Robert A. Yedid and Todd Davis became Vaxart directors in

October 2019 upon being appointed by the Board.26 Davis served on the Board’s

Compensation Committee (the “Compensation Committee”) “at all times relevant

hereto.” 27

Anne M. VanLent was a director of Private Vaxart from 2013 28 until the

Merger and stayed on as a Vaxart director until June 8, 2020.29 VanLent was not

nominated for reelection at the 2020 annual meeting of Vaxart stockholders.30

Latour, Boyd, Davis, Finney, Maher, Yedid, and VanLent were members of

the Board when: (i) on March 24, 2020, the Board approved a grant of time-based

stock options covering a total of 2,610,000 shares that would be “exercisable” upon

approval by Vaxart stockholders of an amendment to Vaxart’s equity incentive plan

(the “2019 Amendment”) and (ii) on April 13, 2020, the Board approved a grant of

24
Proxy at 10.
25
Id.
26
Compl. ¶¶ 28–29; Vaxart Inc., Current Report (Form 8-K) (Oct. 28, 2019).
27
Compl. ¶ 28.
28
Vaxart Inc., Form 10-K (Feb. 6, 2019) at 120.
29
Compl. ¶ 30.
30
See Proxy at 9.
7
time-based stock options to Floroiu covering a total of 54,720 shares. 31 Along with

Floroiu, these individuals constituted the Board when: (i) on April 24, 2020, Vaxart

issued the proxy statement (the “Proxy”) for stockholder approval of the 2019

Amendment; 32 (ii) on June 5, 2021, the Board approved by written consent the

Warrant Amendments (as defined below); 33 and (iii) on June 8, 2020, the annual

meeting of stockholders took place.34 Floroiu, Latour, Boyd, Davis, Finney, Maher,

and Yedid constituted the Board when (i) on June 8, 2020, the Board granted stock

option awards to Davis, Finney, Yedid and approved changes to the terms of

VanLent’s stock options 35 and (ii) on June 13, 2020, the Board approved the terms

of a separation agreement with Latour permitting his stock options to continue to

vest after his resignation as CEO and granted Floroiu additional stock options upon

his appointment as CEO.36

31
Proxy at 32–33. Defendants assert that Floroiu was not a member of the Board when it
approved his stock option award and that he only “joined the Board later that same day.”
Defs.’ Opening Br. at 11. Plaintiffs do not dispute this assertion or allege otherwise; the
Complaint asserts only that “on April 13, 2020, Floroiu joined the Board” but does not
specify when Floroiu’s appointment became effective. Compl. ¶ 38.
32
See Compl. ¶ 93; Armistice Defs.’ Ex. 26; Proxy at 33.
33
Compl. ¶ 8; Vaxart Defs.’ Ex. 14.
34
Compl. ¶ 15.
35
See id. ¶ 53; Vaxart Defs.’ Ex. 26.
36
Vaxart Defs.’ Ex. 27.
8
 Latour, Boyd, Davis, Finney, Maher, Yedid, VanLent are together the

“Director Defendants.”

B. Armistice Executes a Warrant Agreement and Later Becomes
Vaxart’s Controlling Stockholder.

On April 11, 2019, Armistice and Vaxart entered into a Common Stock

Purchase Warrant (the “April 2019 Warrant”) giving Armistice the right to purchase

from Vaxart up to 4,090,909 shares of Vaxart’s common stock at an exercise price

of $1.10 at any time until April 11, 2024.37

On September 26, 2019, two weeks after engaging in two short-sale trades,

Armistice began buying Vaxart shares on the open market.38 By September 30,

2019, it had accumulated an equity stake sufficiently large to give it, as of that date,

“approximately 52% of the voting power of [Vaxart’s] outstanding shares of

common stock.”39

On September 30, 2019, Armistice and Vaxart entered into a second Common

Stock Purchase Warrant (the “September 2019 Warrant” and together with the April

2019 Warrant, the “Warrants”) giving Armistice the right to purchase another

16,666,667 shares at an exercise price of $0.30 per share until September 30, 2024.40

37
Armistice Defs.’ Ex. 9.
38
Vaxart, Inc., Schedule 13D (Oct. 1, 2019).
39
Vaxart, Inc., Form 10-Q (Nov. 12, 2019) at 36.
40
Armistice Defs.’ Ex. 10.
9
 Each Warrant contained a blocker provision (“Blocker”).41 Section 2(e) of

the April 2019 Warrant provides:

The Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2 or otherwise, to the extent that after giving effect to such
issuance after exercise as set forth on the applicable Notice of Exercise, the
Holder (together with the Holder’s Affiliates, and any other Persons acting as
a group together with the Holder or any of the Holder’s Affiliates (such
Persons, “Attribution Parties”)), would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). 42

Section 2(e) also makes clear that:

For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates and Attribution
Parties shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which would
be issuable upon (i) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its Affiliates or
Attribution Parties . . . . 43

Id. The Beneficial Ownership Limitation in the April 2019 Warrant “shall be 4.99%

of the number of shares of the Common Stock outstanding immediately after giving

effect to the issuance of shares of Common Stock issuable upon exercise of this

Warrant.”44 Section 2(e) also gives the holder of the Warrant the right to increase

the Holder’s Exercise Limitation to 9.99% upon giving Vaxart 60-days’ notice:

41
Compl. ¶ 60; Armistice Defs.’ Exs. 9–10.
42
Armistice Defs.’ Ex. 9. § 2(e).
43
Id.
44
Id.
10
 The Holder, upon notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 2(e), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number
of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock upon exercise of this Warrant held
by the Holder and the provisions of this Section 2(e) shall continue to apply.
Any increase in the Beneficial Ownership Limitation will not be effective
until the 61st day after such notice is delivered to the Company. 45

Blockers (also called conversion caps) like the one here permit a stockholder to avoid

triggering certain federal securities law requirements tied to beneficial ownership.46

Most notable here, conversion caps permit a stockholder that would otherwise be

forced to disgorge profits from short-term sales of the issuer’s securities under

Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) to engage

in short-term trading of the issuer’s stock so long as its stock holdings do not exceed

10%, even as the stockholder retains the option to buy additional shares.47

45
Id.
46
See, e.g., 17 C.F.R. § 240.13d-1(a) (requiring certain SEC filings for persons who are,
directly or indirectly, the beneficial owners of any class of equity securities of the
registrant).
47
See ION Geophysical Corp. v. Fletcher Int’l, Ltd., 2010 WL 4378400, at *13 (Del. Ch.
Nov. 5, 2010) (“Conversion caps often are structured to prohibit an investor from
converting preferred stock if such conversion would result in the investor owning more
than a specified percentage of the issuer’s common stock so as not to trigger § 16(b).”).
Under the disgorgement rule of Section 16(b) of the Exchange Act, “statutory insiders—
those with a beneficial ownership interest of more than 10% in an equity security”—must
“disgorge all profits realized from any purchase and sale (or sale and purchase) of the same
security made within a six-month period.” Analytical Survs., Inc. v. Tonga Partners, L.P.,
684 F.3d 36, 43 (2d Cir. 2012). Under the SEC’s implementing regulations, “Section 16
adopts the definition of ‘beneficial owner’ found in Section 13(d) of the Exchange Act and
the rules promulgated thereunder solely for purpose of determining who is a ‘beneficial

11
 The September 2019 Warrant Blocker was identical to the one in the April

2019 Warrant with one exception: the September 2019 Warrant had a higher

Beneficial Ownership Limitation threshold of 9.99%.48

On October 25, 2019, the Board appointed Boyd and Maher (the “Armistice

Directors”), along with Yedid and Davis, who replaced two directors who resigned

that day.49

C. Vaxart’s Vaccine Development Efforts
As of December 31, 2019, Vaxart only had 14 full-time employees,50 had

experienced two consecutive years of net losses, 51 and had never brought a vaccine

to market.52 On January 31, 2020, in the early stages of the COVID-19 pandemic,

owner’ of more than ten percent of the issuer.’ Roth v. Solus Alternative Asset Mgmt. LP,
124 F. Supp. 3d 315, 321 (S.D.N.Y. 2015); 17 C.F.R. § 240.16a–1(a)(1). Beneficial
ownership also attaches to the right to acquire securities “within sixty days,” 17 C.F.R. §
240.13d–3(d)(1)(i), “deeming owners of such a right as owners of the underlying stock
itself.” Roth, 124 F. Supp. 3d at 321.
48
Armistice Defs.’ Ex. 10. § 2(e). The September 2019 Warrant also gave the Warrant
holder the right to “increase” the threshold with 60 days’ notice, but that provision was
dead letter since the Warrant holder may only increase the threshold up to 9.99%.
49
Compl. ¶ 36; Vaxart, Inc., Current Report (Form 8-K) (Oct. 28, 2019).
50
Vaxart Inc., Form 10-K (Mar. 19, 2020) at 38.
51
Id. at 120.
52
Compl. ¶ 33; see Vaxart Inc., Form 10-K (Mar. 19, 2020) at 38 (“[W]e . . . have not yet
successfully completed a large-scale, pivotal clinical trial, obtained marketing approval,
manufactured our tablet vaccine candidates at commercial scale, or conducted sales and
marketing activities that will be necessary to successfully commercialize our product
candidates.”).
12
Vaxart “announced it was developing a vaccine for COVID-19.” 53 Vaxart’s stock

price closed at $1.25 per share that day. 54 In March 2020, Vaxart disclosed that

“our business currently depends heavily on the successful development, regulatory

approval and commercialization of our coronavirus and norovirus tablet

vaccine.”55 That month and in ensuing months, Vaxart disclosed its incremental

COVID-19 vaccine development progress in its Form 8-K filings with the

Securities & Exchange Commission (“SEC”):

• On March 18, 2020, Vaxart announced a contract with Emergent

BioSolutions, Inc. to use Emergent’s “molecule-to-market contract

development and manufacturing (CDMO) services” to help develop and

manufacture Vaxart’s COVID-19 oral vaccine candidate. 56 Vaxart’s stock

price closed at $2.34 per share that day. 57

53
Compl. ¶ 39.
54
“VXRT US Equity: Historical Values,” accessed Nov. 8, 2021, Bloomberg Law. Here
and elsewhere, “I take judicial notice of these reported stock prices because they are not
subject to reasonable dispute.” Lee v. Pincus, 2014 WL 6066108, at *4 n.11 (Del. Ch. Nov.
14, 2014) (citing D.R.E. 201(b)(2)).
55
Vaxart Inc., Form 10-K (Mar. 19, 2020) at 40.
56
Vaxart, Inc., Current Report (Form 8-K) (Mar. 19, 2020), Ex. 99.2.
57
“VXRT US Equity: Historical Values,” accessed Nov. 8, 2021, Bloomberg Law.
13
 • On April 21, 2020, Vaxart “announced that its lead vaccine candidates

generated anti-SARS CoV-2 antibodies in all tested animals after the first

dose.”58 Vaxart’s stock price closed at $3.16 per share that day.59

• On May 12, 2020, the Company reported that “the Company’s lead vaccine

candidates generated robust anti-SARS CoV-2 antibodies in all tested

animals after both the first and second dose, with a clear boosting effect

after the second dose.” 60 Vaxart’s stock price closed at $2.93 per share

that day.61

• On June 18, 2020, Vaxart released a corporate presentation describing its

“Covid-19 program” as “advancing rapidly.” 62 Vaxart’s stock price closed

at $2.57 per share that day.63

Vaxart also sought government funding for its vaccine development efforts.64

Obtaining such funding, Plaintiffs allege, would be a “watershed moment”65 for “one

