As filed with the Securities and Exchange Commission on March 27, 2009

Registration No. 333-156726

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 2

to

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

HERE MEDIA INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

 

10990 Wilshire Boulevard,

Penthouse

Los Angeles, CA 90024

(310) 806-4288

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

 

Stephen P. Jarchow

Chairman

Here Media Inc.

10990 Wilshire Boulevard,

Penthouse

Los Angeles, CA 90024

(310) 806-4288

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

 

 

Copies to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

 

 

 

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

(Do not check if a smaller reporting company)

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED MARCH 27, 2009.

 

 

 

PROXY STATEMENT/PROSPECTUS

 

PROPOSED BUSINESS COMBINATION — YOUR VOTE IS VERY IMPORTANT

 

Dear Stockholders:

 

On January 8, 2009, PlanetOut Inc., Here Networks LLC and Regent Entertainment Media Inc. agreed to combine and establish a new holding company to be named Here Media Inc. PlanetOut will be merging with a subsidiary of Here Media, and all of the owners of Here Networks and Regent Entertainment Media will be contributing the stock and limited liability company interests in those companies to Here Media. We are proposing the transaction because we believe the combined strengths of our companies will enable us to achieve significant operating efficiencies and produce substantial benefits for clients and equityholders of all of the companies. As a stockholder of PlanetOut, we are asking for your support and for your vote in favor of the merger at our special meeting.

 

When the proposed business combination is completed:

 

 

The special stock is a type of capital stock of Here Media being issued in the proposed business combination only to the stockholders of PlanetOut for the purposes of providing a limited form of downside protection to them in the event of a liquidation, dissolution or winding up of Here Media that occurs within four years after the proposed business combination and in which the holders of Here Media common stock would, but for the effect of the special stock, receive less than $4.00 per share. The special stock will rank, with respect to the distribution of assets upon liquidation, dissolution or winding-up of Here Media, senior and prior in right to the common stock and junior to all series of Here Media’s preferred stock outstanding at any time. A sale of Here Media under certain circumstances is considered a liquidation for purposes of the special stock. The holders of special stock will not be entitled to vote on any matter to be voted on by stockholders, except as required by law.

 

PlanetOut has scheduled a special meeting of its stockholders on          , 2009 to vote on the merger proposal. Regardless of the number of shares that you own or whether you plan to attend the meeting, it is important that your shares be represented and voted. Voting instructions are inside.

 

PlanetOut’s board of directors has approved the merger agreement and determined that the merger is advisable and in the best interests of PlanetOut and its stockholders. Accordingly, PlanetOut’s board of directors recommends that PlanetOut stockholders vote to adopt the merger agreement and approve the merger.

 

This document provides you with detailed information about the proposed business combination. We encourage you to read the entire document carefully.

 

Neither the Here Media common stock nor the Here Media special stock will be listed on any securities exchange or quoted on any automated quotation system. PlanetOut’s common stock is currently traded on the Nasdaq Global Market under the symbol “LGBT.” The stock of Here Networks and of Regent Entertainment Media is not publicly traded.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

See “Risk Factors” beginning on page 8 of this document for a discussion of various risks you should consider in evaluating the proposed business combination.

 

Daniel E. Steimle
Chief Executive Officer
PLANETOUT INC.

 

This proxy statement/prospectus is dated March   , 2009, and was first mailed to PlanetOut stockholders on or about March   , 2009.

 

PLANETOUT INC.

1355 SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 834-6500

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On          , 2009

 

TO OUR STOCKHOLDERS:

 

A special meeting of stockholders will be held on          ,          , 2009 at   a.m., local time, at our San Francisco offices, located at 1355 Sansome Street, San Francisco, California 94111. The purpose of this special meeting is: (1) to consider and vote upon a proposal (i) to adopt the Agreement and Plan of Merger, dated as of January 8, 2009, by and among PlanetOut Inc., Here Media Inc., HMI Merger Sub, and the HMI Owners and the HMI Entities signatory thereto and (ii) to approve the merger of HMI Merger Sub with and into PlanetOut with PlanetOut surviving and becoming a wholly owned subsidiary of Here Media Inc., a newly formed holding company; and (2) to adjourn the meeting to a later date, if necessary.

 

We describe these items of business more fully in our proxy statement which we are sending to you along with this notice.

 

Our Board of Directors has fixed the close of business on          , 2009 as the record date as of which we determine the stockholders who are entitled to receive this notice and to vote at our special meeting and at any adjournment or postponement of our special meeting.

 

By Order of the Board of Directors

 

TODD A. HUGE

Secretary

 

San Francisco, California

          , 2009

 

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. IF YOU DO NOT RETURN THE ENCLOSED PROXY, YOU MAY VOTE YOUR SHARES ON THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY OR BY TELEPHONE BY USING THE TOLL-FREE TELEPHONE NUMBER SHOWN ON THE PROXY. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

No person is authorized to give any information or to make any representation with respect to the matters that this document describes other than those contained in this document and, if given or made, any such information or representation must not be relied upon as having been authorized by PlanetOut, the HMI Entities or the HMI Owners. This document does not constitute an offer to sell or a solicitation of an offer to buy securities or solicitation of a proxy in any jurisdiction in which, or to any person to whom, it is unlawful to make such an offer or a solicitation. Neither the delivery of this document nor any distribution of securities made under this document shall, under any circumstances, create an implication that there has been no change in the affairs of PlanetOut, Here Media or the HMI Entities since the date of this document or that the information contained in this document is correct as of any time subsequent to its date.

 

SUMMARY

 

Summary of Business of the Combined Company (See page [ • ])

 

Structure of the Proposed Business Combination (See page [ • ])

 

The Special Meeting of PlanetOut Stockholders (See page [ • ])

 

Recommendation of PlanetOut’s Board of Directors (See page [ • ])

 

PlanetOut’s Reasons for the Merger (See page [ • ])

 

The HMI Entities’ Reasons for the Contribution (See page [ • ])

 

Opinions of PlanetOut’s Financial Advisors (See page [ • ])

 

Directors and Senior Management of Here Media Following the Proposed Business Combination (See page [ • ])

 

Interests of Directors, Executive Officers and Principal Stockholders in the Merger (See page [ • ])

 

Material U.S. Federal Income Tax Consequences (See page [ • ])

 

Market Prices of PlanetOut Common Stock (See page [ • ])

	•	$0.74 on January 8, 2009, which was the last full trading day before PlanetOut and the HMI Entities announced the proposed business combination; and
	•	$      on          , 2009, which is the record date.

 

The Merger Agreement (See page [ • ])

 

Comparison of Rights of PlanetOut and Here Media Stockholders (See page [ • ])

 

Appraisal Rights of PlanetOut Stockholders (See page [ • ])

 

Regulatory Approvals and Conditions to Completion of the Proposed Business Combination (See page [ • ])

 

Comparative Historical and Pro Forma Per Share Data

		Year Ended
		December 31,
		2008
		(In thousands, except
		per share amounts)
PlanetOut Comparative Per Share Data
Loss per common share from continuing operations — basic and diluted		$	1.93
Cash dividends per common share		$	—
Weighted average shares outstanding — basic and diluted			4,054
Book value per common share at end of period		$	1.95
Shares used to compute book value per share			4,089
Pro Forma Condensed Consolidated Comparative Per Share Data
Loss per common share from continuing operations — basic and diluted		$	0.82
Cash dividends per common share		$	—
Weighted average shares outstanding — basic and diluted			16,700
Book value per common share at end of period		$	1.35
Shares used to compute book value per share			16,700

 

PlanetOut stockholders should carefully consider the following risks relating to the proposed business combination and the business of the combined company resulting from the proposed business combination.

 

The value of the Here Media stock you receive upon completion of the merger may be less than the value of your PlanetOut common stock as of the date of the merger agreement or on the date of the special meeting.

 

The value of PlanetOut common stock as of the date of the merger agreement or on the date of the PlanetOut special meeting may not be indicative of the price of Here Media common stock after the proposed business combination is completed. The value of shares of PlanetOut common stock may vary significantly between the date of this proxy statement/prospectus, the date of the special meeting and the date of the completion of the proposed business combination. These variations may result from, among other factors, changes in the businesses, results of operations and prospects of the companies, market expectations of the likelihood that the proposed business combination will be completed and the timing of completion, the prospects of post-combination operations, general market and economic conditions and other factors. The stock exchange ratio for the proposed business combination is fixed and will not be adjusted based on any change in the PlanetOut stock price or the value of the stock and the limited liability company interests of the HMI Entities (which are not publicly traded) before completion of the proposed business combination.

 

PlanetOut stockholders will have greatly reduced ownership and voting interests in Here Media and will be able to exercise less influence over management following the proposed business combination.

 

Immediately after completion of the proposed business combination, based on the exchange ratios provided for in the merger agreement, the pre-transaction PlanetOut stockholders will collectively own 20%, and the pre-transaction owners of the HMI Entities will collectively own 80% of the outstanding shares of Here Media common stock. While the pre-transaction PlanetOut stockholders will own 100% of the outstanding special stock of Here Media, the holders of special stock will not have voting rights in their capacities as such, except for certain matters relating to potential changes in the terms of the special stock. Consequently, stockholders of PlanetOut will be able to exercise less influence, collectively, over the management and policies of Here Media than they currently exercise over the management and policies of PlanetOut.

 

Here Media may fail to realize the anticipated benefits of the proposed business combination.

 

Here Media’s future success will depend in significant part on its ability to realize the cost savings, operating efficiencies and new revenue opportunities that it expects to result from the integration of the businesses of PlanetOut and the HMI Entities. Here Media’s operating results and financial condition will be adversely affected if Here Media is unable to integrate successfully the operations of PlanetOut and the HMI Entities, fails to achieve or achieve on a timely basis such anticipated synergies, or incurs unforeseen costs and expenses or experiences unexpected operating difficulties that offset anticipated cost savings. In particular, the integration of PlanetOut and the HMI Entities may involve, among other matters, integration of sales, marketing, content creation, billing, accounting, quality control, management, personnel, payroll, regulatory compliance, network infrastructure and other systems and operating hardware and software, some of which may be incompatible and therefore may need to be replaced. Successful integration of the operations, products and personnel of PlanetOut and the HMI Entities may place a significant burden on Here Media’s management and internal resources. The diversion of management’s attention and any difficulties encountered in the transition and integration process could harm Here Media’s business, financial condition and results of operations.

 

Here Media common stock will not be listed on any securities exchange following the completion of the proposed business combination, which may result in limited liquidity for its stockholders.

 

Prior to the proposed business combination, there has been no public market for Here Media common stock. PlanetOut’s common stock is currently listed for trading on The Nasdaq Global Market, although PlanetOut was

notified by Nasdaq on August 11, 2008 that PlanetOut’s common stock failed to meet the Global Market’s minimum market value requirement of $5 million for publicly held shares and that PlanetOut would have until approximately July 30, 2009 to meet the requirements or the shares would be delisted from The Nasdaq Global Market. In addition, PlanetOut common stock has been trading below the Nasdaq’s $1.00 minimum trading price. While this requirement has been suspended by Nasdaq through July 20, 2009, there can be no assurance that after that date, PlanetOut would be able to comply with the Nasdaq minimum bid price or the minimum market value of publicly held shares requirements. On March 9, 2009, Nasdaq notified PlanetOut that it had also failed to maintain the minimum of $10 million in stockholders’ equity necessary for continued listing on The Nasdaq Global Market and gave PlanetOut until March 24, 2009 to either submit a plan to regain compliance or apply to transfer the listing of its common stock to The Nasdaq Capital Market. On March 23, 2009, PlanetOut applied to transfer the listing of its common stock to The Nasdaq Capital Market. Although it is expected that Nasdaq will accept PlanetOut’s application to transfer the listing of its common stock to The Nasdaq Capital Market, there can be no assurance that Nasdaq will do so or that PlanetOut will be able to maintain its listing on either The Nasdaq Global Market or The Nasdaq Capital Market.

 

Neither the Here Media common stock nor the Here Media special stock will be listed on any securities exchange or quoted on any automated quotation system following the completion of the proposed business combination. While Here Media intends to take steps to facilitate quotation of prices for its common stock on the OTC Bulletin Board if one or more brokerage firms indicate interest in providing such quotations, Here Media cannot assure you that an active trading market will develop or be sustained for Here Media common stock. This could result in limited liquidity and make trading more difficult for Here Media stockholders, leading to lower trading volumes and declines in share price. In addition, while the Here Media special stock will not be subject to restrictions on transfer, that stock is proposed to be issued to PlanetOut’s stockholders in the merger solely for the purpose of providing a limited-priority claim to certain liquidation proceeds that might otherwise be payable to other holders of common stock in the event of liquidation of Here Media within four years after completion of the proposed business transaction, and Here Media does not expect that any trading market will develop for the Here Media special stock.

 

PlanetOut will be subject to business uncertainties and contractual restrictions while the merger is pending that could adversely affect its business.

 

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on PlanetOut and, consequently, on Here Media. Although PlanetOut intends to take actions to reduce any adverse effects, these uncertainties may impair its ability to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with PlanetOut to seek to change existing business relationships. Employee retention may be particularly challenging during the pendency of the merger, as employees may experience uncertainty about their future roles with Here Media. If, despite PlanetOut’s retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Here Media, Here Media’s business could be seriously harmed.

 

The merger agreement restricts PlanetOut from taking specified actions until the proposed business combination occurs or the merger agreement terminates. These restrictions may prevent PlanetOut from pursuing otherwise attractive business opportunities and making other changes to its business that may arise before completion of the proposed business combination or, if the proposed business combination is abandoned, termination of the merger agreement.

 

Failure to complete the proposed business combination could negatively affect PlanetOut.

 

If the proposed business combination is not completed for any reason, PlanetOut may be subject to a number of material risks, including the following:

 

 

 

 

 

 

The ownership of 80% of Here Media’s common stock by the pre-transaction owners of the HMI Entities, and provisions in Here Media’s certificate of incorporation and Here Media’s bylaws, may prevent takeover attempts that could be beneficial to Here Media’s other stockholders.

 

Immediately following completion of the proposed business combination, and unless and until substantial additional shares of common stock or other voting securities are issued to other persons in future acquisitions or financing or for other purposes, the pre-transaction owners of the HMI Entities will own 80% of the Here Media common stock, which will be Here Media’s only class of voting securities. In particular, Here Management LLC, which is 51%-owned by Mr. Jarchow and 35%-owned by Mr. Colichman, will own 75% of the Here Media common stock outstanding following the proposed business combination, and Mr. Jarchow will hold 3% and Mr. Colichman will hold 2% of the outstanding common stock directly.

 

Provisions of Here Media’s certificate of incorporation and provisions of Here Media’s bylaws could discourage a takeover of Here Media even if a change of control of Here Media would be beneficial to the interests of its stockholders. These charter provisions include the following:

 

 

 

 

The interests of Here Media’s principal stockholders may differ from the interests of Here Media’s other stockholders.

 

Upon completion of the proposed business combination, as a result of their direct and indirect ownership of common stock of Here Media, Messrs. Jarchow and Colichman will be able to determine all matters requiring approval by a majority of Here Media’s stockholders, including the election of directors. As directors and executive officers of Here Media, they will also have control over the day-to-day operations of the company. The interests of Messrs. Jarchow and Colichman, or either of them, may differ significantly from the interests of Here Media’s other stockholders.

 

Messrs. Jarchow and Colichman also control Regent Studios LLC, Regent Worldwide Sales LLC and Regent Releasing LLC, upon which Here Networks has depended for a substantial majority of its programming to date. Following the consummation of the proposed business combination, Messrs. Jarchow and Colichman may be subject to conflicts of interest with respect to the pricing or availability, including renewal of existing program

licenses, of any programming supplied by entities under their control to Here Networks in the future. Moreover, if any of the entities under Mr. Jarchow’s or Mr. Colichman’s control or all or part of the film libraries of those entities were to be sold, there can be no assurance that Here Media would be able to obtain programming from those entities following any such sale. Here Media’s inability to obtain programming from these related parties or to find a third-party supplier of programming could have a material adverse effect on its operations. In addition, although Here Media believes that the program license agreements between Here Networks and its related parties have been negotiated as arms’-length transactions, Here Media cannot assure you that it could independently produce or obtain programming from a third-party on terms and conditions, including cost, as favorable as those that Here Networks has historically received from the related parties.

 

The special stock will provide only limited downside protection to its holders.

