Penthouse Sued Over AFF Acquisition

LOS ANGELES — Broadstream Capital Partners, a merchant bank that assists with mergers and acquisitions, has filed a lawsuit against Penthouse Media Group Inc. The suit alleges Penthouse breached a contact to acquire Various Inc. — the company that owns and operates and other social networking sites — as a joint venture with Broadstream.

In its lawsuit, which was originally filed in Los Angeles Superior Court in December and moved to U.S. District Court in February, Broadstream alleged that Penthouse has committed breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud.

According to the complaint, Broadstream first learned of an opportunity to acquire Various in December 2006, and began seeking partners with whom to submit a joint bid to acquire the company. The following month, Penthouse contacted Broadstream and “agreed to join with Broadstream in submitting a bid to acquire Various.”

In its complaint, Broadstream further asserted that in moving ahead with the joint venture to acquire Various, Penthouse and Broadstream entered into a nondisclosure agreement on or around Jan. 15, 2007.

According to the agreement, which was attached as an exhibit to Broadstream’s complaint, Penthouse agreed that “for a period of 12 months from the date hereof, [Penthouse] will not, without the prior consent of Broadstream … knowingly acquire, or knowingly provide more than 20 [percent] of the financing to any person, group or entity to acquire Various Inc. or any of its subsidiaries.”

It its complaint, Broadstream asserted that during the bidding process, Broadstream “learned that Penthouse directly contacted Various to put in a separate bid,” and “ultimately submitted a bid that was higher than the offer from Broadstream and converted this business opportunity from an opportunity for the joint venture to an opportunity for Penthouse alone.”

The effective date of the agreement as listed on the agreement attached as an exhibit to the complaint is Dec. 20, 2006. Penthouse publicly announced its acquisition of Various on Dec. 12, 2007.

In its complaint, Broadstream stated in each of its four claims that the damages would be according to proof at trial but are “believed to be in excess of $20 million.”

According to court records, the last document filed in the case was a demand for jury trial filed by Broadstream March 5.

Representatives of both Penthouse and Broadstream were unavailable for comment at press time.