58
Vaxart, Inc., Current Report (Form 8-K) (April 29, 2020), Ex. 99.1; Compl. ¶ 41.
59
“VXRT US Equity: Historical Values,” accessed Nov. 8, 2021, Bloomberg Law.
60
Vaxart, Inc., Current Report (Form 8-K) (May 12, 2020), Ex. 99.1
61
“VXRT US Equity: Historical Values,” accessed Nov. 8, 2021, Bloomberg Law.
62
Vaxart, Inc., Current Report (Form 8-K) (June 18, 2020), Ex. 99.1 at 14.
63
“VXRT US Equity: Historical Values,” accessed Nov. 8, 2021, Bloomberg Law.
64
Compl. ¶ 41.
65
Id. ¶ 52.
14
of many clinical stage biopharmaceutical companies enmeshed in the slow struggle

to commercialize a drug.”66

In March 2020, Vaxart completed an offering to sell 4,000,000 shares of its

common stock and warrants to purchase up to 2,000,000 shares of its common stock

to certain undisclosed “institutional and accredited investors.” 67 The offering had

the effect of diluting Armistice’s equity stake; as of March 17, 2020, Armistice no

longer owned more than 50% of Vaxart’s common stock but still “beneficially

owned more than 35% of the voting power of [Vaxart’s] outstanding shares.” 68

66
Id. ¶ 49.
67
Vaxart Inc., Current Report (Form 8-K) (Mar. 2, 2020). Plaintiffs allege that Armistice
provided equity financing through a private investment in public equity or “PIPE”
transaction in January 2020. Compl. ¶¶ 34–35. Armistice disputes that allegation, noting
that Boyd’s director questionnaire inadvertently represented: “Pursuant to a PIPE
Agreement with the Company on January 22, 2020, the Company appointed Steven Boyd
and Keith Maher to its board of directors.” Armistice Defs.’ Ex. 8 at VAXART000334.
Instead, according to the Armistice Defendants, Boyd was referring to a January 2020 PIPE
transaction between Armistice and another entity, “Tetraphase Pharma.” Armistice
Opening Br. at 7 n.2.
Plaintiffs did not dispute this in their answering brief. I accept the Armistice Defendants’
explanation, particularly since (1) Maher’s director questionnaire did not make the same
reference to a PIPE transaction (Armistice Defs.’ Ex. 7 at VAXART000083); (2) Boyd and
Maher were appointed as directors in October 2019, not January 2020; and (3) Tetraphase
Pharmaceuticals, Inc. (“Tetraphase”), a Delaware corporation, entered into a PIPE
Agreement on January 22, 2020 with Armistice pursuant to which the fund acquired
1,270,000 shares of Tetraphase common stock and warrants to purchase an additional
2,063,334 shares. Tetraphase Pharmaceuticals, Inc., Current Report (Form 8-K) (Jan. 23,
2020).
68
Vaxart Inc., Form 10-K (Mar. 19, 2020) at 43.
15
 Shortly thereafter, Armistice began selling off its Vaxart stock in April 2020,69

to “lock in gains” from the appreciation of Vaxart’s share price in the first three

months of 2020. 70 Armistice continued its selling “nearly without pause” through

June 3, 2020.71 By that time, Armistice’s ownership fell to approximately 7 million

shares, or just under 10 percent of all outstanding common stock.72 Armistice halted

its selling spree on June 3, 2020. 73 As discussed below, Plaintiffs allege that

“Armistice knew as of June 3, 2020, and likely on May 28, 2020,” that the Company

had been chosen to participate in Operation Warp Speed, the federal government’s

effort to speed development and distribution of a COVID-19 vaccine. 74

D. The Vaxart Board Approves the Warrant Amendments.
Amidist Armistice’s sell-off of Vaxart shares, Boyd called Latour on May 14,

2020 to discuss amending the Warrant Agreements to remove or adjust the

Beneficial Ownership Limitations in the Blockers.75 That same evening, Latour

contacted Faith Charles, Vaxart’s outside counsel at Thompson Hine, and requested

69
Compl. ¶ 43.
70
Id. ¶ 42.
71
See id. ¶¶ 43–44.
72
Vaxart, Inc., Statement of Changes in Beneficial Ownership (Form 4) (June 3, 2020)
(Armistice Capital, LLC filing); see Vaxart, Inc., Schedule 13D (June 9, 2020).
73
Compl. ¶ 45.
74
Compl. ¶ 122 (emphasis omitted).
75
Id. ¶¶ 59, 63; Armistice Defs.’ Ex. 11.
16
a call the next day, noting it was “not a huge rush.”76 Two weeks later, on May 28,

2020, Latour and Boyd discussed the terms of the amendments to the Warrant

Agreements (“Warrant Amendments”); after the call, Latour relayed to Charles that

Boyd was comfortable “with the 19.99%” and requested another call. 77

On May 19, 2020, four days after Boyd had first raised amending the Warrant

Agreements, Yedid reached out to Latour to sell him on the idea. 78 Yedid indicated

that doing so would help position Vaxart for inclusion in the Russell 3000 index.79

Yedid also said that removing the 9.99% Blocker “will get more shares outstanding

and maximize the number of Vaxart shares that would have to be bought . . . on the

open market by the index funds that mimic the Russell 2000 or 3000.”80 Yedid

emailed Latour again on May 28, 2020, noting he was aware of Latour’s discussions

with Armistice, adding that “he would like to get a better understanding of the status

of the Russell rebalancing process and whether VXRT can benefit” from moving

forward with the Warrant Amendments.81

76
Armistice Defs.’ Ex. 11.
77
Compl. ¶¶ 72–73.
78
Id. ¶ 68; Vaxart Defs.’ Ex. 19. The Complaint conflates the May 19 and May 28, 2020
email exchanges.
79
Vaxart Defs.’ Ex. 19.
80
Id.
81
Compl. ¶ 67; Vaxart Defs.’ Ex. 20.
17
 On May 28, 2020, Latour sent an email to the Board, excluding the two

Armistice Directors, to inform them of Latour’s negotiations with Armistice about

the Warrant Amendments.82 Latour proposed a call, noting that “[t]he matter is

complex, with a range of pros and cons.”83 Floroiu responded, copying the group,

and asked Latour to “send us what you think the pros and cons are before the call,

so we could give this some thought.”84 Latour did not respond by email, if at all.85

The call took place on June 1, 2020.86 No record of what was discussed at the

meeting exists.87 Nothing indicates any financial advisors joined the meeting.

E. The 2019 Equity Incentive Plan

Like many early-stage biotech companies with little to no cash flow, Vaxart

used equity awards to incentivize and compensate employees, directors, and

contractors. On April 23, 2019, Vaxart’s stockholders approved an equity incentive

plan (the “2019 Plan” or “Plan”). The Plan authorized the Board to grant individual

equity-based compensation “Awards”—among others, stock options, restricted

stock awards, and stock appreciation rights (“SARs”)—to “Employees, Directors

82
Compl. ¶ 73; Armistice Defs.’ Ex. 16.
83
Compl. ¶ 73; Armistice Defs.’ Ex. 16.
84
Compl. ¶ 73; Vaxart Defs.’ Ex. 22.
85
Compl. ¶ 74.
86
Id.
87
Id.
18
and Consultants.” 88 The purpose of the Plan is to “provide incentives for such

persons to exert maximum efforts for the success of the Company and any Affiliate,

and provide a means by which the eligible recipients may benefit from increases in

value of the Common Stock.”89 The Plan authorized the Board to:

• Determine “who” will receive awards under the plan, the “type” of

award granted, and “when and how” they will be granted, the “number

of shares” in each award, and the “provisions of each Award.” 90

• “To accelerate, in whole or in part, the time at which an Award may be

exercised or vest.”91

• “[T]o amend the terms of any one or more Awards, including, but not

limited to, amendments to provide terms more favorable to the

Participant than previously provided in the Award Agreement, subject

to any specified limits in the Plan that are not subject to Board

discretion” and, among other restrictions, provided that the “rights

under any Award will not be impaired by any such amendment.”92

88
Current Report (Form 8-K) (Apr. 23, 2019), Ex. 10.1 (the “2019 Plan”).
89
Id.
90
2019 Plan, § 2(b)(i).
91
Id. § 2(b)(iv).
92
Id. § 2(b)(viii).
19
 • “[C]onstrue and interpret the Plan and Awards granted under it.”93

Additionally, “[a]ll determinations, interpretations and constructions

made by the Board in good faith will not be subject to review by any

person and will be final, binding and conclusive on all persons.”94

The 2019 Plan contained other restrictions on the Board’s authority. With

certain exceptions, not pertinent here, “the exercise or strike price of each Option or

SAR will be not less than 100% of the Fair Market Value of the Common Stock

subject to the Option or SAR on the date the Award is granted.” 95 Where, as here,

Common Stock refers to shares of common stock “listed on any established stock

exchange or traded on any established market,” “Fair Market Value” is:

unless otherwise determined by the Board, the closing sales price for such
stock as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the Common Stock) on the date of
determination, as reported in a source the Board deems reliable. 96

The Plan limited the number of shares of stock issuable under the 2019 Plan

(the “Share Reserve”) at 1.6 million shares of Vaxart common stock. 97

93
Id. § 2(b)(ii).
94
Id. § 2(e).
95
Id. § 5(b).
96
Id. § 13(x)(i).
97
Id. § 3(a)(i).
20
 The Plan empowered the Board “[t]o amend the Plan in any respect the Board

deems necessary or advisable, including, without limitation, by adopting

amendments relating to Incentive Stock Options,” but that authority was “subject to

the limitations, if any, of applicable law.” 98 The Plan also requires that, “[i]f required

by applicable law or listing requirements,”

the Company will seek stockholder approval of any amendment of the Plan
that (A) materially increases the number of shares of Common Stock available
for issuance under the Plan, (B) materially expands the class of individuals
eligible to receive Awards under the Plan, (C) materially increases the benefits
accruing to Participants under the Plan, (D) materially reduces the price at
which shares of Common Stock may be issued or purchased under the Plan,
(E) materially extends the term of the Plan, or (F) materially expands the types
of Awards available for issuance under the Plan. 99