 

The special stock is intended to provide a limited form of downside protection to its holders if a liquidation, dissolution or winding up of Here Media occurs within four years after the proposed business combination in which the holders of Here Media common stock would, but for the effect of the special stock, receive less than $4.00 per share. In that event, the holders of special stock will have a priority claim on any liquidation proceeds in an amount such that the liquidation proceeds they receive, when added to the liquidation proceeds payable on an equal number of shares of Here Media common stock after giving effect to the liquidation priority of the special stock, would equal $4.00 of total liquidation proceeds, to the extent such funds are available after payments of all creditor claims and all liquidation preferences and accrued dividends payable to holders of any preferred stock. A sale of Here Media for consideration consisting of at least 50% cash or publicly traded securities that is a change of “control,” as defined by the SEC, will be considered a liquidation for purposes of the special stock, but a sale of Here Media consisting mostly of other consideration (such as securities that are not publicly traded or other non-cash property) would not be considered a liquidation, and would not trigger the protections of the special stock. In addition, the special stock will be canceled in the event of a public offering (or a “private investment in public equity,” or “PIPE,” transaction) of Here Media at a price of at least $4.00 per share that results in gross proceeds to Here Media of at least $20 million. The acquisition of Here Media by a special purpose acquisition company or similar transaction, as determined by Here Media’s Board of Directors, other than an acquisition solely for cash, that values Here Media’s common stock at a price of at least $4.00 per share will also result in the cancellation of the special stock. The $4.00 per share priority claim to liquidation proceeds is subject to possible adjustments in some events. Here Media has the ability to issue other classes or series of stock that may be senior in liquidation or other rights to the special stock, and those issuances could reduce or eliminate the protections of the special stock. There can be no assurance that a transaction to sell Here Media will meet the requirements of the liquidation provisions of the special stock, or that the special stock will not be canceled (through the expiration of its four-year term or through a public offering or PIPE transaction as described above) prior to a liquidation or sale of Here Media.

 

Recharacterization of the special stock for U.S. federal income tax purposes may affect the tax consequences of the merger.

 

Here Media and PlanetOut believe that the special stock is properly characterized as stock of Here Media that is not “nonqualified preferred stock,” as that term is defined in Section 351(g)(2) of the Internal Revenue Code of 1986, as amended, or the “Code.” There is no clear authority, however, considering the characterization of a financial instrument with terms substantially similar to the special stock, and no legal opinion addressing this question has been or will be obtained by Here Media or PlanetOut. The Internal Revenue Service, or IRS, could challenge the parties’ characterization of the special stock for tax purposes, and a court could sustain such challenge. If the special stock were characterized as “nonqualified preferred stock” or treated as not being stock of Here Media for U.S. federal income tax purposes, a U.S. holder of PlanetOut stock would be required to recognize any gain realized in the merger to the extent of the fair market value of the special stock received. See “The Proposed Business Combination — Material U.S. Federal Income Consequences — Federal Income Tax Consequences to PlanetOut Stockholders — Tax Consequences Depend on Characterization of Special Stock.”

 

PlanetOut and the HMI Entities each have histories of significant losses. If Here Media does not attain and sustain profitability, its financial condition and stock price could suffer.

 

PlanetOut experienced losses from continuing operations of $7.8 million and $13.7 million for the years ended December 31, 2008 and 2007, respectively.

 

Here Networks experienced a net loss of $12.7 million for the year ended December 31, 2007, which reported amount does not include income tax benefits due to the fact that Here Networks is a limited liability company that has elected to be treated as a partnership for income tax purposes, rather than as a corporation or other separately-taxable entity. Regent Entertainment Media experienced losses from continuing operations of $4.7 million and $23.6 million for the years ended December 31, 2008 and 2007, respectively.

 

In addition, Here Media expects development, sales and other operating expenses to increase in the future as it expands its business, including its new motion picture production business. If Here Media’s revenue does not grow to offset these expected increased expenses, Here Media may not be profitable. In fact, in future quarters Here Media may not have any revenue growth and its revenues could decline. Furthermore, if Here Media’s operating expenses exceed its expectations, its financial performance will be adversely affected and Here Media may continue to incur significant losses in the future.

 

Here Media may require additional capital, which may not be available, particularly under current capital and credit market conditions.

 

Here Media’s operations require significant amounts of cash. Here Media may be required to seek additional capital, whether from sales of equity or debt, in order to fund its ongoing operations and for the future growth and development of its business, including its planned motion picture production business. Here Media can give no assurance that such additional equity or debt capital will be available to it on acceptable terms, or at all. Adverse capital and credit market conditions may significantly affect Here Media’s access to cost of capital. This could result in substantial increases in interest expense and substantial dilution of the common stockholders’ equity interest in Here Media.

 

Here Media’s success is dependent upon audience acceptance of its programming and other entertainment content, which is difficult to predict.

 

The production and distribution of television programs, motion pictures and other entertainment content are inherently risky businesses. The revenue Here Media derives and its ability to distribute its content will depend primarily on consumer tastes and preferences that change in often unpredictable ways. The success of Here Media’s businesses will depend on its ability to acquire and create content and programming that consistently meet the changing preferences of viewers in general, viewers in the LGBT community and other niche markets, and viewers in specific demographic categories. The commercial success of Here Media’s programming and other content will also depend on the quality and acceptance of competing programs and other content available in the applicable marketplace at the same time. Other factors, including the availability of alternative forms of entertainment and leisure time activities, general economic conditions, piracy, digital and on-demand distribution and growing competition for consumer discretionary spending may also affect the audience for Here Media’s content. Audience sizes for its media network are critical factors that will affect both the volume and pricing of advertising revenue that Here Media receives and the extent of distribution and license fees Here Media receives from distributors.

 

The entertainment and media programming industries are increasingly competitive industries.

 

The entertainment and media programming industries in which Here Media will operate are highly competitive. Here Media will compete with other programming networks for distribution and viewers, including a number of companies with much greater financial and other resources, such as Viacom, Time Warner and News Corporation. Here Media’s here! Network also competes for viewers with other forms of media entertainment, such as broadcast television, home video, movies, live events, periodicals, console games and online and mobile activities. In addition, there has been consolidation in the media industry, and Here Media’s competitors include

other market participants with interests in multiple media businesses with longer histories of vertical integration. Here Media’s ability to compete successfully depends on a number of factors, including its ability to consistently supply high quality and popular content, access its niche viewerships with appealing category-specific programming, adapt to new technologies and distribution platforms and achieve widespread distribution. There can be no assurance that Here Media will be able to compete successfully in the future against existing or new competitors, or that increasing competition will not have a material adverse effect on its business, financial condition or results of operations.

 

Here Networks depends substantially on a limited number of cable television operators.

 

Here Networks is dependent on viewers of a limited number of cable television operators for a substantial portion of its revenues. For the year ended December 31, 2008, 95.0% of Here Networks’ subscription and transaction revenue was attributable to viewers of a total of six operators, and the top three of these accounted for 39.5%, 21.4% and 20.7%, respectively, of revenue. Here Networks currently has agreements in place with these operators that expire or are subject to renewal at various times, beginning in 2010 through 2012. There is no assurance that these agreements will be renewed in the future on terms, including pricing, acceptable to Here Networks, or at all. Further, these agreements generally provide that the operator has the right to discontinue carrying a particular Here Networks service (such as VOD, SVOD or linear television channel services) on any operator system or, in some cases, terminate the agreement, subject to giving specified notice to Here Networks. The loss of one or more of its significant operators or the loss of carriage on any significant operator system could have an adverse effect on Here Networks’ business, financial condition and results of operations. In addition, further consolidation among cable and DTH satellite operators and increased vertical integration of such distributors into the cable or broadcast television businesses could adversely affect Here Networks’ ability to negotiate favorable terms for distribution of its program services. Further, since Here Networks’ accounts receivable are concentrated in a relatively small number of operators, a significant change in the liquidity, financial position, or issues regarding timing of payments of any one of these operators could have a material adverse impact on the collectibility of its accounts receivable, revenues recorded and future results of operations.

 

If Here Media is unable to generate revenue from advertising or if it loses existing PlanetOut or Regent Entertainment Media advertisers, its business will suffer.

 

Here Media’s advertising revenue will be dependent on the budgeting, buying patterns and expenditures of advertisers which in turn are affected by a number of factors such as general economic conditions, changes in consumer habits and changes in the retail sales environment. A decline or delay in advertising expenditures caused by such factors could reduce or hurt Here Media’s ability to increase its revenue. For example, the recent economic downturn has significantly affected the advertising market as a whole, and if the decrease in advertising expenditures persists, Here Media’s business will be adversely affected.

 

Here Media’s advertising revenue will also be dependent on the collective experience of its sales force and on its ability to recruit, hire, train, retain and manage the sales force. PlanetOut has experienced turnover in its sales force and, on January 16, 2009, reduced its sales force by approximately 50% to reduce costs and manage expenses. If Here Media experiences similar turnover in its sales force or is unable to recruit or retain its sales force, it may be unable to meet the demands of its advertisers or attract new advertisers and its advertising revenue could decrease.

 

Additionally, advertisers and advertising agencies may not perceive the LGBT market that Here Media will serve to be a sufficiently broad or profitable market for their advertising budgets, or may prefer to direct their online and print advertising expenditures to larger, higher-traffic websites and higher circulation publications that focus on broader markets. If Here Media is unable to attract new advertisers, or if its advertising campaigns are unsuccessful with the LGBT community, Here Media’s revenue will decrease and operating results will suffer.

 

In its advertising business, Here Media will compete with a broad variety of online and print content providers, including large media companies such as Yahoo!, Google, MSN, Time Warner, Viacom (including its Logo properties), Condé Nast, IAC and News Corporation, as well as a number of smaller companies focused on the LGBT community. If Here Media is unable to compete successfully with current and new competitors, it may not be able to achieve or maintain market share, increase its revenue or achieve profitability.

Here Media’s ability to fulfill the demands of its online advertisers will be dependent on the number of page views generated by its visitors, members and subscribers. If Here Media is not able to attract new visitors, members or subscribers or to retain PlanetOut’s current visitors, members and subscribers, its page views may decrease. If its page views decrease, Here Media may be unable to timely meet the demands of its current online advertisers and its advertising revenue could decrease.

 

Here Media’s success will depend, in part, upon the growth of Internet advertising and upon its ability to predict the cost of customized campaigns.

 

Online advertising is expected to represent a significant portion of Here Media’s advertising revenue. Here Media will compete with traditional media, including television, radio and print, in addition to high-traffic websites, such as those operated by Yahoo!, Google, AOL and MSN, for a share of advertisers’ total online advertising expenditures. Here Media faces the risk that advertisers may find the Internet to be less effective than traditional media in promoting their products or services, and as a result they may reduce or eliminate their expenditures on Internet advertising. Many potential advertisers and advertising agencies have only limited experience advertising on the Internet and historically have not devoted a significant portion of their advertising expenditures to Internet advertising. Additionally, filter software programs that limit or prevent advertisements from being displayed on or delivered to a user’s computer are becoming increasingly available. If this type of software were to become widely accepted, it would negatively affect Internet advertising.

 

Here Media plans to offer advertisers a number of alternatives to advertise their products or services on its websites, in its publications and to its members, including banner advertisements, rich media advertisements, traditional print advertising, email campaigns, text links and sponsorships of its channels, topic sections, directories, sweepstakes, awards and other online databases and content. Frequently, advertisers request advertising campaigns consisting of a combination of these offerings, including some that may require custom development. If Here Media is unable accurately to predict the cost of developing custom advertising campaigns for its advertisers, its revenue may decrease, its expenses may increase and its margins will be reduced.

 

If Here Media’s efforts to attract and retain subscribers are not successful, its revenue will decrease.

 

Because a significant portion of Here Media’s revenue is expected to be derived from its subscription services, Here Media must attract and retain subscribers. Many of the new subscribers originate from word-of-mouth referrals within the LGBT community. If the subscribers do not perceive Here Media’s service offerings or publications to be of high quality or sufficient breadth, if new services or publications are not favorably received or if Here Media fails to introduce compelling new content or features or enhance its existing offerings, it may not be able to attract new subscribers or retain current subscribers. In addition, PlanetOut’s and the HMI Entities’ historic base of likely potential subscribers has been limited to members of the LGBT community, who collectively comprise an estimated 6-7% of the general adult population based on those persons who have self-identified as lesbian, gay, bisexual or transgender. Here Media intends to identify and market to additional niche interest groups to expand its business. Here Media cannot assure you, however, that it will be successful in doing so.

 

While seeking to add new subscribers, Here Media must also minimize the loss of existing subscribers. In the years ended December 31, 2007 and 2008, PlanetOut’s total subscription cancellations exceeded the number of new subscriptions, resulting in a decrease in total online subscribers, or members with a paid subscription plan. Historically, PlanetOut has lost its existing subscribers primarily as a result of cancellations and credit card failures due to expirations or exceeded credit limits. Subscribers cancel their subscription to services for many reasons, including a perception, among some subscribers, that they do not use the service sufficiently, that the service or publication is a poor value or that customer service issues are not satisfactorily resolved. Online members may decline to subscribe or existing online subscribers may cancel their subscriptions if Here Media websites experience a disruption or degradation of services, including slow response times or excessive down time due to scheduled or unscheduled hardware or software maintenance or denial of service attacks. Here Media must continually add new subscribers both to replace subscribers who cancel or whose subscriptions are not renewed due to credit card failures and to continue to grow its business beyond its current subscriber base. If excessive numbers of subscribers cancel their subscription, Here Media may be required to incur significantly higher marketing expenditures than

currently anticipated in order to replace canceled subscribers with new subscribers, which will harm its financial condition.

 

Increased programming production and content costs may adversely affect Here Media’s results of operations and financial condition.

 

One of the most significant areas of expense for Here Media will be for the licensing and production of content. In connection with creating original content, Here Media will incur production costs associated with, among other things, acquiring new show concepts and engaging creative talent, including actors, writers and producers. The costs of producing programming have generally increased in recent years. These costs may continue to increase in the future, which may adversely affect Here Media’s results of operations and financial condition.

 

Disruption or failure of satellites and facilities, and disputes over supplier contracts on which Here Media depends to distribute its programming could adversely affect its business.

 

Here Media will depend on transponders on satellite systems to transmit its media network to cable television operators and other distributors. The distribution facilities include uplinks, communications satellites and downlinks. Here Media obtains satellite transponder capacity pursuant to a contract with a third-party vendor. Even with back-up and redundant systems, transmissions may be disrupted as a result of local disasters or other conditions that may impair on-ground uplinks or downlinks, or as a result of an impairment of a satellite. Currently, there are a limited number of communications satellites available for the transmission of programming. If a disruption or failure occurs, Here Media may not be able to secure alternate distribution facilities in a timely manner, which could have a material adverse effect on its business and results of operations.

 

Here Media must respond to and capitalize on rapid changes in new technologies and distribution platforms, including their effect on consumer behavior, in order to remain competitive and exploit new opportunities.

 

Technology in the video, telecommunications and data services industry is rapidly changing. Here Media must adapt to advances in technologies, distribution outlets and content transfer and storage to ensure that its content remains desirable and widely available to its audiences while protecting its intellectual property interests. Here Media may not have the right, and may not be able to secure the right, to distribute some of its licensed content across these, or any other, new platforms and must adapt accordingly. The ability to anticipate and take advantage of new and future sources of revenue from these technological developments will affect Here Media’s ability to expand its business and increase revenue. If Here Media is unable to capitalize on technological advances, Here Media’s competitive position may be harmed, and there could be a negative effect on its business.

 

Here Media’s operations could be harmed if it lost the services of certain of its personnel.

 

Here Media’s business will depend significantly on the efforts, abilities and expertise of its senior executives, particularly Messrs. Jarchow and Colichman. These individuals are important to Here Media’s success because they have been instrumental in establishing its strategic direction, operating several of its constituent businesses and identifying new business opportunities. In addition, their knowledge and experience in the motion picture industry are critical to the development of Here Media’s planned motion picture studio business. The loss of either or both of these key individuals could impair Here Media’s business and development until qualified replacements are found. Here Media cannot assure you that these individuals could be quickly replaced with persons of equal experience and capabilities.

 

Financial market conditions may impede access to or increase the cost of financing for Here Media’s operations and investments.

 

The recent changes in U.S. and global financial and equity markets, including market disruptions and substantial tightening of the credit markets, may make it difficult for Here Media to obtain financing for its operations or investments or substantially increase the cost of obtaining financing. Here Media’s ability to engage in its planned motion picture production business will be highly dependent on its ability to finance the production of

theatrical and television motion pictures. Here Media cannot assure you that such financing will be available on acceptable terms, if at all. If Here Media were to raise additional funds through the issuance of equity, equity-related or debt securities, these securities may have rights, preferences or privileges senior to those of the rights of Here Media common stock, and the stockholders will experience dilution of their ownership interests. If Here Media is unable to raise additional financing when needed, it could be forced to engage in dispositions of assets or businesses on unfavorable terms, or consider curtailing or ceasing operations.

