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December 22, 1994



The opinion of the court was delivered by: CONSTANCE BAKER MOTLEY



 This case arises out of the events leading up to the eventual merger of Paramount Communications, Inc. ("Paramount") with Viacom, Inc. ("Viacom"). *fn1" Paramount issued senior notes paying 5.88% interest (the "Paramount notes") on July 12, 1993. (PP 1, 11). *fn2" These notes were offered to the public pursuant a registration statement that Paramount filed with the Securities and Exchange Commission on July 12, 1993. (P 1). On July 15, 1993, Nelson paid $ 50,000 for Paramount notes in the face amount of $ 50,000. (P 9). Subsequently, the price of the Paramount notes declined significantly and has never recovered. (P 16).

 As discussed more fully below, Nelson contends that this decline in value is due to two matters of material fact that Paramount improperly omitted from the registration statement for these notes.

 First, Nelson asserts that prior to the date of the registration statement, Paramount's board of director's was aware of and had either approved of or acquiesced in conduct by Paramount management which sought to pursue negotiations that would likely lead to a change in control of Paramount. (P 15).

 Second, Nelson contends that prior to the date of the registration statement Paramount's management anticipated that QVC Network, Inc. ("QVC") would make a hostile bide to take over control of Paramount. (P 15).

 Nelson concludes that these omissions constitute violations of Sections 5 and 11 of the Securities Act of 1933, 15 U.S.C. ยงยง 77e, 77k (1988), by Paramount and its Chief Executive Officer ("CEO") and Chairman of its Board of Directors, Martin S. Davis.

 A. The Allegedly Material Events.

 Plaintiff bases his claims upon the facts as recited by the Delaware Court of Chancery in QVC Network v. Paramount Communications, 635 A.2d 1245 (Del. Ch. 1993), aff'd, 637 A.2d 34 (Del. 1994) which he attaches as an exhibit to his complaint. According to the Delaware court, Paramount and Viacom began merger negotiations on April 20, 1993 and continued into the summer of that year. QVC Network, 635 A.2d at 1248-49. On July 1, 1993, the parties signed confidentiality agreements. Id. at 1249. On July 6, the parties had reached an agreement in principle on three points: (1) each share of Paramount stock would be exchangeable for 0.10 shares of Viacom Class A stock and 0.90 shares of Viacom Class B stock; (2) Martin S. Davis of Paramount would be the CEO of the new company; and (3) Sumner M. Redstone, the CEO of Viacom, would be the controlling shareholder. Id. "However, on July 7[,1993], the parties reached an impasse over issues of price and lockup stock options." Id. For example, with regard to price, while Viacom's proposal was for a package worth $ 60.85 to $ 65.00 per share, Paramount was seeking a price starting somewhere in the $ 70s. Id. Thus, as of July 7, negotiations between the two corporations broke down. Id. During the summer, the parties did "remain[] in contact." Id. Actual negotiations did not, however, resume until August 20, 1993. Id. These negotiations again broke down on August 25, 1993. Id. It was not until September that negotiations leading to a fruitful result resumed and concluded. Id. at 1250.

 With regard to QVC's involvement, Paramount and its CEO, Defendant Martin S. Davis, first became aware of QVC's rumored interest in a hostile takeover bid in June 1993. Id. at 1252 n.12. At that time, Mr. Davis called a QVC investor named John Malone to ask him to discourage QVC from making such a bid. Id. After the termination of negotiations with Viacom, Mr. Davis invited Barry Diller, the CEO of QVC, to lunch and told him that Paramount was not for sale. Id. at 1249. Diller responded that he had no intention at that time of making any bid. Id. It was not until September 20, 1993, after Paramount had reached an agreement with Viacom, that Mr. Diller first launched his hostile takeover campaign. Id. at 1252.

 B. The Motion to Dismiss.

 Defendants have filed a motion to dismiss the complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. Defendants assert three bases *fn3" for dismissal: (1) failure to state a claim upon which relief can be granted under Section 11; (2) failure to plead fraud with adequate particularity under Rule 9(b); and (3) failure to ...

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