F. Vaxart Board Approves Stock Option Grants and Seeks to Amend
the 2019 Plan.
On February 21, 2020, the Board approved an amendment to the Plan (the

“2019 Amendment”) that would increase the Share Reserve from 1.6 million to 8

million shares.100 On March 24, 2020, the Board approved a grant of time-based

98
Id. § 2(b)(vi).
99
Id.
100
Compl. ¶ 92. The Complaint calls the “increase [of] the shares reserved for issuance
under the Company’s equity incentive plan” the “2020 Plan.” Id. ¶ 14. The Complaint
alleges that “[t]he Vaxart Board approved the 2020 Plan on March 24, 2020. To effect it,
the stockholders would still have to vote to approve it.” Id. ¶ 92. The Proxy made clear
that stockholders were being asked to vote on an amendment to the 2019 Plan, not a new
plan. See Proxy at 3 (describing “Proposal No. 3” thus: “To approve an amendment to our
2019 Equity Incentive Plan to increase the number of shares of common stock reserved for
issuance thereunder by 6,400,000 shares to 8,000,000 shares.”).
21
stock options covering a total of 2,610,000 shares—including 900,000 shares to

Latour—at a per share exercise price of $1.70101—the closing price of Vaxart’s

shares on that day (the “March Awards”). 102 Of the granted stock options, 25%

vested on March 24, 2020, and the remaining shares would vest over two years every

month thereafter. 103

On April 13, 2020, the Board approved a grant of stock options covering

54,720 shares to Floroiu upon his joining the Board (the “April Awards”).104

Floroiu’s time-based stock options would vest in “three equal annual installments

over three years” at a per share exercise price equal to $1.71, 105 the closing price of

Vaxart’s shares on April 13, 2020.106

The March Awards and the April Awards exceeded the number of shares

available for issuance from the Plan’s 1.6 million Share Reserve. On April 24, 2020,

the Company issued the Proxy for the annual meeting of Vaxart stockholders to be

held on June 8, 2020 (the “Annual Meeting”). The Proxy included a proposal to

101
Compl. ¶ 94.
102
Proxy at 22.
103
Id.
104
Id. at 33.
105
Compl. ¶ 89.
106
Proxy at 33.
22
amend the certificate of incorporation to increase the number of authorizes shares to

$150 million.107 The Proxy also sought stockholder approval of

an amendment to our 2019 Equity Incentive Plan to increase the number of
shares of common stock reserved for issuance thereunder by 6,400,000 shares
to 8,000,000 shares. 108

Noting that the Share Reserve had been depleted to just 110,276 issuable shares,109

the Proxy warned: “If stockholders do not approve the Plan Amendment, our ability

to attract, motivate and retain key employees and directors necessary to compete in

our industry could be seriously harmed.” 110 The Proxy also stated that:

In determining the number of additional shares to reserve for issuance under
the 2019 Plan, our board of directors considered the number of shares
available for future awards, the potential dilution resulting from the proposed
increase, equity plan guidelines established by certain proxy advisory firms,
and advice provided by the Compensation Committee’s compensation
consultant.111

The Proxy also disclosed the terms of the March Awards of time-based stock

options the Board had approved on March 24, 2020, including the specific grants of

shares to Latour and two other executives.112 The Proxy also disclosed the terms of

107
Id. at 3.
108
Id.
109
Id. at 19.
110
Id. at 21.
111
Id. at 22.
112
Id. at 32.
23
the April Awards to Floroiu.113 The Proxy revealed that the March Awards and the

April Awards would be “exercisable” only if stockholders approved the 2019

Amendment.114 The Proxy also described the key features of the 2019 Plan,

including that no stock options or stock appreciation rights would be “discounted”:

All stock options and stock appreciation rights granted under the 2019 Plan
must have an exercise or strike price equal to or greater than the fair market
value of our common stock on the date the stock option or stock appreciation
right is granted. 115

After the Company disseminated the Proxy, but before the Annual Meeting,

the Board’s Compensation Committee—then consisting of Davis and Maher—

recommended annual stock option awards for consideration at a meeting of the

Board to be held immediately after the June 8, 2020 Annual Meeting of

stockholders.116 On May 28, 2020, the Compensation Committee recommended

that Davis, Finney, and Yedid each receive an annual stock option grant covering

65,700 shares that would fully vest one year later on June 8, 2020. 117 Boyd and

Maher were ineligible for stock grants under Armistice policy. 118 Floroiu was also

deemed ineligible for an annual grant of options because he had joined the Board

113
Id. at 33.
114
Id. at 22, 32, 33.
115
Id. at 22.
116
Vaxart Defs.’ Ex. 24; Compl. ¶ 149.
117
Vaxart Defs.’ Ex. 24.
118
Id.
24
within the last six months, and had already been granted options in the April

Award. 119 The Committee also approved “[a]ccelerated vesting and [a] two year

extension to exercise for [VanLent]” which “is consistent with what was provided

other departing directors in the past.” 120

G. Operation Warp Speed

On May 15, 2020 the White House announced Operation Warp Speed

(“OWS”)—a “public-private partnership to facilitate the development,

manufacturing, and distribution of COVID-19 countermeasures.”121 On June 3,

2020, Bloomberg reported that “[t]he White House is working with seven

pharmaceutical companies” as part of OWS. 122 “The June 3 Bloomberg article

revealed the names of five of the seven companies included in OWS. Vaxart was

not one of the five identified in the Bloomberg article.”123 Plaintiffs allege that,

nevertheless, the Board knew by no later than the publication of the Bloomberg story

that “Vaxart was among the companies chosen to participate in an OWS

119
Id.
120
Id.
121
Id. ¶¶ 46 & n.2.
122
Id. ¶ 46.
123
Id. ¶ 50.
25
program.”124 Vaxart’s vaccine, however, was never one of seven vaccine candidates

selected to receive federal government funding through OWS.125

H. The June 8, 2020 Meetings and Subsequent Events

Vaxart’s Annual Meeting of stockholders was scheduled for Monday, June 8,

2020, which was to be followed by a meeting of the Board. By Sunday, June 7,

Latour had collected all of the written consents of the Board members reflecting their

June 5, 2020 approval of the Warrant Amendments. 126 That day, Latour emailed

124
Id. ¶ 50, 122 (bolding and emphasis omitted).
125
See Simi V. Siddalingaiah, Congressional Research Service, Domestic Funding for
COVID-19 Vaccines: An Overview (Mar. 1, 2021),
https://crsreports.congress.gov/product/pdf/IN/IN11560/7 (“Vaccine candidates that
received federal government support for development include Moderna, Janssen
Pharmaceuticals, Sanofi/GSK, and Merck/IAVI . . . whereas the Pfizer/BioNTech, Janssen,
and Novavax candidates participated in OWS through federal purchase of doses only.”);
Kavya Sekar, Congressional Research Service, Domestic Funding for COVID-19
Vaccines: An Overview (Mar. 29, 2021),
https://crsreports.congress.gov/product/pdf/IN/IN11556 (noting that “[s]ome vaccine
R&D has been supported by NIH, BARDA, and DOD separately from the OWS efforts”).
I take judicial notice of these facts because they are “capable of accurate and ready
determination by resort to sources whose accuracy cannot reasonably be questioned.” In
re Gen. Motors, 897 A.2d at 169 (citing D.E.R. 201(b)(2)). Congressional Research
Service reports are reliable sources. Kareem v. Haspel, 986 F.3d 859, 867 (D.C. Cir. 2021).
See also “BARDA’s Expanding COVID-19 Medical Countermeasure Portfolio,” Medical
Countermeasures.gov, U.S. Department of Health & Human Services,
https://www.medicalcountermeasures.gov/app/barda/coronavirus/COVID19.aspx?filter=
vaccine (accessed Nov. 8, 2021) (describing seven vaccine candidates to have received
“awards,” none of which is Vaxart’s). I also take judicial notice of this fact. See Stewart
v. JP Morgan Chase Bank, N.A., 2020 WL 444248, at *3 (N.D. Ill. Jan. 28, 2020)
(affirmatively noting party’s argument that “courts can take judicial notice of official
federal websites without converting a motion to dismiss into a motion for summary
judgment”); see accord Stafford v. State, 2012 WL 691402, at *3 n.2 (Del. Mar. 1, 2012)
(taking judicial notice of website for Delaware Criminal Justice Information System).
126
Compl. ¶ 79.
26
Charles, the Company’s outside counsel, stating that he would “send them to

Armistice tomorrow morning, immediately after the board meeting.”127 After

counsel responded, Latour agreed to “send them out now” instead. 128 Latour sent

Armistice partially executed copies of the Warrant Amendments with the Board

signature pages to Armistice that afternoon. 129 Armistice returned “fully signed”

copies of the Warrant Amendments at 10:57am on June 8, 2021.130

Also on June 7, 2020, the directors received an agenda for the June 8 Board

Meeting.131 The agenda items included updates on “Status Covid program” and

“Status COVID funding.”132 Latour, Boyd, Davis, Finney, Floroiu, Maher, and

Yedid attended the meeting; Charles served as the meeting secretary. 133 Latour gave

the Board a “brief summary of the results” of the immediately preceding 2020

Annual Meeting, noting that “all proposals passed or were approved and adopted by

127
Id.
128
Id. The body of counsel’s response is redacted from the email.
129
Compl. 80; Armistice Defs.’ Ex. 20. The Complaint draws on the exhibit when it asserts
that Latour sent “these Warrant Amendments on a Sunday before the Board meeting.” This
is a misleading characterization. The exhibit makes clear that what Latour sent was a
partially executed copy of the Warrant Amendments with the Board signature pages, which
Armistice returned the following Monday.
130
Armistice Defs.’ Ex. 20.
131
Compl. ¶ 141.
132
Armistice Defs.’ Ex. 24.
133
Vaxart Defs.’ Ex. 26.
27
the stockholders.”134 Latour then provided an update on Vaxart’s COVID-19

vaccine development program, noting that:

the Company was invited to participate in a non-human primate study
organized by Operation Warp Speed and was negotiating the relevant
documentation. 135

The precise date that Vaxart was invited to participate in the study is unclear.

Also unclear, and a subject of sharp dispute in this case, is when Latour and the other

directors, including the Armistice Directors, became aware of it. The Plaintiffs insist

that “Vaxart’s management, the Board, and Armistice knew as of June 3, 2020, and

likely on May 28, 2020, that the Company had been chosen as an OWS

participant.”136 Plaintiffs cite no document reflecting such knowledge as of those

dates.