 

Any significant disruption in service on Here Media websites or in its computer and communications hardware and software systems could harm its business.

 

Here Media’s ability to attract new visitors, members, subscribers, advertisers and other customers to its websites is critical to its success and largely depends upon the efficient and uninterrupted operation of its computer and communications hardware and software systems. These systems and operations are vulnerable to damage or interruption from power outages, computer hardware and telecommunications failures, software failures, computer viruses, security breaches, catastrophic events, errors in design, installation, configuration and usage by employees, errors in usage by customers, risks inherent in upgrades and transitions to new hardware and software systems and network devices, or the failure of third-party vendors to perform their obligations for any reason, any of which could lead to interruption in Here Media’s service and operations, and loss, misuse or theft of data. Here Media’s websites could also be targeted by direct attacks intended to cause a disruption in service or to siphon off customers to other Internet services. Any successful attempt by hackers to disrupt Here Media websites’ services or its internal systems could harm its business, be expensive to remedy and damage its reputation, resulting in a loss of visitors, members, subscribers, advertisers and other customers.

 

If Here Media is unable to compete effectively, it may lose market share and its revenue may decline.

 

Here Media’s markets are intensely competitive and subject to rapid change. Across its service lines, Here Media will compete with traditional media companies focused on the general population and the LGBT community, including local newspapers, national and regional magazines, satellite radio, cable networks and network, cable and satellite television shows. In its advertising business, Here Media will compete with a broad variety of online and print content providers, including large media companies such as Yahoo!, Google, MSN, Time Warner, Viacom (including its Logo properties), Condé Nast and News Corporation, as well as a number of smaller companies focused specifically on the LGBT community. In its online subscription business, Here Media’s competitors include these companies as well as other companies that offer more targeted online service offerings, such as Match.com, Yahoo! Personals, and a number of other smaller online companies focused specifically on the LGBT community. More recently, PlanetOut has faced competition from the growth of social networking sites, such as MySpace and Facebook, that provide opportunity for an online community for a wide variety of users, including the LGBT community. If Here Media is unable to compete successfully with current and new competitors, it may not be able to achieve or maintain adequate market share, increase its revenue or attain and maintain profitability.

 

Here Media’s efforts to develop new products and services for evolving markets are subject to a number of factors beyond Here Media’s control.

 

There are substantial uncertainties associated with Here Media’s efforts to develop new products and services for evolving markets, and substantial investments may be required. Initial timetables for the introduction and development of new products and services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as the development of competitive alternatives, rapid technological change, regulatory changes and shifting market preferences, may cause new markets to move in unanticipated directions.

 

Here Media’s reputation and brand could be harmed if it is unable to protect its domain names and third parties gain rights to, or use, these domain names in a manner that confuses or impairs Here Media’s ability to attract and retain customers.

 

Here Media will have rights to various domain names relating to its brands, including Gay.com, PlanetOut.com, Out.com, Advocate.com and Heretv.com. If Here Media fails to maintain these domain name registrations, a third party may be able to prohibit Here Media from using these domain names, which will make it more

difficult for users to find its websites and its service. The acquisition and maintenance of domain names are generally regulated by governmental agencies and their designees. The regulation of domain names in the United States may change in the future. Governing bodies may designate additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, Here Media may be unable to acquire or maintain exclusive rights to relevant domain names. If a third party acquires domain names similar to Here Media’s names and engages in a business that may be harmful to Here Media’s reputation or confusing to its subscribers and other customers, Here Media’s revenue may decline, and it may incur additional expenses in maintaining its brands and defending its reputation. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Here Media may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of its trademarks and other proprietary rights.

 

If Here Media fails to protect its trademarks and other proprietary rights, or if it gets involved in intellectual property litigation, its revenue may decline and its expenses may increase.

 

The success of Here Media’s business will depend in part on its ability to maintain the intellectual property rights of its entertainment content. Here Media relies on a combination of confidentiality and license agreements with its employees, consultants and third parties with whom it has relationships, as well as trademark, copyright and trade secret protection laws, to protect its proprietary rights. If the protection of its proprietary rights is inadequate to prevent use or appropriation by third parties, the value of Here Media’s brands and other intangible assets may be diminished, competitors may be able to more effectively mimic its service and methods of operations, the perception of its business and service to subscribers and potential subscribers may become confused in the marketplace and its ability to attract subscribers and other customers may suffer, resulting in loss of revenue.

 

The Internet content delivery market is characterized by frequent litigation regarding patent and other intellectual property rights. As a publisher of online content, Here Media faces potential liability for negligence, copyright, patent or trademark infringement or other claims based on the nature and content of materials that it publishes or distributes. For example, historically, PlanetOut has received, and Here Media may receive in the future, notices or offers from third parties claiming to have intellectual property rights in technologies that Here Media uses in its businesses and inviting it to license those rights. Litigation may be necessary in the future to enforce Here Media’s intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity, and Here Media may not prevail in any future litigation. Here Media may also attract claims that its print and online media properties have violated the copyrights, rights of privacy, or other rights of third parties. Adverse determinations in litigation could result in the loss of its proprietary rights, subject Here Media to significant liabilities, and require it to seek licenses from third parties or prevent it from licensing its technology or selling its products, any of which could seriously harm its business. An adverse determination could also result in the issuance of a cease and desist order, which may force Here Media to discontinue operations through its website or websites. Intellectual property litigation, whether or not determined in Here Media’s favor or settled, could be costly, could harm Here Media’s reputation and could divert the efforts and attention of its management and technical personnel from normal business operations.

 

Existing or future government regulation in the United States and other countries could limit Here Media’s growth and result in loss of revenue.

 

Here Media is, or may in the future be, subject to federal, state, local and international laws affecting companies conducting business on the Internet, including user privacy laws, regulations prohibiting unfair and deceptive trade practices and laws addressing issues such as freedom of expression, pricing and access charges, quality of products and services, taxation, advertising, intellectual property rights, display and production of material intended for mature audiences and information security. Here Media’s compliance with these laws may require it to, for example, change or limit the content it offers to customers through its various media properties, or change or limit the ways in which its online subscribers interact with one another. If such changes or limitations cause Here Media’s subscribers to cancel their subscriptions, or reduce the number of first-time subscribers, Here Media’s revenue could decline.

 

The risks of transmitting confidential information online, including credit card information, may discourage customers from subscribing to Here Media’s services.

 

In order for the online marketplace to be successful, Here Media and other market participants must be able to transmit confidential information, including credit card information, securely over public networks. Third parties may have the technology or know-how to breach the security of customer transaction data. Any breach could cause consumers to lose confidence in the security of Here Media’s websites and choose not to subscribe to its services. A security breach could also expose Here Media to risks of data loss, litigation and liability and may significantly disrupt its operations and harm its reputation, operating results or financial condition. Here Media cannot guarantee that its security measures will effectively prohibit others from obtaining improper access to its information or that of its users.

 

Here Media could lose subscribers if it is unable to provide satisfactory customer service.

 

Here Media’s ability to provide satisfactory customer service depends, to a large degree, on the efficient and uninterrupted operation of its customer service operations. Any significant disruption or slowdown in its ability to process customer calls resulting from telephone or Internet failures, power or service outages, natural disasters or other events could make it difficult or impossible to provide adequate customer service and support. Further, Here Media may be unable to attract and retain adequate numbers of competent customer service representatives, which is essential in creating a favorable interactive customer experience. In January 2009, PlanetOut reduced its customer service staff to reduce costs and manage expenses. If due to this reduction or otherwise Here Media is unable to provide adequate staffing for its customer service operations, its reputation could be harmed and it may lose existing and potential subscribers. In addition, Here Media cannot guarantee that email and telephone call volumes will not exceed its present system or staffing capacities. If this occurs, it could experience delays in responding to customer inquiries and addressing customer concerns.

 

Here Media may be the target of negative publicity campaigns or other actions by advocacy groups that could disrupt its operations because it serves the LGBT community.

 

Advocacy groups may target Here Media’s business through negative publicity campaigns, lawsuits and boycotts seeking to limit access to its services or otherwise disrupt its operations because it serves the LGBT community. These actions could impair Here Media’s ability to attract and retain customers, especially in its advertising business, resulting in decreased revenue, and could cause additional financial harm by requiring that it incur significant expenditures to defend its business and by diverting management’s attention. Further, some investors, lenders and others in the investment community may decide not to invest in its securities or provide financing to Here Media because it serves the LGBT community, which, in turn, may hurt the value of its stock.

 

If one or more states or countries successfully assert that Here Media should collect sales or other taxes on the use of the Internet or the online sales of goods and services, its expenses will increase, resulting in lower margins.

 

In the United States, federal and state tax authorities are currently seeking to apply their taxing jurisdiction to remote sellers of goods and services and expand the scope of the taxes imposed on such entities, including companies engaged in online commerce. The application of existing and new state tax obligations may subject Here Media to additional state sales and income taxes, which could give rise to material liabilities for which no reserves have been established and lower its sales, increase its expenses and decrease its profit margins on a prospective basis.

 

In 2003, the European Union implemented new rules regarding the collection and payment of value added tax, or VAT. These rules require VAT to be charged on products and services delivered over electronic networks, including software and computer services, as well as information and cultural, artistic, sporting, scientific, educational, entertainment and similar services. These services are now being taxed in the country where the purchaser resides rather than where the supplier is located. Historically, suppliers of digital products and services that existed outside the European Union were not required to collect or remit VAT on digital orders made to purchasers in the European Union. With the implementation of these rules, PlanetOut was required to collect and

remit VAT on digital orders received from purchasers in the European Union, effectively reducing its revenue by the VAT amount because it did not pass this cost on to its customers.

 

PlanetOut also does not collect sales, use or other similar taxes for sales of its subscription services. In the future, one or more local, state or foreign jurisdictions may seek to impose sales, use or other tax collection obligations on Here Media on a retroactive or prospective basis. If these obligations are successfully imposed upon Here Media by a state or other jurisdiction, it may incur liabilities for which no reserves have been established as well as suffer decreased sales into that state or jurisdiction as the effective cost of purchasing goods or services from it will increase for those residing in these states or jurisdictions.

 

Here Media is exposed to pricing and production capacity risks associated with its magazine publishing business, which could result in lower revenues and profit margins.

 

Here Media will publish and distribute magazines, such as The Advocate, Out and HIVPlus, among others. The commodity prices for paper products have been increasing over recent years, and producers of paper products are often faced with production capacity limitations, which could result in delays or interruptions in Here Media’s supply of paper. In addition, mailing costs have also been increasing, primarily due to higher postage rates. If pricing of paper products and mailing costs continue to increase, if Here Media encounters shortages in its paper supplies, or if its third-party vendors fail to meet their obligations for any reason, Here Media’s revenues and profit margins could be adversely affected.

 

 

Some of the statements under “Summary,” “Risk Factors,” “Information About Here Media,” “Information About PlanetOut,” “Information About Here Networks,” “Information About Regent Entertainment Media” and elsewhere in this proxy statement/prospectus constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, financial position, levels of activity, performance or achievements of Here Media, PlanetOut or the HMI Entities to be materially different from any future results, financial position, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or similar words. You should read statements that contain these words carefully because they discuss the companies’ future expectations, contain projections of the companies’ future results of operations or of the companies’ financial positions, or state other forward-looking information. We believe that it is important to communicate this information to you. However, there may be events in the future that Here Media, PlanetOut and the HMI Entities are not able to control or predict accurately. The risks described under “Risk Factors,” as well as the other cautionary language in this proxy statement/prospectus, provide examples of risks, uncertainties and events that may cause the companies’ actual results to differ materially from the expectations that Here Media, PlanetOut and the HMI Entities describe in the forward-looking statements. These risks, uncertainties and events include, but are not limited to:

 

 

You should be aware that the occurrence of the events described in these risk factors and elsewhere in this proxy statement/prospectus could have a material adverse effect on the business, results of operations and financial position of the companies.

 

We cannot guarantee future results, financial position, levels of activity, performance or achievements. You should not place undue reliance on the forward-looking statements included in this proxy statement/prospectus, which apply only as of the date of this proxy statement/prospectus. We expressly disclaim any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this proxy statement/prospectus to reflect changes in circumstances or expectations or the occurrence of unanticipated events, except to the extent required by applicable securities laws.

 

PlanetOut is soliciting the enclosed proxy on behalf of its board of directors for use at its special meeting of stockholders, which it will hold on          , 2009, at   a.m., local time, or at any adjournment or postponement of its special meeting. The purposes of PlanetOut’s special meeting are described in both this proxy statement and its notice of special meeting that it is sending to you along with this proxy statement. PlanetOut’s special meeting will be held at its San Francisco offices, located at 1355 Sansome Street, San Francisco, California 94111. PlanetOut intends to mail this proxy statement along with the proxy card on or about          , 2009 to all stockholders entitled to vote at its special meeting.

 

PlanetOut will bear the entire cost of solicitation of proxies, including the preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information it furnishes to you. PlanetOut will furnish copies of solicitation materials to banks, brokerage houses, fiduciaries and custodians who hold in their names shares of its common stock which are beneficially owned by others so that they may forward the solicitation materials to the beneficial owners. PlanetOut may reimburse persons who represent beneficial owners of its common stock for their costs of forwarding solicitation materials. PlanetOut may supplement the original solicitation of proxies by mail by other methods such as telephone, electronic mail or personal solicitation by its directors, officers or employees. PlanetOut will not pay additional compensation to its directors, officers or employees for these services.

 

Who may vote?  You may vote if you owned shares of PlanetOut’s common stock at the close of business on          , 2009. You may vote each share that you owned on that date on each matter presented at the meeting. As of          , 2009, we had           shares outstanding entitled to one vote per share.

 

What am I voting on?  You are voting on:

 

 

What vote is required?  A majority of our outstanding shares of common stock entitled to vote must be present in person or represented by proxy to hold the meeting. The affirmative vote of the holders of at least a majority of the outstanding shares of PlanetOut common stock will be needed to approve the merger. A majority of the shares of common stock present in person or represented by proxy is necessary to approve an adjournment of the meeting.

 

Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “FOR” both proposals.

 

 

You may grant a proxy to vote your shares by means of the telephone or on the Internet. The law of the State of Delaware, under which PlanetOut is incorporated, specifically permits electronically transmitted proxies, if the proxy contains or is submitted with information from which the inspectors of election can determine that the proxy was authorized by you.

 

The telephone and Internet voting procedures below are designed to authenticate stockholders’ identities, to allow you to grant a proxy to vote your shares and to confirm that your instructions have been recorded properly. If you are granting a proxy to vote via the Internet, you should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, that you will be responsible for paying.

 

Stockholders of record may grant a proxy to vote shares of PlanetOut’s common stock by using a touch-tone telephone to call 1-800-560-1965 or via the Internet by accessing the website www.eproxy.com/lgbt. You will be required to enter a series of numbers that are located on your proxy card and the last four digits of your social security number or tax identification number. If voting via the Internet, you will then be asked to complete an electronic proxy card. Your votes will be generated on the computer screen and you will be prompted to submit or revise them as desired. Votes submitted by telephone or via the Internet must be received before   a.m., Pacific Time, on          , 2009. Submitting your proxy by telephone or via the Internet will not affect your right to vote in person should you decide to attend the special meeting.

 

Most beneficial owners whose stock is held in “street name” receive instructions for granting proxies from their banks, brokers or other agents, rather than PlanetOut’s proxy card. A number of brokers and banks are participating in a program provided through Broadridge Investor Communication Solution (“Broadridge”) that offers the means to grant proxies to vote shares by means of the Internet. If your shares are held in an account with a broker or bank participating in the Broadridge program, you may go to www.proxyvote.com to grant a proxy to vote your shares by means of the Internet. Submitting your proxy via the Internet will not affect your right to vote in person should you decide to attend the special meeting. A beneficial owner who wishes to vote at the meeting must have an appropriate proxy from his or her broker or bank appointing that beneficial owner as attorney-in-fact for purposes of voting the beneficially held shares at the meeting.

 

Yes. You can revoke your proxy by:

 

 

Periodically over the company’s history, PlanetOut’s board of directors and management have considered the company’s available strategic alternatives, both in connection with the day-to-day operation of the company and in response to unsolicited expressions of interest from third parties.

 

In January 2007, following consideration of the strategic alternatives available to it, the company engaged Jefferies & Company, Inc. to explore a potential sale of the company. During that process, Jefferies contacted twelve prospective strategic and financial buyers. Management meetings were held with five of these parties. Ultimately none of the contacted parties pursued the opportunity to acquire the company, largely due to each party’s inability to arrive at a valuation at or above the then current market price.

 

During the spring of 2007, the company continued to receive unsolicited inquiries concerning potential strategic transactions involving either portions or the entire business of the company, including an expression of interest in exploring a potential transaction from the principals of Here Networks and Regent Releasing. During this period, the board and management considered a variety of available strategic and financial alternatives to address future financing needs, especially given the pending due date of the company’s loans from Orix Venture Finance LLC. The company consulted with a number of potential strategic financial advisors, terminated its advisory relationship with Jefferies in April 2007 and engaged Allen as its strategic financial advisor in May 2007.

 

In May 2007, Mr. Colichman of Here Networks and Regent Releasing, and Karen Magee and Dan Miller, PlanetOut’s Chief Executive Officer and then Chief Financial Officer, respectively, had a conference call in which Mr. Colichman described his company’s businesses and his plans for them going forward. In a subsequent meeting, Mr. Colichman and his colleague, David Gould, proposed a marketing agreement between Regent Releasing and PlanetOut. In light of the company’s financing needs and the limitations of the proposed marketing arrangements, the company decided not to pursue Mr. Colichman’s proposal and to proceed with an equity financing.

 

On July 9, 2007, PlanetOut completed a $26.2 million equity financing, of which approximately $14 million was used to retire PlanetOut’s outstanding debt, including the Orix loans.

 

Throughout the summer and the fall of 2007, management implemented its strategy to focus and streamline its operations in an effort to reduce costs and future capital requirements and to invest in the segments of PlanetOut’s business with the greatest potential for synergy and growth. In support of this strategy, in July 2007, the company announced the shutdown of its international operations. In December 2007, the company sold its travel business, RSVP Productions, Inc. The company was also actively seeking the sale of its adult business, SpecPub, Inc.

 

In November and December 2007, Messrs. Colichman and Jarchow had meetings and conversations with the management of PlanetOut concerning a possible combination of the companies. PlanetOut’s board and management decided the company needed to engage in a broader process to identify other potential acquirers and other available alternatives for the company.

 

Following a review in December 2007 of the company’s preliminary budget for 2008 and available financial and strategic options, in January 2008, the board signed a new engagement letter for Allen to assist the company in evaluating its strategic alternatives, including a possible sale of the company.

 

During its meeting on January 11, 2008, the board formed a special committee, comprised of Stephen Davis, John Marcom, H. William Jesse, Jr. and Mr. Kleweno, with the committee chaired by Mr. Kleweno.

 

In January and February 2008, Allen contacted 55 parties who might have an interest in acquiring the company, which resulted in the distribution of a detailed information memorandum to 43 of those parties.

 

Based on concerns about projected losses in PlanetOut’s publishing business and a lack of interest in the publishing assets exhibited by most prospective buyers, in February 2008, PlanetOut decided to pursue a sale of the publishing assets independent of a sale of the company. Following management meetings and discussions with potential acquirers of the publishing assets during February and March 2008, the company entered into a binding term sheet on April 7, 2008 with Regent Releasing, an affiliate of Here Networks, which led to the sale of

PlanetOut’s magazine and book publishing businesses, including the operations of its wholly owned subsidiaries LPI and SpecPub, to Regent Entertainment Media on August 13, 2008. The sale was made pursuant to a put/call agreement entered into on August 12, 2008, among Regent Releasing, Regent Entertainment Media, PlanetOut, LPI and SpecPub, and a marketing agreement between Regent Releasing and PlanetOut. Under the put/call agreement, either LPI and SpecPub or Regent Entertainment Media could cause the closing of the sale to occur by notifying the other party on or before August 21, 2008, of its intent to close the sale on or before August 31, 2008. On August 12, 2008, LPI and SPI notified Regent Entertainment Media that the closing would occur on August 13, 2008. The put/call agreement and marketing agreement included cash payments of $6.5 million made between April 30, 2008 and September 15, 2008 by Regent Releasing and Regent Entertainment Media, the assumption by Regent Entertainment Media of the majority of the operating liabilities of PlanetOut’s magazine and book publishing business, and the agreement of PlanetOut to provide marketing and advertising for Regent Releasing’s films and other products across PlanetOut’s online and, prior to closing of the put/call transaction, print platforms and publications, and at PlanetOut’s events from May 2008 through March 31, 2009.

 

At the same time, the company continued to pursue the sales process for the online portion of the business. In late March 2008, Allen provided financial statements for the online portion of the business to potential bidders. The company also set a deadline of early April 2008 for initial indications of interest from potential bidders.

 

At the beginning of April 2008, the company received five initial indications of interest for a purchase of the online business. A number of these indications of interest proposed an acquisition of the assets of the company, which provided specific complications for the company due to the cost and delay of liquidating the company and distributing the proceeds to the stockholders.

 

During its meeting on April 17, 2008, the special committee discussed the five indications of interest as well as other options available to the company, including the possibility that the company might remain independent if none of the offers reflected fair value for the company’s stockholders.

 

One of the potential bidders was dropped from the process immediately because its valuation was substantially below the valuation offered by the other potential bidders. Allen was directed to continue discussions with the other four potential bidders. Following the deadline, the company received indications of interest from Regent Entertainment Media and a sixth party. On further review and diligence as to the six indications of interest, one potential bidder, a competitor, was dropped from the process because its indication of interest offered a lower value prospect for the company’s stockholders and because of questions of its motivations for being in the process. Another potential bidder was dropped because of the value it was offering. This left four potential bidders in the process.

 

In May and June 2008, the company held management meetings with Regent Entertainment Media and two of the three other parties in the process and had a conference call with the third. The third party fell out of the process shortly after the conference call. The remaining two parties other than Regent Entertainment Media will be referred to below as the first and second alternate parties.

 

On July 2, 2008, the first alternate party proposed to purchase the company for $4.25 per share. On July 18, 2008, Allen contacted Regent Entertainment Media and the second alternate party to try to get firm offers from them.

 

On July 22, 2008, Regent Entertainment Media proposed an acquisition of PlanetOut in which a minimum of 65% of PlanetOut’s stockholders would roll their stake into a private company and remain investors in the new company, but did not give a price. Regent Entertainment Media was requested to provide more detail as to its proposal.

 

During its meeting on July 24, 2008, the board received an update from Allen on the status of discussions with the interested parties.

 

On July 24, 2008, a representative from the second alternate party sent Mr. Kleweno a presentation that their team had prepared for potential partners, summarizing their strategic perspective on a rebuilt PlanetOut, and requested an opportunity to discuss their perspectives with Mr. Kleweno.

 

On July 25, 2008, Regent Entertainment Media proposed an acquisition of PlanetOut at $5.00 per share in cash, and continued to propose that some of PlanetOut’s largest stockholders remain investors in the new private company.

On July 25, 2008, the company also received a proposal from the second alternate party to acquire the company for $3.00 per share in cash. The second alternate party fell out of the process shortly thereafter given its lower valuation and the company’s concerns about the second alternate party’s ability to obtain financing for the transaction.

 

In response to a request to provide more detail as to its July 25, 2008 proposal, on July 31, 2008, Regent Entertainment Media proposed an acquisition of PlanetOut at $5.00 per share, requiring that 40% of the company’s stockholders remain investors in the new company.

 

On August 11, 2008, the special committee discussed a revised offer submitted by the first alternate party at $4.60 per share which required a period of exclusivity, reimbursement by PlanetOut of the first alternate party’s expenses if no transaction resulted and approval of the transaction by more than 50% of the company’s stockholders at the time of signing of the merger agreement. The committee expressed significant concerns about the first alternate party’s offer, including its ability to obtain financing for the transaction, its requirement for exclusivity and expense reimbursement and its requirement that a majority of stockholders approve the transaction prior to executing a definitive agreement.

 

During a conference call on August 12, 2008, members of the special committee and Ms. Magee met with representatives from Regent Entertainment Media to review their strategic plans and financial information for the combined companies.

 

Due to concerns that the Regent Entertainment Media proposal required an agreement by a minimum number of stockholders to remain as investors in the new company, PlanetOut began negotiating the terms of an acquisition with the first alternate party and on August 18, 2008, sent a draft term sheet and a limited exclusivity agreement. The company also continued to review plans through which the company could continue to operate its online business on a stand-alone basis.

 

On August 19, 2008, Regent Entertainment Media proposed the acquisition of PlanetOut at $4.50 per share in cash, requiring that at least 20% of its stockholders remain investors in the new company. On August 19, 2008, Mr. Kleweno called Mr. Colichman to explain that his offer was attractive, but would need to be increased if Regent Entertainment Media wanted to acquire the business.

 

On August 20, 2008, Regent Entertainment Media proposed the acquisition of 100% of the company’s shares at $5.00 per share in cash with no requirement that stockholders remain as investors in the new company, and requested a 60-day exclusivity period.

 

During its meeting on August 21, 2008, the board decided to pursue the negotiation of the definitive terms of a transaction with Regent Entertainment Media, having considered and discussed the first alternate party’s unwillingness to raise its offer and the continuing concern about its ability to finance the offer.

 

On August 22, 2008, Mr. Kleweno called Mr. Colichman to inform him that the company would like to move forward with the Regent Entertainment Media offer. Over the next few days, the parties proceeded to negotiate the terms of an acquisition and an exclusivity period.

 

On August 25, 2008, the special committee, concluding that to proceed with Regent Entertainment Media PlanetOut would need to agree to Regent Entertainment Media’s demands for a limited period of exclusivity, approved entering into a 21-day exclusivity agreement with Regent Entertainment Media with two potential one-week extensions upon Regent Entertainment Media meeting certain milestones related to negotiating the details of the transaction.

 

On August 27, 2008, the parties reached preliminary agreement on proposed terms for the acquisition of the company for $5.00 per share in cash and entered into the exclusivity agreement.

 

On September 3 and 4, 2008, due diligence meetings were held with Regent Entertainment Media in PlanetOut’s San Francisco offices. In connection with these meetings, PlanetOut updated the financial information provided in March 2008.

On September 9, 2008, Regent Entertainment Media informed the company that it had analyzed the information received and concluded that it could no longer pursue a transaction at $5.00 per share based on concerns about the cash available and necessary for the combined company.

 

On September 17, 2008, Allen provided the board with an update on the status of the continuing negotiations with Regent Entertainment Media.

 

On October 2, 2008, Regent Entertainment Media proposed an acquisition of the company in which certain stockholders would be requested to roll their stock into a new private company and the remaining stockholders would receive between a minimum of $2.50 per share and a maximum of $5.00 a share, depending upon how many stockholders elected to roll their holdings into a new private entity.

 

The exclusivity agreement having expired, on that same date, Allen called the first alternate party and the second alternate party to determine whether they might have continued interest in an acquisition of the company.

 

During the October 6, 2008 special committee meeting, Allen led a discussion concerning the status of negotiations with Regent Entertainment Media and the first and second alternate parties, including a discussion regarding the terms for the transaction proposed by Regent Entertainment Media on October 2, 2008.

 

On October 9, 2008, Mr Kleweno discussed with the second alternate party the requirement for a cash offer and the need for that party to identify the source of financing for an acquisition.

 

On October 14, 2008, Mr. Kleweno discussed with the first alternate party their continued interest in the company. The first alternate party indicated that they required an exclusivity period of ten days to begin further conversations and requested significant additional diligence information. There were continuing concerns about the ability of the first alternate party to secure financing for the transaction.

 

On October 15, 2008, at the request of management of PlanetOut, representatives of the company’s counsel, Howard Rice, spoke with a representative of Regent Entertainment Media’s counsel, Mayer Brown LLP, about a potential stock-for-stock transaction with Regent Entertainment Media in which Regent Entertainment Media would merge certain businesses plus $6 million of cash into PlanetOut for a controlling stake in the resulting company. The proposal was to also provide some downside protection for PlanetOut’s stockholders in the event of a liquidation or sale of the company below an agreed price.

 

On October 16, 2008, representatives of Regent Entertainment Media met with representatives of Allen to share a projected financial plan for the combined company.

 

During the October 20, 2008 special committee meeting, Mr. Kleweno led a discussion concerning the status of negotiations with Regent Entertainment Media. Mr. Steimle provided an update concerning the company’s preliminary financial results for the third quarter of 2008 and the projected cash position of the company. Mr. Steimle also led a discussion regarding an analysis he had done regarding the viability of a wind-down of the company’s operations and liquidation of the company.

 

On October 20, 2008, Regent Entertainment Media proposed merging certain businesses into PlanetOut in a stock-for-stock merger, with the HMI Owners being issued 80% of the company on a pro forma basis. In addition, Regent Entertainment Media proposed the issuance of a security which would provide downside protection to PlanetOut’s stockholders to the extent the company was liquidated or sold for less than $5.00 per share.

 

On October 22, 2008, Mr. Kleweno called the first alternate party to tell it that the company was unwilling to give it a period of exclusivity.

 

On October 23, 2008, Allen met with the second alternate party. The second alternate party still could not provide evidence of its ability to finance a transaction.

 

During the October 29, 2008 special committee meeting, Mr. Kleweno led a discussion concerning the status of negotiations with Regent Entertainment Media, including a discussion regarding the proposed terms for the transaction Regent Entertainment Media proposed on October 20, 2008.

 

During a November 10, 2008 special committee meeting, Allen led a discussion concerning the status of continuing negotiations with Regent Entertainment Media, including a discussion of the October 20, 2008 proposal

by Regent Entertainment Media. The special committee unanimously approved continuing negotiations with Regent Entertainment Media regarding its proposal.

 

On November 11, 12 and 13, 2008, PlanetOut and Regent Entertainment Media met at Regent Entertainment Media’s Los Angeles offices to conduct diligence on their respective businesses and financial positions. In connection with these meetings, PlanetOut provided Regent Entertainment Media with updated financial information.

 

During its November 13, 2008 meeting, the board approved continuing negotiations based on a possible alternate structure which would have PlanetOut merging into Regent Entertainment Media rather than Regent Entertainment Media merging into PlanetOut. In the ensuing weeks, the parties had further diligence conference calls and meetings to discuss the structure of the proposed transaction, finally reaching agreement on the proposed business combination structure being presented to the stockholders, including the creation of Here Media.

 

On December 1, 2008, the respective chairmen of PlanetOut and Regent Entertainment Media, PlanetOut management, and representatives from Howard Rice and Mayer Brown LLP had a conference call for the purpose of negotiating the terms of a definitive merger agreement.

 

On December 3, 4 and 5, 2008, PlanetOut and Regent Entertainment Media met at Regent Entertainment Media’s Los Angeles offices to conduct further diligence on both companies and to analyze the financial position of the combined company. During the course of those meetings, Regent Entertainment Media proposed an alternative structure in which PlanetOut would remain a public company but would sell its assets in exchange for a 20% interest in Here Media. That proposal was considered and rejected by the special committee on December 8, 2008, and after discussions with Allen, on December 12, 2008, Regent Entertainment Media agreed to proceed with the structure that is being proposed to the stockholders.

 

During the period from December 5, 2008 through January 4, 2009, the respective management and counsel for the parties had numerous discussions regarding the terms of the definitive agreement. The parties also negotiated the definitive terms of the special stock.

 

During a conference call on December 18, 2008, the chairmen of PlanetOut and Regent Entertainment Media, PlanetOut management, and representatives from Howard Rice and Mayer Brown LLP negotiated the terms of the merger agreement and discussed PlanetOut’s reduced expectations for 2009 financial performance.

 

On January 2, 2009, PlanetOut’s management and Allen discussed concerns that the downside protection of the special stock that had initially been proposed would only be operative in connection with the sale of PlanetOut solely for cash.

 

On January 3 and 4, 2009, Allen negotiated the terms of the special stock with Mr. Jarchow. Mr. Jarchow would only agree to expand the scope of the protection of the special stock beyond a sale of the company solely for cash to also cover a sale for cash and publicly traded stock if the price protection were decreased to $4.00 per share. Mr. Jarchow also proposed that in exchange for Messrs. Jarchow’s and Colichman’s election to receive salaries of $1.00 for the first year following the consummation of the proposed business combination, Here Media would reduce the amount of cash to be contributed to the combined company to $5,200,000 less up to $500,000 for expenses related to the transaction.

 

During its January 4, 2009 meeting, Mr. Kleweno and Ms. Magee discussed with the board the updated terms of the deal, including receiving broader downside protection for the stockholders which could only be obtained in exchange for agreeing to decrease the price protection to $4.00 a share and the reduction of the minimum amount of cash to be contributed. It was concluded that the changes were in the best interest of the stockholders.