Latour’s June 8, 2020 discussion also provided a status update on the

development and manufacturing of the Company’s “oral COVID-19 vaccine

candidate.”137 Turning to the subject of “COVID-19 Funding,” Latour “summarized

the status of various funding initiatives and potential funding sources, including the

134
Id.
135
Id.
136
Compl. ¶ 66.
137
Id.
28
March 2020 submission to [REDACTED], the BARDA/NIH funding,

[REDACTED], and [REDACTED].”138

Representatives of Cantor Fitzgerald then joined the meeting and presented to

the Board “potential financing transactions,” including “at the market” offerings.139

The Board next turned to various administrative matters, including a revised insider

trading policy, which the Board adopted, effective immediately.140 The Board

received a presentation from the Compensation Committee on “annual director

compensation and stock option grants for the directors.”141 The Board agreed to the

acceleration of vesting in full of VanLent’s shares and to grant 65,700 stock options

to Davis, Finney, and Yedid. 142

The Board Meeting proved to be Latour’s last as CEO. On June 13, 2021, the

Board (including Latour) executed a written consent deeming it in the best interests

of the Company and its stockholders that Latour resign from his position as President

and CEO of Vaxart. 143 The written consent also provided that Latour would retain

his position on the board. The Board also approved a separation agreement with

138
Id.
139
Id.
140
Id.
141
Id.
142
Id.
143
Compl. ¶ 102; Vaxart Defs.’ Ex. 27.
29
Latour permitting his stock options to “vest for so long as he continues to serve on

the Board.” 144 The separation agreement also provided for a general release of

claims that Latour may have against the Company, its officers, directors, agents, and

others. 145

Latour formally resigned on June 14, 2021, and the Company announced his

resignation on June 15, 2021, the day it announced Floroiu as his successor. 146 “No

explanation was provided for Latour’s resignation.”147

Upon his appointment as CEO, Floroiu received both time-based and

performance-based options. The time-based options gave Floroiu the right to

purchase 1,745,280 shares of Vaxart’s common stock at a strike price of $2.46 per

share, the closing price of Vaxart shares on June 15, 2020. 148 A quarter of the stock

option grant would vest on June 15, 2021 with the remaining options vesting in equal

monthly installments over the following three-year period, subject to acceleration

under certain circumstances.149 The performance-based options gave Floroiu the

right to purchase up to 900,000 shares of Vaxart’s common stock at a strike price of

144
Compl. ¶ 102; Vaxart Defs.’ Ex. 27.
145
Vaxart Defs.’ Ex. 9 (§§ 2(b), 3, Ex. C).
146
Compl. ¶ 101; Vaxart, Inc., Current Report (Form 8-K) (June 15, 2021).
147
Compl. ¶ 105; see Vaxart Defs.’ Ex. 27.
148
Compl. ¶ 104; Vaxart Defs.’ Ex. 27.
149
Compl. ¶ 104; Vaxart Defs.’ Ex. 27.
30
$2.46 per share. 150 One-third of the grant would vest if Vaxart’s shares closed at a

per share price of $5, $7.50 and $10, respectively, for ten consecutive trading days

between June 15 and November 30, 2020.151

I. Further Positive Public Announcements

Just two weeks after the Annual Meeting, Vaxart made three public

announcements. On June 24, 2020, the Company announced that it would be

included in the Russell 3000.152 “On this news, Vaxart’s stock increased nearly 20%,

from a closing price of $2.66 on June 23, 2020 to a closing price of $3.19 on June

24, 2020.”153 “On June 25, 2020, Vaxart announced a manufacturing deal with

Attwill Medical Solutions Steriflow, LP for Vaxart’s oral COVID-19 vaccine.”154

The Company’s stock price closed at $6.26 per share that day, as compared to $2.66

per share on June 23, 2020 and $3.19 per share on June 24, 2020. 155

150
Compl. ¶ 105; Vaxart Defs.’ Ex. 27.
151
Compl. ¶ 105; Vaxart Defs.’ Ex. 27.
152
Press Release, Vaxart, Inc., Vaxart, Inc. Set to Join Russell 3000® Index (June 24,
2020), https://investors.vaxart.com/news-releases/news-release-details/vaxart-inc-set-
join-russell-3000r-index. I take judicial notice of Vaxart’s announcement as a “publicly
available press release.” In re Duke Energy Corp. Derivative Litig., 2016 WL 4543788, at
*4 n.34 (Del. Ch. Aug. 31, 2016). Plaintiffs misleadingly assert that, on June 24, 2020,
“news emerged that the Company would be included in the Russell 3000”—as if the news
came from outside Vaxart. Compl. ¶ 111.
153
Compl. ¶ 111.
154
Compl. ¶ 112; Vaxart, Inc., Current Report (Form 8-K) (June 30, 2021) (Ex. 99.1).
155
“VXRT US Equity: Historical Values,” accessed Nov. 8, 2021, Bloomberg Law.
31
 On Friday, June 26, 2020, Vaxart issued a news release titled “COVID-19

Vaccine Selected for the U.S. Government’s Operation Warp Speed.”156 Once the

reader got past the headline, she would not learn that Vaxart’s vaccine was among

the seven vaccine finalists referenced in the June 3, 2020 Bloomberg article or the

White House announcement of the project. Instead, the body of Vaxart’s news

release explained that its “oral COVID-19 vaccine has been selected to participate

in a non-human primate (NHP) challenge study, organized and funded by Operation

Warp Speed.” 157

“On this news, Vaxart’s stock price jumped to a high of $14.30 and closed

at $8.04 on June 26, 2020,” reflecting a 128% increase from the prior day’s close of

$6.26. 158 Thereafter, Vaxart’s share price eventually reached a closing price of

$16.97 on July 14, 2020.159 “Since public disclosure of the [OWS Study selection]

the stock price has not closed a trading day trading lower than $4.78 per share.” 160

On Friday, June 26, 2020, Armistice exercised the September 2019 Warrant,

acquiring 16,666,667 shares of Vaxart at an exercise price of $0.30 per share.161 It

156
Vaxart, Inc., Current Report (Form 8-K), June 30, 2021 (Ex. 99.2)
157
Id.
158
Compl. ¶ 35.
159
“VXRT US Equity: Historical Values,” accessed Nov. 8, 2021, Bloomberg Law.
160
Compl. ¶ 37.
161
Id. ¶ 114.
32
then immediately sold those shares on the open market that day. 162 Plaintiffs

calculate that Armistice made an immediate profit of “nearly 170 million.”163

Armistice also resumed liquidating its pre-existing position, selling an additional

1,560,000 additional shares that day. 164

On the next trading day, Monday, June 29, 2020, Armistice exercised the

April 2019 Warrant, acquiring 4,090,909 Company shares at an exercise price of

$1.10 per share.165 And again, it sold those shares on the open market. Plaintiffs

calculate Armistice made a profit of “nearly $30 million” on that trade.166 Armistice

continued selling off its pre-existing position, selling another 5,294,477 shares it had

previously held.167 As of June 29, 2020, Armistice owned a stake of 145,523 shares,

0.2% of the Company’s outstanding shares.168

On August 12, 2020, Latour exercised certain of his stock options to buy

166,667 shares of Vaxart at $0.30 per share. 169 Vaxart’s stock price closed at $9.20

that day, meaning Latour “enjoyed an instant (unrealized) paper profit of over $1.148

162
Id.
163
Id. ¶ 11.
164
Id.
165
Compl. ¶ 12.
166
Id.
167
Id.
168
Vaxart Inc., Schedule 13D (June 30, 2020).
169
Vaxart, Inc., Statement of Changes in Beneficial Ownership (Form 4) (Aug. 12, 2020).
33
million.”170 In addition, Floroiu’s 900,000 performance-based options became fully

vested after the Company’s stock closed above $10 per share for ten consecutive

trading days after July 15, 2020.171

J. Procedural History

On September 8, 2020, Plaintiff Galjour filed his complaint. On October 9,

2020, the Vaxart Defendants and the Armistice Defendants both moved to dismiss

that complaint in its entirety. 172 On October 20, 2020, Plaintiffs Jacquith and Paul

Bergeron filed their complaint. The court consolidated the actions on November 12,

2020. 173 On December 14, 2020, the court entered an order establishing a leadership

structure for the Plaintiffs and designated the Jacquith-Bergeron complaint as the

operative complaint.174 Defendants moved to dismiss the operative complaint. The

court heard argument, taking the matter under submission on August 24, 2021.175

On August 4, 2020, plaintiffs not involved in this case initiated separate

litigation against Floroiu, Latour, Davis, Finney, Yedid, Boyd, and Maher (the

“California Defendants”) in the California Superior Court in San Mateo County (the

170
Compl. ¶ 117.
171
Id. ¶108.
172
Dkt. 18. 19.
173
Dkt. 53.
174
Dkt. 72.
175
Dkt. 121, Dkt. 119.
34
“California Litigation”). 176 On November 25, 2020, the plaintiffs in the California

Litigation filed a Second Amended Complaint.177 On December 30, 2020, the

California Defendants filed a demurrer. 178 On March 15, 2021, the California

Superior Court granted the demurrer, without prejudice and with leave to replead.179

On June 17, 2021, the plaintiffs in the California action filed a Third Amended

Complaint.180 On August 18, 2021, the California Defendants filed a demurrer to

the Third Amended Complaint.181 Briefing is ongoing.182

II. ANALYSIS

The Complaint contains five counts. Count I is a derivative claim alleging the

Director Defendants breached their fiduciary duties by approving the Warrant

Amendments. Count II is a derivative unjust enrichment claim alleging the Director

Defendants breached their fiduciary duties by issuing spring-loaded options in

violation of the 2019 Plan. Count III is a direct claim alleging Floroiu, Latour, Davis,

Finney, Yedid, and VanLent breached their fiduciary duty by failing to disclose

Vaxart’s selection to participate in the OWS study prior to the stockholder vote on

176
Defs.’ Joint Suppl. Br. in Further Supp. of Their Mots. to Dismiss, Ex. 37.
177
Id.
178
Id.
179
Dkt. 116; Ennis v. Latour, 20-civ-03253 (Cal. Super. Ct. Mar. 15, 2021).
180
Ennis v. Latour, 20-civ-03253 (Cal. Super. Ct. Mar. 15, 2021).
181
Ennis v. Latour, 20-civ-03253 (Cal. Super. Ct. June 17, 2021).
182
Ennis v. Latour, 20-civ-03253 (Cal. Super. Ct. Aug. 18, 2021).
35
the 2019 Amendment. Count IV is a derivative unjust enrichment claim against

Armistice. Count V alleges Armistice breached its fiduciary duties as a controlling

shareholder or, in the alternative, aided and abetted the Director Defendants’

breaches of fiduciary duties.

A. Standard of Review

1. Motion to Dismiss for Failure to State a Claim

On a motion to dismiss for failure to state a claim under Court of Chancery

Rule 12(b)(6):

(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are well-pleaded if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and ([iv]) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof.

Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (cleaned up). At the

motion to dismiss stage of the litigation, “[p]laintiffs are entitled to all reasonable

factual inferences that logically flow from the particularized facts alleged, but

conclusory allegations are not considered as expressly pleaded facts or factual

inferences.” White v. Panic, 783 A.2d 543, 549 (Del. 2001). “[A] claim may be

dismissed if allegations in the complaint or in the exhibits incorporated into the

complaint effectively negate the claim as a matter of law.” Malpiede v. Townson,

780 A.2d 1075, 1083 (Del. 2001). The court also need not “accept every strained

interpretation of the allegations proposed by the plaintiff.” In re Gen. Motors
36
(Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting Malpiede, 780

A.2d at 1083).

2. Motion to Dismiss for Failure to Make a Demand

“Court of Chancery Rule 23.1 and Delaware law require that a stockholder

initiating a derivative action plead ‘with particularity’ either that demand was made

on the corporation to initiate suit on its own, or that such demand ‘would have been

futile.’” Friedman v. Khosrowshahi, 2014 WL 3519188, at *9 (Del. Ch. July 16,

2014), aff’d, 2015 WL 1001009 (Del. Mar. 6, 2015). Where, as here, the stockholder

plaintiffs forgo a demand on the board, they must plead particularized facts creating

a reasonable doubt concerning the board’s ability to consider the demand. Patel v.

Duncan, 2021 WL 4482157, at *17 (Del. Ch. Sept. 30, 2021); In re CBS Corp.

S’holder Class Action & Deriv. Litig., 2021 WL 268779, at *28 (Del. Ch. Jan. 27,

2021). “The purpose of the demand-futility analysis is to assess whether the board

should be deprived of its decision-making authority because there is reason to doubt

that the directors would be able to bring their impartial business judgment to bear on

a litigation demand.” United Food and Com. Workers Union v. Zuckerberg, 2021

WL 4344361, at *16 (Del. Sept. 23, 2021) (“Zuckerberg II”).

In Zuckerberg II, the Delaware Supreme Court recently adopted a “refined”

demand futility test that blends the analytical elements of Aronson v. Lewis, 473

A.2d 805 (Del. 1984), and Rales v. Blasband, 634 A.2d 927 (Del. 1993). Zuckerberg

37
II, 2021 WL 4344361, at *16–18. Under this test, when evaluating demand futility,

a court must ask three questions on a director-by-director basis:

(i) whether the director received a material personal benefit from the alleged
misconduct that is the subject of the litigation demand;

(ii) whether the director faces a substantial likelihood of liability on any of the
claims that would be the subject of the litigation demand; and

(iii) whether the director lacks independence from someone who received a
material personal benefit from the alleged misconduct that would be the
subject of the litigation demand or who would face a substantial likelihood of
liability on any of the claims that are the subject of the litigation demand.

Id. at *18. “If the answer to any of the questions is ‘yes’ for at least half of the

members of the demand board, then demand is excused as futile.” Id. This refined

demand utility standard “is consistent with Aronson, Rales, and their progeny” and

the “cases properly applying those holdings remain good law.” Zuckerberg II, 2021

WL 4344361, at *2.

Demand futility is “conducted on a claim-by-claim basis.” Cambridge Ret.

Sys. v. Bosnjak, 2014 WL 2930869, at *4 (Del. Ch. June 26, 2014). To successfully

plead demand futility, plaintiffs must therefore focus “upon each particular action,

or failure to act, challenged by a plaintiff.” In re INFOUSA, Inc. S’holders Litig.,

953 A.2d 963, 983 (Del. Ch. 2007); accord Khanna v. McMinn, 2006 WL 1388744,

at *14 (Del. Ch. May 9, 2006) (“This analysis is fact-intensive and proceeds director-

by-director and transaction-by-transaction.”).

38
 When the complaints were filed on September 8, 2020 and October 20, 2020,

respectively, the Board consisted of Defendants Floroiu, Latour, Boyd, Davis,

Finney, Maher, Yedid, and non-defendant Karen J. Wilson—who had joined the

Board on August 25, 2020 (such individuals together, the “Demand Board”).183

B. Warrant Amendments Claims

Count I alleges a derivative claim that the Director Defendants breached their

fiduciary duties by approving the Warrant Amendments.184 Count I also alleges a

derivative claim that the “Armistice Directors breached their fiduciary duties by

trading on material, nonpublic information.” 185 Count IV alleges that Armistice was

unjustly enriched as a result of the Director Defendants approving the Warrant

Amendments. Count V alleges Armistice breached its fiduciary duties as a

controlling stockholder in obtaining the Warrant Amendments. In the alternative,

Plaintiffs allege Armistice aided and abetted the Director Defendants’ breaches of

their fiduciary duties in approving the Warrant Amendments.

183
Compl. ¶ 129; Galjour Compl. ¶ 69.
184
Compl. ¶ 168.
185
Id. ¶ 169.
39
 1. Armistice Was Not a Controlling Stockholder at the Time of
the Transaction.

Plaintiffs allege that Armistice was a controlling stockholder, owing fiduciary

duties to Vaxart and its stockholders. The allegations of control permeate the

Complaint and underly allegations that the Demand Board is incapable of

considering a demand to assert the claims asserted in this action.

Under Delaware law, a controller owing fiduciary duties arises in two

circumstances: (1) the alleged controller “owns more than 50% of the voting power

of a corporation” or (2) “owns less than 50% of the voting power of the corporation

but exercises control over the business affairs of the corporation.” In re GGP, Inc.

S’holder Litig., 2021 WL 2102326, at *12 (Del. Ch. May 25, 2021).

Plaintiffs do not allege that Armistice owned more than 50% of Vaxart’s

voting power at the time of any of the challenged transactions. Instead, Plaintiffs

cobble together allegations of acts that pre-dated the challenged transactions, either

before or during the time that Armistice was selling down its equity position. The

question of control is measured at the time of the challenged transaction. See id. at

*3 (holding that “I cannot reasonably infer from the Complaint that Brookfield was

GGP’s controlling stockholder at the time of the Transaction”); see also Carr v. New

Enter. Assocs., Inc., 2018 WL 1472336, at *9 (Del. Ch. Mar. 26, 2018) (holding that

the “Complaint is devoid of any well-pled facts supporting the assertion that there

was a controlling stockholder at the time of that transaction”).
40
 When the assertion of control is not based upon ownership of more than 50%

of the voting power of the Company, a plaintiff must plead facts to support a

reasonable inference that the alleged controller possessed “(i) control over the

corporation’s business and affairs in general or (ii) control over the corporation

specifically for purposes of the challenged transaction.” Voigt v. Metcalf, 2020 WL

614999, at *11 (Del. Ch. Feb. 10, 2020). “To plead that the requisite degree of

control exists generally, a plaintiff may allege facts supporting a reasonable

inference that a defendant or group of defendants exercised sufficient influence that

they, as a practical matter, are no differently situated than if they had majority voting

control.” Id. (quoting In re PNB Hldg. Co. S’holders Litig., 2006 WL 2403999, at

*9 (Del. Ch. Aug. 18, 2006). “One means of doing so is to plead that the defendant,

as a practical matter, possesses a combination of stock voting power and managerial

authority that enables him to control the corporation, if he so wishes.” Id. (quoting

In re Cysive, Inc. S’holders Litig., 836 A.2d 531, 553 (Del. Ch. 2003)). “To plead

that the requisite degree of control existed for purposes of a particular transaction or

decision . . . the plaintiff must plead facts supporting a reasonable inference that the

defendant in fact exercised actual control” over the board in connection with that

transaction.” Id. at *12. (emphasis added). Because the controller analysis is fact-

intensive, the court is unlikely to find control unless plaintiffs can plead a

“constellation of facts” supporting control. Id. at *22.

41
 In support for their position that Armistice was a controller, Plaintiffs point

to: (1) the fund’s equity position prior to selling off its equity stake in the Company;

(2) the Board’s appointment of certain directors in October 2019 when Armistice

owned more than 50% of the outstanding stock; (3) Armistice’s relationships with

certain directors and officers; (4) the Warrants; and (5) the Company’s March 2020

disclosure that Armistice could exert significant control through its ownership

position. These factors are among the relevant considerations of determining

control. See Voigt, 2020 WL 614999, at *12 (describing and discussing the relevant

sources of potential control). Yet the facts alleged in the Complaint, considered

collectively, fail to support the inference that Armistice had general or specific

control at the time of the challenged transactions.

As a threshold matter, the only transaction in which it is alleged that Armistice

received an improper benefit is the Warrant Amendments. There are no allegations

that Armistice derived a direct benefit from the March Grants or the April Grants.

By March 19, 2020, Armistice no longer owned a majority of the shares of the

Company’s outstanding stock.186 By April 9, 2020, Armistice owned 34.5% of the

186
Vaxart Inc., Form 10-K (March 19, 2020) at 43.
42
shares of the Company’s outstanding stock. 187 Plaintiffs allege that between April

28, 2020 and June 3, 2020, Armistice sold “approximately 18.2 million shares.” 188

Thus, by the time the Board approved the Warrant Amendments on June 5, 2020,

Armistice’s ownership was less than 10% of the Company’s outstanding common

stock. 189 As to shares underlying the Amended Warrants, Armistice could not

exercise the Warrants if doing so would cause it to own more than 19.99% of

common stock in the Company. Moreover, even if Armistice could exercise all 20.8

million shares, it would not own more than 50% of the Company’s voting power.190

To bridge the gap between Armistice’s steadily declining voting power and

Plaintiffs’ assertion of control, Plaintiffs point to a March 2020 disclosure by Vaxart

that, as of March 2020, the fund could “exert significant control through this

187
Proxy at 37.
188
Compl. ¶ 44.
189
As of April 9, 2020, Armistice owned 25,200,000 out of 72,054,720 shares outstanding.
Proxy at 37. After pausing its sell-off of on June 3, 2020, Armistice owned 7 million
shares. Vaxart, Inc., Statement of Changes in Beneficial Ownership (Form 4) (June 3,
2020) (Armistice Capital, LLC filing). Assuming the Company did not issue any other
shares between April 9 and June 3, 2020, Armistice’s stock ownership constituted 9.7% of
total outstanding. In fact, by June 5, 2020, Vaxart’s total outstanding stock had increased
to 74,184,322 shares. See Vaxart, Inc., Schedule 13D (June 9, 2020) (disclosing Vaxart’s
total beneficial ownership with 19.99% conversion cap on June 5, 2020 to be 16,785,583
shares out of 83,969,905 total outstanding). With the conversion cap, Vaxart was permitted
to purchase only another 9,785,583 shares under the Warrants. Based on these figures,
Vaxart’s actual ownership on June 5, 2020 was approximately 9.4%.
190
Full exercise of the Warrants would increase the shares outstanding to approximately
94,941,898, with Armistice owning 27.8 million, or 29% of the outstanding shares.
43
ownership position.” 191 A company’s own disclosures recognizing control may be

relevant in the control analysis. For example, in Voigt, the company disclosed in an

SEC filing that that a 34.8% stockholder “will have the ability, subject to the

fiduciary duties of the individual directors, to control the decisions of the Board.”

2020 WL 614999, at *15. The court concluded that, for pleadings-stage purposes,

“the plaintiff is entitled to the benefit of the inference that the disclosure meant what

it said by describing [the stockholder] as exercising control at the Board level

through the five directors it had appointed, including [two nominally independent

directors].” Id.

Vaxart’s disclosure in its March 2020 Form 10-K is not entitled to the same

weight as the disclosure in Voigt, even for pleadings-stage purposes. First, Vaxart’s

disclosure about control was directly tied to Armistice’s March 17, 2020 “ownership

position” of more than 35%. Compl. ¶ 40. At the time of the Warrant Amendments,

however, Armistice did not hold anything close to 35%. Second, unlike in Voigt,

Vaxart did not state that Armistice could “control the decisions of the Board.” Voigt,

2020 WL 614999, at *15. Thus, Vaxart’s March 2020 disclosure is entitled to little

weight in the overall analysis.

191
Pls. Ans. Br. at 49.
44
 The presence of Armistice designees Boyd and Maher on the Board does not

establish control. Boyd and Maher constituted two of the eight directors on the

Board at the time of the challenged transactions and as of the filing of the operative

Complaint. Neither of them is an officer of Vaxart and neither of them is alleged to

have taken action to exert control over Vaxart’s affairs or any of the challenged

transactions.

Plaintiffs then try to stitch together relationships between Armistice, its

designees, and other members of the Board to pin control on Armistice. For

example, Plaintiffs allege that Yedid and Davis joined the Board in October 2019 at

the same time as Boyd and Maher.192 There are no other allegations suggesting

Armistice controlled Davis or that he could not act independently of Armistice. As

to Yedid, Plaintiffs add allegations that he had communicated with Latour about the

benefit of removing or adjusting the Blockers on the Warrants in the context of

Vaxart’s gaining a listing on the Russell 2000 or 3000 index. 193 Plaintiffs claim this

was “pretextual” because the Company had other alternatives, such as an equity

capital raise or stock split.194 Plaintiffs’ second-guessing, and speculation of pretext,

192
Compl. ¶ 4.
193
Id. ¶¶ 67-71.
194
Id. ¶ 70.
45
absent any well-pleaded allegations of Armistice’s control over Yedid, do not

support an inference of Armistice as a controller.

Plaintiffs next allege that Floroiu previously worked at Armistice as a Senior

Analyst at some unknown time before joining Armistice, and before that, he had

previously worked with Boyd at McKinsey. 195 Well-pleaded allegations of prior

relationships and influence over a director may be a factor to support control. Voigt,

2020 WL 614999, at *20 (“[a]n obvious source of influence that can lead to an

inference of actual control is existence of relationships between the alleged

controller and members of a company’s board of directors.”). But the allegations of

Floroiu’s connections to Armistice and Boyd do not support a pleadings-stage

inference of a lack of independence, let alone susceptibility to domination. Plaintiffs

offer no allegations of (1) when Floroiu was employed at Armistice; (2) the duration

of his employment at Armistice; (3) Floroiu’s compensation from Armistice; or (4)

any indicia of Floroiu’s personal relationships or other evidence of allegiance to

Armistice.

Plaintiffs’ bare allegations of Floroiu’s prior employment at Armistice do not

support an inference that Armistice dominated him or that Floroiu would be unable

to exercise his fiduciary duties out of fear for retribution. See Orman v. Cullman,

195
Id. ¶ 152.
46
794 A.2d 5, 27 (Del. Ch. 2002) (“The naked assertion of a previous business

relationship is not enough to overcome the presumption of a director’s

independence.”); accord Friedman, 2014 WL 3519188, at *11. Nor is there any

allegation of the type of long-standing relationship or past conferral of benefits

giving rise to “a sense of ‘owingness,’” Orman, 794 A.2d at 27, that would call into

question Floroiu’s independence and render him susceptible to a controller’s

influence. See In re Tesla Motors, Inc. S’holder Litig., 2018 WL 1560293, at *17

(Del. Ch. Mar. 28, 2018) (noting that a director is “less likely to offer principled

resistance when the matter under consideration will benefit him or a controller to

whom he is beholden”); see also In re Freeport–McMoran Sulphur, Inc. S’holder

Litig., 2005 WL 1653923, at *12 (Del. Ch. June 30, 2005) (noting the “extensive

ties” needed to call into question a director’s independence from a controlling

entity). The bare allegation that Floroiu worked at McKinsey with Boyd, many years

ago—the Complaint lacks any mention of duration—is similarly weak.

Plaintiffs do not even attempt to explain how Floroiu’s appointment as

Vaxart’s CEO bears the imprint of Armistice’s influence other than asserting that

Floroiu was “Armistice’s former senior analyst.” 196 For reasons discussed above,

this bare assertion fails to sustain an inference of indebtedness, let alone control.

196
Pls.’s Ans. Br. at 50.
47
 That leaves Plaintiffs with the allegation that Armistice was a controller

because it obtained a Warrant Amendment on favorable terms. That allegation is

inherently circular, but even if that assertion were true, “[m]ore is needed.” GGP,

Inc., 2021 WL 2102326, at *12. There are no well-pleaded allegations that

Armistice had the ability to or exercised control over the Board at the time of, or

with respect to, any of the challenged transactions. Accordingly, Plaintiffs have not

created a pleadings-stage inference that Armistice owed fiduciary duties to Vaxart

as a controller.

2. Demand Is Not Excused as to Claims Concerning the
Warrant Amendments.
Even if Armistice were a controller, that would not, by itself, excuse demand.

Beam v. Stewart, 845 A.2d 1040, 1054 (Del. 2004) (“A stockholder’s control of a

corporation does not excuse presuit demand on the board without particularized

allegations of relationships between the directors and the controlling stockholder

demonstrating that the directors are beholden to the stockholder.”); Teamsters Union

25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 67 (Del. Ch. 2015) (noting that

“neither the presence of a controlling stockholder nor allegations of self-dealing by

a controlling stockholder changes the director-based focus of the demand futility

inquiry”).

Applying Zuckerberg II’s refined demand futility test (the “Refined Test”) to

the facts here, I conclude that Plaintiffs have failed to establish that at least half the
48
members of the Demand Board was incapable of fairly and impartially considering

a litigation demand as to the Warrant Amendments. Plaintiffs concede that Wilson,

who joined the Demand Board after the alleged wrongdoing, would be impartial as

to any demand with respect to the claims in the Complaint.197 On the other hand,

Defendants concede that Boyd and Maher are not independent and disinterested as

to the Warrant Amendments.198 Plaintiffs must therefore allege particularized facts

to support a reason to doubt that two of the remaining five members of the Demand

Board are capable of considering a demand.

a. Were Latour and Floroiu Dependent on the Armistice
Directors?

Plaintiffs argue that Latour and Floroiu lacked independence from Boyd and

Maher because the Armistice Directors “conferred valuable benefits” upon them,

causing them to suffer from excessive “owingness.”199 As to Latour, Plaintiffs argue

the Armistice Directors (1) supported his stock option March 2020 stock grant in

exchange for Latour’s support of the Warrants Amendments and (2) “allowed Latour

to remain on the Board” after his resignation as CEO and approved his separation

package.”200 As to Floroiu, Plaintiffs allege Floroiu was indebted to the Armistice

197
Pls.’ Ans. Br. at 30 n.10.
198
Vaxart Defs.’ Opening Br. at 25.
199
Pls.’ Ans. Br. at 29.
200
Id. at 29–30.
49
Directors because the Armistice Directors appointed him to his CEO position and

approved his “enormously lucrative stock options.”201

These allegations fail to cast doubt on Latour or Floroiu’s independence.

Without more, pleading that a board of directors elevated an executive to her current

role or approved her compensation is insufficient to establish that the recipient is

‘beholden’ to any director who approved that decision. See In re Nine Sys.

Corporation S’holders Litig., 2014 WL 4383127, at *31 (Del. Ch. Sept. 4, 2014),

aff’d, 129 A.3d 882 (Del. 2015) (“[T]he Board’s appointing Snyder as CEO and

electing him as a director, without further evidence, is insufficient to demonstrate

that Snyder lacked independence . . . .”); Aronson, 473 A.2d at 816 (“It is not enough

to charge that a director was nominated by or elected at the behest of those

controlling the outcome of a corporate election. That is the usual way a person

becomes a corporate director.”); In re INFOUSA, 953 A.2d at 983 (“Mere recitations

of elephantine compensation packages and executive perquisites, however

amusingly described, will rarely be enough to excuse a derivative plaintiff from the

obligation to make demand upon a defendant board of directors.”). Moreover, the

written consent executed by the Board contradicts Plaintiffs’ assertion that Latour

201
Id. at 26.
50
was “allowed” to stay on the Board.202 The written consent states that the Board

“requested that Dr. Latour not tender his resignation.”203

The Plaintiffs’ other allegations against Latour likewise fail to establish their

claims. First, the arguments challenging Latour’s ability to consider demand are not

supported by the allegations of the Complaint. A plaintiff “cannot supplement the

complaint through its brief.” MCG Capital Corp. v. Maginn, 2010 WL 1782271, at

*5 (Del. Ch. May 5, 2010); see also Orman, 794 A.2d 5 at 28 n.59 (“Briefs relating

to a motion to dismiss are not part of the record and any attempt contained within

such documents to plead new facts or expand those contained in the complaint will

not be considered.”). Second, the quid pro quo claim against Latour is conclusory

and temporally untethered. The Board awarded Latour the stock options months

before Boyd called Latour to propose the Amendments. And when Boyd reached

out, Latour immediately turned to outside counsel for advice—undermining

Plaintiffs’ theory that Latour worked “hand-in-glove” with the Armistice

Directors. 204

As explained above, the Complaint’s meager references to Floroiu’s

employment history do not undermine his presumed independence. The barebones

202
Pls.’ Ans. Br. at 29.
203
Vaxart Defs.’ Ex. 27 (emphasis added).
204
Pls.’ Ans. Br. at 29.
51
allegations that Floroiu once worked at Armistice and with Boyd at McKinsey do

not come close to satisfying Plaintiffs’ burden of pleading facts that credibly call

into question a director’s independence. See, e.g., Baiera, 119 A.3d at 59–60

(holding that an Orbitz director’s sixteen-year employment relationship with

Travelport, Orbitiz’s controller, was insufficient to call into question his

independence from Travelport because three years had lapsed since the employment

relationship had ended).