 

After having heard management’s description of the transaction and the fairness presentations of Allen and Viant and having received the opinions of Allen and Viant as to the fairness from a financial point of view of the consideration being received by the stockholders in the transaction, PlanetOut’s board approved the acquisition on January 7, 2009. The parties executed the merger agreement on January 8, 2009.

 

The Board of Directors Recommends
a Vote in Favor of Adoption of the Merger Agreement and Approval of the Merger

 

PlanetOut’s board of directors has approved the merger agreement and determined that the merger is advisable and in the best interests of PlanetOut and its stockholders. Accordingly, the board of directors recommends that PlanetOut stockholders vote “FOR” the proposal to adopt the merger agreement and approve the merger and, if necessary, adjournment of the special meeting to a later date for that purpose.

 

In reaching its decision to approve the merger agreement, the PlanetOut board of directors, with the assistance of PlanetOut’s management and financial and legal advisors, considered and analyzed a number of factors, including those reviewed by the board of directors at the meetings described above. The PlanetOut board of directors considered the following material factors in determining to approve the merger agreement and the proposed business combination:

 

 

 

 

 

The PlanetOut board of directors also identified and considered a number of potentially adverse factors concerning the merger, including the following:

 

 

 

 

The PlanetOut board of directors also considered the following factors:

 

 

After taking into account all of the factors set forth above, the PlanetOut board of directors believed that the expected benefits of the proposed business combination outweighed the risks and that the proposed business combination is in the best interests of PlanetOut and its stockholders.

The foregoing discussion of information and factors considered by the PlanetOut board of directors is not intended to be exhaustive but is believed to include the material factors considered by the PlanetOut board of directors. In view of the wide variety of factors considered by the PlanetOut board of directors, the PlanetOut board of directors did not find it practicable to quantify or otherwise assign relative weight to the specific factors considered. In addition, the PlanetOut board of directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the PlanetOut board of directors may have given different weight to different factors.

 

In considering the recommendation of PlanetOut’s board of directors with respect to the merger agreement, PlanetOut stockholders should be aware that some directors, officers and stockholders of PlanetOut have interests in the proposed business combination that are different from, or are in addition to, the interests of PlanetOut stockholders generally. Please see “— Interests of Directors, Executive Officers and Principal Stockholders in the Merger” for a discussion of these differing or additional interests.

 

THE PLANETOUT BOARD OF DIRECTORS RECOMMENDS THAT PLANETOUT STOCKHOLDERS VOTE “FOR” ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.

 

The HMI Entities’ business strategy focuses on the distribution of professionally produced content to niche markets across multiple platforms, including cable and satellite television, print media and the Internet. The HMI Entities selected the LGBT community as the first target market for the implementation of their niche market media model because it is an affluent, engaged and relatively under served segment of the general population. The HMI Entities currently operate the here! Network, which offers original movies, series, documentaries and music specials tailored for the LGBT community in the United States, and publish magazines, including The Advocate, Out and HIVPlus, which are aimed primarily at the LGBT market. The HMI Entities believe their combination with PlanetOut will significantly increase their distribution capabilities by giving them access to one of the largest and most well-known online destinations for the gay and lesbian community.

 

The HMI Entities believe there are strategic benefits to combining their existing content and technology with PlanetOut’s critical mass of online subscribers and website visitors. The HMI Entities plan to make professionally produced content they currently provide unedited and commercial free on the here! Network available without charge to viewers on the Gay.com website through an ad-supported video player. The HMI Entities believe that by attracting viewers seeking professionally produced, culturally customized video content, with limited commercial interruption, they are able to offer advertisers the opportunity to reach a commercially attractive, engaged audience. The HMI Entities also plan to attract premium subscribers (who pay higher subscription fees) to Gay.com by offering here! Network’s premium online SVOD services to those subscribers.

 

In addition to the perceived strategic benefits to the combination, the HMI Entities believe the proposed business combination offers opportunities for substantial cost savings because they have existing staff that can perform many of the functions currently performed by PlanetOut employees, particularly in the areas of content production, sales and information technology. For example, the HMI Entities plan to create an integrated advertising sales team that will focus on video, print and digital platforms across all of the combined companies’ business activities.

 

Neither PlanetOut nor the HMI Entities have a history of making detailed multiple-year projections of their financial performance or, in the case of PlanetOut, of providing publicly disseminated earnings forecasts, due, among other reasons, to the inherent uncertainty and unpredictability of the underlying assumptions and estimates entailed in formulating such projections and forecasts. For the same reasons, Here Media does not intend to provide projections of its future net income or other aspects of its future performance following completion of the proposed business combination. Certain financial projections were prepared by PlanetOut and the HMI Entities for use by Allen and Viant in connection with the preparation of their respective opinions described in this prospectus/proxy statement and attached as appendices hereto. These included projections that the free cash flows of the combined company for the years 2009, 2010 and 2011 would be approximately $(3.3) million, $4.6 million and $7.7 million,

respectively. Free cash flow is defined for this purpose as operating cash flow, net of changes in working capital, minus capital expenditures. Neither the provision of such projections nor their consideration by Allen or Viant in connection with the preparation of their respective opinions, however, should be regarded as an indication that any of PlanetOut, the HMI Entities, Here Media, Allen, Viant or any other recipient of the projections considered, or now considers, them to be reliable predictions of future results. Nor were these projections used by PlanetOut, the HMI Entities or the HMI Owners in negotiating the terms of the proposed business combination. The projections were instead provided to convey to Allen and Viant the intended business strategy of the combined company and possible results of that strategy under certain assumptions the respective managements believed to be reasonable. In addition, it should be noted that the projections cover multiple years, and, inherently, are more uncertain with each successive year.

 

The projections provided by PlanetOut and the HMI Entities to Allen and Viant reflected numerous estimates and assumptions with respect to industry performance, general business, economic, market and financial conditions, as well as matters specific to the businesses of PlanetOut and the HMI Entities, many of which are beyond their control. These estimates and assumptions included the following:

 

 

 

 

There can be no assurance that the projected results will be realized or that actual results, including projected cost savings, will not be substantially different than projected. It should also be noted that the projections provided to Allen and Viant were not prepared with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither PlanetOut’s and the HMI Entities’ independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

 

Allen has acted as financial advisor to PlanetOut with respect to the proposed business combination. In connection with Allen’s engagement as financial advisor, PlanetOut requested that Allen evaluate the fairness, from a financial point of view, of the merger consideration to be received by PlanetOut’s stockholders. On January 7, 2009, Allen delivered its oral opinion, subsequently confirmed in writing, to the board of directors of PlanetOut to the effect that, as of the date of its opinion and based upon and subject to the qualifications, limitations and assumptions set forth therein, the merger consideration to be received by the stockholders of PlanetOut was fair, from a financial point of view, to PlanetOut’s stockholders.

This summary of Allen’s written opinion is qualified in its entirety by reference to the full text of Allen’s written opinion, dated January 7, 2009, attached as Annex A. You are urged to read Allen’s written opinion carefully and in its entirety. Allen’s written opinion addresses only the fairness, from a financial point of view, of the merger consideration to PlanetOut’s stockholders, as of the date of Allen’s written opinion, and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the proposed business combination.

 

In arriving at its opinion, Allen, among other things:

 

 

In connection with its review, Allen did not assume any responsibility for independent verification of any of the information utilized in its analyses and relied upon and assumed the accuracy and completeness of all of the financial, accounting, tax and other information that was available to Allen from public sources, that was provided to it by PlanetOut and/or the HMI Entities or their respective representatives, or that was otherwise reviewed by Allen. With respect to the projected business information and financial results that Allen reviewed, Allen was advised by the managements of PlanetOut and the HMI Entities, and Allen assumed that such forecasts had been reasonably prepared in good faith reflecting the best currently available estimates and judgments of the managements of PlanetOut and the HMI Entities as to the future financial performance of PlanetOut, the HMI Entities and Here Media. Allen assumed no responsibility for such forecasts or the assumptions on which they were based.

 

Allen also assumed, with PlanetOut’s consent, that the proposed business combination would be consummated in accordance with the terms and conditions set forth in the draft merger agreement and the draft certificate of incorporation attached thereto that it reviewed. Allen neither conducted a physical inspection of the properties and facilities of PlanetOut or the HMI Entities nor, except as specifically set forth in the opinion, made or obtained any evaluations or appraisals of the assets or liabilities of PlanetOut or the HMI Entities, or conducted any analysis

concerning the solvency of PlanetOut. Allen’s opinion addressed only the fairness, from a financial point of view, of the merger consideration to PlanetOut’s stockholders, and did not address any other aspect or implication of the proposed business combination or any other agreement, arrangement or understanding entered into in connection with the proposed business combination or otherwise. Allen’s opinion is necessarily based upon information made available to it as of the date of its opinion, and upon financial, economic, market and other conditions as they existed and could be evaluated on the date of Allen’s opinion. Allen’s opinion did not address the relative merits of the proposed business combination as compared to other business strategies that might be available to PlanetOut, nor did it address PlanetOut’s underlying business decision to proceed with the proposed business combination. Allen did not express an opinion about the fairness of any compensation payable to any of PlanetOut’s officers, directors or employees in connection with the proposed business combination, relative to the compensation payable to the stockholders.

 

In preparing its opinion, Allen performed a number of financial and comparative analyses, including those further described below. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Allen believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading view of the processes underlying its opinion. No company or transaction used in the analyses performed by Allen as a comparison is identical to PlanetOut or the contemplated proposed business combination. In addition, Allen may have given some analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuation resulting from any particular analysis described below should not be taken to be Allen’s view of the actual value of PlanetOut. The analyses performed by Allen are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses or assets do not purport to be appraisals or to necessarily reflect the prices at which businesses or assets may actually be sold. The analyses performed were prepared solely as part of Allen’s analysis of the fairness, from a financial point of view, of the merger consideration to PlanetOut’s stockholders, and were provided to PlanetOut’s board of directors in connection with the delivery of Allen’s opinion.

 

Financial Analyses of Allen

 

The following is a summary of material financial analyses performed by Allen in connection with the preparation of its opinion, and reviewed with PlanetOut’s board of directors at a meeting held on January 7, 2009. Certain of the following summaries of financial analyses that were performed by Allen include information presented in tabular format. In order to understand fully the material financial analyses that were performed by Allen, the tables should be read together with the text of each summary. The tables alone do not constitute a complete description of the material financial analyses. Allen analyzed the pro forma value of Here Media in order to place a range of potential values on the merger consideration and analyzed the value of PlanetOut in order to determine if the merger consideration to be received by the stockholders of PlanetOut was fair, from a financial point of view, to PlanetOut’s stockholders.

 

Valuation of Here Media

 

Allen used the following valuation analyses in determining a range of pro forma enterprise values for Here Media after giving effect to the completion of the merger: (1) discounted cash flow analysis; (2) comparable company multiples analysis; and (3) sum of the parts analysis.

 

(1) Discounted Cash Flow Analysis.  Allen’s discounted cash flow approach was based upon certain financial projections and estimates for the fiscal years 2009 to 2011 which were provided by the management of PlanetOut and the HMI Entities. Allen’s analyses utilized the projected cash flows of PlanetOut and the HMI Entities discounted back to present value based on a range of risk-adjusted discount rates. Allen used discount rates ranging from 14% to 18% and used terminal estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples ranging from 4.0x to 6.0x. The discount rates for the Here Media discounted cash flow analysis were calculated using the weighted average cost of capital based upon (i) comparable public diversified media companies’ capital structures and equity betas, (ii) the U.S. 10-year treasury rates as of January 5, 2009, (iii) the equity market risk premium, (iv) the equity size risk premium for companies of comparable size and

(v) an assumed 40% marginal tax rate. The terminal EBITDA multiples were determined by analyzing the Enterprise Value/2009E and 2010E EBITDA multiples for comparable public diversified media companies. Based on projections provided to Allen by Here Media’s and PlanetOut’s management teams, Allen used 2009E, 2010E and 2011E free cash flow estimates of $(3.3) million, $4.6 million and $7.7 million, respectively, as well as 2011E EBITDA of $21.9 million. The resulting discounted cash flow analysis implied an enterprise value range of Here Media of between $59 million and $95 million.

 

(2) Comparable Company Multiples Analysis.  Allen analyzed and examined EBITDA multiples and revenue multiples for publicly traded diversified media companies which Allen deemed most comparable to Here Media, based on having business segments comparable to the business segments of Here Media. These companies included:

 

 

Allen calculated the ratio of enterprise value to EBITDA and enterprise value to revenue on a projected calendar year basis for 2008 through 2010 for the comparable companies. Based on its analysis of the comparable companies, Allen selected a representative range of multiples and applied the multiples to relevant financial data of Here Media to calculate a range of implied enterprise values. Given Here Media’s projected 2009 performance, Allen focused its analysis on the EBITDA multiples for 2010 and the revenue multiples for 2009. Allen’s analysis is set forth in the table below.

 

 

(3) Sum of the Parts Analysis.

 

Comparable Company Multiples Analysis.  Allen analyzed and examined revenue multiples for publicly traded companies in each of the online, cable, filmed entertainment and magazine sectors that Allen deemed most comparable to the four operating divisions of Here Media based upon their primary line(s) of business being comparable to the line(s) of business of the specific Here Media segment against which they were being compared. Additionally, for the public online comparable companies, they were selected based upon their enterprise value as of January 5, 2009 being between $0 and $600 million.

 

Allen calculated the ratio of enterprise value to revenue on a projected calendar year basis for 2009 for the comparable companies in each sector. Based on its analysis of the comparable companies, Allen selected a representative range of multiples for each sector and then conducted a sum of the parts analysis. This analysis derived an implied enterprise value for Here Media of between $27 million and $67 million, which equated to a range of multiples on Here Media’s consolidated 2009 revenues from 0.5x to 1.2x.

 

Comparable Precedent Transactions Analysis.  Allen reviewed selected precedent transactions within each of the online, cable, filmed entertainment and magazine sectors that had announcement dates between 2004 and 2008 (except for online precedent transactions which included transactions that had announcement dates over the prior three years), which had publicly-disclosed information or industry analyst estimates from which purchase price multiples could be derived and where the acquired company’s primary line(s) of business were comparable to the line(s) of business of the specific Here Media segment against which they were being compared.

For each company, Allen calculated the ratio of (i) enterprise value to revenue for the last twelve months; (ii) enterprise value to EBITDA for the last twelve months; (iii) enterprise value to estimated revenue over the following fiscal year; and (iv) enterprise value to estimated EBITDA over the following fiscal year. Based on its analysis of the comparable precedent transactions, Allen selected a representative range of multiples for each sector and then conducted a sum of the parts analysis. This analysis derived an implied enterprise value of Here Media of between $52 million and $117 million, which equated to a range of multiples on Here Media’s consolidated 2009 revenues from 0.9x to 2.0x.

 

Based on the various financial analyses summarized above and its knowledge of the industry and the business of PlanetOut, Allen determined that the range of pro forma enterprise values for Here Media was between $27 million and $95 million. This resulted in a pro forma equity value per share of Here Media common stock of between $1.49 and $4.80.

 

Fairness Analysis

 

Allen used the following methodologies to determine that the merger consideration to be received by PlanetOut’s stockholders represented equity values per share and revenue multiples that were in line with the results derived from the following valuation analyses: (1) comparable company multiples analysis; (2) comparable precedent transactions analysis and (3) comparable company premiums analysis.

 

(1) Comparable Company Multiples Analysis.  Allen analyzed and examined revenue multiples for companies within the online media sector which Allen deemed most comparable to PlanetOut. Specifically, Allen analyzed the common stock prices and market multiples of the following comparable publicly-traded companies:

 

 

Allen calculated the ratio of enterprise value to revenue on a projected calendar year basis for 2008 and 2009 for each of the companies identified above. Utilizing the numbers obtained from publicly available information, Wall Street research estimates and PlanetOut press releases, Allen determined that the merger consideration implied revenue multiples were within or above the selected range of representative multiples of the most comparable publicly traded companies in the online media sector.

 

 

(2) Comparable Precedent Transactions Analysis.  Allen reviewed selected precedent transactions within the online media sector that had announcement dates between 2006 and 2008 and which had publicly-disclosed

information or industry analyst estimates from which purchase price multiples could be derived. For each transaction, Allen analyzed the enterprise value of the acquired company compared to the revenue and EBITDA of such company for the last twelve months and the following fiscal year, where available. Transactions analyzed included:

 

 

As indicated by the chart below, Allen determined that the merger consideration implied revenue multiples for PlanetOut that were slightly below or within the range of multiples paid in the most comparable transactions in the online media sector, based on Allen’s review of Wall Street research and PlanetOut management’s estimates. Because of PlanetOut’s 2008 and projected 2009 performance, Allen did not view the EBITDA analysis to be meaningful. In analyzing the multiples paid in comparable transactions, Allen noted that most of the precedent transactions occurred prior to the recent decline in equity markets. As a result, Allen gave less consideration to the multiples derived from the precedent transaction analysis, based on its belief that had such precedent transactions occurred in the present economic environment, the multiples would have been discounted to reflect such market declines.