That leaves Plaintiffs with the claim that Floroiu was dependent on the

Armistice Directors for his compensation. This, too, is makeweight. Excluding

Floroiu, Boyd and Maher were just two of the seven directors on the Board. They

lacked “unilateral power . . . to decide whether the challenged director continues to

receive a benefit.” Orman, 794 A.2d at 25 n.50 (emphasis added).

b. Did Floroiu, Latour, Davis, Finney, and Yedid Receive
a Material Benefit from the Warrant Amendments?
Plaintiffs argue that Floriu, Latour, Davis, Finney, and Yedid (the “Stock

Option Recipients”) were interested in the Warrant Amendments because they

shared a common goal with the Armistice Directors: to keep the “OWS study secret

until after the public stockholders approved the 2020 Plan so that they could grant

themselves and, in the case of Latour, keep stock options at an artificially low

52
exercise price.” 205 Plaintiffs cite to In re Investors Bancorp, Inc. S’holder Litig., 177

A.3d 1208, 1226 (Del. 2017), for the proposition that beneficiaries of two separate

transactions premised on or enabled by the same alleged misconduct have a disabling

interest in the litigation concerning related transactions. In that case, the Delaware

Supreme Court held that demand was excused with respect to allegations made

against allegedly excessive equity awards, even though each stock option grant was

a different “transaction.” As this court put it in Calma on Behalf of Citrix Sys., Inc.

v. Templeton, 114 A.3d 563, 576 (Del. Ch. 2015),

in a derivative challenge to director compensation, there is a reasonable doubt
that the directors who received the compensation at issue—regardless of
whether that compensation was material to them on a personal level—can be
sufficiently disinterested to consider impartially a demand to pursue litigation
challenging the amount or form of their own compensation . . . [T]his
conclusion has even more force where, as here, the directors received equity
compensation from the corporation because those individuals “have a strong
financial incentive to maintain the status quo by not authorizing any corrective
action that would devalue their current holdings or cause them to disgorge
improperly obtained profits.”

114 A.3d at 576 (quoting Conrad v. Blank, 940 A.2d 28, 38 (Del. Ch. 2007).

But the court’s reasoning in these cases cannot serve to fuse the claims against

the Armistice Directors and the Stock Option Recipients. Even if one assumes,

arguendo, that the stock option awards granted to different recipients over four

months can be treated as a single transaction, the stock option grants and the Warrant

205
Id. at 24.
53
Amendments involved two wholly distinct transactions. The claims challenging

these transactions invoke two different legal theories. The claim against the Stock

Option Recipients turns on whether the board issued spring-loaded stock options

while withholding information from stockholders. The claim against the Defendant

Directors for approving the Warrant Amendments turns on whether the Board

‘gifted’ these amendments for inadequate consideration. Whether the Board sat on

inside information which it used to issue spring-loaded options is not pertinent to the

Warrant Amendment claims.

Plaintiffs have also failed to plead sufficient “intermediate facts to link the

approval of any of these [otherwise unrelated] transactions.” Cal. Pub. Emps.’ Ret.

Sys. v. Coulter, 2002 WL 31888343, at *8 (Del. Ch. Dec. 18, 2002). Plaintiffs fail

to plead, for example, that the Armistice Directors had the ability to block the stock

option awards or cause the stockholders to vote down the 2019 Amendment if the

Stock Option Recipients did not approve the Warrant Amendments. 206 The

Complaint thus fails to sustain the reasonable inference the Stock Option Recipients

received a material benefit from the Warrant Amendments or stood to lose a related

material benefit by challenging the decision to approve the Warrant Amendments.

206
Plaintiffs also fail to plead that the stock options were a material benefit to each of the
Stock Option Recipients.
54
 c. The Board Did Not Face a Substantial Risk of
Liability.

The Plaintiffs advance two theories that can be construed under Zuckerberg

II as bids to satisfy the second prong of the Refined Test. Plaintiffs argue, first, that

demand is excused because (1) the Warrant Amendments are properly subject to

entire fairness review “due to directorial interestedness and nonindependence and

the presence of a conflicted, controlling stockholder”207 and (2) the “Complaint

pleads unfair dealing and unfair price for both Warrant Amendments.”208 Plaintiffs

also argue that demand is excused because the Board approved the Warrant

Amendments in bad faith.

Where, as here, the certificate of incorporation includes an exculpatory

provision pursuant to 8 Del. C. § 102(b)(7), “a substantial likelihood of liability may

only be found to exist if the plaintiff pleads a non-exculpated claim against the

directors based on particularized facts.” Baiera, 119 A.3d at 62. That is because the

“mere fact that a plaintiff is able to plead facts supporting the application of the entire

fairness standard to the transaction, and can thus state a duty of loyalty claim against

the interested fiduciaries, does not relieve the plaintiff of the responsibility to plead

a non-exculpated claim against each director who moves for dismissal.” In re

207
Pls.’ Ans. Br. at 36.
208
Id. at 39.
55
Cornerstone Therapeutics Inc, S’holder Litig., 115 A.3d 1173, 1180 (Del. 2015). To

establish individual liability, Plaintiffs must therefore plead particularized facts that

the directors who approved the challenged transaction “harbored self-interest

adverse to the stockholders’ interests, acted to advance the self-interest of an

interested party from whom they could not be presumed to act independently, or

acted in bad faith.” Id. at 1179–80. The specter of directorial liability risk only

arises, however, if the plaintiff can plead sufficient facts to overcome the business

judgement rule or trigger a heightened standard of review. Plaintiffs here have failed

to cross that initial pleading threshold.

i. Entire Fairness Not Triggered
a. There Was No Controller.

For reasons discussed above, Armistice was not a controlling stockholder at

the time the Board approved the Warrant Amendments.

b. There Was No Majority Conflicted Board.

“Delaware decisions have applied the entire fairness framework to

compensation arrangements, consulting agreements, services agreements, and

similar transactions between a controller or its affiliate and the controlled entity.” In

re Ezcorp Inc. Consulting Agreement Deriv. Litig., 2016 WL 301245, at *15 (Del.

Ch. Jan. 25, 2016). To trigger entire fairness review, plaintiffs must plead sufficient

facts to support the inference that “the directors making the decision did not

56
comprise a disinterested and independent board majority.” In re Trados Inc.

S’holder Litig., 73 A.3d 17, 36 (Del. Ch. 2013). “To determine whether the directors

approving the transaction comprised a disinterested and independent board majority,

the court conducts a director-by-director analysis.” Id. at 44–45.

As already discussed above, the Defendants have conceded that the Armistice

Directors had a disabling interest in the transaction. But the pleaded facts fail to

support the allegation that Latour or Floroiu lacked independence from the Armistice

Directors as to the Warrant Amendments. The Complaint also fails to sustain the

proposition that Floriu, Latour, Davis, Finney, and Yedid had an interest in the

Warrant Amendments by virtue of being granted their stock options.

c. The Board Did Not Act in Bad Faith.

This court’s default standard of review is the business judgement rule—the

presumption that the directors “acted on an informed basis, in good faith and in the

honest belief that the action taken was in the best interests of the company.”

Quadrant Structured Prod. Co. v. Vertin, 102 A.3d 155, 183 (Del. Ch. 2014).

“Unless one of its elements is rebutted, the court merely looks to see whether the

business decision made was rational in the sense of being one logical approach to

advancing the corporation’s objectives.” In re Trados, 73 A.3d at 43 (quoting In re

Dollar Thrifty S’holder Litig., 14 A.3d 573, 598 (Del. Ch. 2010)). “Only when a

57
decision lacks any rationally conceivable basis will a court infer bad faith and a

breach of duty.” Id.

The business judgement rule may be rebutted by pleading sufficient facts that

(1) “the directors making the decision did not comprise a disinterested and

independent board majority,” In re Trados, 73 A.3d 17 at 36; (2) a controlling

stockholder stood “on both sides of the deal,” Larkin v. Shah, 2016 WL 4485447, at

*8 (Del. Ch. Aug. 25, 2016), or “receive[d] a benefit not shared with the minority,”

In re Primedia, Inc. S’holders Litig., 67 A.3d 455, 486 (Del. Ch. 2013); or (3) “the

decision under attack is so far beyond the bounds of reasonable judgment that it

seems essentially inexplicable on any ground other than bad faith.” Alidina v.

Internet.com Corp., 2002 WL 31584292, at *4 (Del. Ch. Nov. 6, 2002).

Plaintiffs argue that the Board acted in bad faith by “[g]ifting these

amendments” to Armistice so that the latter “could profit from its inside information

about Vaxart OWS study selection.”209 Even assuming that the Complaint alleges

facts to support a reasonable inference that the Board knew about the OWS Study

selection when it approved the Warrant Amendments on June 5, 2020, Plaintiffs fail

to explain how the approval of the Warrant Amendments constituted bad faith.

Armistice had a pre-existing right to purchase 4,090,909 shares at an exercise price

209
Pls.’s Ans. Br. at 33.
58
of $1.10 per share under the April 2019 Warrant and 16,666,667 shares at an exercise

price of $0.30 per share under the September 2019 Warrants. Removing or adjusting

the Blockers did not change that.

Plaintiffs’ bad faith claim boils down to the allegation that the Board “gift[ed]

the Warrant Amendments without asking for or receiving any consideration.”210

Although they have not labeled it as such, Plaintiffs essentially argue that the

Warrant Amendments amounted to corporate waste. To prevail here, Plaintiffs must

plead facts supporting the inference that “the board’s decision was so egregious or

irrational that it could not have been based on a valid assessment of the corporation’s

best interests.” White v. Panic, 783 A.2d 543, 554 n.36 (Del. 2001). First, even if

Vaxart received no monetary consideration for the Amendments, the Warrants

themselves were hardly a gift; their exercise “increase[d] the Company’s cash on

hand by $5 million.”211 It would not be unreasonable for the Directors to believe that

raising the conversion caps would increase the chances of their exercise, however

slightly. Plaintiffs’ argument that the Company could raise capital in better ways

“involves the sort of second-guessing that the business judgment rule precludes,” In

re MFW S’holders Litig., 67 A.3d 496, 518 (Del. Ch. 2013), aff’d, 88 A.3d 635 (Del.

2014), and does not demonstrate waste.

210
Id.
211
Compl. ¶ 86.
59
 Defendants offer as a separate rationale the fact that Armistice’s exercise of

the Warrants and subsequent sale of Vaxart shares would make the shares

“potentially available for purchase by institutional investors, which could help

facilitate Vaxart’s inclusion on the Russell 2000 or 3000 index.” 212 Effectively

conceding this rationale suffices, Plaintiffs respond that this decision “was a pretext”

for the Board’s decision to enable Armistice to trade on material, non-public

information. As discussed above, that argument has no legs. 213 The Complaint

shows that the Board did consider the “pro and cons” of the Amendments and

apparently determined that the pros outweighed the cons. 214 Plaintiffs argue that,

because no record of the Company’s deliberations exist, Plaintiffs are entitled to “an

adverse inference of the Board’s motivations.” 215 But Plaintiffs are only entitled

only to reasonable inferences. And the Complaint fails to support the reasonable

inference that the Board directors were motivated “to enrich” Boyd and Maher. 216

For these reasons, a majority of the Demand Board did not either receive (i) a

material benefit from the Warrant Amendments; (ii) face a substantial risk of

personal liability for the claims related to the Warrant Amendments; or (iii) lack

212
Armistice Defs.’ Opening Br. at 11.
213
Pls.’ Ans. Br. at 33.
214
Compl. ¶ 73; Armistice Defs.’ Ex. 16.
215
Pls.’ Ans. Br. at 11.
216
Id. at 1.
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independence from someone satisfying either (i) or (ii). The claim alleging breach

of fiduciary duties for approval of the Warrant Amendments is dismissed because

demand is not excused.

3. Plaintiffs’ Fiduciary Duty Claim for Insider Trading

Plaintiffs next allege that “the Armistice Directors breached their fiduciary

duties by trading on material, nonpublic information”—their alleged knowledge of

the OWS study selection. 217 To successfully plead that a corporate fiduciary

breached his fiduciary duties by engaging in insider trading—a so-called Brophy

claim218—a plaintiff “must show that: 1) the corporate fiduciary possessed material,

nonpublic company information; and 2) the corporate fiduciary used that

information improperly by making trades because she was motivated, in whole or in

part, by the substance of that information.” Kahn v. Kolberg Kravis Roberts & Co.,

L.P., 23 A.3d 831, 838 (Del. 2011). The doctrine’s focus is “preventing unjust

enrichment based on the misuse of confidential corporate information.” Id. at 840.

217
Compl. ¶ 169.
218
That test is so named after Brophy v. Cities Service Co., 70 A.2d 5 (Del.Ch. 1949).
Brophy was “distilled to its essence” in In re Oracle Corp., 867 A.2d 904, 906 (Del. Ch.
2004), aff’d 872 A.2d 960 (Del. 2005).
61
 Plaintiffs lodge the Brophy claim against two members of the Demand

Board—Boyd and Maher.219 Plaintiffs assert their Brophy claim as a derivative

claim, alleging that “Vaxart has suffered harm” from Boyd and Maher’s profiting

“off of material, non-public information.”220 This court treats as derivative Brophy

claims alleging that a fiduciary possessing material, nonpublic information breached

her fiduciary duties by trading on that information. See In re TrueCar, Inc. S’holder

Derivative Litig., 2020 WL 5816761, at *7, *26 (Del. Ch. Sept. 30, 2020)

(dismissing Brophy claim for failure to plead demand futility); In re GoPro, Inc.,

2020 WL 2036602, at *9, 11, 15 (Del. Ch. Apr. 28, 2020) (dismissing Brophy claim

against corporate officers who sold shares while allegedly withholding information

from the market that later caused stock price to sink); see also Diep on behalf of El

Pollo Loco Hldgs., Inc. v. Sather, 2021 WL 3236322, at *24 (Del. Ch. July 30, 2021)

(granting special litigation committee’s motion to dismiss Brophy claim that block

trade was improper). That means the Plaintiffs must explain why two other members

of the Demand Board would not be able to consider the litigation demand fairly and

impartiality. Plaintiffs’ theory for why demand is excused under Rule 23.1 seems

to be that none of the Director Defendants who approved the Warrant Amendments

219
There is no allegation that either Boyd or Maher personally made any trades involving
Vaxart stock while in possession of material non-public information. Because I dismiss
this claim for failure to plead demand futility, I need not reach the merits of the claim.
220
Compl. ¶ 169–70.
62
would be able to fairly and impartially consider the Brophy claims because they were

“interested in approving the Warrant Amendments and knowingly facilitated

Armistice’s insider trading.” 221 For the same reasons discussed above, the

Complaint fails to plead sufficient facts to support the reasonable inference that any

of the other Director Defendants approved the Warrant Amendments to receive a

material benefit from Armistice’s alleged insider trading; lacked independence from

Armistice, Boyd, or Maher; or faced a substantial risk of personal liability from

approving the Warrant Amendments. Most pertinent here, the Complaint fails to

plead sufficient facts to sustain the inference that the Defendant Directors were

motivated to “to enrich” Boyd and Maher in any way and thus invited a substantial

risk of liability for conferring a benefit on the Armistice directors out of disloyalty

or otherwise in bad faith.222 The claims against the Armistice Directors are

accordingly dismissed because demand was not excused.

4. Unjust Enrichment Claim Against Armistice

Count IV is an unjust enrichment claim against Armistice premised on the

breach of fiduciary duty claims against the Board for approving the Warrant

Amendments. Plaintiffs allege that “[t]he Warrant Amendments allowed Armistice

to realize nearly $267 million in cash proceeds over two trading days” and that

221
Pls.’s Ans. Br at 18.
222
Id. at 1.
63
“[t]hese benefits were derived from improper means.”223 As the predicate claim

alleging breach of fiduciary duty has been dismissed for failure to make a demand,

the claim alleging unjust enrichment must be dismissed as well. See Seinfeld v.

Slager, 2012 WL 2501105, at *16 (Del. Ch. Jun. 29, 2012) (dismissing “claims [that]

are derivative of the claims that I have already dismissed above”); Friedman, 2014

WL 3519188, at *13 (dismissing unjust enrichment claim that was derivative of

fiduciary duty claim subject to dismissal for failure to plead demand futility).

5. Breach of Fiduciary Duty Claims or, in the alternative,
Aiding and Abetting Claims Against Armistice
Count V is a breach of fiduciary duty claim against Armistice. To state a

claim for breach of fiduciary duty, a plaintiff must first allege that the defendant

“actually owed a fiduciary duty.” Triton Const. Co. v. E. Shore Elec. Servs., Inc.,

2009 WL 1387115, at *9 (Del. Ch. May 18, 2009), aff’d, 988 A.2d 938 (Del. 2010).

This claim fails because, as discussed above, Armistice did not owe a fiduciary duty

to Vaxart or its stockholders. See Ivanhoe P’rs v. Newmont Min. Corp., 535 A.2d

1334, 1344 (Del. 1987) (“Under Delaware law a shareholder owes a fiduciary duty

only if it owns a majority interest in or exercises control over the business affairs of

the corporation.”).

223
Compl. ¶ 184.
64
 Plaintiffs argue that, in the alternative, Armistice is liable for aiding and

abetting the Director Defendants’ breaches of fiduciary duties in approving the

Warrant Amendments. To state a claim for aiding and abetting, a plaintiff must

allege: “(1) the existence of a fiduciary relationship, (2) the fiduciary breached its

duty, (3) a defendant, who is not a fiduciary, knowingly participated in a breach, and

(4) damages to the plaintiff resulted from the concerted action of the fiduciary and

the non-fiduciary.” Gotham P’rs., L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160,

172 (Del. 2002) (quoting Fitzgerald v. Cantor, 1999 WL 182573, at *1 (Del. Ch.

Mar. 25, 1999)). “Knowing participation in a board’s fiduciary breach requires that

the third party act with the knowledge that the conduct advocated or assisted

constitutes such a breach.” Malpiede, 780 A.2d at 1097. The participation

requirement can be satisfied by adequately pleading that the third party “participated

in the board's decisions, conspired with [the] board, or otherwise caused the board

to make the decisions at issue.” Id. at 1098. It is a “long-standing rule that arm’s-

length bargaining is privileged and does not, absent actual collusion and facilitation

of fiduciary wrongdoing, constitute aiding and abetting.” Morgan v. Cash, 2010 WL

2803746, at *8 (Del. Ch. July 16, 2010). Likewise, “conclusory allegations that a

third party received ‘too good of a deal,’ without more, will also be insufficient to

state a claim for aiding and abetting the breach of fiduciary duties. In re Saba

Software, Inc. S’holder Litig., 2017 WL 1201108, at *24 (Del. Ch. Mar. 31, 2017).

65
A third party can, however, participate in a fiduciary breach by (i) “facilitating or

inducing a breach of the duty of care”; (ii) “misleading the fiduciary with false or

materially misleading information”; or (iii) “withholding information in a manner

that misleads the fiduciary on a material point.” Firefighters’ Pension Sys. of City

of Kansas City, Missouri Tr. v. Presidio, Inc., 251 A.3d 212, 275 (Del. Ch. 2021).

“Prior decisions of this court have validated the unsurprising proposition that

an aiding and abetting claim premised on a derivative cause of action is necessarily

derivative itself.” Sheldon v. Pinto Tech. Ventures, L.P., 2019 WL 336985, at *13

(Del. Ch. Jan. 25, 2019), aff’d, 220 A.3d 245 (Del. 2019) (quoting Feldman v.

Cutaia, 956 A.2d 644, 662 (Del. Ch. 2007), aff’d, 951 A.2d 727 (Del. 2008). See,

e.g., In re First Interstate Bancorp Consol. S’holder Litig., 729 A.2d 851, 864 (Del.

Ch. 1998) (“If, as [the court has] found to be the case, the claims of primary liability

against the defendant directors belong to the corporation and could only be

maintained by [the plaintiff] in a derivative capacity, that finding logically applies

with equal force to the alleged claims of secondary liability against [an alleged aider

and abettor].”).

Here, the breach of fiduciary duty claims related to the Director Defendant’s

approval of the Warrant Amendments were derivative; the aiding and abetting claim

is derivative as well. Plaintiffs here have alleged an aiding and abetting claim against

Armistice alone. As employees of Armistice, Boyd and Maher have a disabling

66
interest in the outcome of the litigation against their employer. See, e.g, Silverberg

v. Padda, 2019 WL 4566909, at *8 (Del. Ch. Sept. 19, 2019) (noting that a director

“faces the dual fiduciary problem when she approves a stock issuance if he or she is

in a fiduciary relationship with the recipient of that stock” and that it was reasonable

to infer that a partner and managing director of the recipient entity would not be

impartial as to the demand). For reasons already discussed above, Plaintiffs have

failed to plead sufficient facts to support their theory that any other members of the

Demand Board would be unable to consider a litigation demand against Armistice

or the Armistice Directors. Armistice was not a controlling stockholder. Even

assuming the fund received a material benefit from the Warrant Amendments, no

members of the Board were dependent on Armistice, the Complaint fails to allege

particularized facts creating a reasonable doubt as to the capacity of a majority of

the Demand Board to impartially consider a demand. Demand is not excused, and

the aiding and abetting claim is dismissed.

III. CONCLUSION

For the foregoing reasons, the motions to dismiss by the Vaxart Defendants

and the Armistice Defendants are granted as to Counts I, IV and V. The court

requests supplemental briefing and submission of documents cited in the Complaint,

which will be detailed in a separate letter to the parties.

IT IS SO ORDERED.

67