 

 

(3) Comparable Company Premiums Analysis.  Allen analyzed and examined the transaction premiums paid in all completed acquisitions of domestic companies, excluding financial institutions, which were acquired from January 1, 2004 through December 31, 2008.

 

Allen also compared the merger consideration to PlanetOut’s market capitalization and enterprise value, comparing it with (a) the closing price on January 5, 2009 and (b) the four-week average closing prices. Allen determined that the pro forma Here Media equity value per share represented a premium of between 149% and 700% over the closing share price of PlanetOut on January 5, 2009 and a premium of between 250% and 1,000% over the four-week average closing price. Allen found that the merger consideration represented a premium to PlanetOut’s market price at the top end of the range of estimated premiums paid in comparable mergers and acquisitions.

 

General

 

Allen’s opinion and presentation to PlanetOut’s board of directors was one of many factors that PlanetOut’s board of directors took into account in making its decision. Consequently, the analyses described above should not be viewed as determinative of the opinion of PlanetOut’s board of directors in determining the fairness, from a financial point of view, of the merger consideration to PlanetOut’s stockholders. PlanetOut and the HMI Entities arrived at the amount of consideration to be paid to the PlanetOut stockholders as a result of the proposed merger through extensive negotiation. Allen did not determine the amount of merger consideration to be paid to the PlanetOut stockholders in the merger nor did it recommend the amount of merger consideration to be paid to such stockholders.

 

Pursuant to an engagement letter dated January 14, 2008, as amended by the amendment thereto, executed on January 7, 2009 (the “Engagement Letter”), PlanetOut’s board of directors engaged Allen to assist PlanetOut in a possible sale or disposition of all or substantially all of the equity or assets of PlanetOut. Allen’s services under the Engagement Letter included (i) acting as PlanetOut’s financial advisor, (ii) advising PlanetOut with respect to its analysis of the proposed business combination, (iii) advising PlanetOut as to its view of any appropriate and alternative courses of action relating to the proposed business combination, (iv) assisting PlanetOut in structuring any such business combination, and (v) delivering to PlanetOut’s board of directors its opinion as to the fairness of the merger consideration to the stockholders of PlanetOut, from a financial point of view. Allen was selected by PlanetOut’s board of directors based on Allen’s qualifications and reputation. Allen, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and related financings, bankruptcy reorganizations and similar recapitalizations, negotiated underwritings, secondary distributions of listed and unlisted securities, and valuations for corporate and other purposes.

 

Except as described herein, Allen does not have and has not had any material relationships involving the payment or receipt of compensation between Allen and PlanetOut, the HMI Entities or any of their respective affiliates during the last two years. Pursuant to an engagement letter, dated May 14, 2007, between Allen and PlanetOut, Allen has provided financial advisory services to PlanetOut, including acting as placement agent in connection with PlanetOut’s private placement of $26.2 million of common stock consummated in July 2007. In addition, Allen advised PlanetOut in connection with its sale of PlanetOut’s magazine and book publishing business unit to an HMI Entity in August 2008 (the “Print Transaction”). Allen, and to Allen’s knowledge, certain of its affiliates, employees and related parties, beneficially own in the aggregate 238,872 shares of PlanetOut common stock and warrants to acquire 75,000 shares of PlanetOut common stock. In addition, in the ordinary course of its business as a broker-dealer and market maker, Allen may have long or short positions, either on a discretionary or nondiscretionary basis, for its own account or for those of its clients, in the debt and equity securities (or related

derivative securities) of PlanetOut and any of its affiliates. The opinion was approved by Allen’s fairness opinion committee.

 

Pursuant to the terms of the Engagement Letter, Allen was paid a fee of $400,000 upon delivery of the opinion to PlanetOut’s board of directors, with such fee creditable against any Success Fee (as defined below) subsequently paid to Allen. Pursuant to the Engagement Letter, and conditioned upon the consummation of the proposed business combination, PlanetOut owes Allen a cash fee equal to $1,000,000 (the “Success Fee”), (a) $700,000 payable upon the closing of the proposed business combination and (b) $300,000 payable in 12 equal consecutive monthly installments of $25,000, beginning the first day of the first month after the closing of the proposed business combination. The Success Fee compensates Allen for both the proposed business combination and Allen’s previous assignment in connection with the Print Transaction in August 2008. In addition, pursuant to the Engagement Letter, Allen was issued the above-described warrants to purchase 75,000 shares of common stock of PlanetOut, which were subsequently replaced by warrants to purchase an equal number of shares at the closing sale price of PlanetOut common stock on January 7, 2009. PlanetOut has also agreed to reimburse Allen’s expenses up to $75,000 and indemnify Allen against certain liabilities arising out of such engagement.

 

PlanetOut has engaged Viant as its financial advisor to render its opinion to the PlanetOut board of directors as to the fairness, from a financial point of view, of the consideration to be received by the stockholders of PlanetOut in connection with the proposed business combination. Viant has not, and has not been requested to, identify any strategic options or alternatives on PlanetOut’s behalf. At the meeting of the PlanetOut board of directors on January 7, 2009, Viant rendered its oral opinion, subsequently confirmed by delivery of a written opinion dated January 7, 2009 that as of such date, based upon and subject to the various considerations set forth in the opinion, the merger consideration to be received by holders of shares of PlanetOut’s common stock pursuant to the merger agreement was fair from a financial point of view to such holders (other than Here Media and its affiliates).

 

Viant’s opinion is directed to the PlanetOut board of directors, addresses only the fairness from a financial point of view of the merger consideration pursuant to the merger agreement to holders of shares of PlanetOut, and does not address any other aspect of the proposed business combination. The Viant opinion does not constitute a recommendation to any stockholder of PlanetOut as to how that stockholder should vote on, or take any other action relating to, the merger. The full text of Viant’s written opinion, dated as of January 7, 2009, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of review undertaken by Viant in rendering its opinion, is attached to this proxy statement/prospectus as Annex B. The summary of the Viant opinion set forth in this proxy statement/prospectus is qualified in its entirety by reference to the Viant opinion. PlanetOut stockholders should read the Viant opinion carefully and in its entirety for a description of the procedures followed, the factors considered, and the assumptions made by Viant.

 

In arriving at its opinion, Viant has:

 

 

 

In connection with its review and in arriving at its opinion, Viant assumed and relied upon the accuracy and completeness of all of the financial and other information reviewed or discussed with it for purposes of rendering its opinion, and upon the assurances of the management of PlanetOut and the HMI Entities that they are not aware of any information or facts that would make the information provided to Viant incomplete or misleading. Viant assumed all such information was accurate and complete in all respects. Viant did not independently verify such information (and did not assume responsibility for verifying any of such information), undertake an independent appraisal of the properties, facilities, assets or liabilities (contingent or otherwise) of Here Media or HMI Merger Sub and was not furnished with any such appraisals.

 

With respect to financial forecasts, Viant was advised by PlanetOut and the HMI Entities, and assumed without independent investigation, that they had been reasonably prepared and reflect PlanetOut and the HMI Entities management’s best currently available estimates and good faith judgment as to the expected future financial performance of PlanetOut, the HMI Entities and the combined entity. The estimates, budgets and projections may or may not be achieved and differences between projected results and those actually achieved may be material. Neither Viant nor any of its advisors or accountants take any responsibility for the accuracy or completeness of any of the accompanying material. Viant also assumed, without independent investigation, that the proposed business combination will be consummated in accordance with the terms set forth in the draft merger agreement and related documents reviewed by it without any amendment thereto and without any waiver by any of the parties of any of the conditions to their respective obligations.

 

Viant is not a legal, tax or regulatory advisor and expressed no opinion as to legal, tax or regulatory matters. Viant did not make any independent valuation or appraisal of the assets or liabilities of PlanetOut or the HMI Entities, nor was Viant furnished with any such appraisals. Viant’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of January 7, 2009. Events occurring after January 7, 2009 may affect Viant’s opinion and the assumptions used in preparing it, and Viant did not assume any obligation to update, revise or reaffirm its opinion. In arriving at its opinion, Viant was not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition, business combination or other extraordinary transaction, involving PlanetOut.

 

Financial Analyses of Viant

 

In preparing its opinion, Viant performed a variety of financial and comparative analyses. The following paragraphs summarize the material financial analyses performed by Viant in arriving at its opinion. The order of analyses described does not represent relative importance or weight given to those analyses by Viant. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand-alone, and in order to more fully understand the financial analyses used by Viant, the tables must be read together with the full text of each summary. The following quantitative information, to the extent it is based on

market data, is, except as otherwise indicated, based on market data as it existed on or prior to January 7, 2009, and is not necessarily indicative of current or future market conditions.

 

Comparable Public Companies Trading Analysis

 

Viant compared certain selected and projected financial information for PlanetOut, the HMI Entities and the combined entity to the corresponding publicly available data and ratios of the following publicly traded companies that Viant deemed relevant in the online, print and network/studios/distribution vertical markets:

 

 

Viant sought public companies for its comparable company multiples analysis that had business models and revenues that were similar to those of Here Media’s vertical markets of online, print and network/studios/distribution. In the online vertical market, Viant included companies that derived revenues through subscriptions and advertising. In the print vertical market, Viant included companies that derived revenues through magazine publishing. In the network/studios/distribution vertical market, Viant included companies that derived their revenues through film production, licensing and distribution. For example, Viant excluded public companies in the print vertical market that derived the majority of their revenues from newspapers or that did not publish magazines. In the online vertical market, Viant excluded companies that only derived revenues from advertising and did not have revenues from subscriptions.

 

The table below sets forth the following multiples for the above-selected companies in each of the online, print and network/studios/distribution markets (expressed as a range of mean and median multiples for the selected companies in each market), and an implied enterprise value of each comparable segment of the combined entity applying the multiples to the combined entity’s pro forma projected financial data:

 

 

 

 

 

Precedent Transactions Analysis

 

Viant analyzed publicly available financial information for selected merger and acquisition transactions occurring since March 2006 in the same three markets used in the “— Comparable Public Companies Trading Analysis” section: online, print and network/studios/distribution. Within the online category, Viant considered five separate transactions that occurred since March 2006. Within the print category, Viant considered six separate transactions that occurred since March 2006. Within the network/studios/distribution category, Viant considered six separate transactions that occurred since June 2006. The following table summarizes the transactions:

 

Online:

 

 

Print:

 

 

Network/Studios/Distribution:

 

 

 

Viant sought public transactions for its comparable precedent transactions analysis between companies that had business models and revenues that were similar to those of Here Media’s vertical markets of online, print and network/studios/distribution. For the online vertical market, Viant included acquired companies that derived revenues through subscriptions and advertising. For the print vertical market, Viant included acquired companies that derived revenues through magazine publishing. For the network/studios/distribution vertical market, Viant included acquired companies that derived their revenues through film production, licensing and distribution. In addition, to be included in Viant’s analysis, both information on the structure and size of the transaction and financial information on the acquired company was required in order for Viant to calculate transaction multiples. Finally, to be included in Viant’s analysis, the transaction must have included the acquisition of a controlling stake in the acquired company.

 

In examining the selected transactions, Viant analyzed, for the selected transactions, the following information where available (expressed as a range of mean and median multiples for the selected transactions in each market), and applied such multiples to determine an implied enterprise value of each segment of the combined entity in the proposed business combination:

 

 

With respect to the combined entity, since neither PlanetOut nor the HMI Entities developed complete 2008 pro formas for the combined entity, Viant applied TTM-related transaction multiples to 2009 projections for the combined entity and discounted this value back to use for 2008 purposes, using a discount rate of 20%. The following table summarizes Viant’s analysis:

 

 

 

 

Viant noted that there has been a significant decline in most equity markets, including in the online and technology sectors generally and the markets described above. In its analysis, Viant considered this decline when analyzing comparable merger transactions occurring prior to the market decline. Viant believes that less, rather than more, consideration must be given to the precedent transactions analysis than in the past and an assumption must be made that had the selected precedent transactions occurred today, the multiples would have been discounted to reflect overall market declines.

Summary Valuation

 

Considering the factors described herein and the results of the above analyses, Viant determined an implied enterprise value range for each segment of the combined entity: online, print and network/studios/distribution, as follows:

 

 

Viant aggregated the individual segments to determine an implied enterprise value for the combined entity, which it adjusted to account for the cash held by each of PlanetOut and the HMI Entities at closing (assumed to be $1-3 million from PlanetOut and $5 million from the HMI Entities) to determine an assumed total market value of the combined entity. The merger consideration payable to PlanetOut’s stockholders at closing is 20% of the common stock, plus the special stock, of Here Media. Accordingly, Viant calculated the implied valuation of the merger consideration to be 20% of the total market value of the combined entity. Viant’s analysis is summarized in the table below:

 

 

Viant compared the merger consideration to PlanetOut’s market capitalization, comparing it with (a) the trailing 30 days average closing prices as of January 7, 2009 and (b) the trailing 60 days average closing prices as of January 7, 2009. Viant determined that the pro forma Here Media equity value represented a premium of between 642% and 771% over the trailing 30 days average closing prices as of January 7, 2009 and a premium of between 248% and 309% over the trailing 60 days average closing prices as of January 7, 2009. Viant found that the merger consideration represented a premium to PlanetOut’s market capitalization at the top end of the range of estimated premiums paid in comparable mergers and acquisitions.

 

No selected company or participant in the precedent transactions utilized in the above analysis is identical to PlanetOut, the HMI Entities or the combined entity. In evaluating selected companies and precedent transactions and in otherwise performing its analyses, Viant made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond PlanetOut’s control, such as the impact of competition on PlanetOut’s businesses and the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of PlanetOut or the industry or in the financial markets in general. The use of mean and median data to determine implied valuations is not in itself necessarily a meaningful method of using peer group data.

 

Viant performed a variety of financial and comparative analyses for the purpose of rendering its opinion. The summary set forth above does not purport to be a complete description of the analyses performed by Viant in connection with the rendering of its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Viant considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Viant believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. Except as described above, the fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given

greater weight than any other analysis. The ranges of valuations resulting from any particular analysis described above should not be taken to be Viant’s view of the actual value of PlanetOut or the combined entity. Any estimates contained in Viant’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. In addition, analyses relating to the values of businesses do not purport to be appraisals or necessarily reflect the prices at which businesses may actually be sold or the prices at which any securities have traded or may trade at any time in the future. Therefore, these analyses do not purport to be appraisals or to reflect the prices at which the shares of Here Media might actually trade.

 

Viant conducted the analyses described above solely as part of its analysis of the fairness of the merger consideration to be received by the stockholders of PlanetOut pursuant to the merger agreement from a financial point of view to the stockholders of PlanetOut and in connection with the delivery of its opinion dated January 7, 2009 to the PlanetOut board of directors. Viant did not determine the amount of merger consideration to be paid to the PlanetOut stockholders in the merger nor did it recommend the amount of merger consideration to be paid to such stockholders. Viant’s opinion and its presentation to the PlanetOut board of directors was one of many factors taken into consideration by the PlanetOut board of directors in deciding to approve, adopt and authorize the merger agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the PlanetOut board of directors with respect to the merger consideration or of whether the PlanetOut board of directors would have been willing to agree to a different merger consideration. Viant’s opinion was approved by a committee of Viant investment banking and other professionals in accordance with its customary practice.

 

Viant is a boutique investment banking firm. As part of its investment banking services, Viant is regularly engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of securities, private placements and other purposes. Viant was retained by the PlanetOut board of directors to act as PlanetOut’s financial advisor in connection with the merger to render the opinion described herein based on Viant’s experience as a financial advisor in mergers and acquisitions. Except in connection with Viant’s current engagement in connection with the merger, Viant does not have and has not had any relationships involving the payment or receipt of compensation between Viant and PlanetOut, the HMI Entities or any of their respective affiliates during the past two years.

 

Under the terms of its engagement letter, Viant provided PlanetOut with a fairness opinion in connection with the proposed business combination. PlanetOut agreed to pay Viant a customary fee for its services and to reimburse Viant for reasonable out-of-pocket expenses incurred during the performance of such services. In addition, PlanetOut has agreed to indemnify Viant for certain liabilities arising out of Viant’s engagement.

 

In considering the recommendation of PlanetOut’s board of directors with respect to the proposed business combination, PlanetOut stockholders should be aware that some of PlanetOut’s board members, and executive officers have interests in the merger that are different from, or in addition to, the interests of other PlanetOut stockholders generally. This section provides information for PlanetOut’s officers and directors as of December 31, 2008. After that date, Bill Bain was terminated on January 16, 2009, Karen Magee resigned as chief executive officer and a director on March 3, 2009 and Daniel Steimle was appointed as chief executive officer on March 3, 2009.

 

Director Positions with Here Media.  As provided in the merger agreement, upon completion of the proposed business combination, Here Media’s board of directors will include Mr. Jarchow, Mr. Colichman and Mr. Kleweno. Mr. Kleweno is currently the chairman of the PlanetOut board of directors.

 

Treatment of PlanetOut Equity Awards.  All outstanding PlanetOut stock options and restricted stock awards will be accelerated and will become fully vested immediately prior to completion of the proposed business combination. All stock options will terminate if not exercised prior to the completion of the proposed business combination.

 

None of the directors and executive officers of PlanetOut intends to exercise his or her outstanding stock options.

 

The vesting of all of the restricted stock awards currently held by PlanetOut’s directors and executive officers, as set forth in the following table, will be accelerated in connection with this transaction.

 

 

Directors’ and Officers’ Liability Insurance.  The merger agreement requires Here Media to use commercially reasonable efforts to provide officers’ and directors’ liability insurance with respect to acts or omissions occurring at or prior to the effective time covering each person covered immediately prior to the effective time by PlanetOut’s then existing officers’ and directors’ liability insurance with substantially the same coverage and amounts as, and on terms and conditions that are reasonably comparable to, those in effect on the date of the merger agreement. Here Media, however, will not be obligated to cause the surviving corporation in the merger to pay premiums for such insurance in excess of 250% of the current premium paid by PlanetOut for such insurance. If the surviving corporation in the merger is not able to obtain insurance satisfying these requirements, it will be required to obtain as much comparable insurance as possible for an annual premium equal to 250% of the current premium paid by PlanetOut. The merger agreement also provides for continuation of the indemnification rights of officers and directors under PlanetOut’s existing certificate of incorporation, bylaws and indemnification agreements. See “— Indemnification” below.

 

PlanetOut Stock Ownership.  On March 23, 2009, the persons who were PlanetOut’s directors, executive officers and their affiliates as of December 31, 2008 owned approximately 1.89% of PlanetOut common stock entitled to vote on adoption of the merger agreement. The board of directors of PlanetOut was aware of these interests and considered them in approving the merger.

 

Principal Stockholders.  The table below sets forth information regarding the beneficial ownership of PlanetOut’s common stock as of March 23, 2009 by: (i) each person or entity known by PlanetOut to beneficially own more than 5% of its outstanding shares of common stock; (ii) each executive officer of PlanetOut as of December 31, 2008; (iii) each director of PlanetOut as of December 31, 2008; and (iv) all executive officers and directors of PlanetOut as of December 31, 2008 as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC. The number of shares of PlanetOut’s common stock used to calculate the percentage ownership of each listed person includes the shares of PlanetOut’s common stock underlying options, warrants or other convertible securities held by that person that are exercisable within 60 days of March 23, 2009. The percentage of beneficial ownership prior to the proposed business combination is based on 4,070,713 shares of PlanetOut’s common stock outstanding as of March 23, 2009. The number of shares and percentage of beneficial ownership following the proposed business combination is based on the estimated 20,701,565 shares of Here Media common stock that will be outstanding immediately following the proposed business combination.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On March 12, 2009, Austin W. Marxe and David M. Greenhouse acquired 555,454 shares of PlanetOut’s common stock, causing them to beneficially own greater than 15% of PlanetOut’s common stock. Pursuant to the terms of its Rights Agreement with Wells Fargo Bank, N.A., PlanetOut amended the terms of the Rights Agreement to exclude Mr. Marxe, Mr. Greenhouse and their associated funds, Special Situations Cayman Fund, L.P. and Special Situations Fund III, Q.P., L.P., from the definition of an Acquiring Person under the Rights Agreement until (a) the date on which the Board of Directors of PlanetOut determines that it is not in the best interests of PlanetOut to continue to exclude such parties from the definition of Acquiring Person under the Rights Agreement or (b) the date such parties, or any of their affiliates or associates, becomes the beneficial owner of any additional shares of PlanetOut common stock, whichever is earlier.

 

Indemnification.  The merger agreement provides that the provisions of the certificate of incorporation and bylaws of PlanetOut relating to indemnification of officers, directors, employees and agents will not be amended, repealed or otherwise modified in any manner that would adversely affect the rights of present and former officers and directors of PlanetOut, unless such modification is required by law. Accordingly, the surviving corporation in the merger will indemnify and hold harmless, and provide advancement of expenses to, all present and former officers and directors of PlanetOut with respect to acts or omissions occurring before the effective time of the proposed business combination, including those relating to the transactions contemplated by the merger agreement, to the fullest extent permitted by applicable laws.

 

The merger agreement further provides that after the completion of the business combination, Here Media will cause PlanetOut to fulfill and honor the obligations of PlanetOut under its certificate of incorporation and bylaws and under any indemnification agreements between PlanetOut and its present or former directors, officers and employees.

 

Neither the stock of Here Media nor the stock or limited liability company interests of any of the HMI Entities is publicly traded currently. The common stock of PlanetOut is listed on The Nasdaq Global Market, although PlanetOut was notified by Nasdaq on August 11, 2008 that the PlanetOut common stock failed to meet the minimum of $5 million market value for publicly held shares and that PlanetOut would have until approximately July 30, 2009 to meet the requirements or the shares would be delisted from The Nasdaq Global Market. In addition, the PlanetOut common stock has been trading below the Nasdaq’s $1.00 minimum trading price. While this requirement has been suspended by Nasdaq through July 20, 2009, there can be no assurance that after that date PlanetOut would be able to comply with the minimum bid price or the minimum market value of publicly held shares. On March 9, 2009, Nasdaq notified PlanetOut that it had also failed to maintain the minimum of $10 million in stockholders’ equity necessary for continued listing on The Nasdaq Global Market and gave PlanetOut until March 24, 2009 to either submit a plan to regain compliance or apply to transfer the listing of its common stock to The Nasdaq Capital Market. On March 23, 2009, PlanetOut applied to transfer the listing of its common stock to The Nasdaq Capital Market. Although it is expected that Nasdaq will accept PlanetOut’s application to transfer the listing of its common stock to The Nasdaq Capital Market, there can be no assurance that Nasdaq will do so or that PlanetOut will be able to maintain its listing on either The Nasdaq Global Market or The Nasdaq Capital Market. In addition, Here Media may not be able to meet the much higher initial listing standards as would be required by the Nasdaq Stock Market in connection with the proposed business combination. In view of these facts and in an effort to contain costs, Here Media has concluded that it would not be advisable to seek to establish or maintain listing of its stock on any securities exchange. Accordingly, neither the Here Media common stock nor the Here Media special stock will be listed on any securities exchange or quoted on any automated quotation system upon completion of the proposed business combination. Quotations of Here Media common stock may be available on the OTC Bulletin Board if one or more brokerage firms are interested in providing such quotations.

 

Here Media intends to register its common stock under the Exchange Act and will file reports with the Securities and Exchange Commission, including periodic reports on Forms 10-K and 10-Q. It will also be subject to the proxy solicitation requirements of Section 14(a) and its directors, executive officers and greater-than-10% stockholders will be subject to the reporting and the “short-swing profits” prohibitions of Section 16 of the Exchange Act.

 

Upon completion of the merger, PlanetOut will be a wholly owned subsidiary of Here Media and will accordingly no longer have any publicly traded stock. The listing of PlanetOut common stock on The Nasdaq Global Market, or The Nasdaq Capital Market if PlanetOut’s application to transfer the listing of its securities to The Nasdaq Capital Market is granted, will be terminated, it will no longer be registered under the Exchange Act and reports regarding PlanetOut as a separate company will no longer be filed with the Securities and Exchange Commission. PlanetOut will, however, be included as a consolidated subsidiary in the financial statements and SEC reports of Here Media.

 

PlanetOut has never paid any cash dividends, and Here Media does not anticipate paying any dividends on its common stock for the foreseeable future.

 

The following is a summary of the material United States federal income tax consequences of the proposed business combination to U.S. holders of PlanetOut common stock who hold such stock as a capital asset. The summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations thereunder, and administrative rulings and court decisions in effect as of the date hereof, all of which are subject to change at any time, possibly with retroactive effect.

 

For purposes of this discussion, the term “U.S. holder” means:

 

 

This discussion only addresses U.S. holders who hold shares of PlanetOut common stock as capital assets and does not purport to be a complete analysis of all potential tax consequences of the contribution and the merger through which the proposed business combination will be accomplished. In addition, this discussion does not address the tax consequences of transactions effected prior to or after the contribution and the merger (whether or not such transactions occur in connection with the contribution and the merger), including, without limitation, any exercise of a PlanetOut option or the acquisition or disposition of shares of PlanetOut common stock other than pursuant to the contribution and the merger. The discussion also does not address all aspects of U.S. federal income taxation that may be important to a U.S. holder in light of that holder’s particular circumstances, such as:

 

 

 

HOLDERS OF PLANETOUT COMMON STOCK ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONTRIBUTION AND THE MERGER TO THEM, INCLUDING THE EFFECTS OF UNITED STATES FEDERAL, STATE AND LOCAL, FOREIGN AND OTHER TAX LAWS.

 

In the opinions of Howard Rice, tax counsel to PlanetOut, and Mayer Brown LLP, tax counsel to Here Media, the merger and the contribution, taken together, will qualify as an exchange described in Section 351 of the Code. However, the tax opinions rely, and the conclusions provided therein depend, on the accuracy of certain factual representations provided by the respective parties regarding the merger and the contribution. Further, the tax opinions are subject to the qualifications and limitations contained therein. Nothing in this description or in any opinion of tax counsel regarding the tax treatment of the merger and the contribution is binding on the Internal Revenue Service (the “IRS”) or the courts, and the parties do not intend to request any rulings from the IRS with respect to any aspect of the contribution or merger. Accordingly, no assurances can be given that the IRS will not challenge such conclusions or that a court will not sustain such a challenge, if one is brought by the IRS.

 

Except as otherwise indicated, the following discussion assumes that the exchange of HMI ownership interests and PlanetOut common stock for Here Media common stock and special stock pursuant to the contribution and the merger, taken together, constitutes an exchange described in Section 351 of the Code. Although, as discussed below, the merger may separately qualify as a reorganization described in Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, tax counsel is providing no opinion as to whether or not the merger so qualifies.

 

Exchange of PlanetOut Common Stock for Here Media Common Stock and Special Stock

 

Except as noted below under the captions “— Tax Consequences Depend on Characterization of Special Stock” and “— Tax Consequences May Differ if Merger Also Qualifies as Section 368 Reorganization”:

 

 

Tax Consequences Depend on Characterization of Special Stock

 

Although Here Media and PlanetOut believe that the special stock is properly characterized as stock of Here Media that is not “nonqualified preferred stock” (as that term is defined in Section 351(g)(2) of the Code) and will treat such stock accordingly for U.S. federal and state income tax purposes, tax counsel will not opine as to the

characterization of the special stock for tax purposes. Because there is no clear authority considering the characterization of a financial instrument with terms substantially similar to the special stock, any conclusion regarding the classification of such special stock for income tax purposes is necessarily uncertain. Accordingly, the IRS may challenge the parties’ characterization of the special stock for tax purposes and a court may conclude that such special stock is either “nonqualified preferred stock” or property other than stock.

 

If the special stock (contrary to the intent of the parties) is “nonqualified preferred stock” or otherwise treated as not being stock of Here Media for U.S. federal income tax purposes, a U.S. holder of PlanetOut stock would be required to recognize any gain realized in the merger, but only to the extent of the fair market value of the special stock received. Gain realized would equal the excess, if any, of (i) the sum of the fair market value of the Here Media common stock and special stock received in the merger over (ii) the holder’s tax basis in the PlanetOut common stock surrendered in the merger. Gain or loss would be calculated separately for each identifiable block of shares of PlanetOut common stock surrendered in the merger (and not on an aggregate basis), and such holder could not offset a loss realized on one block of shares against gain recognized on another block of shares. (In no event would a participating holder be permitted to recognize any loss that may be realized in the merger.) Any gain recognized by the U.S. holder would generally be treated as capital gain, and would qualify for favored long-term capital gain treatment if the holding period for the shares of PlanetOut common stock surrendered in the merger is more than one year as of the effective time of the proposed business combination. The aggregate tax basis of the Here Media common stock received by a U.S. holder would be the same as the aggregate tax basis of the shares of PlanetOut common stock surrendered in the merger, decreased by the value of the special stock received, and increased by the amount of gain recognized. The holding period of the shares of Here Media common stock received in the merger would include the holding period of the shares of PlanetOut common stock surrendered in exchange therefor. The tax basis of the special stock received by a U.S. holder would be the fair market value of the special stock at the time it was received.

 

If the IRS were to challenge the treatment of the special stock as stock of Here Media and a court were to conclude that the special stock is not stock of Here Media for United States federal income tax purposes, the rules applicable to the holding, sale, transfer, exchange or other disposition of the special stock might differ from those applicable to stock. Holders of PlanetOut common stock are strongly urged to consult their own tax advisor regarding the tax consequences of holding, selling, transferring, exchanging or otherwise disposing of the special stock of Here Media.

 

Tax Consequences May Differ if Merger Also Qualifies as Section 368 Reorganization

 

It is possible that the merger may also independently qualify as a reorganization described in Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. Qualification would depend on the merger satisfying certain tests, including, among other things, that the Here Media common stock represents at least 80% of the total Merger Consideration (the “control test”) and that PlanetOut after the merger continues to hold substantially all of the assets it held immediately prior to the merger (the “substantially all the assets” test). Because the Here Media shares are not publicly traded, it is very difficult to determine the relative values of the Here Media common stock and special stock with any degree of certainty. Accordingly, it is not possible to predict whether the “control test” will be satisfied in the merger, although Here Media believes that the special stock will likely represent significantly less than 20% of the total value of the merger consideration. In addition, proper application of the “substantially all the assets” test in the context of the proposed business combination is subject to ambiguity and uncertainty, such that no assurances can be given as to whether or not such test will be satisfied in the merger.

 

If the merger qualifies as a reorganization described in Sections 368(a)(1)(A) and 368(a)(2)(E), participating PlanetOut stockholders would still not recognize any gain or loss in the merger, unless the special stock is treated as “nonqualified preferred stock” or is otherwise treated as not being stock of Here Media for U.S. federal income tax purposes, as generally described above. However, for a holder that acquired blocks of PlanetOut common stock at different times and/or at different prices, the Here Media common stock and special stock received in the merger would be allocated tax basis based on the exchanged PlanetOut shares on a block-by-block basis (rather than on an aggregate basis as described above).

Straddle Rules

 

It is possible that the “straddle” rules under Section 1092 of the Code might be applicable to a taxpayer who holds both Here Media common stock and special stock, regardless of the characterization of the special stock as stock or otherwise. These special rules are applicable to positions that are part of a “straddle,” which consists of offsetting positions with respect to personal property. The applicability of these rules may affect the timing of when a loss is recognized or the applicable holding periods for United States federal income tax purposes in connection with the sale, transfer or other taxable disposition of shares of either class of stock. Holders of PlanetOut common stock are strongly urged to consult their tax advisor regarding the tax consequences of selling, transferring, exchanging or otherwise disposing of either common stock or special stock of Here Media.

 

Treatment of Dissenters

 

A holder of PlanetOut common stock who receives cash pursuant to the exercise of dissenters’ rights of appraisal will generally recognize capital gain or loss equal to the difference between the holder’s adjusted tax basis in the PlanetOut common stock surrendered and the amount of cash received by the dissenting stockholder. Such capital gain or loss will be long-term capital gain or loss if the holder held the PlanetOut common stock for more than one year.

 

Payments of cash pursuant to the merger will be subject to information reporting and backup withholding unless (i) they are received by a corporation or other exempt recipient or (ii) the recipient provides a correct taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s United States federal income tax liability and may entitle such U.S. holder to a refund, provided that the required information is timely furnished to the IRS.

 

Neither Here Media nor PlanetOut will recognize any gain or loss for United States federal income tax purposes as a result of the contribution and the merger.

 

The merger agreement provides that PlanetOut employees who begin participation in a Here Media benefit plan after the effective time of the proposed business combination will be given credit for their service with PlanetOut for purposes of eligibility to participate and vesting credit, and, solely with respect to vacation and severance benefits, benefit accrual in the Here Media benefit plans. Such employees will also be eligible for participation in employee benefit plans in the aggregate equivalent to those provided to similarly situated employees of Here Media.

 

All outstanding PlanetOut stock options will be exercisable immediately prior to the merger and will terminate if not exercised. All restricted stock awards will vest and be converted into merger consideration at the effective time of the proposed business combination.

 

Upon completion of the proposed business combination, Here Media’s board of directors will consist of Mr. Jarchow, Mr. Colichman and Mr. Kleweno.

Mr. Jarchow will be chairman of the board of directors, Mr. Colichman will be the chief executive officer and president, and Mr. Shyngle will be the chief accounting officer, of Here Media.

 

No regulatory consents or approvals are required to complete the proposed business combination.

 

Here Media will account for the proposed acquisition under Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations. After the closing of the proposed business combination, the purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values and the excess of the purchase price over the net tangible and identifiable intangible assets will be recorded as goodwill.

 

The following discussion of the provisions of Section 262 of the Delaware General Corporation Law (“DGCL”) is not a complete statement of the law pertaining to appraisal rights and is qualified in its entirety by reference to the full text of Section 262 of the Delaware General Corporation Law, a copy of which is attached to this document as Annex D and is incorporated into this summary by reference.

 

PlanetOut is organized under Delaware law. Under Delaware law, a holder of record of outstanding shares of PlanetOut capital stock that does not vote those shares in favor of the adoption of the merger agreement will be entitled to exercise appraisal rights in connection with the merger, if it is completed, and receive in cash the fair value of the shares as determined by the Delaware Chancery Court. Under Section 262, PlanetOut must not less than 20 days before PlanetOut’s special meeting, notify each holder of its capital stock of record as of the record date for the special meeting (          , 2009) that appraisal rights are available and must include in the notice a copy of Section 262. PlanetOut intends that this document constitute the required notice. A holder of PlanetOut common stock who elects to exercise appraisal rights must:

 

 

A stockholder who fails to comply with either of these conditions will have no appraisal rights with respect to the stockholder’s shares.

 

Any person wishing to exercise appraisal rights must be the record holder of those shares on the date the person makes the written demand for appraisal and must continue to hold those shares until completion of the merger. A stockholder who elects to exercise appraisal rights with respect to shares of PlanetOut common stock should deliver written notice thereof to PlanetOut, not later than the date of the PlanetOut special meeting and, in any event, prior to the vote on the merger at the PlanetOut special meeting, by hand delivery to PlanetOut Inc., 1355 Sansome Street, San Francisco, CA 94111, Attention: Secretary. The notice should include the stockholder’s telephone and facsimile numbers. The notice must be executed by, or on behalf of, the holder of record whose name should be stated as it appears on his, her or its stock certificate(s). The notice must identify the stockholder and indicate the intention of the stockholder to demand payment of the fair value of its shares. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand should be made in that capacity. If the shares are owned of record by more than one person, as in a joint tenancy or tenancy in

common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including one or more joint owners, may execute a demand for appraisal on behalf of a record holder; however, in the demand, the agent must identify the record owner or owners and expressly disclose that the agent is executing the demand as an agent for the record owner or owners. A record holder, such as a broker, who holds shares as nominee for several beneficial owners may exercise appraisal rights for the shares held for one or more beneficial owners and not exercise rights for the shares held for other beneficial owners. In this case, the written demand should state the number of shares for which appraisal rights are being demanded. When no number of shares is stated, the demand will be presumed to cover all shares held of record by the broker or nominee.

 

If the merger is completed, each holder of PlanetOut common stock who has perfected its appraisal rights in accordance with Section 262 will be entitled to be paid by PlanetOut for its PlanetOut common stock the fair value in cash of those shares. The Delaware Court of Chancery will appraise the shares, determining their fair value, exclusive of any element of value arising from the completion or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value of the shares. In determining such fair value, the court may take into account all relevant factors and upon such determination will then direct the payment of the fair value of the shares, together with any interest, to the holders of PlanetOut common stock who have perfected their appraisal rights. The shares of PlanetOut common stock with respect to which holders have perfected their appraisal rights in accordance with Section 262 and have not effectively withdrawn or lost their appraisal rights are referred to in this document as the dissenting shares.

 

Stockholders considering seeking appraisal for their shares should note that the fair value of their shares determined under Section 262 could be more, the same, or less than the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares. The court may determine the costs of the appraisal proceeding and allocate them among the parties as the court deems equitable under the circumstances. Upon application of a stockholder, the court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of such determination or assessment, each stockholder bears its own expenses.

 

Within ten days after the effective date of the merger, the surviving corporation must mail notice to all stockholders who have demanded appraisal in compliance with the requirements of Section 262 notifying them that the merger has become effective. Within 120 days after the effective date, holders of dissenting shares may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery for the appraisal of their shares. However, any stockholder may, within 60 days of the effective date and prior to the filing of a petition, withdraw a demand for appraisal and accept the merger consideration to which it otherwise would have been entitled. At the hearing on such petition, the court will determine the stockholders who have perfected their appraisal rights. The court may require the holders of dissenting shares to submit their stock certificates to the Register in Chancery in order to note the pending appraisal proceedings on the stock certificate. The failure of a stockholder to comply with the court’s direction may result in the court dismissing the proceedings as to that stockholder.

 

Within 120 days after the effective date, the holders of dissenting shares may, upon written request, receive from PlanetOut a statement setting forth the aggregate number of shares not voted in favor of adopting the merger agreement and with respect to which demands for appraisals have been received and the aggregate number of holders of those shares. PlanetOut must mail this statement to holders of shares who have perfected their appraisal rights in accordance with Section 262 within ten days after receiving a written request for this statement or within ten days after the expiration of the 20-day period for delivery of demands for appraisals, whichever is later. A person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from the corporation the statement described in this subsection.

 

Any holder of PlanetOut common stock who demands an appraisal in compliance with Section 262 will not, after completion of the merger, be entitled to vote its shares for any purpose or be entitled to payment of dividends or other distributions on those shares, other than dividends or other distributions payable as of a date on or before the date of completion of the merger.

After the Court of Chancery determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court of Chancery shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. Stockholders who are seeking appraisal should be aware that the fair value of their shares as determined by Section 262 could be more than, the same as or less than the consideration they would receive pursuant to the Merger if they did not seek appraisal of their shares and that investment banking opinions as to the fairness from a financial point of view are not necessarily opinions as to fair value under Section 262. The Delaware Supreme Court has stated that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered in the appraisal proceedings. In addition, Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenter’s exclusive remedy. Unless the Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment.

 

If any holder of PlanetOut common stock who demands appraisal of the holder’s shares under Section 262 fails to perfect, or effectively withdraws or loses the right to appraisal, the holder’s shares will be converted into a right to receive the merger consideration with respect to the holder’s dissenting shares in accordance with the merger agreement. Dissenting shares will lose their status as dissenting shares if:

 

 

Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of appraisal rights, in which event a PlanetOut stockholder will be entitled to receive consideration with respect to the holder’s dissenting shares in accordance with the merger agreement. In view of the complexity of the provisions of Section 262, PlanetOut stockholders are encouraged to consult with their own legal advisors regarding appraisal rights.

 

The following description summarizes the material provisions of the merger agreement. It is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex C to this proxy statement/prospectus and is incorporated herein by reference. The provisions of the merger agreement are extensive and not easily summarized. This summary may not contain all of the information about the merger agreement that you may believe to be important. Accordingly, you should read the merger agreement carefully in its entirety for a more complete understanding of its terms.

 

The merger agreement provides for the proposed business combination of PlanetOut and the HMI Entities to be accomplished in two concurrent steps. The first is the merger of Merger Sub, a wholly owned subsidiary of Here Media incorporated solely for that purpose, with and into PlanetOut, with stock of Here Media being issued in the merger for PlanetOut’s outstanding stock, and PlanetOut surviving the merger as a wholly owned subsidiary of Here Media. PlanetOut, in its form as a wholly owned subsidiary of Here Media following the merger, is referred to in the merger agreement and in this document as the “surviving corporation.” Concurrently with the merger, the HMI Owners will contribute their ownership interests in the HMI Entities, consisting of stock and limited liability company interests constituting 100% ownership of the HMI Entities, to Here Media in exchange for Here Media stock.

 

Upon completion of the merger, each PlanetOut stockholder will be entitled to receive one share of Here Media common stock and one share of Here Media special stock, referred to as the merger consideration, for each share of PlanetOut common stock the stockholder holds. Based on the number of shares of PlanetOut common stock deemed outstanding as of the date hereof, the merger consideration will, in the aggregate, consist of 4,070,713 shares of Here Media common stock and an equal number of shares of Here Media special stock. In connection with the concurrent completion of the contribution, and assuming that the number of shares of PlanetOut common stock does not change between the date hereof and the date the proposed business combination is completed, the HMI Owners will receive an aggregate of 16,630,852 shares of Here Media common stock in exchange for their HMI Ownership Interests. The HMI Owners will not receive any shares of Here Media special stock. The merger agreement provides that the number of shares of Here Media common stock to be received by the HMI Owners will be adjusted to reflect any increase or decrease in the number of shares of PlanetOut common stock outstanding between the date of the merger agreement and the date of completion of the proposed business combination so as to maintain a fixed ratio between the number of shares of Here Media common stock to be received by PlanetOut stockholders and the HMI Owners. Giving effect to all exchanges of shares and limited liability company interests in the merger and the contribution, the pre-transaction PlanetOut stockholders will hold 20% of the Here Media common stock and 100% of the Here Media special stock, and the pre-transaction HMI Owners will hold 80% of the Here Media common stock and no Here Media special stock.

 

As provided in the merger agreement, Here Media will appoint PlanetOut’s stock transfer agent or another bank or trust company reasonably acceptable to PlanetOut (the “Exchange Agent”) for the purpose of conducting the exchange of the merger consideration for outstanding shares of PlanetOut common stock. Promptly after the closing date of the merger and the contribution, the Exchange Agent will send a letter of transmittal form and instructions for exchanging certificates representing shares of PlanetOut common stock for the merger consideration to each record holder of PlanetOut common stock at the effective time of the proposed business combination.

 

Under the merger agreement, the Exchange Agent and Here Media will be entitled to deduct and withhold from the merger consideration otherwise payable to any holder of shares of PlanetOut common stock such amounts as the

surviving corporation or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code or any provision of state, local or foreign tax law. To the extent that amounts are so deducted and withheld, the withheld amounts will be treated for all purposes as having been paid to the holder of the shares of PlanetOut common stock in respect of which the deduction and withholding is made.

 

STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES REPRESENTING PLANETOUT SHARES AT THIS TIME. Any certificates received without the letter of transmittal form that the Exchange Agent will send to PlanetOut stockholders will be returned to the persons submitting them. This could result in delay in the receipt of the merger consideration by stockholders whose stock certificates are submitted prematurely.

 

The merger agreement contains representations and warranties made by Here Media and PlanetOut that are customary for a transaction of this type. These include, among others, representations and warranties relating to each company’s due incorporation, valid existence and authority to enter into the merger agreement, the respective financial statements of PlanetOut and the HMI Entities, various aspects of their respective businesses, absence of litigation or liabilities relating to any of such parties and compliance by the respective parties with applicable law. Some of the representations and warranties are qualified by concepts of “materiality” or “material adverse effect,” referred to with respect to Here Media and PlanetOut as “Here Media Material Adverse Effect” and “PlanetOut Material Adverse Effect,” respectively. For purposes of the merger agreement, “Material Adverse Effect” means a material adverse effect on the business, operations financial condition or results of operations of a party and its subsidiaries, taken as a whole, provided that, in determining whether or not a Material Adverse Effect has occurred, no adverse effects resulting from certain matters, including the following, will be taken into account:

 

 

The representations and warranties included in the merger agreement were made for purposes of the merger agreement only and are subject to qualifications and limitations agreed by the respective parties in connection with negotiating the terms of the merger agreement, including those stated in separate disclosure schedules that are not included with this document. In addition, some of the representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders or under applicable securities laws, or may have been used for purposes of allocating risk between the respective parties rather than establishing the stated matters as facts. This description of the representations and warranties, and their reproduction in the copy of the merger agreement attached to this document as Annex C, are included solely to provide investors with information regarding the terms of the merger agreement. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement/prospectus.

 

The representations and warranties contained in the merger agreement will not survive the effective time of the proposed business combination. This means that they will not provide a basis for liability on the part of the party giving them after the merger and the contribution transactions are completed. They will, however, provide a basis for termination of the merger agreement under certain circumstances if they are or become incorrect in one or more material respects before the effective time of the proposed business combination.

 

Each of Here Media and PlanetOut has undertaken certain covenants in the merger agreement. The following summarizes the more significant of these covenants.

Conduct of Business of PlanetOut and the HMI Entities.  PlanetOut has agreed to conduct its business in the ordinary course consistent with past practice, to use commercially reasonable efforts to preserve intact its business organization, keep available the services of its present executive officers and key employees and preserve its relationships with customers, suppliers, licensors and others having business dealings with it. It has also agreed not to engage in specified types of transactions or to take other specified types of actions, in each case prior to the completion of the proposed business combination, without the prior written consent of Here Media. Here Media and the HMI Entities have agreed to certain more limited restraints on their business activities prior to completion of the proposed business combination without the prior written consent of PlanetOut.

 

PlanetOut Board of Directors’ Covenant to Recommend.  The PlanetOut board of directors has agreed to recommend the adoption of the merger agreement and approval of the merger by PlanetOut stockholders, to call a meeting of the PlanetOut stockholders for that purpose and to use commercially reasonable efforts to obtain the PlanetOut stockholder approval. The PlanetOut board of directors, however, may withdraw or modify its recommendation in a manner adverse to Here Media, or postpone the special meeting for a period of up to five business days as discussed below.

 

No Solicitation by PlanetOut.  PlanetOut has agreed in the merger agreement that it will not:

 

 

However, PlanetOut or its board of directors may:

 

 

In addition, PlanetOut or its board of directors may, prior to the adoption of the merger agreement by PlanetOut’s stockholders;

 

 

The term “takeover proposal” as defined in the merger agreement means any inquiry, proposal or offer from a third party to acquire beneficial ownership of assets constituting 25% or more of the consolidated revenues, net income or assets of PlanetOut and its subsidiaries or 25% or more of any class of equity securities of PlanetOut or any of its subsidiaries pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, sale of assets, tender offer, exchange offer or similar transaction with respect to PlanetOut or any of its subsidiaries

 

The term “superior proposal” as defined in the merger agreement means an unsolicited written proposal by a third party to acquire, directly or indirectly, more than 50% of PlanetOut’s outstanding common stock or all or substantially all of PlanetOut’s assets that is (i) on terms which the PlanetOut board of directors determines in good faith, after receiving advice of its independent financial advisors, to be more favorable to PlanetOut stockholders from a financial point of view than the transactions provided for in the merger agreement (including any adjustment to the terms and conditions of the transactions provided for in the merger agreement that may be proposed by Here Media after presentation of the potential superior proposal), and (ii) which, in the good faith reasonable judgment of PlanetOut’s board of directors is reasonably likely to be consummated within a reasonable time.

 

Commercially Reasonable Efforts Covenant.  Here Media and PlanetOut have agreed to use their respective commercially reasonable efforts to complete the transactions provided for in the merger agreement and to fulfill the conditions to closing under the merger agreement or to cause them to be fulfilled. This will include cooperation by each party with the other in promptly preparing and filing any necessary documentation, including any applications, notices, petitions or other filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and any governmental entities that are necessary or advisable to complete the transactions contemplated by the merger agreement.

 

These matters are discussed above under the headings “The Proposed Business Combination — Interests of PlanetOut’s Directors, Executive Officers and Principal Stockholders — Directors’ and Officers’ Liability Insurance” and “The Proposed Business Combination — Interests of PlanetOut’s Directors, Executive Officers and Principal Stockholders — Indemnification.”

 

Conditions to Obligations of All Parties.  The merger agreement provides that the obligations of PlanetOut, Here Media and the HMI Owners to complete the merger and the contribution are subject to the satisfaction at or prior to the effective time of each of the following conditions:

 

 

Conditions to the Obligations of Here Media and the HMI Owners.  The merger agreement provides that the obligations of Here Media and the HMI Owners to complete the merger and the contribution are subject to the satisfaction of each of the following conditions:

 

 

 

Conditions to the Obligations of PlanetOut.  The obligation of PlanetOut to complete the merger and the contribution is subject to the satisfaction of each of the following conditions: