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As filed with the Securities and Exchange Commission on April 30, 2009
Registration No. 333-156726
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 3
to
 
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
HERE MEDIA INC.
(Exact Name of Registrant as Specified in Its Charter)
 
 
         
Delaware
  4841   26-3962587
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
 
 
 
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:
 
         
Daniel E. Steimle
Chief Executive Officer
PlanetOut Inc.
1355 Sansome Street
San Francisco, CA 94111
(415) 834-6500
  Michael J. Sullivan, Esq.
Howard Rice Nemerovski
Canady Falk & Rabkin,
A Professional Corporation
Three Embarcadero Center, 7th Floor San Francisco, CA 94111 (415) 434-1600
  James R. Walther, Esq.
Mayer Brown LLP
350 South Grand Avenue,
25th Floor
Los Angeles, CA 90071-1503
(213) 229-9500
 
 
 
 
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):
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
(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.
 


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The information in this proxy statement/prospectus is not complete and may be changed. These securities may not be sold until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and is not soliciting offers to buy these securities in any jurisdiction in which the offer or sale would not be permitted.
 
SUBJECT TO COMPLETION, DATED April 30 2009.
 
 
 
(PLANETOUT INC. LOGO AND HERE MEDIA INC. LOGO)
 
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:
 
  •  PlanetOut stockholders will receive one share of Here Media common stock, together with one share of Here Media special stock, as described in this document, for each share of PlanetOut common stock that the stockholder owns immediately prior to the effective time of the proposed business combination, which will result in former PlanetOut stockholders owning 20% of Here Media’s outstanding common stock and 100% of its outstanding special stock following completion of the transaction; and
 
  •  the owners of Here Networks and Regent Entertainment Media will receive that number of shares of Here Media’s common stock such that they will own 80% of Here Media’s outstanding common stock following completion of the transaction.
 
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 Capital 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 May   , 2009, and was first mailed to PlanetOut stockholders on or about May   , 2009.


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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, as amended as of April 27, 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.


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QUESTIONS AND ANSWERS ABOUT THE MERGER
 
Q: Why am I receiving these materials?
 
A: Here Networks LLC, a Texas limited liability company, and Regent Entertainment Media Inc., a Delaware corporation, collectively referred to in this document as the HMI Entities, and PlanetOut have agreed to combine their businesses. To achieve this, PlanetOut will merge with a wholly owned subsidiary of a newly formed holding company named Here Media Inc., and the owners of the HMI Entities will contribute all of the stock and limited liability company interests in those companies to Here Media. Through these transactions, PlanetOut and the HMI Entities will become wholly owned subsidiaries of Here Media. The merger cannot be completed without the approval of the stockholders of PlanetOut. We are sending you these materials to help you decide whether to approve the merger. If you do not vote your shares, the effect will be a vote against the merger.
 
Unless the context indicates otherwise, references in this proxy statement/prospectus to “PlanetOut” mean PlanetOut Inc. and its subsidiaries, to “HMI Entities” mean Here Networks, LLC and Regent Entertainment Media Inc., and to “HMI Owners” mean Stephen P. Jarchow, Paul A. Colichman and Here Management LLC. In this proxy statement/prospectus, the Agreement and Plan of Merger, dated as of January 8, 2009, as it may be amended from time to time, among PlanetOut, Here Media, HMI Merger Sub, which is a wholly owned subsidiary of Here Media referred to as the “Merger Sub,” and the HMI Owners and the HMI Entities signatory thereto is referred to as the “merger agreement.” The effective time of the merger of PlanetOut with the Merger Sub and the contribution of the stock and limited liability company interests of the HMI Entities to Here Media, which will all take place simultaneously, is referred to as the “effective time of the proposed business combination” or the “effective time.” The merger and the contribution are sometimes referred to in this document as the “proposed business combination.”
 
Q: Why is PlanetOut proposing the merger?
 
A: We are proposing the merger because we believe that the combined strengths of PlanetOut and the HMI Entities will enable us to achieve significant operating efficiencies and produce substantial benefits for our clients and equityholders. By combining the companies, we believe Here Media will create the potential for stronger operating results and a stronger financial position than PlanetOut and the HMI Entities could achieve on their own.
 
Q: What will I receive in the merger?
 
A: In the merger, each PlanetOut stockholder will receive one share of Here Media common stock, together with one share of Here Media special stock, referred to as “special stock,” for each share of PlanetOut common stock that the stockholder owns immediately prior to the effective time of the merger.
 
In exchange for their ownership interests in the HMI Entities that they will contribute to Here Media, the HMI Owners will receive the number of shares of Here Media common stock necessary to result in their owning 80% of Here Media’s common stock following the proposed business combination.
 
Q: What is special stock?
 
A: Special stock is a type of capital stock of Here Media to be 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. In that event, the holders of special stock would be entitled to a priority claim on any liquidation proceeds otherwise distributable to holders of Here Media common stock 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 per share 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 preferred stock, if any. The $4.00 per share priority claim to liquidation proceeds is subject to possible adjustments in some events. A sale of Here Media for consideration consisting of at least 50% cash or publicly traded securities is considered a liquidation for purposes of the special stock. The special stock will be canceled four years from the date of issuance, or earlier in some circumstances. After


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completion of the proposed business combination, special stock will be transferable and freely tradable independent of Here Media common stock, but will not be listed on any stock exchange. Here Media does not expect that a regular trading market will develop for the special stock, and it does not intend to make efforts to promote the development of such a market.
 
Q: What percent of Here Media will be owned by current PlanetOut stockholders and current owners of the HMI Entities?
 
A: After the completion of the proposed business combination, current PlanetOut stockholders will own 20% of the common stock of Here Media and the current owners and members of the HMI Entities will own 80% of the common stock of Here Media. The current PlanetOut stockholders will also own 100% of Here Media’s special stock, which will not have general voting rights.
 
Q: Will Here Media pay any dividends?
 
A: PlanetOut has not paid any cash dividends on its common stock, and Here Media does not anticipate paying any cash dividends on its common stock for the foreseeable future.
 
Q: Will my shares of Here Media common stock be listed?
 
A: 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.
 
Q: When do you expect the proposed business combination to be completed?
 
A: We are working to complete the proposed business combination as soon as possible. A number of conditions must be satisfied before we can complete the proposed business combination, including approval of the merger by stockholders of PlanetOut. We hope to complete the proposed business combination in the spring of 2009. However, we cannot assure you as to when or whether the proposed business combination will be completed. The merger agreement provides that it may be terminated by Here Media or PlanetOut if the proposed business combination is not completed by May 31, 2009.
 
Q: Who will be the directors of Here Media following the proposed business combination?
 
A: Upon completion of the proposed business combination, Here Media’s board of directors will consist of three members who will initially be Messrs. Jarchow and Colichman, who are the principal owners and executive officers of the HMI Entities, and Phillip S. Kleweno, who is currently chairman of the board of directors of PlanetOut.
 
Q: Who will be the members of Here Media’s senior management following the proposed business combination?
 
A: Upon completion of the proposed business combination, Mr. Jarchow will be chairman of the board, Mr. Colichman will be chief executive officer and president, and Mr. Tony Shyngle will be chief accounting officer, of Here Media.
 
Q: Should I send in my stock certificates now?
 
A: PlanetOut stockholders should not send in their stock certificates now.  PlanetOut stockholders will receive a letter of transmittal form and written instructions for exchanging their stock certificates for Here Media common stock and special stock after the merger is completed. Stock certificates received without the letter of transmittal form will be returned to the stockholder submitting them, which could result in delay in receipt by such stockholders of the merger consideration for their stock.
 
Q: What do I need to do now?
 
A: After carefully reading this document, please submit a proxy for your shares as soon as possible. PlanetOut stockholders can submit a proxy by:
 
• using the toll-free phone number listed on their proxy cards and following the recorded instructions;
 
• going to the Internet website listed on their proxy cards and following the instructions provided; or
 
• completing and returning the proxy card.


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Q: When and where will PlanetOut stockholders meet?
 
A: PlanetOut will hold a special meeting of its stockholders on          , 2009, at   a.m., local time, at PlanetOut’s San Francisco offices, located at 1355 Sansome Street, San Francisco, California 94111.
 
Q: Who can vote at the PlanetOut special meeting?
 
A: Only holders of record of PlanetOut common stock at the close of business on          , 2009, which is the record date for the special meeting, are entitled to vote at the special meeting.
 
Q: What stockholder approval is needed?
 
A: 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.
 
Q: If I am planning to attend the meeting in person, should I still grant my proxy?
 
A: Yes. Whether or not you plan to attend the meeting, you should grant your proxy as described above. Failure of a PlanetOut stockholder to vote in person or by proxy will have the same effect as a vote against the adoption of the merger agreement and approval of the merger. Submitting your proxy now will not prevent you from voting at the meeting, but will assure that your vote is counted if you become unable to attend.
 
Q: Can I change my vote after I have granted my proxy?
 
A: Yes. You can change your vote at any time before your proxy is voted at the meeting by:
 
• sending a written notice to the corporate secretary of PlanetOut before the meeting stating that you would like to revoke your proxy;
 
• completing and signing a later-dated proxy card and returning it by mail prior to the meeting;
 
• using the toll-free phone number or Internet website listed on the proxy card and following the instructions provided prior to     p.m., Pacific time, on the day prior to the meeting; or
 
• attending the meeting and voting in person.
 
Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me without my instruction?
 
A: No. If your shares are held in “street name” by a broker, the broker may only vote the shares which it holds for you in accordance with your instructions. It is important that you instruct your broker by submitting your proxy promptly to ensure that all shares of PlanetOut common stock that you own are voted as you wish at the special meeting. To do so, you should follow the directions that your broker provides to you.
 
Q: Will the merger be taxable to me?
 
A: The merger generally will not be taxable to PlanetOut stockholders. You should carefully read the description of material U.S. federal income tax consequences included in this document.
 
Q: Am I entitled to have my shares appraised if I dissent from the merger?
 
A: Yes. Under Delaware law, PlanetOut stockholders will have appraisal rights in connection with the merger, but only if they comply with the procedures described in this document.
 
Q: Whom do I call if I have further questions about voting, the special meeting or the proposed business combination?
 
A: If you have any questions about any of these matters, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card, you should contact PlanetOut’s Investor Relations at (415) 834-6389.


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CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2008 AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
       
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FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2008 AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
       
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FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2008 AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
       
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ANNEXES:
       
ANNEX A: OPINION OF ALLEN & COMPANY LLC
    A-1  
ANNEX B: OPINION OF VIANT CAPITAL LLC
    B-1  
ANNEX C: AGREEMENT AND PLAN OF MERGER AND FIRST AMENDMENT THERETO
    C-1  
ANNEX D: SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW (APPRAISAL RIGHTS)
    D-1  
 EXHIBIT 2.2
 EXHIBIT 3.2
 EXHIBIT 10.1
 EXHIBIT 10.2
 EXHIBIT 10.3
 EXHIBIT 10.4
 EXHIBIT 10.5
 EXHIBIT 10.6
 EXHIBIT 23.1
 
 
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.


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SUMMARY
 
This summary highlights information contained elsewhere in this proxy statement/prospectus. This summary is not complete and may not contain all the information that is important to you. To understand the merger agreement and the proposed business combination more fully, and for a more complete description of the legal terms of the merger agreement and the proposed business combination, you should carefully read this entire proxy statement/prospectus and the other documents attached as Annexes A through D hereto and those referred to herein.
 
Summary of Business of the Combined Company (See page [ • ])
 
Here Media Inc. is a newly-formed company incorporated in Delaware in January 2009 in connection with the proposed business combination of PlanetOut and the HMI Entities. Here Media has not conducted any activities other than those incident to its formation, the matters contemplated by the merger agreement and the preparation of this document. Upon completion of the proposed business combination, PlanetOut and the HMI Entities will each be a wholly owned subsidiary of Here Media. Here Media’s executive offices are located at 10990 Wilshire Boulevard, Penthouse, Los Angeles, CA 90024, and its telephone number is (310) 806-4288.
 
PlanetOut is a leading media and entertainment company serving the lesbian, gay, bisexual and transgender, or LGBT, community through its flagship websites, Gay.com and PlanetOut.com. These websites provide revenues from advertising services and subscription services. PlanetOut’s executive offices are located at 1355 Sansome Street, San Francisco, California 94111, and its telephone number is (415) 834-6500.
 
Here Networks offers original movies, series, documentaries and music specials tailored for the LGBT community on a subscription and transactional basis via cable television, direct-to-home (also referred to as DTH) satellite television, fiber-optic television and the Internet under the brand name “here!”. Here Networks has agreements with major cable, satellite and fiber-optic television operators in the United States, including Comcast, Cablevision, Time Warner, Charter, DirecTV, EchoStar, Verizon, AT&T and Cox. Here Networks’ video-on-demand and subscription video-on-demand (also referred to as VOD and SVOD) and/or regularly scheduled (also referred to as linear) television channel services were available through cable, satellite and fiber-optic television providers who served approximately 34 million domestic television households in the United States as of December 31, 2008, according to internal data based on reports provided by these operators. Here Networks generates revenue from the receipt of fees paid by its subscribers for its SVOD and linear television channel services and transactional fees paid by viewers of its VOD services. Here Networks’ executive offices are located at 10990 Wilshire Boulevard, Penthouse, Los Angeles, California 90024, and its telephone number is (310) 806-4288.
 
Regent Entertainment Media publishes magazines targeting the LGBT community. Its business consists of the former magazine publishing operations of PlanetOut that were conducted through LPI Media, Inc., substantially all of the assets and liabilities of which were acquired by Regent Entertainment Media from PlanetOut in August 2008. Regent Entertainment Media currently publishes three magazines on a regular basis, The Advocate, Out and HIVPlus. Regent Entertainment Media offers Out and The Advocate on a subscription basis, while it offers HIVPlus free to health care professionals and organizations. It also distributes digital editions of Out and The Advocate. Regent Entertainment Media’s revenues are derived principally from subscriptions for its magazines and fees charged for advertising in its magazines. Regent Entertainment Media’s executive offices are located at 10990 Wilshire Boulevard, Penthouse, Los Angeles, California 90024, and its telephone number is (310) 806-4288.
 
Here Media intends to continue the businesses currently conducted by PlanetOut and the HMI Entities and plans to expand in other areas of content production and distribution. PlanetOut and the HMI Entities currently are developing the integration plan for the combination of their businesses.
 
Structure of the Proposed Business Combination (See page [ • ])
 
The proposed business combination will be accomplished in two concurrent steps. The first will be the merger of a wholly owned subsidiary of Here Media, named HMI Merger Sub, with and into PlanetOut, in which one share of Here Media common stock and one share of Here Media special stock will be issued in exchange for each outstanding share of PlanetOut common stock. PlanetOut will be the surviving corporation in the merger and the wholly owned subsidiary of Here Media. Concurrently with the merger, the HMI Owners will contribute their


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ownership interests in the HMI Entities, consisting of stock and limited liability company interests constituting 100% ownership of the HMI Entities, in exchange for Here Media common stock. Upon completion of the proposed business combination, the former PlanetOut stockholders will own 20% of the outstanding common stock and 100% of the outstanding special stock of Here Media, and the former HMI Owners will own 80% of the outstanding common stock of Here Media. Here Media’s common stock will at that time be its only class of voting stock. The Here Media special stock will only have voting rights with respect to certain matters relating to preservation of the terms of the special stock.


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The following diagrams depict the structure of the proposed business combination and the structure of Here Media after completion of the transaction.
 
(DIAGRAMS)


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The Special Meeting of PlanetOut Stockholders (See page [ • ])
 
Where and when:  The PlanetOut special meeting will take place at PlanetOut Inc., 1355 Sansome Street, San Francisco, California, on          , 2009, at   a.m., local time.
 
What you are being asked to vote on:  At the PlanetOut special meeting, PlanetOut stockholders will vote on the adoption of the merger agreement and the approval of the merger.
 
Who may vote:  You may vote at the PlanetOut special meeting if you were the record holder of PlanetOut common stock at the close of business on the record date,          , 2009. On that date,          shares of PlanetOut common stock were outstanding and entitled to vote. You may cast one vote for each share of PlanetOut common stock that you owned on that date.
 
What vote is needed:  The affirmative vote, cast in person or by proxy, of the holders of at least a majority of the shares of PlanetOut common stock outstanding on the record date is required for adoption of the merger agreement and approval of the merger.
 
Recommendation of PlanetOut’s Board of Directors (See page [ • ])
 
PlanetOut’s board of directors has approved the merger agreement and determined that the merger agreement and the merger are advisable and in the best interests of PlanetOut and its stockholders. Accordingly, the board recommends that PlanetOut stockholders vote “FOR” the proposal to adopt the merger agreement and approve the merger.
 
PlanetOut’s Reasons for the Merger (See page [ • ])
 
PlanetOut’s board of directors considered various factors in approving the proposed business combination and the merger agreement, including the anticipated synergies from the business combination with the HMI Entities, the complementary nature of their customer bases, the opportunity of PlanetOut’s stockholders to become stockholders of a company with more diverse product offerings and other matters referred to under “The Proposed Business Combination — Recommendation of PlanetOut’s Board of Directors” and “The Proposed Business Combination — PlanetOut’s Reasons for the Merger” sections of this document.
 
The HMI Entities’ Reasons for the Contribution (See page [ • ])
 
The HMI Entities believe their combination with PlanetOut will significantly increase their content distribution capabilities by giving them access to one of the largest and most well-known online destinations for the LGBT community and that there are strategic benefits to combining their existing content and technology with PlanetOut’s critical mass of online subscribers and website visitors. In addition to the perceived strategic benefits of 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. See “The Proposed Business Combination — The HMI Entities’ Reasons for the Contribution.”
 
Opinions of PlanetOut’s Financial Advisors (See page [ • ])
 
In connection with their consideration and approval of the proposed business combination, the PlanetOut board of directors received opinions from Allen & Company LLC and Viant Capital LLC, which are referred to in this document as “Allen” and “Viant,” respectively, that as of the date of the opinions, the merger consideration described in the merger agreement to be received by holders of PlanetOut common stock is fair from a financial point of view to PlanetOut’s stockholders. The opinions of Allen and Viant were provided to the PlanetOut board of directors in connection with their evaluation of the merger consideration to be paid and the resulting exchange ratio and do not address any other aspect of the merger agreement or the merger and do not constitute a recommendation to any stockholder as to how to vote or act with respect to any matter relating to the merger agreement or the merger. Each holder of PlanetOut common stock should read the complete opinions of Allen and Viant carefully and in their entirety to understand the assumptions made, procedures followed, matters considered and limitations on the review undertaken with regard to the opinions. Copies of the Allen and Viant opinions are attached to this proxy statement/


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prospectus as Annex A and B, respectively. Allen was paid $400,000 for the delivery of the opinion described above. In connection with its financial advisory services provided in connection with the proposed business combination, and conditioned on its completion, Allen will be paid a cash fee equal to $1,000,000 (the “success fee”). The $400,000 already paid to Allen is creditable against any success fee paid subsequently. In addition, Allen received warrants to purchase 75,000 shares of PlanetOut common stock and will be paid up to $75,000 for its expenses. Allen and its affiliates own approximately 5.7% of PlanetOut’s common stock. Viant was paid $200,000 for the delivery of the opinion described above at the time of such delivery.
 
Directors and Senior Management of Here Media Following the Proposed Business Combination (See page [ • ])
 
Upon completion of the proposed business combination, Here Media’s board of directors will consist of three members who will initially be Messrs. Jarchow and Colichman, both of whom are executive officers and principal owners of the HMI Entities, and Mr. Kleweno, who is currently chairman of the board of PlanetOut. Mr. Jarchow will be chairman of the board, Mr. Colichman will be chief executive officer and president, and Mr. Tony Shyngle will be chief accounting officer, of Here Media.
 
Interests of Directors, Executive Officers and Principal Stockholders in the Merger (See page [ • ])
 
Some of the directors and executive officers of PlanetOut have interests in the merger that are different from, or are in addition to, the interests of PlanetOut’s stockholders. These interests include acceleration of vesting of restricted stock awards as a result of the merger, potential severance and other benefit payments in the event of termination of employment in connection with the merger, and the right to continued indemnification and insurance coverage by Here Media for acts or omissions occurring prior to the merger and, in the case of Mr. Kleweno, his position as a director of Here Media following the proposed business combination. The board of directors of PlanetOut was aware of these interests and considered them in approving the merger. On February 25, 2009, PlanetOut directors, executive officers and their affiliates owned approximately 1.87% of PlanetOut common stock entitled to vote on adoption of the merger agreement and approval of the merger, as compared to the affirmative vote of at least a majority, or more than 50%, of the outstanding shares of PlanetOut common stock required for adoption of the merger agreement and approval of the merger.
 
Material U.S. Federal Income Tax Consequences (See page [ • ])
 
In the opinions of Howard Rice Nemerovski Canady Falk & Rabkin, A Professional Corporation (“Howard Rice”), tax counsel to PlanetOut, and Mayer Brown LLP, tax counsel to Here Media, subject to the qualifications and limitations contained in such opinions, the merger and the contribution, taken together, will qualify as an exchange described in Section 351 of the Internal Revenue Code of 1986, as amended. Moreover, Howard Rice is of the opinion that, with possible exceptions, no gain or loss will be recognized by a holder of PlanetOut common stock upon such holder’s receipt of Here Media common stock and special stock in exchange for PlanetOut common stock in the merger. A more detailed description of the anticipated material income tax consequences of the proposed business combination, including some possible exceptions, is set forth under the caption “The Proposed Business Combination — Material U.S. Federal Income Tax Consequences.”
 
Market Prices of PlanetOut Common Stock (See page [ • ])
 
PlanetOut common stock is traded on the Nasdaq Capital Market under the symbol “LGBT.” The closing per share sale price of PlanetOut common stock was as follows:
 
  •  $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.
 
For the 52-week period ended          , 2009, the highest and lowest closing per share sale price of PlanetOut common stock was $      and $      , respectively.


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The Merger Agreement (See page [ • ])
 
The merger agreement is attached to this proxy statement/prospectus as Annex C. You are encouraged to read the merger agreement in its entirety. It is the principal document governing the proposed business combination. In addition, the merger agreement is discussed in detail beginning on page [ • ].
 
Comparison of Rights of PlanetOut and Here Media Stockholders (See page [ • ])
 
Some of the rights of PlanetOut stockholders are different from those of Here Media stockholders. See the “Comparative Rights of PlanetOut Stockholders Prior to and After the Merger” section of this document for more information.
 
Appraisal Rights of PlanetOut Stockholders (See page [ • ])
 
Under Delaware law, PlanetOut stockholders will have appraisal rights in connection with the merger, but only if they comply with the procedures described in this document. See “The Proposed Business Combination — Appraisal Rights” section of this document for more information.
 
Regulatory Approvals and Conditions to Completion of the Proposed Business Combination (See page [ • ])
 
No regulatory consents or approvals are required to complete the proposed business combination.
 
The proposed business combination is subject to the satisfaction or waiver of specified conditions, as described under “The Merger Agreement — Conditions to Completion of the Proposed Business Combination,” including the condition that Here Media and the HMI Entities shall, in the aggregate, have cash and cash equivalents (as defined in the same manner as defined by PlanetOut in the preparation of its financial statements) not subject to a lien to secure indebtedness, other than general liens covering all or substantially all of the assets of Here Media or one or more of the HMI Entities, equal to $5,200,000 reduced by up to $500,000 of the costs and expenses incurred by Here Media, the HMI Entities and the HMI Owners in connection with the transactions provided for in the merger agreement, including fees and disbursements of accountants and legal counsel.
 
Comparative Historical and Pro Forma Per Share Data
 
The following table presents unaudited historical per share data for PlanetOut and pro forma per share data for Here Media after giving effect to the proposed business combination. The Here Media pro forma per share data was derived by combining information from the historical consolidated financial statements of PlanetOut and the historical financial statements of the HMI Entities using the purchase method of accounting for the merger and the contribution. Here Networks is a privately-held single-member LLC. Regent Entertainment Media is a privately-held corporation, all of the outstanding shares of which are owned by two individuals. Therefore, earnings (losses) or book value per share data is not meaningful and has not been presented for these entities. You should read this table in conjunction with the historical consolidated financial statements of PlanetOut and the historical financial statements of the HMI Entities and pro forma financial statements and footnotes only contained elsewhere in this


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document. You should not rely on the pro forma per share data as being necessarily indicative of actual results that would have occurred had the merger and the contribution been completed in the past, or of future results.
 
         
    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  


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RISK FACTORS
 
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.
 
Risks Relating to 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. On April 3, 2009, PlanetOut transferred the listing of its common stock from The Nasdaq Global Market to The


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Nasdaq Capital Market. PlanetOut had previously been notified by Nasdaq that its common stock failed to meet the minimum market value of $5 million for publicly held shares and that it had also failed to maintain the minimum of $10 million in stockholders’ equity, each of which was necessary for continued listing on The Nasdaq Global Market. In addition, PlanetOut’s common stock has been trading below The Nasdaq Capital Market’s $1.00 minimum bid price. While this requirement has been suspended 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 other requirements necessary to maintain its listing on the 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:
 
  •  it will not realize the benefits expected from becoming part of the proposed combined company, including a potentially enhanced competitive and financial position;
 
  •  current and prospective employees may experience uncertainty about their future roles with PlanetOut, which may adversely affect the ability of PlanetOut to attract and retain key management, marketing and technical personnel;
 
  •  in preparation for the proposed business combination, PlanetOut may take additional actions with respect to its business that it would not have taken if it was continuing to operate on a stand-alone basis;
 
  •  costs related to the proposed business combination, such as legal, accounting and some financial advisory fees, must be paid even if the proposed business combination is not completed; and


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  •  PlanetOut may be required to raise additional capital to continue operating as a stand-alone company, which could result in substantial dilution to existing PlanetOut stockholders or increased interest and other costs, and such additional capital may not be available on acceptable terms, or at all, especially in view of the current market conditions.
 
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:
 
  •  a requirement that Here Media’s board of directors be divided into three classes, with one-third of the directors to be elected each year;
 
  •  authorization of Here Media’s board of directors, without stockholder approval, to issue up to 10 million shares of undesignated preferred stock;
 
  •  a prohibition on stockholders calling a special meeting of stockholders;
 
  •  advance notice requirements for proposing matters to be approved by stockholders at stockholder meetings; and
 
  •  supermajority voting requirements (two-thirds of outstanding shares) for amendment of the bylaws or certain provisions of the certificate of incorporation.
 
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


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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.”
 
Risks Relating to the Business of the Combined Company
 
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


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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.


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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.


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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.


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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


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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


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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.


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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


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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.
 
FORWARD-LOOKING STATEMENTS
 
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:
 
  •  competition in the markets in which the companies operate;
 
  •  the ability of the companies to raise capital in the future;
 
  •  the ability of the companies to manage and expand their business;
 
  •  changes in customer preferences and the ability of the companies to adapt the companies’ product and service offerings;
 
  •  changes in laws and regulations;
 
  •  other domestic and global economic, business, competitive and regulatory factors affecting the companies’ businesses generally, including a continuation of the current economic downturn or further deterioration in the economy; and
 
  •  effects of natural catastrophes, terrorism and other business interruptions.


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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.


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THE PLANETOUT SPECIAL MEETING
 
General
 
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.
 
Solicitation
 
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.
 
Voting Information
 
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:
 
  •  a proposal to (i) adopt the Agreement and Plan of Merger, dated as of January 8, 2009, as amended as of April 27, 2009, by and among PlanetOut, Here Media, Merger Sub, and the HMI Owners and the HMI Entities signatory thereto and (ii) approve the merger of Merger Sub with and into PlanetOut with PlanetOut surviving and becoming a wholly owned subsidiary of Here Media, a newly formed holding company; and
 
  •  a proposal to adjourn the meeting to a later date, if necessary.
 
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.
 
How do I vote?  There are three ways to vote by proxy:
 
  •  by calling the toll-free telephone number on the proxy;
 
  •  by using the Internet; or
 
  •  by returning the enclosed letter proxy in the envelope provided.


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Voting Via the Internet or by Telephone
 
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.
 
For Shares Registered in Your Name
 
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.
 
For Shares Registered in the Name of a Broker or Bank
 
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.
 
Can I revoke my proxy?
 
Yes. You can revoke your proxy by:
 
  •  prior to the meeting, filing a written notice of revocation or a duly executed proxy bearing a later date with PlanetOut’s corporate secretary at its principal executive office, 1355 Sansome Street, San Francisco, California 94111, or
 
  •  attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a proxy.


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THE PROPOSED BUSINESS COMBINATION
 
Background of the Proposed Business Combination
 
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


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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 SpecPub 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.


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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.


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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


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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. On April 27, 2009, the parties executed an amendment to the merger agreement to extend from April 30, 2009 to May 31, 2009 the date on which the merger agreement provides that it may be terminated by Here Media or PlanetOut if the proposed business combination is not completed.


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Recommendation of PlanetOut’s Board of Directors
 
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.
 
PlanetOut’s Reasons for the Merger
 
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 strategic fit between PlanetOut and the HMI Entities and the complementary nature of their respective businesses and client bases and the potential for significant content, technology, cost and revenue synergies that will benefit the combined company and position the combined company to be able to compete more effectively than PlanetOut would be able to on a stand-alone basis;
 
  •  management’s analysis and understanding of the business, operations, financial performance, financial condition and earnings of PlanetOut on a stand-alone basis, and the assessment, based on such analysis and understanding, that the business combination with the HMI Entities would be more favorable to PlanetOut and its stockholders than remaining an independent public company in light of the potential risks and uncertainties associated with PlanetOut continuing to operate on a stand-alone basis. Those risks and uncertainties included those relating to PlanetOut’s ability to attract and retain subscribers and advertisers, its ability to obtain financing for anticipated short-term and longer-term capital needs, and the potential impact on PlanetOut of declining economic conditions generally;
 
  •  the opportunity for PlanetOut’s stockholders to become stockholders of and participate in the potential growth of a larger combined company than PlanetOut on its own due to more diverse assets, including video, a broader online network, and larger subscriber and advertiser bases;
 
  •  the anticipated synergies from the proposed business combination resulting from cost savings programs, which are anticipated to result primarily from downsizing the workforce and eliminating duplicate infrastructure, advertising, communication, professional fees and other expenses;
 
  •  the anticipated synergies from the proposed business combination resulting from revenue synergies, which are anticipated to result primarily from bundled sales of gay.com, magazine, and here! TV subscriptions and cross-platform advertising sales;
 
  •  the expectation that the combined company will have a leading collection of media assets focused on the LGBT market and will be able to provide a broader set of opportunities to advertisers desiring to reach this market;
 
  •  the issuance of Here Media’s special stock to PlanetOut stockholders, which is intended to provide limited downside protection in the event of a sale or liquidation of Here Media;
 
  •  the terms and conditions of the merger agreement, including:
 
  •  the limited closing conditions to the HMI Entities’ obligations under the merger agreement. In particular, the merger agreement contains no financing contingency and has already been approved by the HMI Entities’ equityholders, so there is no “fiduciary out” for the HMI Entities to pursue any alternative transaction;


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  •  the provisions of the merger agreement that allow PlanetOut to engage in negotiations with, and provide information to, third parties, under certain circumstances in response to an unsolicited alternative proposal that PlanetOut’s board of directors determines in good faith, after consultation with its outside legal advisors and its financial advisors, constitutes a transaction that is more favorable to PlanetOut’s stockholders than the business combination with the HMI Entities; and
 
  •  the provisions of the merger agreement that allow PlanetOut’s board of directors to change its recommendation that PlanetOut stockholders vote in favor of the approval and adoption of the merger agreement, if PlanetOut’s board of directors determines in good faith that the failure to change its recommendation would be inconsistent with its fiduciary duties under applicable law; and
 
  •  the opinion of Allen and the second opinion of Viant, which PlanetOut’s board decided to obtain given the potential perception of a conflict of interest of Allen due to its holdings of PlanetOut common stock, to the effect that, as of January 7, 2009, and based on and subject to the matters described in the opinions, the merger consideration, to be received by holders of PlanetOut Common Stock, is fair from a financial point of view to the stockholders of PlanetOut, as described under “— Opinion and Financial Analyses of Allen & Company LLC Presented to PlanetOut’s Board of Directors” and “— Opinion and Financial Analyses of Viant Capital LLC Presented to PlanetOut’s Board of Directors” sections of this document.
 
The PlanetOut board of directors also identified and considered a number of potentially adverse factors concerning the merger, including the following:
 
  •  the risk that the business combination might not be completed in a timely manner or at all;
 
  •  the risk that the anticipated synergies and other potential benefits of the proposed business combination may not be fully or partially realized;
 
  •  the challenges and difficulties, foreseen and unforeseen, relating to integrating the operations of PlanetOut and the HMI Entities;
 
  •  the risk associated with diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the proposed business combination;
 
  •  the potential loss of advertising revenue after announcement of the proposed business combination as a result of current or prospective advertisers delaying spending decisions until the merger is completed; and
 
  •  the possibility of management and employee disruption associated with the proposed business combination and integrating the operations of the companies, including the risk that, despite the efforts of the combined company, key management, sales, marketing, editorial, technical and administrative personnel of PlanetOut might not remain employed with the combined company.
 
The PlanetOut board of directors also considered the following factors:
 
  •  the feasibility and desirability of pursuing alternative strategies, such as pursuing growth and increased stockholder value through other business combinations, financings or strategic transactions;
 
  •  the fact that PlanetOut may not be able to sustain its business and may be placed at a disadvantage relative to its competitors if the business combination is not completed;
 
  •  the current and prospective economic and competitive environment facing the media industry and PlanetOut in particular;
 
  •  the fact that the board of directors of Here Media will be a classified board consisting of three individuals, two of whom will be designated by the HMI Entities, and one designated by PlanetOut; and
 
  •  the investment banking, legal and accounting fees and expenses of PlanetOut related to the proposed business combination.
 
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.


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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’ Reasons for the Contribution
 
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.
 
Projected Financial Information
 
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 proxy statement/prospectus 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,


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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:
 
  •  Revenues derived from network subscribers would increase modestly over the three-year period from approximately $4.6 million in 2009 to approximately $6.7 million in 2011 due to a combination of increases in the number of network subscribers anticipated to result from the combined company’s access to both new subscribers and non-subscription visitors to the Gay.com and Planetout.com websites, expansion of Here Networks’ subscription online video player services into international markets, and the combined company’s ability to offer packages of multiple platform services to the LGBT consumers of the pre-combination companies.
 
  •  An anticipated increase in revenues from the combined company’s online business from approximately $15.7 million in 2009 to approximately $18.2 million in 2011 due to, among other factors, the introduction of ad-supported, professionally produced video content to the Gay.com and PlanetOut.com websites and increased retention of online subscribers as a result of the offering of new value-added video content.
 
  •  Revenues derived from the print business would increase from approximately $23.1 million in 2009 to approximately $24.5 million in 2011.
 
  •  Revenues from the new motion picture production business were projected to be approximately $9.3 million in 2009 and to increase to approximately $27.0 million in 2011, mainly attributable to revenues from the production of original programming.
 
  •  An anticipated improvement in the ratio of expense to revenue as a result of both the expected increases in revenues described above without corresponding increases in expenses and reductions in operating costs, as compared with the operating costs of the respective companies prior to completion of the proposed business combination, through reductions in the number of employees, including the staff reduction of approximately 33% announced by PlanetOut in January 2009, and reductions in fixed costs and overhead over the three-year period through consolidation of the respective company’s operations, including office facilities rent, information technology costs, and sharing content across the combined company’s platforms.
 
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 or 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.


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Opinion and Financial Analyses of Allen & Company LLC Presented to PlanetOut’s Board of Directors
 
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:
 
  •  reviewed and analyzed the terms and conditions of the draft merger agreement and the draft certificate of incorporation attached thereto (and has subsequently confirmed that the changes reflected in the final version of the merger agreement would not affect its opinion);
 
  •  reviewed and analyzed trends in the online content market;
 
  •  reviewed and analyzed publicly available information on PlanetOut;
 
  •  reviewed and analyzed the financial and business condition and prospects of each of PlanetOut and the HMI Entities based on information provided by senior management of the respective companies;
 
  •  reviewed and analyzed historical results and financial projections of PlanetOut and the HMI Entities provided by senior management of the respective companies;
 
  •  reviewed and analyzed financial projections of Here Media prepared by senior management of PlanetOut and the HMI Entities;
 
  •  reviewed and analyzed information obtained from discussions with management of each of PlanetOut and the HMI Entities;
 
  •  reviewed and analyzed the trading history of PlanetOut’s common stock;
 
  •  reviewed and analyzed the trading history of PlanetOut’s common stock as compared to that of comparable companies and market indices;
 
  •  reviewed and analyzed public financial and transaction information related to comparable mergers and acquisitions, including the premiums and multiples paid in those transactions;
 
  •  reviewed and analyzed the common stock price and market multiples of PlanetOut in relation to that of comparable public companies;
 
  •  reviewed and analyzed market multiples of public companies comparable to Here Media assuming the completion of the merger; and
 
  •  conducted such other financial analyses and investigations as Allen deemed necessary or appropriate for the purposes of the opinion expressed therein.
 
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


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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.


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(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:
 
  •  Walt Disney Co.
 
  •  News Corporation
 
  •  Time Warner Inc.
 
  •  Viacom
 
  •  Liberty Media Corp.
 
  •  CBS Corp.
 
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.
 
                 
    Implied Enterprise
    Range of Selected
 
    Value of
    Multiples of Comparable
 
    Here Media     Diversified Media Companies  
    ($ millions)        
 
2010E EV/EBITDA
  $ 51 — $64       4.0x — 5.0 x
2009E EV/Revenue
  $ 46 — $57       0.8x — 1.0 x
 
(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


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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:
 
  •  IAC/InterActiveCorp
 
  •  RealNetworks
 
  •  InfoSpace
 
  •  The Knot
 
  •  Move
 
  •  LoopNet
 
  •  TechTarget
 
  •  TheStreet.com
 
  •  Spark Networks
 
  •  Kaboose
 
  •  Harris Interactive
 
  •  LookSmart
 
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


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revenue multiples were within or above the selected range of representative multiples of the most comparable publicly traded companies in the online media sector.
 
                 
    Range of Multiples
       
    Implied by a Pro Forma
    Range of Selected Multiples
 
    Equity Value of
    from Comparable Publicly-Traded
 
    Between $1.49 and $4.80     Online Media Companies  
 
EV/CY08E Revenue
    0.4.x — 1.1.x       0.2x — 0.8 x
EV/CY09E Revenue
    0.5.x — 1.6.x       0.2x — 0.8 x
 
(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:
 
  •  Comcast’s acquisition of Daily Candy
 
  •  Radio One’s acquisition of Community Connect
 
  •  D&B’s acquisition of AllBusiness.com
 
  •  Spectrum Equity Investors’ acquisition of The Generations Network
 
  •  Liberty Media’s acquisition of FUN Technologies
 
  •  Hearst Magazine’s acquisition of RealAge
 
  •  RH Donnelly’s acquisition of Business.com
 
  •  Local.com’s acquisition of PremierGuide
 
  •  Dow Jones’ acquisition of eFinancialnews
 
  •  Lagardere SCA’s acquisition of Newsweb
 
  •  WebMD Health’s acquisition of Subimo
 
  •  Dow Jones’ acquisition of Factiva
 
  •  FUN Technologies’ acquisition of CDM Fantasy Sports
 
  •  Vocus’s acquisition of PRWeb
 
  •  Prides Capital’s acquisition of eDiet.com
 
  •  WebMD Health’s acquisition of Medsite.com
 
  •  Condé Nast Publications acquisition of Wired News
 
  •  The Knot’s acquisition of WeddingChannel.com
 
  •  aQuantive’s acquisition of Franchise Gator
 
  •  Kaboose’s acquisition of BabyZone.com
 
  •  Realestate.com.au’s acquisition of Property Look
 
  •  Interactive Data’s acquisition of Quote.com
 
  •  WebMD Health’s acquisition of eMedicine.com
 
  •  Great Hill Investors’ acquisition of Spark Networks
 
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


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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.
 
                 
    Range of Multiples
       
    Implied by a Pro Forma
    Range of Selected Multiples
 
    Equity Value of
    from Comparable Publicly-Traded
 
    Between $1.49 and $4.80     Online Media Companies  
 
EV/LTM Revenue
    0.4.x — 1.1.x       0.6x — 2.0 x
EV/Forward Revenue
    0.5.x — 1.6.x       0.6x — 2.0 x
 
(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


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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.
 
Opinion and Financial Analyses of Viant Capital LLC Presented to PlanetOut’s Board of Directors
 
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:
 
  •  reviewed a draft of the merger agreement dated January 6, 2009 and certain related documents and has subsequently confirmed that nothing in the merger agreement executed on January 8, 2009, as compared to the draft dated January 6, 2009, would affect its opinion;
 
  •  reviewed certain publicly available financial statements and other business and financial information of PlanetOut and the HMI Entities’ contributed assets;
 
  •  reviewed certain internal financial statements and other financial and operating data concerning PlanetOut, the HMI Entities and the combined entity furnished to Viant by PlanetOut and the HMI Entities;
 
  •  reviewed certain financial projections prepared by the management of PlanetOut and the HMI Entities;


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  •  discussed the past and current operations and financial condition and the prospects of PlanetOut with senior executives of PlanetOut and the HMI Entities and with PlanetOut’s financial advisor, Allen;
 
  •  reviewed the reported prices and trading activity for PlanetOut common stock;
 
  •  compared the financial performance of PlanetOut and the prices and trading activity of PlanetOut common stock with that of comparable publicly-traded companies and their securities;
 
  •  reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
 
  •  considered PlanetOut on a stand-alone basis, its ability to raise additional capital and relied upon the advice of management regarding current and estimated future performance;
 
  •  reviewed with management the companies that Allen contacted on PlanetOut’s behalf and with Allen and management discussed the outcome of those discussions;
 
  •  reviewed with management PlanetOut’s financial performance to date, PlanetOut’s future projections, market conditions generally for the online advertising and media sectors and, more specifically, market conditions for PlanetOut’s niche;
 
  •  been advised by management regarding the expected overall declines in online advertising and other factors affecting PlanetOut’s future performance; and
 
  •  performed such other analyses and considered such other factors as Viant deemed appropriate.
 
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


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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:
 
         
Online
 
Print
 
Network/Studios/Distribution
 
Answers Corp.
Google
InfoSpace Inc.
Monster Worldwide, Inc.
Move, Inc.
The Knot, Inc.
TheStreet.com, Inc.
Time Warner Inc.
United Online Inc.
Yahoo! Inc. 
  Journal Communications Inc.
Martha Stewart Living
Omnimedia Inc.
Meredith Corp.
News Corp.
Washington Post Co.
  CBS Corporation
Discovery Communications, Inc.
Image Entertainment, Inc.
Liberty Media Capital
Lions Gate Entertainment Corp.
Navarre Corp.
New Frontier Media Inc.
News Corp.
Outdoor Channel Holdings, Inc.
Time Warner Inc.
Viacom, Inc.
Vivendi
Walt Disney Co.
 
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:
 
  •  total enterprise value (defined as market capitalization plus total debt less cash and cash equivalents), as a multiple of total estimated revenues for calendar years 2009 and 2010; and
 
  •  total enterprise value, as a multiple of estimated earnings before interest, taxes, depreciation, amortization and stock compensation expense (EBITDA) for calendar years 2009 and 2010.
 
                 
          Implied
 
Online
  Multiple Range     Enterprise Value  
          (In millions)  
 
Total Enterprise Value to Estimated Revenue 2009
    1.5x — 1.6 x   $ 25.29 — $28.30  
Total Enterprise Value to Estimated Revenue 2010
    1.2x — 1.4 x   $ 20.46 — $24.20  
Total Enterprise Value to Estimated EBITDA 2009
    6.6x — 6.7 x   $ 3.24 — $ 3.30  
Total Enterprise Value to Estimated EBITDA 2010
    5.7x — 5.9 x   $ 32.05 — $32.70  
 


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          Implied
 
Print
  Multiple Range     Enterprise Value  
          (In millions)  
 
Total Enterprise Value to Estimated Revenue 2009
    0.8x — 0.8 x   $ 17.48 — $19.02  
Total Enterprise Value to Estimated Revenue 2010
    0.8x — 0.8 x   $ 18.33 — $19.11  
Total Enterprise Value to Estimated EBITDA 2009
    5.1x — 5.3 x   $ 2.50 — $ 2.63  
Total Enterprise Value to Estimated EBITDA 2010
    4.8x — 5.3 x   $ 11.53 — $12.89  
 
                 
          Implied
 
Network/Studio/Distribution
  Multiple Range     Enterprise Value  
          (In millions)  
 
Total Enterprise Value to Estimated Revenue 2009
    1.4x — 1.4 x   $ 23.97 — $24.31  
Total Enterprise Value to Estimated Revenue 2010
    1.3x — 1.4 x   $ 36.35 — $36.67  
Total Enterprise Value to Estimated EBITDA 2009
    6.0x — 6.5 x     Not Meaningful  
Total Enterprise Value to Estimated EBITDA 2010
    5.7x — 6.0 x   $ 26.71 — $28.44  
 
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:
 
  •  CBS Corporation’s acquisition of CNET Networks, Inc.
 
  •  Amazon.com’s acquisition of Audible, Inc.
 
  •  Liberty Media’s acquisition of IAC/Interactive Corp.
 
  •  Macrovision’s acquisition of Gemstar — TV Guide International
 
  •  NBC Universal’s acquisition of iVillage
 
Print:
 
  •  Marpep Publishing’s acquisition of MPL Communications
 
  •  Source Interlink Companies’ acquisition of PRIMEDIA Enthusiast Media
 
  •  Thomson Reuters’ acquisition of Thomas Reuters PLC
 
  •  News Corp’s acquisition of Dow Jones
 
  •  Golden Tree Asset Management’s acquisition of Reader’s Digest
 
  •  The McClatchy Company’s acquisition of Knight-Ridder
 
Network/Studios/Distribution:
 
  •  Q Black’s acquisition of Image Entertainment
 
  •  Entertainment One’s acquisition of Four Television & Film Companies
 
  •  Société générale de financement du Québec’s acquisition of Alliance Films
 
  •  Marwyn Investment Management’s acquisition of Entertainment One

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  •  CanWest Global Communications’ acquisition of Alliance Atlantis Communications
 
  •  Madison Dearborn Capital Partners’ acquisition of Univision Communications
 
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:
 
  •  implied total enterprise value as a multiple of trailing twelve months (“TTM”) revenue; and
 
  •  implied total enterprise value as a multiple of pro forma estimated TTM EBITDA.
 
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:
 
                 
          Implied
 
Online
  Multiple Range     Enterprise Value  
          (In millions)  
 
Total Enterprise Value to TTM Revenue
    2.8x —  3.2x     $ 40.30 — $46.34  
Total Enterprise Value to TTM EBITDA
    22.7x — 24.5x     $ 9.25 — $ 9.98  
 
                 
          Implied
 
Print
  Multiple Range     Enterprise Value  
          (In millions)  
 
Total Enterprise Value to TTM Revenue
    2.0x —  2.1 x   $ 37.66 — $40.41  
Total Enterprise Value to TTM EBITDA
    13.7x — 14.1 x   $ 6.74 — $ 6.95  
 
                 
          Implied
 
Network/Studios/Distribution
  Multiple Range     Enterprise Value  
          (In millions)  
 
Total Enterprise Value to TTM Revenue
    0.8x — 1.8 x   $ 12.14 — $26.04  
Total Enterprise Value to TTM EBITDA
    6.9x — 9.0 x     Not Meaningful  
 
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.


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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:
 
         
Implied Enterprise Value Range
  Range  
    (In millions)  
 
Online
  $ 23.00 — $27.00  
Print
  $ 16.00 — $18.00  
Network/Studios/Distribution
  $ 24.00 — $28.00  
 
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:
 
         
Summary Valuation
  Implied Value  
    (In millions)  
 
Online
  $ 23.00 — $27.00  
Print
  $ 16.00 — $18.00  
Network/Studios/Distribution
  $ 24.00 — $28.00  
         
Total Implied Enterprise Value
  $ 63.00 — $73.00  
Plus Cash at Closing
  $ 6.00 — $ 8.00  
Total Market Value
  $ 69.00 — $81.00  
Implied Value of Merger Consideration
  $ 13.80 — $16.20  
 
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


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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.
 
Interests of PlanetOut’s Directors, Executive Officers and Principal Stockholders
 
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.


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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.
 
         
Name
  Number of Shares  
 
Daniel E. Steimle
     
Jerry Colonna
    50  
H. William Jesse, Jr. 
    50  
Phillip S. Kleweno
    200  
John Marcom
    300  
Stephen B. Davis
    300  
 
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 1.58% 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.
 


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    Pre-Proposed Business
  Post-Proposed Business
    Combination Shares of
  Combination Shares of
    PlanetOut Common Stock
  Here Media Common
    Beneficially Owned(1)   Stock Beneficially Owned
    Number of
  Percent of
  Number of
  Percent of
Name and Address of Beneficial Owner
  Shares   Total   Shares   Total
 
Greater than 5% Stockholders:
                               
Austin W. Marxe and David M. Greenhouse(2)
    1,029,462       25.29 %     1,029,462       4.97 %
153 East 53rd Street
New York, NY 10022
                               
T. Rowe Price Associates, Inc.(3)
    557,714       13.70 %     557,714       2.69 %
100 East Pratt Street
Baltimore, MD 21202
                               
Cascade Investment, LLC(4)
    521,739       12.82 %     521,739       2.52 %
2365 Carillon Point
Kirkland, WA 98033
                               
PAR Investment Partners, L.P.(5)
    237,098       5.82 %     237,098       1.15 %
One International Place, Suite 2401
Boston, MA 02110
                               
Herbert A. Allen III(6)
    234,432       5.76 %     234,432       1.13 %
711 Fifth Avenue
New York, NY 10022 
                               
                                 
Officers and Directors:
                               
Karen Magee(7)
    29,648       *       28,298       *  
Bill Bain(8)
    5,000       *       5,000       *  
Daniel Steimle(9)
    0       *       0       *  
Jerry Colonna(10)
    3,158       *       600       *  
H. William Jesse, Jr.(11)
    23,924       *       22,030       *  
Phillip S. Kleweno(12)
    1,000       *       1,000       *  
John Marcom(13)
    800       *       800       *  
Stephen B. Davis(14)
    800       *       800       *  
All executive officers and directors as a group (8 persons)(15)
    64,330       1.58 %     58,528       *  
 
 
Less than 1.0%
 
(1) This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Unless otherwise indicated, the principal address of each of the stockholders named in this table is: c/o PlanetOut Inc., 1355 Sansome Street, San Francisco, California 94111.
 
(2) Includes 175,165 shares held by Special Situations Cayman Fund, L.P. and 854,297 shares held by Special Situations Fund III Q.P., L.P. Messrs. Marxe and Greenhouse are the controlling principals of AWM Investment Company, Inc. (“AWM”), the general partner of and investment adviser to Special Situations Cayman Fund, L.P. AWM also serves as the general partner of MGP Advisers Limited Partnership, the general partner of Special Situations Fund III Q.P., L.P.
 
(3) These securities are owned by various individual and institutional investors, including T. Rowe Price Media & Telecommunications Fund, Inc. (which owned 471,430 shares, representing 11.58% of the shares outstanding as of March 23, 2009), for which T. Rowe Price Associates, Inc. (“Price Associates”) serves as investment

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adviser with power to direct investors and/or sole power to vote the securities. For purposes of the reporting requirements of the SEC, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates disclaims that it is, in fact, the beneficial owner of such securities.
 
(4) Based on a Form 3 filed on July 9, 2007, William H. Gates III exercises voting and investment control over the shares held by Cascade Investment, LLC.
 
(5) The general partner of PAR Investment Partners, L.P. is PAR Group, L.P., and PAR Capital Management, Inc. is its general partner.
 
(6) Includes 156,593 shares held by Allen & Company LLC (including 52,500 shares beneficially owned by Allen & Company LLC of the 75,000 share warrant, which warrant is assumed to be fully vested for purposes of this table), 52,045 shares held by Allen SBH II, LLC, 259 shares held by MBOGO Inc. and 19,792 shares held by certain family members of Herbert A. Allen III. Mr. Allen, as President of Allen & Company LLC, as President of Allen SBH II, LLC and as President of MBOGO may be deemed to be a member of a group with such entities and to beneficially own the shares held directly by each of such entities. Mr. Allen disclaims beneficial ownership of the shares of PlanetOut common stock held by these entities except to the extent of his pecuniary interest. Further, Mr. Allen and such entities disclaim that Mr. Allen and such entities constitute a group for purposes of Rule 13d-5 of the Exchange Act. Mr. Allen holds dispositive power over the 19,792 shares held by certain of his family members but disclaims beneficial ownership of such shares. The amount set forth in the table excludes approximately 79,440 shares that are held by certain officers and employees of Allen & Company LLC and their related parties (including 22,500 shares beneficially owned by such officers, employees and their related parties of the 75,000 share warrant, which warrant is assumed to be fully vested for purposes of this table).
 
(7) Ms. Magee’s pre-proposed business combination shares include 1,350 shares of PlanetOut common stock issuable upon the exercise of options that are exercisable within 60 days of March 23, 2009. Ms. Magee resigned from her employment with PlanetOut effective March 3, 2009. For purposes of calculating Ms. Magee’s post-proposed business combination shares of Here Media common stock, it is assumed that she did not exercise any of her vested options to purchase PlanetOut common stock prior to the close of the proposed business combination.
 
(8) Mr. Bain’s employment with PlanetOut was terminated on January 16, 2009.
 
(9) As of December 31, 2008, Mr. Steimle served as Interim Chief Financial Officer for PlanetOut and as such did not receive options or restricted stock. On March 3, 2009, Mr. Steimle was named Chief Executive Officer and Chief Financial Officer for PlanetOut.
 
(10) Mr. Colonna’s pre-proposed business combination shares include 2,558 shares of PlanetOut common stock issuable upon the exercise of options that are exercisable within 60 days of March 23, 2009, all of which are fully vested, and also include 50 shares of PlanetOut common stock subject to forfeiture within 60 days of March 23, 2009. For purposes of calculating Mr. Colonna’s post-proposed business combination shares of Here Media common stock, it is assumed that he did not exercise any of his vested options to purchase PlanetOut common stock prior to the close of the proposed business combination.
 
(11) Mr. Jesse’s pre-proposed business combination shares include (a) 5,427 shares of PlanetOut common stock held in a retirement account for Mr. Jesse’s benefit, (b) 1,894 shares of PlanetOut common stock issuable upon the exercise of options that are exercisable within 60 days of March 23, 2009, all of which are fully vested and subject to a resale restriction which lapses on the same vesting schedule as the original option grant, and (c) 50 shares of PlanetOut common stock subject to forfeiture within 60 days of March 23, 2009. For purposes of calculating Mr. Jesse’s post-proposed business combination shares of Here Media common stock, it is assumed that he did not exercise any of his vested options to purchase PlanetOut common stock prior to the close of the proposed business combination.
 
(12) Mr. Kleweno’s pre-proposed business combination shares include 200 shares of PlanetOut common stock subject to forfeiture within 60 days of March 23, 2009.
 
(13) Mr. Marcom’s pre-proposed business combination shares include 300 shares of PlanetOut common stock subject to forfeiture within 60 days of March 23, 2009.
 
(14) Mr. Davis’s pre-proposed business combination shares include 300 shares of PlanetOut common stock subject to forfeiture within 60 days of March 23, 2009.


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(15) Includes all of the shares referenced in notes (7) through (14) above.
 
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.
 
Trading of Here Media Stock; Exchange Act Registration and SEC Reporting
 
Neither the stock of Here Media nor the stock or limited liability company interests of any of the HMI Entities is publicly traded currently. On April 3, 2009, PlanetOut transferred the listing of its common stock from The Nasdaq Global Market to The Nasdaq Capital Market. PlanetOut had previously been notified by Nasdaq that its common stock failed to meet the minimum market value of $5 million for publicly held shares and that it had also failed to maintain the minimum of $10 million in stockholders’ equity, each of which was necessary for continued listing on The Nasdaq Global Market. In addition, PlanetOut’s common stock has been trading below The Nasdaq Capital Market’s $1.00 minimum bid price. While this requirement has been suspended 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 other requirements necessary to maintain its listing on 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 Capital Market will be terminated, it will no longer be registered under the Exchange Act and reports regarding


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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.
 
Dividends
 
PlanetOut has never paid any cash dividends, and Here Media does not anticipate paying any dividends on its common stock for the foreseeable future.
 
Material U.S. Federal Income Tax Consequences
 
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:
 
  •  a citizen or resident of the United States;
 
  •  a corporation created or organized under the laws of the United States or any of its political subdivisions;
 
  •  a trust that (i) is subject to the supervision of a court within the United States and the control of one or more United States persons or (ii) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person; or
 
  •  an estate that is subject to United States federal income tax on its income regardless of its source.
 
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:
 
  •  U.S. holders subject to special treatment under the United States federal income tax laws (for example, brokers or dealers in securities, financial institutions, mutual funds, insurance companies or tax-exempt organizations);
 
  •  U.S. holders that hold PlanetOut common stock as part of a hedge, appreciated financial position, straddle, conversion transaction or other risk reduction strategy;
 
  •  U.S. holders whose functional currency for United States federal income tax purposes is other than the U.S. dollar;
 
  •  Partnerships or other entities classified as a partnership for United States federal income tax purposes;
 
  •  U.S. holders liable for the alternative minimum tax; or
 
  •  U.S. holders who acquired PlanetOut common stock pursuant to the exercise of options or otherwise as compensation.


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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.
 
Federal Income Tax Characterization of the Merger and the Contribution
 
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.
 
Federal Income Tax Consequences to PlanetOut Stockholders
 
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”:
 
  •  No gain or loss will be recognized by a holder of PlanetOut common stock who receives Here Media common stock and special stock in exchange for PlanetOut common stock in the merger.
 
  •  The aggregate tax basis of the Here Media common stock and special stock that the holder receives should be equal to the aggregate tax basis of the PlanetOut common stock surrendered in the merger and such basis should be allocated between the Here Media common stock and special stock received in proportion to the relative fair market value of each class of stock.
 
  •  The holding period of the Here Media common stock and special stock received should include the time period during which the exchanged PlanetOut common stock was held by such participating stockholder.
 
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


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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


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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.
 
Information Reporting and Backup Withholding
 
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.
 
Federal Income Tax Consequences to Here Media and PlanetOut
 
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.
 
Employee Benefit Matters
 
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.
 
Effect on Awards Outstanding Under Stock Plans
 
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.
 
Board of Directors and Management of Here Media After 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.
 
Regulatory Matters
 
No regulatory consents or approvals are required to complete the proposed business combination.


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Accounting Treatment
 
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.
 
Appraisal Rights
 
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:
 
  •  deliver to PlanetOut, before the vote to adopt the merger agreement, written notice of the holder’s intention to demand payment of the fair value of the holder’s shares (this written notice must be in addition to and separate from any proxy or vote against the merger agreement; neither voting against adoption nor a failure to vote for the merger agreement will constitute such a notice); and
 
  •  not vote in favor of adoption of the merger agreement (a failure to vote will satisfy the requirement, but a vote in favor of adoption of the merger agreement, by proxy or in person, or execution of a proxy without indicating how it should be voted, will constitute a waiver of the holder’s appraisal rights and will nullify any previously filed written notice of intent to demand payment).
 
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


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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


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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:
 
  •  the merger is abandoned;
 
  •  the stockholder seeking appraisal rights fails to make a timely written demand for appraisal;
 
  •  after making a timely written demand for appraisal, the stockholder fails to continuously own the shares until the effective time of the merger;
 
  •  neither PlanetOut nor a stockholder who has otherwise complied with Section 262 files a petition for appraisal in the Delaware Court of Chancery within 120 days after the effective date of the merger; or
 
  •  the stockholder delivers to Here Media following the business combination, within 60 days of the effective date of the merger, or thereafter with Here Media’s approval, a written withdrawal of the stockholder’s demand for appraisal of the dissenting shares, although no appraisal proceeding in the Delaware Court of Chancery may be dismissed as to any stockholder without the approval of the court; provided, however, that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation.
 
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.


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THE MERGER AGREEMENT
 
General
 
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.
 
Structure of the Proposed Business Combination
 
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.
 
Transaction Consideration
 
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.
 
Exchange of PlanetOut Shares for Merger Consideration
 
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


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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.
 
Representations and Warranties
 
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:
 
  •  changes in the economy in general if they do not disproportionately affect PlanetOut or the HMI Entities, respectively;
 
  •  changes in the parties’ respective industries but only if a party is not disproportionately affected thereby;
 
  •  any change in the trading price of PlanetOut’s common stock;
 
  •  any effect on a party resulting from actions taken pursuant to the merger agreement or at the request of or with the written consent of the other party or parties to the merger agreement; or
 
  •  any effect arising as a result of the announcement of the transactions contemplated by the merger agreement.
 
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.
 
Covenants
 
Each of Here Media and PlanetOut has undertaken certain covenants in the merger agreement. The following summarizes the more significant of these covenants.


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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:
 
  •  solicit, initiate or knowingly encourage, directly or indirectly, any inquiries regarding or the submission of, any takeover proposal (as defined below);
 
  •  participate in any discussions or negotiations regarding, or furnish any material non-public information or data with respect to, or take any other action to knowingly facilitate, the making of any proposal that constitutes, or may reasonably be expected to lead to, any takeover proposal; or
 
  •  except as described below, enter into any agreement with any third party with respect to any takeover proposal or approve or resolve to approve any takeover proposal.
 
However, PlanetOut or its board of directors may:
 
  •  make such disclosure to PlanetOut’s stockholders as, in the good faith judgment of the board of directors, after receiving advice from outside legal counsel, is required under applicable law; and
 
  •  withdraw its recommendation in favor of adoption of the merger agreement or modify its recommendation in a manner adverse to Here Media if PlanetOut’s board of directors determines in good faith, after receiving advice of outside legal counsel, that such action is required to discharge the board of directors’ fiduciary duties to PlanetOut stockholders under Delaware Law.
 
In addition, PlanetOut or its board of directors may, prior to the adoption of the merger agreement by PlanetOut’s stockholders;
 
  •  negotiate and participate in negotiations and discussions with any third party concerning a takeover proposal if such third party or group has submitted a superior proposal (as defined below);
 
  •  furnish to such a third party or its representatives nonpublic information relating to PlanetOut pursuant to a confidentiality agreement containing terms and conditions similar to those of the existing confidentiality agreement entered into between PlanetOut and Here Media, provided that PlanetOut promptly, and in any event within 24 hours, provides to Here Media any non-public information concerning PlanetOut provided to any other person or group that was not previously provided to Here Media;
 
  •  terminate the merger agreement in connection with a superior proposal, provided that PlanetOut pays a termination fee (as described below) and follows certain procedures set forth in the merger agreement; and
 
  •  postpone the special meeting following a change in the PlanetOut board of directors’ recommendation under the above-described circumstances for a period of up to five business days if the board of directors determines in good faith, after receiving advice from outside legal counsel, that such action is required by applicable securities laws or is required to discharge the board of directors’ fiduciary duties to PlanetOut’s stockholders under Delaware Law.


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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.
 
Indemnification and Insurance
 
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 Completion of the Proposed Business Combination
 
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:
 
  •  approval of the merger and adoption of the merger agreement by the affirmative vote of a majority of the outstanding shares of PlanetOut common stock entitled to vote thereon;
 
  •  absence of any temporary restraining order, preliminary or permanent injunction or other court order or regulatory restraint, and the absence of any statute, regulation or order preventing or prohibiting the consummation of the merger and the contribution;
 
  •  any required governmental approvals, waivers, consents or indications of non-objection shall have been obtained;
 
  •  the registration statement under the Securities Act of which this proxy statement is a part shall have been declared effected by the SEC (which occurred prior to the distribution of this proxy statement) and no stop order suspending the effectiveness of the registration statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the SEC.
 
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:
 
  •  the accuracy in all respects of specified representations and warranties made by PlanetOut in the merger agreement relating to its corporate existence, capitalization, power and authorization to enter into the merger


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  agreement and the binding legal effect of the merger agreement on PlanetOut and the accuracy in all material respects of the remaining representations and warranties made by PlanetOut in the merger agreement; provided that inaccuracies in all such representations and warranties will be disregarded for this purpose if all circumstances constituting such inaccuracies, considered collectively, do not constitute, and would not reasonably be expected to have or result in, a material adverse effect on PlanetOut;
 
  •  performance in all material respects by PlanetOut of all of its obligations and covenants set forth in the merger agreement that are required to be performed at or prior to the consummation of the merger and the contribution;
 
  •  Here Media and the HMI Owners shall have received a certificate of PlanetOut’s chief executive officer or chief financial officer confirming that the above-described conditions have been satisfied;
 
  •  the absence since the date of the merger agreement of any event, development, circumstance or set of circumstances which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on PlanetOut;
 
  •  receipt by Here Media of an opinion of Mayer Brown LLP, its legal counsel, to the effect that for U.S. federal income tax purposes the contribution and the merger, taken together, will constitute exchanges described in Section 351 of the Internal Revenue Code of 1986, as amended, and the HMI Owners will not recognize any gain or loss for U.S. federal income tax purposes as a result of the contribution and the merger; and
 
  •  holders of not more than 5% of PlanetOut’s outstanding common stock shall have made a demand for appraisal and payment for their shares pursuant to Section 262 of the Delaware General Corporation Law.
 
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:
 
  •  the accuracy in all material respects of the representations and warranties made by Here Media in the merger agreement, provided that inaccuracies in such representations and warranties will be disregarded for this purpose if all circumstances constituting such inaccuracies, considered collectively, do not constitute, and would not reasonably be expected to have or result in, a material adverse effect on Here Media and the HMI Entities taken as a whole;
 
  •  performance in all material respects by Here Media of all of its obligations and covenants set forth in the merger agreement that are required to be performed at or prior to the consummation of the mergers and the contribution;
 
  •  PlanetOut shall have received a certificate executed on behalf of Here Media, the HMI Entities and the HMI Owners by an authorized officer confirming that the above-described conditions have been satisfied;
 
  •  the absence since the date of the merger agreement, of any event, development or set of circumstances which, individually or in the aggregate, has had, or would reasonably be expected to have, a material adverse effect on Here Media and the HMI Entities taken as a whole; and
 
  •  Here Media and the HMI Entities shall, in the aggregate, have cash and cash equivalents (as defined in the same manner as defined by PlanetOut in the preparation of its financial statements) not subject to a lien to secure indebtedness, other than general liens covering all or substantially all of the assets of Here Media or one or more of the HMI Entities, equal to $5,200,000 reduced by up to $500,000 of the costs and expenses incurred by Here Media, the HMI Entities and the HMI Owners in connection with the transactions provided for in the merger agreement, including fees and disbursements of accountants and legal counsel.
 
Termination
 
The merger agreement provides that Here Media and PlanetOut may terminate the merger agreement by mutual written consent at any time prior to the effective time of the proposed business combination whether before or after the requisite approvals of PlanetOut’s stockholders has been obtained.


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The merger agreement also provides that, at any time prior to the closing, either before or after the requisite approval of PlanetOut’s stockholders has been obtained, either company may terminate the merger agreement:
 
  •  if the proposed business combination has not been completed on or before May 31, 2009; provided that neither Here Media nor PlanetOut may terminate the merger agreement pursuant to this provision if the failure of such completion to occur on or before that date is the result of its breach of any of its obligations under the merger agreement;
 
  •  if PlanetOut’s stockholders have not adopted the merger agreement and approved the merger at the special meeting or any postponement or adjournment thereof;
 
  •  if a permanent injunction or other order of a court or other competent authority preventing the consummation of the merger shall have become final and nonappealable;
 
  •  if there occurs a breach of any representation or warranty or failure to perform any covenant or agreement on the part of the other party that would cause the related closing condition not to be satisfied, the party seeking to terminate gives written notice to the other party of such party’s breach or failure, and such breach or failure is not cured within 20 business days of receipt of such notice; provided that neither PlanetOut nor Here Media may terminate the merger agreement pursuant to this provision if such party is at that time in material breach of the merger agreement;
 
  •  if the PlanetOut board of directors has recommended, endorsed, accepted or agreed to a takeover proposal, or has resolved to do so, or has withdrawn or modified, or has resolved to do so, in a manner adverse to Here Media its recommendation to the PlanetOut stockholders to adopt the merger agreement and approve the merger;
 
  •  if the PlanetOut board of directors has not sent the PlanetOut stockholders a statement recommending rejection of any tender or exchange offer or solicitation made in connection with any takeover proposal within ten business days of commencement thereof.
 
The merger agreement also provides that PlanetOut may terminate the merger agreement prior to the adoption of the merger agreement by the PlanetOut stockholders in order to enter into an agreement with respect to a superior proposal if:
 
  •  PlanetOut notifies Here Media of its intention to terminate the merger agreement to accept a superior proposal, specifying the terms and conditions of the superior proposal; and
 
  •  Here Media has not made within five business days of receipt of such notice an offer that PlanetOut’s board of directors determines in good faith, after receiving advice from its independent financial advisors, is at least as favorable, taking into account the termination fee that would be payable by PlanetOut in such event (described below), as the superior proposal.
 
Termination Fee Payable by PlanetOut
 
The merger agreement provides that PlanetOut will pay Here Media a termination fee of $500,000 in cash if any of the following events occurs:
 
  •  the merger agreement is terminated by Here Media under the provisions of the merger agreement permitting such termination in the event that the PlanetOut board of directors has withdrawn its recommendation to the PlanetOut stockholders to adopt the merger agreement, recommended, endorsed, accepted or agreed to a takeover proposal or has resolved to do so, or modified its recommendation in a manner adverse to Here Media or has failed to make a timely statement recommending rejection of a tender or exchange offer or solicitation;
 
  •  the merger agreement is terminated by PlanetOut under the provision of the merger agreement permitting such termination in the event that PlanetOut proposes to accept a superior proposal; or
 
  •  the merger agreement is terminated by Here Media due to a breach of the agreement by PlanetOut or the merger agreement is terminated by PlanetOut or Here Media due to a permanent injunction or other court


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  order or failure of the PlanetOut stockholders to adopt the merger agreement and approve the merger, prior to the time of termination a takeover proposal shall have been made with respect to PlanetOut, and within twelve months after termination of the merger agreement either a definitive agreement is entered into by PlanetOut with respect to a takeover proposal or a takeover proposal is consummated.
 
Other Expenses
 
Except as described in the following paragraph, the costs and expenses incurred by each party to the merger agreement in connection with the merger agreement and the transactions contemplated thereby will be borne by the respective parties incurring them. For this purpose, the parties have agreed that the expenses incurred in connection with printing and distributing this proxy statement, one-half of the filing fees in connection with the registration statement of which this proxy statement forms a part and one-half of any other filing fees payable to governmental entities in connection with the transactions provided for in the merger agreement shall be considered expenses of PlanetOut.
 
Notwithstanding the above general agreement of the parties regarding transaction expenses, the merger agreement provides that PlanetOut will pay subject to certain caps and limitations the reasonable, actual and documented out-of-pocket fees and expenses incurred by Here Media, the HMI Entities and the HMI Owners on or prior to the termination of the merger agreement in connection with the transactions contemplated thereby in certain circumstances. These circumstances include termination of the merger agreement due to certain breaches of representations, warranties or covenants of PlanetOut, or failure of PlanetOut’s stockholders to adopt the merger agreement and approve the merger and no takeover proposal has been made prior thereto (subject in such event to a maximum expense reimbursement of up to $500,000). Such expenses would also be required to be paid by PlanetOut in the event that PlanetOut’s board of directors withdraws or modifies in a manner adverse to Here Media the board’s recommendation to PlanetOut stockholders to approve the merger and adopt the merger agreement if such withdrawal or modification is based solely on an actual breach of representation, warranty or covenant by Here Media, any of the HMI Entities or any of the HMI Owners. Any request for such payment of expenses may only be made in connection with or after termination of the merger agreement.
 
Amendments; Waivers
 
The merger agreement provides that any provision of the merger agreement may be amended or waived before the effective time of the proposed business combination if, but only if, the amendment or waiver is in writing and signed, in the case of an amendment, by each party to the merger agreement or, in the case of a waiver, by each party against whom the waiver is to be effective. After adoption of the merger agreement by the PlanetOut stockholders, however, no amendment or waiver may reduce the amount or change the kind of consideration to be received in exchange for their PlanetOut common stock or make any other change requiring PlanetOut stockholder under applicable law without further approval by the PlanetOut stockholders.


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DIRECTORS, MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF HERE MEDIA
 
Directors and Senior Management of Here Media after the Proposed Business Combination
 
Here Media will initially have three directors on completion of the proposed business combination. Here Media’s certificate of incorporation divides Here Media’s board of directors into three classes: Class I, Class II and Class III. At each annual meeting, Here Media stockholders will elect the members of one of the three classes to three-year terms. The initial term of the Class I director will expire at the annual meeting in 2010, the Class II director in 2011 and the Class III director in 2012.
 
Upon completion of the proposed business combination, Mr. Colichman will be the chief executive officer and president, and Mr. Shyngle will be the chief accounting officer, of Here Media.
 
Information regarding the directors and senior management of Here Media after the proposed business combination is presented below:
 
                 
            Expiration of
Name
 
Age
 
Position with Here Media
 
Initial Term
 
Paul A. Colichman
  47   Chief Executive Officer and President, Director     2011  
Stephen P. Jarchow
  57   Chairman of the Board of Directors     2012  
Phillip S. Kleweno
  47   Director     2010  
Tony Shyngle
  48   Chief Accounting Officer     N/A  
 
The board of directors of Here Media has determined that Mr. Kleweno will be an independent director of Here Media under the criteria established by the Nasdaq Stock Market.
 
Paul A. Colichman is the Chief Executive Officer of Here Networks and Regent Entertainment Media and has served in this capacity for Here Networks since it commenced operations in 2004 and for Regent Entertainment Media since it commenced operations in 2008, Mr. Colichman’s career in the motion picture industry has spanned 34 years, and over the course of his career, Mr. Colichman has been involved in the production and distribution of over 200 motion pictures. He has also produced or created thousands of hours of television programming, including made-for-TV movies, talk shows, live events and original series. Mr. Colichman holds a B.A. and an MBA (with honors) from UCLA.
 
Stephen P. Jarchow is the Chairman of the Board of Directors of Here Networks and Regent Entertainment Media and has served in this capacity for Here Networks since it commenced operations in 2004 and for Regent Entertainment Media since it commenced operations in 2008. Mr. Jarchow is also chairman of Jarchow Investment Group. Mr. Jarchow’s career in the media and entertainment industry has spanned 17 years, and over the course of his career, Mr. Jarchow has been involved in the production or distribution of more than 150 motion pictures. He serves on the Board of Trustees of Otis College of Art and Design and has been an adjunct professor of entertainment law at Southern Methodist University. He began his career as a tax and real estate lawyer and subsequently became a partner at Lincoln Property Company, a Texas-based international real estate development company, and a senior managing director at Bear Stearns & Co. Inc. Mr. Jarchow received a B.B.A., M.S. and J.D. (with honors) from the University of Wisconsin-Madison. Mr. Jarchow has written five books on real estate and finance.
 
Phillip S. Kleweno has served on the PlanetOut board of directors since February 2007. Since August 2008, he has been a partner with the Bain Corporate Renewal Group in New York City. Prior to joining Bain, he was the President and Chief Executive Officer of Teleflora, LLC, a Los Angeles-based floral wire service and marketer of floral bouquets via the Internet, a position he held from May 2004 until July 2006. From May 2001 to April 2003, Mr. Kleweno was the President of Princess Cruises, a cruise line operator that markets, sells and delivers cruise vacations primarily to the North American market. Earlier in his career, Mr. Kleweno was a partner at Bain & Company, with industry expertise in areas including retail, media, travel and e-commerce. He holds a B.S. in Finance from Arizona State University and an MBA from the Harvard Business School.


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Tony Shyngle is the Chief Accounting Officer of Here Networks and Regent Entertainment Media and has several years of diversified financial management experience. Prior to joining Here Networks and Regent Entertainment Media in September 2004, he served as the Director of Accounting in the theatrical film and television group at NBCUniversal from March 1999 to September 2004. Earlier in his career, Mr. Shyngle was an Auditor at Deloitte & Touche, LLP, where he was involved in financial statement audits, SEC filings, initial public offerings, and internal control audits of multinational corporations. He holds a B.S. in Accounting from California State University, Los Angeles, and he is a Certified Public Accountant (inactive).
 
Committees of Here Media Board of Directors
 
Here Media intends to have a small number of directors to promote efficiency in its operations and, accordingly, does not intend to appoint standing committees of its board of directors.
 
Compensation of Directors and Executive Officers
 
Directors of Here Media will be paid annual fees of $24,000 each for their services as directors. Messrs. Colichman and Jarchow have each elected to receive salaries of $1.00 for their services as executive officers during the first year following consummation of the proposed business combination. Mr. Shyngle’s salary has not yet been determined.
 
The following tables set forth information regarding the total compensation paid to Messrs. Colichman and Jarchow for their services as executive officers of Here Networks and as directors and executive officers of Regent Entertainment Media for the years indicated. Mr. Shyngle did not serve as an executive officer of either of such companies during such periods.
 
Summary Compensation Table
Here Networks
 
                                         
                      All Other
       
Name and Principal Position
  Year     Salary     Bonus     Compensation     Total  
 
Paul A. Colichman, Chief Executive Officer
    2008     $ 141,326           $ 182,970 (1)   $ 324,296  
      2007     $ 27,373           $ 212,733 (2)   $ 240,106  
Stephen P. Jarchow, Chairman of the Board
    2008                          
      2007     $ 32,133           $ 6,750 (3)   $ 38,883  
 
Summary Compensation Table
Regent Entertainment Media
 
                                         
                      All Other
       
Name and Principal Position
  Year     Salary     Bonus     Compensation     Total  
 
Paul A. Colichman, President and Director
    2008 (4)   $ 37,191           $ 1,171 (5)   $ 38,362  
                                         
Stephen P. Jarchow, Chairman of the Board
    2008 (4)                        
 
 
(1) This amount includes $178,517 of compensation paid by Here Networks to Sunshine & Wealth Productions Inc., a company owned 100% by Mr. Colichman, for consulting services provided by Mr. Colichman to Here Networks. This amount also includes $4,246 of 401(k) plan employer matching contributions and $207 of disability insurance premiums treated as additional compensation.
 
(2) This amount includes $208,270 of compensation paid by Here Networks to Sunshine & Wealth Productions Inc. for consulting services provided by Mr. Colichman to Here Networks and $4,463 of 401(k) plan employer matching contributions.
 
(3) This amount consists of $6,750 of 401(k) plan employer matching contributions.
 
(4) Regent Entertainment Media was formed in March 2008.
 
(5) This amount includes $1,117 of 401(k) plan employer matching contributions and $54 of disability insurance premiums treated as additional compensation.


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The following table sets forth information regarding the total compensation paid to Mr. Kleweno for his services as a non-employee director of PlanetOut for the year indicated.
 
Summary Compensation Table
PlanetOut
 
                                 
          Fees Earned or
             
Name
  Year     Paid in Cash     Stock Awards(1)     Total  
 
Phillip S. Kleweno
    2008     $ 18,000 (2)   $ 9,779 (3)   $ 27,779  
 
 
(1) Represents FAS 123R value of two annual grants of 200 restricted shares made on the date of each of PlanetOut’s 2007 and 2008 annual stockholders’ meetings which vest quarterly over a one-year period and one initial grant of 600 shares made on February 22, 2007, when Mr. Kleweno first joined the PlanetOut Board of Directors, which vests quarterly over a three-year period. These amounts represent PlanetOut’s accounting expense for these awards and do not correspond to the actual value that will be recognized by Mr. Kleweno.
 
(2) As a non-employee director of PlanetOut, Mr. Kleweno receives a quarterly cash retainer of $3,000 and a $1,000 payment for each all-day board meeting he attends in person and is eligible to receive an annual payment of $2,000 if he attended at least 80% of all board and applicable committee meetings held during the prior calendar year. Mr. Kleweno also receives an additional quarterly payment of $750 as the Chairperson of the Corporate Governance and Nominating Committee.
 
(3) Mr. Kleweno holds 1,000 shares of restricted stock, of which 650 shares were vested as of December 31, 2008. Of the remaining 350 shares, 100 shares vest each of the first two quarters of 2009 and 50 shares vest each quarter thereafter.
 
Principal Stockholders of Here Media
 
The following table sets forth information, as of the date of this document, regarding the beneficial ownership of Here Media common stock, after giving effect to the proposed business combination, of:
 
  •  each person that will be a beneficial owner of more than 5% of Here Media common stock;
 
  •  each of the executive officers of Here Media;
 
  •  each director of Here Media; and
 
  •  all directors and executive officers of Here Media, taken together.
 
Beneficial ownership is determined for this purpose in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as indicated by footnote, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Here Media common stock shown as beneficially owned by them. Percentage of beneficial ownership is based on the estimated 20,791,770 shares of Here Media common stock that will be outstanding immediately following the proposed business combination, and on the ownership of PlanetOut and the HMI Entities’ common stock or membership interests, as applicable, as of February 25, 2009.
 
                 
Name of Beneficial Owner
  Number of Shares     Percent  
 
Stockholders owning approximately 5% or more:
               
Here Management LLC(1)
    15,593,828       75 %
Directors and Executive Officers:
               
Stephen P. Jarchow(2)
    623,753       3 %
Paul A. Colichman(2)
    415,835       2 %
Phillip S. Kleweno
    1,000       *  
Tony Shyngle
           
Directors and Executive Officers as a Group (3 persons)(2)
    1,040,588       5 %


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* Less than 1%.
 
(1) Mr. Jarchow owns 51%, Mr. Colichman owns 35% and Mr. Andrew Tow owns 10% of the membership interests and are the only voting members of Here Management LLC.
 
(2) Does not include 15,593,828 shares owned by Here Management LLC.
 
DESCRIPTION OF HERE MEDIA CAPITAL STOCK
 
Authorized Capital Stock
 
Here Media will be authorized by its certificate of incorporation to issue 40 million shares of common stock, $0.001 par value, 4.2 million shares of special stock, $0.001 par value, and 10 million shares of preferred stock, $0.001 par value. Following the effective time of the merger and the contribution, we anticipate that 20,701,565 shares of Here Media common stock, 4,070,713 shares of Here Media special stock and no shares of Here Media preferred stock will be outstanding. In addition, 87,000 shares of common stock and 87,000 shares of special stock will be reserved for issuance pursuant to the PlanetOut warrants assumed in connection with the transaction.
 
Common Stock
 
The shares of Here Media common stock to be issued in connection with the proposed business combination will be duly authorized, validly issued, fully paid and nonassessable. Each holder of Here Media common stock will be entitled to one vote per share in the election of directors and on all other matters submitted to a vote of stockholders. Holders of Here Media common stock will not be entitled to cumulate votes in voting for Here Media directors.
 
Subject to the rights of the holders of any Here Media preferred stock that may be outstanding from time to time in the future, each share of Here Media common stock will have an equal and ratable right to receive such dividends as may be declared by Here Media’s board of directors out of funds legally available for the payment of dividends. In the event of Here Media’s liquidation, dissolution or winding up, the holders of its common stock would be entitled to share ratably in all assets remaining after payment of liabilities, subject to the liquidation preference of any then outstanding preferred stock and the liquidation priority of any outstanding special stock. See‘— Special Stock” below. No holder of Here Media common stock will have any preemptive right to subscribe for any securities of Here Media. No redemption or sinking fund provisions are applicable to Here Media common stock.
 
The rights of holders of Here Media common stock are subject to, and may be adversely affected by, the rights, preferences and privileges of the holders of shares of any series of preferred stock that the board of directors may designate and issue in the future and the rights of outstanding shares of here Media special stock.
 
Special Stock
 
The shares of Here Media special stock to be issued in connection with the proposed business combination will be duly authorized, validly issued, fully paid and nonassessable. Holders of Here Media’s special stock will have, in their capacities as such holders, only the rights, preferences, privileges and restrictions set forth for the special stock in Here Media’s amended and restated certificate of incorporation, the proposed form of which is attached as Exhibit B to the merger agreement included as Annex C to this document.
 
The special stock has no right to receive dividends or any other distributions, except as described below in the event of a liquidation, dissolution or winding up of Here Media that occurs within four years after the date of the completion of the proposed business combination. 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.
 
In the event of Here Media’s liquidation, dissolution or winding up, if the value of the aggregate amount of cash and non-cash distributions (if any) to be made to holders of Here Media common stock after payment of claims of


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all of Here Media’s creditors and the liquidation preferences of any and all classes of preferred stock outstanding, which is referred to in the amended and restated certificate of incorporation as the “total liquidation value,” would result in the receipt of value per share of common stock that is less than $4.00 (as adjusted to the extent appropriate, as determined by the board of directors, to reflect stock splits, stock dividends and the like with respect to Here Media’s common stock), then, prior to any distribution to holders of common stock, the holders of special stock will be entitled to receive liquidation proceeds per share of special stock in an amount equal to the amount derived from the following equation, provided that in no event shall such amount exceed $4.00:
 
                 
Liquidation Proceeds per share of
special stock
  =   $4.00     Total liquidation value – ($4.00 x Total number of outstanding shares of special stock)
Total number of outstanding shares of common stock – Total number of
outstanding shares of special stock
 
If payments are required to be made on the special stock, the payment per share of common stock which would be payable after payment to the holders of special stock, which is referred to in the amended and restated certificate of incorporation as the “liquidation balance per common share,” would be derived from the following formula:
 
         
Liquidation Proceeds balance
per common share
  =   Total liquidation value – ($4.00 x Total number of outstanding shares of special stock)
Total number of outstanding shares of common stock – Total number of
outstanding shares of special stock
 
If, upon liquidation, dissolution or winding up of Here Media, distributions are made other than in cash, the value of such distribution for purposes of determining distributable amounts as described above will be the fair market value thereof, as determined in good faith by the board of directors.
 
A consolidation or merger of Here Media with or into one or more other entities or a sale, conveyance, exchange or transfer of all or substantially all of its assets, in which in each of the foregoing cases:
 
  •  50% or more of the value of the consideration paid or issued in exchange for the common stock or property or assets consists of cash, publicly traded securities or a combination of both; and
 
  •  such transaction results in a change in control of the company (as the term “control” is defined under Rule 12b-2 promulgated under the Exchange Act)
 
will be deemed a liquidation, dissolution or winding up of Here Media.
 
The holders of Here Media special stock will not be entitled to vote on any matter to be voted on by stockholders, except as required by law. Without the affirmative vote of the holders of a majority of the outstanding shares of special stock, voting together as a single class, however, Here Media may not, whether by merger, consolidation or otherwise:
 
  •  alter or change the powers, preferences or special rights of the special stock so as to affect the holders of special stock adversely;
 
  •  issue any additional shares of special stock after the date of initial issuance of special stock in connection with the merger other than as contemplated by the merger agreement; or
 
  •  amend the provision in its amended and restated certificate of incorporation providing for the foregoing voting rights.
 
Here Media special stock will be automatically canceled and cease to have any effect:
 
  •  if, at any time prior to the date in 2013 that is the fourth anniversary of the initial issuance of the special stock, Here Media offers and sells its common stock in an underwritten public offering or a private placement in the form commonly known as a “Private Investment in Public Equity” or “PIPE” transaction at a per share price of at least $4.00 per share and resulting in gross proceeds to Here Media of at least $20 million;
 
  •  if, at any time prior to the date in 2013 that is the fourth anniversary of the initial issuance of the special stock, Here Media shall have been acquired by a special purpose acquisition company or engaged in a similar transaction, as determined by the board of directors, other than in an acquisition for cash or marketable securities; or
 
  •  on the date in 2013 that is the fourth anniversary of the initial issuance of special stock.


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In addition, the special stock may be canceled upon the affirmative vote of the holders of a majority of the outstanding shares of special stock, voting together as a single class.
 
The amended and restated certificate of incorporation will provide that each reference to “$4.00” or “$4.00 per share” in the above described provisions of the certificate of incorporation shall be adjusted to the extent appropriate, as determined by the Here Media board of directors, to reflect stock splits, reverse stock splits, dividends or distributions made in shares of common stock, or reclassifications, in each case with respect to the common stock. In addition, under the merger agreement, the $4.00 per share priority claim to liquidation proceeds will be proportionately reduced in the event the number of shares of common stock that PlanetOut has outstanding or subject to existing warrants or other agreements to issue shares of common stock (other than certain identified warrants) exceeds the number of shares represented by PlanetOut in its representations and warranties set forth in the merger agreement by more than 10,000 shares.
 
Preferred Stock
 
Here Media’s certificate of incorporation authorizes the board of directors, without further action by the stockholders, to issue one or more series of preferred stock. The board of directors is also authorized to fix or alter the designations, powers, preferences and rights of the shares of each series of preferred stock and the qualifications, limitations or restrictions of any wholly unissued series of preferred stock and to establish the number of shares constituting any series of preferred stock. In addition, the board of directors may increase or decrease the number of shares of any series of preferred stock subsequent to the issuance of shares of that series, but the board of directors may not decrease the number of shares of any series of preferred stock below the number of shares of that series then outstanding.
 
The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying or preventing a change in control of Here Media without further action by the stockholders.
 
Transfer Agent
 
The transfer agent and registrar for the Here Media common stock and Here Media special stock will be Wells Fargo Bank, N.A.
 
Anti-Takeover Considerations
 
Delaware law contains, and Here Media’s certificate of incorporation and bylaws will contain, provisions which may have the effect of discouraging transactions that involve an actual or threatened change of control of Here Media. For a description of these provisions, see “— Classes of Board of Directors,” “— Removal of Directors,” “— Vacancies on the Board of Directors,” “— State Anti-Takeover Statutes” and “— Notice of Stockholder Proposals and Director Nominations” under the caption entitled ‘‘ Comparative Rights of PlanetOut Stockholders Prior to and After the Merger.”


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COMPARATIVE RIGHTS OF PLANETOUT STOCKHOLDERS PRIOR TO AND
AFTER THE MERGER
 
Upon completion of the proposed business combination, holders of PlanetOut capital stock and holders of the HMI Entities capital stock and limited liability company interests will become holders of Here Media capital stock and their rights will be governed by Delaware law and Here Media’s certificate of incorporation and bylaws. Here Media and PlanetOut are each corporations organized under the laws of the State of Delaware. Any differences, therefore, in the rights of holders of capital stock in Here Media and PlanetOut arise primarily from differences in their respective certificates of incorporation and bylaws.
 
The following discussion summarizes the material differences between the rights of PlanetOut stockholders and Here Media stockholders. This section does not include a complete description of all the differences among the rights of these stockholders, nor does it include a complete description of the specific rights of the stockholders.
 
Authorized Capital Stock
 
     
PlanetOut
 
Here Media
 
The authorized capital stock of PlanetOut consists of 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value. PlanetOut’s certificate of incorporation authorizes the board of directors to authorize the issuance of one or more series of preferred stock. The board of directors has authorized 100,000 shares of preferred stock as Series A Junior Participating Preferred Stock, none of which are currently outstanding.   The authorized capital stock of Here Media consists of 40,000,000 shares of common stock, $0.001 par value, 10,000,000 shares of preferred stock, $0.001 par value, and 4,200,000 shares of special stock, $0.001 par value. Here Media’s certificate of incorporation authorizes Here Media to issue one or more series of preferred stock.
 
Classes of Board of Directors
 
     
PlanetOut
 
Here Media
 
PlanetOut’s board of directors has six members. PlanetOut’s bylaws provide that the number of directors shall be fixed in accordance with the certificate of incorporation. PlanetOut’s certificate of incorporation provides that the number of directors shall be fixed by resolutions of the board of directors.

PlanetOut’s certificate of incorporation provides that its board of directors is divided into three classes of directors, with each class being elected to a staggered three-year term. The actual designation of directors to each class is made by resolutions of the board of directors.
  Here Media’s board of directors has three members. Here Media’s bylaws provide that the number of directors shall be fixed in accordance with the certificate of incorporation. Here Media’s certificate of incorporation provides that the number of directors shall be fixed by resolutions of the board of directors.

Here Media’s certificate of incorporation provides that its board of directors is divided into three classes of directors, with each class being elected to a staggered three-year term. The actual designation of directors to each class is made by resolutions of the board of directors.
 
Cumulative Voting
 
Under Delaware law, stockholders of a Delaware corporation do not have the right to cumulate their votes in the election of directors, unless that right is granted in the certificate of incorporation.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation does not permit cumulative voting by PlanetOut stockholders unless at the time of such election of directors PlanetOut is subject to section 2115(b) of the California General Corporation Law (“CGCL”).   Here Media’s certificate of incorporation does not permit cumulative voting by Here Media stockholders.


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Removal of Directors
 
Under Delaware law, a director may be removed for cause by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote for the election of directors, and without cause by the affirmative vote of the holders of a majority of the outstanding shares of the class or classes entitled to vote for that director.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation provides that during such times that PlanetOut is subject to Section 2115(b) of the CGCL, a director may be removed without cause by the affirmative vote of holders of a majority of the outstanding shares entitled to vote for that director, provided, however, that unless the entire board of directors is removed, no individual director may be removed when the votes cast against such director’s removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director’s most recent election were then being elected.   Here Media’s certificate of incorporation provides that, subject to the rights of the holders of any series of preferred stock, no director shall be removed without cause. Here Media’s certificate of incorporation further provides that, subject to any limitations imposed by law, the board of directors or any individual director may be removed from office at any time with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of Here Media’s voting stock entitled to vote at an election of directors.
 
Vacancies on the Board of Directors
 
Under Delaware law, unless the certificate of incorporation or bylaws provide otherwise, the board of directors of a corporation may fill any vacancy on the board and any newly created directorship.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation provides that, subject to the rights of the holders of any series of preferred stock, any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the board of directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the board of directors, and not by the stockholders. PlanetOut’s certificate of incorporation further provides that any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.   Here Media’s certificate of incorporation provides that, subject to the rights of the holders of any series of preferred stock, any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the board of directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, and except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the board of directors, and not by the stockholders. Here Media’s certificate of incorporation further provides that any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.


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PlanetOut’s certificate of incorporation further provides that, at any time or times that PlanetOut is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then:(i) any holder or holders of an aggregate of 5% or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders;   or (ii) the Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall terminate upon that election of a successor.
 
Action by Written Consent
 
Under Delaware law, unless the certificate of incorporation provides otherwise,
stockholders may take action by written consent.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation specifically prohibits actions taken by written consent of the stockholders.   Here Media’s certificate of incorporation does not prohibit stockholder action taken by written consent.
 
Amendment to Certificate of Incorporation
 
Delaware law requires the approval of the board of directors and a majority of the
outstanding stock to amend the certificate of incorporation.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation expressly defers to Delaware law on this point, except that amendments to Articles V, VI, and VII of the certificate of incorporation require the affirmative vote of the holders of at least 662/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class.   Here Media’s certificate of incorporation expressly defers to Delaware law on this point, except that amendments to Articles V, VI, and VII of the certificate of incorporation require the affirmative vote of the holders of at least 662/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class.
 
Amendment to Bylaws
 
Delaware law provides that stockholders have the power to amend the bylaws of a corporation unless the certificate of incorporation grants such power to the board of directors, in which case either the stockholders or the board of directors may amend the bylaws.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation provides that the board of directors may amend the bylaws. PlanetOut’s certificate of incorporation and its bylaws both provide that the affirmative vote of the holders of at least 662/3% of all of the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, is required to adopt, amend or repeal any provision of the bylaws.   Here Media’s certificate of incorporation provides that the board of directors may adopt, amend or repeal the bylaws. Here Media’s certificate of incorporation further provides that the bylaws may be altered or amended or new bylaws may be adopted by the affirmative vote of at least 66 2/3% of the voting power of all of the then-outstanding shares of Here Media’s voting stock entitled to vote at an election of directors.


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Meetings of Stockholders
 
     
PlanetOut
 
Here Media
 
PlanetOut’s bylaws provide that annual stockholder meetings are held on a date to be determined by the board of directors.   Here Media’s bylaws provide that annual stockholder meetings are held on a date determined by the board of directors.
     
PlanetOut’s bylaws provide that the chairman of the board of directors, the chief executive officer or the board of directors (pursuant to a resolution adopted by a majority of the total number of authorized directorships at the time any such resolution is presented to the board of directors for adoption) may call a special meeting of the stockholders.   Here Media’s bylaws provide that special meetings of the stockholders may be called by the chairman of the board of directors, the chief executive officer or by the board of directors pursuant to resolution adopted by a majority of the authorized directors at the time such resolution is presented to the board of directors for adoption.
     
PlanetOut’s bylaws also provide that at any time PlanetOut is subject to Section 2115(b) of the CGCL, stockholders holding 5% or more of the outstanding shares shall have the right to call a special meeting of stockholders.    
 
Vote on Extraordinary Corporate Transactions
 
Under Delaware law, a sale or other disposition of all or substantially all of a corporation’s assets, a merger or consolidation of a corporation with another corporation or a dissolution of a corporation requires the affirmative vote of the corporation’s board of directors (except in limited circumstances) plus, with limited exceptions, the affirmative vote of a majority of the outstanding stock entitled to vote on the transaction.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation and bylaws do not contain any provisions providing for a greater vote on extraordinary corporate transactions.   Here Media’s certificate of incorporation and bylaws do not contain any provisions providing for a greater vote on extraordinary corporate transactions.
 
State Anti-Takeover Statutes
 
Section 203 of the DGCL generally prohibits public corporations from engaging in significant business
transactions, including mergers, with a holder of 15% or more of the corporation’s stock, referred
to as an interested stockholder, for a period of three years after the interested stockholder becomes
an interested stockholder, unless:
 
  •  the board approves either the business transaction in question or the acquisition of shares by the interested stockholder prior to the time the stockholder becomes an interested stockholder; or
 
  •  the interested stockholder acquired at least 85% of the outstanding shares in the transaction that resulted in it crossing the 15% threshold, such as pursuant to a tender offer; or
 
  •  the business transaction is approved by the board of directors and the holders of at least two-thirds of the corporation’s shares entitled to vote thereon, excluding the shares held by the interested stockholder, at a meeting of stockholders.
 
     
PlanetOut
 
Here Media
 
PlanetOut’s certificate of incorporation and bylaws do not contain any provisions opting out of the restrictions prescribed by Section 203 of the DGCL.   Here Media’s certificate of incorporation and bylaws do not contain any provisions opting out of the restrictions prescribed by Section 203 of the DGCL.


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Notice of Stockholder Proposals and Director Nominations
 
     
PlanetOut
 
Here Media
 
PlanetOut’s bylaws provide that a PlanetOut stockholder must give notice, in proper form, of director nominations or proposals for each annual meeting to the secretary between 90 and 120 days prior to the anniversary of the preceding year’s annual meeting. If the date of the annual meeting is moved more than 30 days before or after the anniversary date, a stockholder notice must be given to the secretary not earlier than 120 days prior to the date of the meeting and not later than the 90th day prior to such annual meeting or the 10th day following the day on which the public announcement of the date of such meeting is first made. For a special meeting called to elect directors or to conduct other business, a stockholder must give notice, in proper form, of director nominations or proposals not earlier than 120 days prior to the date of the meeting and not later than the 90th day prior to such annual meeting or the 10th day following the day on which the public announcement of the date of such special meeting is first made and of the nominees proposed by the board of directors to be elected at such meeting.   Here Media’s bylaws provide that a stockholder must give notice, in proper form, of director nominations or proposals for each annual meeting to the secretary not later than the close of business 120 calendar days prior to the date of Here Media’s proxy statement released to stockholders in connection with the preceding year’s annual meeting of stockholders. If no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, a stockholder notice must be given to the secretary not earlier than the close of business on the 19th day prior to such annual meeting and not later than the close of business on the later of (i) the 60th day prior to such annual meeting or (ii) the 10th day following the day on which the public announcement of the date of such annual meeting is first made by Here Media, only if such public announcement is made fewer than 70 days prior to the date of such annual meeting.


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INFORMATION ABOUT HERE MEDIA
 
Here Media was formed on January 2, 2009 for the purpose of effecting the proposed business combination. Here Media has not conducted any activities other than those incident to its formation, the matters contemplated by the merger agreement and the preparation of this document. Upon completion of the proposed business combination, PlanetOut and the HMI Entities will each become a wholly owned subsidiary of Here Media. The business of Here Media will be the combined businesses currently conducted by PlanetOut and the HMI Entities.
 
INFORMATION ABOUT PLANETOUT
 
Overview
 
PlanetOut Inc. was incorporated in Delaware in 2000. PlanetOut is a leading online media company serving the worldwide lesbian, gay, bisexual and transgender, or LGBT, community. PlanetOut serves this audience through its websites Gay.com and PlanetOut.com
 
As a result of further integrating PlanetOut’s various businesses, its executive management team, and its financial and management reporting systems during fiscal 2006, PlanetOut began to operate as three segments effective January 1, 2007: Online, Publishing and Travel and Events. The Travel and Events segment consisted of travel and events marketed through its RSVP Productions, Inc. (“RSVP”) brand and by its consolidated affiliate, PNO DSW Events, LLC (“DSW”). PlanetOut sold its interest in DSW in March 2007 and substantially all the assets of RSVP in December 2007.
 
On January 14, 2008, PlanetOut announced that it retained the services of Allen & Company, LLC to assist PlanetOut in evaluating strategic alternatives, including a possible sale of PlanetOut. On August 13, 2008, PlanetOut completed the sale of its Publishing business, which included substantially all the assets of LPI Media Inc. (“LPI”) and SpecPub, Inc. (“SpecPub”), to Regent Entertainment Media Inc. (“Regent Entertainment”), the designee of Regent Releasing, L.L.C. (“Regent”), an affiliate of Here Networks. In connection with the sale of its Publishing business to Regent, PlanetOut agreed to provide certain marketing and advertising services under a Marketing Agreement with Regent. As a result of the sale of its Publishing business, PlanetOut currently operates in one segment: Online.
 
With the extensive reach of its brands, PlanetOut believes it provides advertisers with unparalleled access to the LGBT community. PlanetOut generates revenue from multiple forms of online advertising including run-of-site advertising, advertising within specialized content channels and online-community areas, and member-targeted e-mails. PlanetOut also offers advertisers data on consumer behavior and the effectiveness of their online advertising campaigns with PlanetOut through user feedback and independent third-party analysis.
 
PlanetOut believes its online user base includes one of the most extensive networks of self-identified gay and lesbian people in the world. Users can access content on PlanetOut’s flagship websites for free and without registration, thereby generating page views and potential advertising and transaction services revenue. Those users who wish to access its online member-to-member connection services must register for its general membership services by providing their name, e-mail address and other personal content. Registration for general membership services on its flagship websites, Gay.com and PlanetOut.com, allows access to integrated services, including profile creation and search, basic chat and instant messaging. Members may also subscribe to its paid premium subscription service which enables them to access a number of special features that are not generally available under its free general membership packages.
 
On January 8, 2009, PlanetOut signed a definitive agreement to combine with Here Networks LLC and Regent Entertainment Media Inc. Under the proposed business combination, the combined entity will be called Here Media Inc. (“Here Media”), and the transaction will be effected through a contribution by the owners of Here Networks and Regent Entertainment Media of those businesses and an estimate of $4.7 million of cash into Here Media, a newly formed holding company. PlanetOut will concurrently be merged with a wholly owned subsidiary of Here Media. Following the contribution and the merger, all three companies will be subsidiaries of Here Media.


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Under the terms of the agreement, PlanetOut stockholders will receive one share of Here Media common stock, together with one share of Here Media special stock, for each share of PlanetOut stock that the stockholder owns immediately prior to the effective time of the merger, which will result in the former PlanetOut stockholders owning approximately 20% of Here Media’s common stock and 100% of its outstanding special stock. The owners of Here Networks and Regent Entertainment Media will receive that number of shares of Here Media’s common stock such that they will own 80% of Here Media’s common stock following the merger and the contributions. The special stock is being issued to provide a limited form of downside protection in the event of a liquidation, dissolution or winding up of Here Media or a sale of Here Media for cash or publicly tradable within four years after the merger 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.
 
Advertising Services
 
PlanetOut derives advertising services revenue from advertising contracts in which it typically undertakes to deliver a minimum number of “impressions,” or times that an advertisement appears in pages viewed by users of its online properties. PlanetOut’s advertisers can display graphical advertisements on the pages that are viewed by its users across all its online properties and on its affiliates’ websites. PlanetOut works with its advertisers to maximize the effectiveness of their campaigns by optimizing advertisement formats and placement on its websites. PlanetOut believes that online advertising will continue to grow and diversify as it captures a larger share of total advertising dollars.
 
During the years ended December 31, 2007 and 2008, no single advertiser accounted for more than 10% of PlanetOut’s domestic online advertising revenue other than Regent under the Marketing Agreement which represented 27% of PlanetOut’s domestic online advertising revenue in the year ended December 31, 2008. PlanetOut’s five largest customer industry categories accounted for approximately 63% and 75%, respectively, of its domestic online advertising revenue for fiscal 2007 and 2008, respectively, excluding the effects of advertising services revenue recognized under the Marketing Agreement with Regent in fiscal 2008.
 
Online Subscription Services
 
PlanetOut has offered Gay.com members a free, real-time chat service since 1996. It launched the PlanetOut.com personals service in 1997, and it believes PlanetOut.com was the first website of significant size to offer free personals specifically tailored to the LGBT community. In 2001, it created its paid premium membership services, Gay.com Premium Services and PlanetOut PersonalsPlus. As of December 31, 2006, 2007 and 2008, it had approximately 145,000, 131,000 and 95,000 subscribers, respectively, to these online premium membership services.
 
PlanetOut does not charge fees for registering as a member or creating a profile on either Gay.com or PlanetOut.com, but non-subscribers have only limited access to member profile photographs and chat services, and may only perform basic profile searches. By joining its paid premium membership services, a Gay.com Premium Services or PlanetOut PersonalsPlus subscriber may reply to an unlimited number of profiles, bookmark and block profiles, perform advanced profile searches and view all full-sized photographs posted by other members. In addition, PlanetOut frequently offers other benefits with premium membership, including free subscriptions to magazines. It believes these types of additional premium offerings serve as an inducement for free members to convert to paying subscribers and for subscribers to lower-priced, shorter-term plans to convert to higher-priced, longer-term plans.
 
In addition to the general membership services offered by Gay.com and PlanetOut.com, PlanetOut’s Premium Services packages offer members additional enhanced features which include access to live customer and technical support and specialized premium content, as well as the ability to simultaneously enter several of its more than 700 chat rooms. Some of these special premium features are not currently available on PlanetOut.com.
 
While both services are available to anyone, Gay.com’s subscriber base is more heavily male and PlanetOut.com’s, although still heavily male, includes a higher percentage of females. As of December 31, 2008, approximately 96% of subscribers on Gay.com identified themselves as male and on PlanetOut.com, 37% of subscribers identified themselves as female. As of December 31, 2008, 13% of the Gay.com paid subscribers identified themselves as residing outside the United States.


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PlanetOut is paid up-front for premium memberships, and it recognizes subscription revenue ratably over the subscription period. As of December 31, 2007 and 2008, deferred revenue related to premium membership subscriptions totaled approximately $3.9 million and $2.5 million, respectively.
 
Transaction Services
 
PlanetOut generates transactions services revenue by offering co-marketing opportunities with other affiliates that are marketing to the LGBT community. Transaction service revenue is recognized for its share of co-marketing revenue under these co-marketing affiliate agreements when payment is received.
 
Product Development and Technology
 
In 2007, PlanetOut’s product development teams completed extensive consumer research to identify key opportunities for it to increase the marketability of its online properties and established a redevelopment roadmap and timeline to introduce a new user experience for its consumers, completed the key preliminary planning stages and began the redevelopment effort. In 2008, it completed the development effort and launched a new version of Gay.com.
 
PlanetOut’s capital expenditures are primarily focused on the integration and re-architecture of the core technology platform of its websites and supporting its member services, including the introduction of new features and functions. It strives to concentrate its acquisitions of hardware and software with a single primary vendor when it believes it is feasible and cost-effective to do so. By reducing the number of types of systems it uses, it believes it is better able to manage its systems and achieve attractive pricing with vendors with whom it has established relationships.
 
PlanetOut’s basic network infrastructure primarily resides in virtual machines that are hosted in multi-core servers that leverage their capabilities in order to maximize efficiency and scalability. It primarily utilizes open source software and widely scalable, low-cost servers to reduce cost and enable it to easily expand technological capacity to handle increased loads. It tracks and monitors the growth of traffic on its websites and strives to maintain reserve capacity for extraordinary loads. It attempts to streamline and consolidate its technology as it upgrades its equipment to increase capacity.
 
PlanetOut employs several methods to protect its computer networks from damage, power interruption, computer viruses and security breaches that would result in a disruption of service to its members. Its hosted computer network, located in San Jose and operated by a third-party vendor, provides the primary services that it offers to the public on its flagship websites. The computer equipment in PlanetOut’s hosted network is located in an industrial-grade server room with on-site security systems and redundant uninterruptible power supply units, as well as smoke detection and fire suppression systems. The equipment is also deployed in a redundant configuration, designed to prevent any single computer failure from interrupting the services available on its websites. This network is protected from security breaches by a firewall, including anti-virus protection.
 
Competitive Strengths
 
Strong Community Affinity.  PlanetOut believes it has developed a loyal, active community of users, customers, members and subscribers. The word-of-mouth marketing that occurs through these individuals is an important source of past and potential growth, as increasing social interaction among users within its online community and word-of-mouth in the broader LGBT community help it obtain new and retain previous users and customers. It believes the Gay.com domain name helps reinforce its position as a leading network of LGBT people in the world.
 
Critical Mass.  PlanetOut believes it has built a critical mass of users across multiple properties that is attractive to advertisers, vendors, and consumers alike. It believes its combined worldwide Gay.com and PlanetOut.com member base constitutes one of the largest online networks of gay and lesbian people in the world. It also believes the size and attractive demographic characteristics of its user base is appealing to advertisers who seek multiple, cost-effective ways to target the LGBT market.
 
Diversified Revenue Streams.  PlanetOut derives its revenue from a combination of advertising, subscription and transaction services offered through its websites. It believes that having multiple revenue streams allows it to better withstand periodic fluctuations in individual markets, take advantage of cross-selling opportunities to


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PlanetOut’s advertising and consumer customers, and more effectively monetize the audiences and traffic that it has built through its various properties.
 
Scalable Business Model.  PlanetOut believes it has an overall business model in which additional revenue can be generated with relatively low increases in its expenses. In its online subscription business, it believes the marginal cost to it of providing services to each new subscriber is relatively low. At the same time, much of the content accessible through its flagship websites is generated by members and made available at modest incremental cost. By creating additional web pages or chat screens on which it can place advertisements, each additional user on these websites also generates additional advertising capacity at little incremental cost.
 
Compelling Content.  PlanetOut offers compelling editorial content to the LGBT community, covering topics such as travel, news, entertainment, fashion, sports, and health. In addition, it believes its rich and varied LGBT-focused content, the integration of its chat, profile and instant messaging features and the ability of its online members to generate and share their own content and interact with one another keeps users returning to its websites. These features increase user touchpoints and provide PlanetOut with more opportunities to generate advertising revenue, grow its subscriber base, and increase product and service sales.
 
Niche Market Focus.  PlanetOut believes that it provides advertisers with a number of effective and innovative ways to reach both the larger LGBT community and those segments within the LGBT community that may share a particular affinity for their products or services. Its value proposition to advertisers includes:
 
  •  Focused Advertising.  PlanetOut believes it delivers access to one of the largest audiences of self-identified gay and lesbian people in the world. Its advertising programs allow both large national and international advertisers as well as smaller, local advertisers to reach the LGBT audience in a cost-effective manner.
 
  •  Targeted Campaigns.  In addition to offering advertisers the opportunity to reach the broader LGBT audience, PlanetOut offers the opportunity to more closely target specific audiences. For example, advertisers have the potential to reach its entire online user base with run-of-site advertisements or to target only those members who share certain common attributes such as age, gender, geographic location or online behaviors. By dividing its online content offerings into topic sections within channels, PlanetOut provides its advertisers with the ability to target their marketing efforts further, by sponsoring topic sections or running individual advertisements in channels specifically relevant to their particular products and services or brand strategy.
 
  •  Research and Analysis.  PlanetOut engages third parties to conduct independent research on member panels assembled from its online membership base regarding the effectiveness of specific campaigns as well as other matters of interest to its advertisers. Campaign studies examine the effect the campaign had on brand awareness, brand attributes, message association, brand favorability, purchase intent and advertisement recall and can include an analysis of the research and recommendations for future advertising campaigns. In addition to benefiting the advertiser, this type of research helps educate PlanetOut on how to more effectively position and manage campaigns for its advertisers.
 
Growth Strategy
 
PlanetOut’s goal is to enhance its position as an LGBT-focused market leader by maximizing the growth prospects and profitability of each of its revenue streams. It seeks to achieve this through the following strategies:
 
Growing PlanetOut’s User Base.  PlanetOut has sought to grow its user and subscription base by building on the extensive member base that it has developed online through the Gay.com and PlanetOut.com websites. It plans to continue marketing directly to consumers through targeted online advertising, keyword buys and affiliate programs. It also intends to offer new products and services through its websites. For example, PlanetOut is currently developing improvements to key features such as chat and profiles, and expanded capabilities related to member-generated content as part of its website and technology re-architecture.
 
Capitalizing on Advertising Growth and Relationships.  PlanetOut believes its large user base across multiple properties provides it with greater reach than other LGBT-focused media providers and that it is well positioned to benefit from the growth in advertisers wishing to target the LGBT community. By promoting packages that include,


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among others, Internet, e-mail, and events opportunities, PlanetOut believes it can differentiate its products and more effectively serve its advertising clients.
 
Competition
 
PlanetOut operates in a highly competitive environment. Across all three of its revenue streams, PlanetOut competes 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, PlanetOut competes with a broad variety of online and print content providers, including large media companies such as Yahoo!, Google, MSN, Time Warner, Viacom, Condé Nast and News Corporation, as well as a number of smaller companies focused specifically on the LGBT community. In its online subscription business, its competitors include these companies as well as other companies that offer more targeted online service offerings, such as Match.com and 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. In its transaction business, it competes with traditional and online retailers. Most of these transaction service competitors target their products and services to the general audience while still serving the LGBT market. Other competitors, however, specialize in the LGBT market.
 
PlanetOut believes that the primary competitive factors affecting its business are quality of content and service, price, functionality, brand recognition, customer affinity and loyalty, ease of use, reliability and critical mass. Some of PlanetOut’s current and many of its potential competitors have longer operating histories, larger customer bases and greater brand recognition in other business and Internet markets and significantly greater financial, marketing, technical and other resources than PlanetOut does. Therefore, these competitors may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies or may try to attract readers, users or traffic by offering services for free and devote substantially more resources to producing content and developing their services and systems than PlanetOut can.
 
Intellectual Property
 
PlanetOut uses a combination of trademark, copyright and trade secret laws and confidentiality agreements to protect its proprietary intellectual property. PlanetOut has registered several trademarks in the United States, including “PlanetOut,” “PlanetOut and Design,” and “Gay.com and Design.” It has registered or applied for additional protection for several of these trademarks in select relevant international jurisdictions. Even if these applications are allowed, they may not provide PlanetOut with a competitive advantage. To date, PlanetOut has relied primarily on common law copyright protection to protect the content posted on its websites. Competitors may challenge the validity and scope of PlanetOut’s trademarks and copyrights. From time to time, PlanetOut may encounter disputes over rights and obligations concerning its use of intellectual property. PlanetOut believes that the services it offers do not infringe the intellectual property rights of any third party. PlanetOut cannot, however, make any assurances that it will prevail in any intellectual property dispute.
 
Regulatory Compliance
 
PlanetOut is, and may in the future be, subject to federal, state, local and international laws, including 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. In particular, PlanetOut is required, or may in the future, be required, to:
 
  •  comply with a law enacted in New Jersey in January 2008, or other similar laws which may be passed in the future, requiring PlanetOut to conduct background checks on its members prior to allowing them to interact with other members on its websites or, alternatively, provide notice on its websites that it has not conducted background checks on its members;


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  •  provide advance notice of any changes to PlanetOut’s privacy policies or to its policies on sharing non-public information with third parties;
 
  •  with limited exceptions, give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties;
 
  •  provide notice to residents in some states if their personal information was, or is reasonably believed to have been, obtained by an unauthorized person such as a computer hacker;
 
  •  comply with current or future anti-spam legislation by limiting or modifying some of its marketing and advertising efforts, such as email campaigns;
 
  •  comply with the European Union privacy directive and other international regulatory requirements by modifying the ways in which PlanetOut collects and shares its users’ personal information;
 
  •  qualify to do business in various states and countries, in addition to jurisdictions where PlanetOut is currently qualified, because its websites are accessible over the Internet in those states and countries;
 
  •  limit PlanetOut’s domestic or international expansion because some jurisdictions may limit or prevent access to its services as a result of the availability of some content intended for mature viewing; and
 
  •  limit or prevent access, from some jurisdictions, to some or all of the member-generated content available through PlanetOut’s websites. For example, regulations adopted by the United States Department of Justice (the “DOJ”) under the Child Protection and Obscenity Act of 1988 (the “CPO Act”) require primary and secondary producers, as defined in the regulations, of certain adult materials to obtain and make available for inspection specified records, such as a performer’s name, address and certain forms of photo identification as proof of a performer’s age. PlanetOut could be deemed a secondary producer under the CPO Act because it allows its members to display photographic images on its websites as part of member profiles. While the CPO Act and related regulations have been the subject of extensive litigation challenging their constitutionality, they remain in effect in modified form. PlanetOut may accordingly be subject to significant and burdensome recordkeeping compliance requirements and will have to evaluate and implement additional registration and recordkeeping processes and procedures, each of which would result in additional expenses or in fines or other sanctions in the event of noncompliance. Alternatively, if PlanetOut determines that the recordkeeping and compliance requirements would be too burdensome, it may be forced to limit the type of content that it allows its members to post to their profiles.
 
Employees
 
As of December 31, 2008, PlanetOut had 95 full-time employees and 10 part-time or temporary employees. PlanetOut utilizes part-time and temporary employees primarily to handle overflow work and short-term projects. None of PlanetOut’s employees are unionized, and PlanetOut believes that it generally has good relations with its employees.
 
On January 16, 2009, PlanetOut reduced its workforce by approximately 33%, including its Chief Technology Officer, to reduce costs and manage expenses.
 
Properties
 
PlanetOut is headquartered in San Francisco, California and currently leases approximately 56,000 square feet at its headquarters facility through 2012. PlanetOut believes that its existing facilities are adequate to meet current requirements. PlanetOut believes that suitable additional or substitute space will be available as needed to accommodate any further physical expansion of corporate operations and for any additional sales offices.
 
Legal Proceedings.
 
PlanetOut is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to PlanetOut and others generally applicable to business practices within the industries in which it operates. A substantial legal liability or a


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significant regulatory action against PlanetOut could have an adverse effect on its business, financial condition and on the results of operations in a particular quarter or year.
 
Market Price of and Dividends on PlanetOut’s Common Stock
 
PlanetOut common stock is traded on The Nasdaq Global Market under the symbol “LGBT.” Public trading of its common stock commenced in October 2004.
 
The following table sets forth, for the periods indicated, the high and low bid prices per share of its common stock as reported on The Nasdaq Global Market:
 
                 
    High     Low  
 
2007
               
First Quarter
  $ 51.90     $ 33.00  
Second Quarter
    35.20       8.60  
Third Quarter
    23.30       11.80  
Fourth Quarter
    13.24       5.41  
2008
               
First Quarter
  $ 6.28     $ 2.56  
Second Quarter
    3.50       1.65  
Third Quarter
    2.80       1.86  
Fourth Quarter
    2.75       0.25  
2009
               
First Quarter (through          , 2009)
               
 
On April 3, 2009, PlanetOut transferred the listing of its common stock from The Nasdaq Global Market to The Nasdaq Capital Market. PlanetOut had previously been notified by Nasdaq that its common stock failed to meet the minimum market value of $5 million for publicly held shares and that it had also failed to maintain the minimum of $10 million in stockholders’ equity, each of which was necessary for continued listing on The Nasdaq Global Market. In addition, PlanetOut’s common stock has been trading below The Nasdaq Capital Market’s $1.00 minimum bid price. While this requirement has been suspended 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 other requirements necessary to maintain its listing on The Nasdaq Capital Market.
 
On          , 2009, the closing sale price of PlanetOut common stock was $      per share.
 
As of          , 2009, there were approximately          holders of record of its common stock. This figure does not include the number of stockholders whose shares are held of record by a broker or clearing agency, but does include each such brokerage house or clearing agency as a single holder of record.
 
PlanetOut has never paid cash dividends on its stock and currently anticipates that it will continue to retain any future earnings to finance the growth of its business.


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Management’s Discussion and Analysis of PlanetOut’s Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with the financial statements and related notes which appear only in this document. This discussion contains forward-looking statements that involve risks and uncertainties as more fully discussed under the “Forward-Looking Statements” section of this document.
 
Overview
 
PlanetOut is a leading online media company exclusively serving the worldwide lesbian, gay, bisexual and transgender, or LGBT, community. PlanetOut serves this audience through its websites Gay.com and PlanetOut.com.
 
As a result of the divestitures of RSVP, DSW, LPI and SpecPub and PlanetOut’s decision to exit the Travel and Events and Publishing businesses in December 2007 and August 2008, respectively, it has one segment remaining as of December 31, 2008: Online. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” PlanetOut has reported the results of operations and financial position of RSVP, DSW, LPI and SpecPub in discontinued operations within the consolidated financial statements.
 
On January 8, 2009, PlanetOut signed a definitive agreement to combine with Here Networks LLC and Regent Entertainment Media Inc. Under the proposed business combination, the combined entity will be called Here Media Inc. (“Here Media”) and the transaction will be effected through a contribution by the owners of Here Networks and Regent Entertainment Media of those businesses and an estimate of $4.7 million of cash into Here Media, a newly formed holding company. PlanetOut will concurrently be merged with a wholly owned subsidiary of Here Media. Following the contribution and the merger, all three companies will be subsidiaries of Here Media.
 
Executive Operating and Financial Summary
 
PlanetOut’s total revenue was $19.8 million in fiscal 2008, decreasing 24% from the prior year’s revenue of $26.0 million, due primarily to decreases in its advertising and subscription services revenue. Total operating costs and expenses were $27.7 million in fiscal 2008, decreasing 28% from the prior year total of $38.6 million. These decreases were primarily due to reductions in headcount, legal expenses and marketing expenditures. Loss from operations was $7.9 million in fiscal 2008, compared to a loss from operations of $12.6 million in fiscal 2007. This decrease in loss from operations was primarily the result of the reductions in operating costs in order to manage expenses against decreases in revenues noted above.
 
PlanetOut expects that revenue will decrease slightly in fiscal 2009 in comparison to fiscal 2008, primarily as a result of overall economic conditions and anticipated additional reductions in the number of online subscribers. PlanetOut expects its operating loss will decrease in fiscal 2009 in comparison to fiscal 2008, due to further reductions in operating expenses including the restructuring noted in Note 13 “Subsequent Events” in its consolidated financial statements.
 
Results of Operations
 
Operating performance is measured based on contribution margin (loss), which consists of total revenues from external customers less direct operating expenses. Direct operating expenses include cost of revenue and sales and marketing expenses. Other operating costs and expenses such as general and administrative costs (consisting of costs such as corporate management, human resources, finance and legal), restructuring, and depreciation and amortization do not vary proportionately with total revenues, and as such, are not evaluated in the measurement of operating performance.
 
PlanetOut derives online advertising revenue from advertising contracts in which it typically undertakes to deliver a minimum number of impressions to users over a specified time period for a fixed fee. PlanetOut derives online subscription services revenue from paid membership subscriptions to its online media properties. Transaction services revenue includes revenue generated from co-marketing agreements with affiliates.


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Cost of revenue primarily consists of payroll and related benefits associated with supporting subscription-based services, the development and expansion of site operations and support infrastructure, and producing and maintaining content for PlanetOut’s various websites. Other expenses directly related to generating revenue included in cost of revenue include transaction processing fees, computer equipment maintenance, occupancy costs, co-location and Internet connectivity fees, and purchased content. Sales and marketing expense primarily consists of payroll and related benefits for employees involved in sales, advertising client service, customer service, marketing and other support functions; marketing and promotion expenditures; and occupancy costs.
 
Comparison of the year ended December 31, 2007 to the year ended December 31, 2008 (in thousands, except percentages):
 
                                 
    Year Ended December 31,     Increase (Decrease)  
    2007     2008     $     %  
 
Online revenue:
                               
Advertising services
  $ 9,361     $ 6,150     $ (3,211 )     (34 )%
Subscription services
    16,130       13,413       (2,717 )     (17 )%
Transaction services
    470       257       (213 )     (45 )%
                                 
Total online revenue
    25,961       19,820       (6,141 )     (24 )%
                                 
Online direct operating costs and expenses:
                               
Cost of revenue
    11,422       9,877       (1,545 )     (14 )%
Sales and marketing
    9,191       6,651       (2,540 )     (28 )%
                                 
Total online direct operating costs and expenses
    20,613       16,528       (4,085 )     (20 )%
                                 
Online contribution margin
  $ 5,348     $ 3,292     $ (2,056 )     (38 )%
 
Online revenues decreased as a result of a decrease in advertising revenues due to turnover in PlanetOut’s sales staff and overall economic conditions and the discontinuance of its Local Scene advertising services revenue of $0.8 million in 2007, partially offset by $1.7 million of advertising revenue in fiscal 2008 related to the marketing and advertising services provided to Regent as part of the Marketing Agreement with Regent and a decrease in subscription revenues due to a reduction in the number of online subscribers to the Gay.com website. The number of online subscribers has decreased due to increased credit card failures on renewals of online subscriptions and increased cancellation of subscriptions. PlanetOut believes the increased cancellations are the result of multiple factors, including the failure to introduce new features and functionalities on the site until the relaunch of the Gay.com website on September 30, 2008, increased competition and general overall economic conditions. Online cost of revenue decreased primarily as a result of decreased headcount expenses of $0.6 million, a reduction in writedowns of capitalized labor of $0.5 million in 2007 related to development plan changes to the Gay.com website, a reduction in expenses due to the closing of PlanetOut’s international offices in conjunction with its July 2007 reorganization plan of $0.2 million and decreases in credit card fees of $0.2 million. Online sales and marketing expenses decreased primarily as a result of decreased headcount expenses of $0.9 million and decreased spending on advertising and marketing of $0.8 million during fiscal 2008.
 
For fiscal 2009, PlanetOut expects that online revenue will decrease from fiscal 2008 as a result of anticipated additional reductions in the number of online subscribers as a result of continued increased credit card failures on renewals of online subscriptions, increased competition and general economic conditions and reductions in advertising revenues as a result of overall economic conditions and the completion of advertising services to Regent under the Marketing Agreement in March 2009. PlanetOut expects that online cost of revenue will decrease as a result of further reductions in headcount. For fiscal 2009, PlanetOut expects that sales and marketing expenses will decrease as a result of further reductions to marketing expenditures to manage costs.
 
Other Operating Costs and Expenses
 
Other operating costs and expenses include general and administrative costs (such as corporate management, human resources, finance and legal), restructuring, depreciation and amortization and impairment of goodwill and


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intangible assets. These other operating costs and expenses do not vary proportionately with total revenues, and as such, are not evaluated in the measurement of operating performance.
 
General and Administrative.  General and administrative expense consists primarily of payroll and related benefits for executive, finance, administrative and other corporate personnel, occupancy costs, professional fees, insurance and other general corporate expenses. PlanetOut’s general and administrative expenses were $7.2 million for 2008, down 37% from the prior year. General and administrative expenses as a percentage of revenue were 37% for 2008, down from 44% in the prior year. The decrease in general and administrative expenses in both absolute dollars and as a percentage of revenue were due to decreased compensation and employee related costs of $1.1 million as a result of reductions in headcount, including severance and other costs related to the departure of PlanetOut’s President and Chief Operating Officer in March 2007 of $0.3 million, decreases in legal expenses of $1.5 million, and a reduction in expenses due to the closing of PlanetOut’s international offices in conjunction with its July 2007 reorganization plan of $0.7 million.
 
PlanetOut’s general and administrative expenses were $11.4 million for 2007.
 
For fiscal 2009, PlanetOut expects general and administrative expenses to decrease from fiscal 2008 primarily due to decreased compensation and employee related costs as a result of decreases in headcount.
 
Restructuring.  In July 2007, PlanetOut’s board of directors adopted and approved a reorganization plan to further align its resources with its strategic business objectives. As part of the plan, PlanetOut closed its international offices located in Buenos Aires and London in order to streamline its business operations and reduce expenses. The reorganization, along with other organizational changes, reduced PlanetOut’s total workforce by approximately 15%. Restructuring costs of approximately $0.6 million, primarily related to employee severance benefits of approximately $0.5 million and facilities consolidation expenses of approximately $0.1 million, were recorded during 2007. PlanetOut completed this restructuring in the fourth quarter of 2007.
 
For fiscal 2009, PlanetOut expects additional restructuring charges of $0.5 million as a result of its January 2009 restructuring.
 
Depreciation and Amortization.  Depreciation and amortization expense was $3.9 million for fiscal 2008, down 28% from the prior year, due primarily to a decrease in depreciable assets in service and a decrease in amortization of loan origination costs with the repayment of the note to Orix in 2007. Depreciation and amortization as a percentage of revenue was 20% for 2008, down from 21% in the prior year. Depreciation and amortization expense was $5.5 million for fiscal 2007. Depreciation and amortization as a percentage of revenue was 44% for 2007.
 
For fiscal 2009, PlanetOut expects depreciation and amortization expense will decrease from fiscal 2008 as a result of a decrease in depreciable assets in service.
 
Impairment of Goodwill and Intangible Assets.  During the fourth quarter of 2007, PlanetOut recorded an impairment charge to goodwill of $0.4 million related to the winding down of its international marketing efforts and the closure of its international offices in conjunction with its July 2007 restructuring plan.
 
Other Income and Expenses
 
Interest Expense.  Interest expense was $0.1 million for fiscal 2008, a decrease of 92% from the prior year, due primarily to repayment in July 2007 of the Orix term and revolving loans entered into in September 2006. Interest expense was $1.6 million for fiscal 2007. Interest expense for the year ended December 31, 2007 includes prepayment fees of $0.3 million, loan deferral fees of $0.2 million and $0.2 million for acceleration of the loan discount on the Orix loans.
 
Other Income, Net.  Other income, net consists of interest earned on cash, cash equivalents, and restricted cash as well as other miscellaneous non-operating transactions. Other income, net was $0.2 million for fiscal 2008, a decrease of 65% from the prior year, primarily due to decreased interest income during fiscal 2008 on lower cash balances as a result of loss from continuing and discontinued operations. Other income, net was $0.5 million for fiscal 2007.


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Discontinued Operations
 
In an effort to simplify its business model, PlanetOut discontinued its Travel and Events businesses during 2007. In March 2007, PlanetOut sold its membership interest in DSW, a joint venture, to the minority interest partner. In December 2007, PlanetOut sold substantially all of the assets of RSVP. In August 2008, PlanetOut sold its Publishing business to Regent, which included the operations of LPI and SpecPub.
 
As a result of the sale of PlanetOut’s interest in DSW, the sale of substantially all the assets of RSVP, the sale of substantially all of the assets of LPI and SpecPub and PlanetOut’s decision to exit its Publishing and Travel and Events businesses, it has reported the results of operations and financial position of RSVP, DSW, LPI and SpecPub as discontinued operations within the condensed consolidated financial statements for the year ended December 31, 2007 in accordance with FAS 144. PlanetOut reported the financial position of LPI and SpecPub as assets and liabilities of discontinued operations on the condensed consolidated balance sheet as of December 31, 2007. In addition, the cash flow activity of RSVP, DSW, LPI and SpecPub have been segregated from the condensed consolidated statements of cash flows for the years ended December 31, 2007 and 2008. The results of operations of RSVP and DSW were previously reported and included in the results of operations and financial position of the Travel and Events segment. The results of operations of LPI and SpecPub were previously reported and included in the results of operations and financial position of the Publishing segment.
 
During the three months ended June 30, 2007, PlanetOut determined that a triggering event had occurred in May 2007, primarily due to lower advertising revenue than expected related to the Publishing segment and lower than expected revenue related to the Travel and Events business which PlanetOut believes resulted in a significant decrease in the trading price of its common stock and a corresponding reduction in its market capitalization. As a result of this triggering event, PlanetOut conducted the first step of its goodwill impairment test and determined that goodwill had been impaired. Accordingly, it conducted the second step of its impairment test to measure the impairment and recorded an estimated impairment charge to goodwill in the amount of $21.1 million in operating expenses of discontinued operations during the three months ended June 30, 2007.
 
During the three months ended December 31, 2007, in conjunction with its estimate to measure goodwill impairment in the three months ended June 30, 2007, PlanetOut recorded an impairment charge to its customer lists and user bases and tradenames of $1.9 million and $2.5 million, respectively, as a result of the completion of an independent business valuation of the intangible assets of its LPI reporting unit.
 
Restructuring costs of approximately $19,000, consisting of termination benefits related to the Travel and Events business, were recorded in discontinued operations during 2007.
 
The results of discontinued operations for the years ended December 31, 2007 and 2008 were as follows (in thousands):
 
                                         
    Year Ended December 31, 2007  
    LPI     SpecPub     RSVP     DSW     Total  
 
Total revenue
  $ 20,249     $ 6,803     $ 17,033     $ 2     $ 44,087  
Operating costs and expenses:
                                       
Cost of revenue
    13,835       4,629       18,737             37,201  
Sales and marketing
    5,514       1,561       1,525       37       8,637  
General and administrative
    3,118       571       262       1       3,952  
Restructuring
                19             19  
Depreciation and amortization
    1,015       253       286             1,554  
Impairment of goodwill and intangible assets
    20,099       5,400       4,400             29,899  
                                         
Total operating costs and expenses
    43,581       12,414       25,229       38       81,262  
                                         
Loss from operations
    (23,332 )     (5,611 )     (8,196 )     (36 )     (37,175 )
Other income (expense), net
    (241 )     (103 )     25             (319 )
                                         
Loss from discontinued operations
  $ (23,573 )   $ (5,714 )   $ (8,171 )   $ (36 )   $ (37,494 )
                                         


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    Year Ended December 31, 2008  
    LPI     SpecPub     RSVP     Total  
 
Total revenue
  $ 12,569     $ 2,885     $     $ 15,454  
Operating costs and expenses:
                               
Cost of revenue
    9,213       2,282       (23 )     11,472  
Sales and marketing
    3,346       686       (21 )     4,011  
General and administrative
    1,621       211       10       1,842  
Restructuring
    1,132       97             1,229  
Depreciation and amortization
    327       31             358  
Impairment of goodwill and intangible assets
    1,978       4,294             6,272  
                                 
Total operating costs and expenses
    17,617       7,601       (34 )     25,184  
                                 
Income (loss) from operations
    (5,048 )     (4,716 )     34       (9,730 )
Other income (expense), net
    (15 )     1             (14 )
                                 
Income (loss) from discontinued operations
    (5,063 )     (4,715 )     34       (9,744 )
Gain (loss) on sale of discontinued operations
    (787 )     651             (136 )
                                 
Income (loss) from and gain (loss) on sale of discontinued operations
  $ (5,850 )   $ (4,064 )   $ 34     $ (9,880 )
                                 
 
The current and non-current assets and liabilities of discontinued operations were as follows (in thousands):
 
                         
    December 31, 2007  
    LPI     SpecPub     Total  
 
Current assets of discontinued operations:
                       
Accounts receivable
  $ 3,189     $ 977     $ 4,166  
Inventory
    1,113       314       1,427  
Prepaid expenses and other current assets
    1,251       504       1,755  
                         
    $ 5,553     $ 1,795     $ 7,348  
                         
Long-term assets of discontinued operations:
                       
Property and equipment, net
  $ 620     $ 54     $ 674  
Goodwill
    1,427       2,708       4,135  
Intangible assets, net
    1,870       2,567       4,437  
Other assets
    58       51       109  
                         
    $ 3,975     $ 5,380     $ 9,355  
                         
Current liabilities of discontinued operations:
                       
Accounts payable
  $ 495     $ 73     $ 568  
Accrued expenses and other liabilities
    603       161       764  
Deferred revenue, current portion
    1,717       1,434       3,151  
Capital lease obligations, current portion
    23       7       30  
                         
    $ 2,838     $ 1,675     $ 4,513  
                         
Long-term liabilities of discontinued operations:
                       
Deferred revenue, less current portion
  $ 1,089     $ 578     $ 1,667  
Capital lease obligations, less current portion
    104       24       128  
Deferred rent, less current portion
    157       178       335  
                         
    $ 1,350     $ 780     $ 2,130  
                         


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Critical Accounting Policies
 
PlanetOut’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires PlanetOut to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities.
 
PlanetOut bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis on which it makes judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because this can vary in each situation, actual results may differ from the estimates under different assumptions and conditions.
 
PlanetOut believes the following critical accounting policies require more significant judgments and estimates in the preparation of its consolidated financial statements:
 
Revenue recognition.  PlanetOut derives its revenue principally from the sale of premium subscription services, banner and sponsorship advertisements and transactions services. Premium subscription services are generally for a period of one month to twelve months. Premium subscription services are generally paid for upfront by credit card, subject to cancellations by subscribers or charge backs from transaction processors. Revenue, net of estimated cancellations and charge backs, is recognized ratably over the service term. To date, cancellations and charge backs have not been significant and have been within management’s expectations. In January 2006, PlanetOut began offering its customers premium online subscription services bundled with magazine subscriptions. In accordance with EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), PlanetOut defers subscription revenue on bundled subscription service offerings based on the pro-rata fair value of the individual premium subscription services and magazine subscriptions.
 
To date, the duration of PlanetOut’s banner advertising commitments has ranged from one week to one year. Sponsorship advertising contracts generally have terms ranging from three months to two years and also involve more integration with its services, such as the placement of buttons that provide users with direct links to the advertiser’s website. Advertising revenue on both banner and sponsorship contracts is recognized ratably over the term of the contract, provided that PlanetOut has no significant obligations remaining at the end of a period and collection of the resulting receivables is reasonably assured, at the lesser of the ratio of impressions delivered over the total number of undertaken impressions or the straight line basis. PlanetOut’s obligations typically include undertakings to deliver a minimum number of “impressions,” or times that an advertisement appears in pages viewed by users of its online properties. To the extent that these minimums are not met, recognition of the corresponding revenue is deferred until the minimums are achieved.
 
Advertising Costs.  Costs related to advertising and promotion are charged to sales and marketing expense as incurred.
 
Valuation Allowances.  PlanetOut maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of PlanetOut’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.
 
PlanetOut records a full valuation allowance against its deferred tax assets due to uncertainties related to its ability to realize the benefit of its deferred tax assets primarily from its net operating losses. In the future, if PlanetOut generates sufficient taxable income and determines that it would be able to realize its deferred tax assets, an adjustment to the valuation allowance would impact the results of operations in that period.
 
Goodwill and Other Long-lived Assets.  PlanetOut’s long-lived assets include goodwill, property and equipment and other assets. PlanetOut tests goodwill for impairment on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires judgment in determining the fair value of its reporting units and the enterprise as a whole. PlanetOut conducts its annual test as of December 1st each year. Future impairment losses may have a material adverse impact on PlanetOut’s financial condition and results of operations.


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PlanetOut records an impairment charge on intangibles or long-lived assets to be held and used when it determines that the carrying value of these assets may not be recoverable and/or exceed their carrying value. Based on the existence of one or more indicators of impairment, PlanetOut measures any impairment based on a projected discounted cash flow method using a discount rate that it determines to be commensurate with the risk inherent in its business model. These estimates of cash flow require significant judgment based on historical results and anticipated results and are subject to many factors.
 
Capitalized Website Development Costs.  PlanetOut capitalizes the costs of enhancing and developing features for its websites when it believes that the capitalization criteria for these activities have been met and amortize these costs on a straight-line basis over the estimated useful life, generally three years. PlanetOut expenses the cost of enhancing and developing features for its websites in cost of revenue only when it believes that capitalization criteria have not been met. PlanetOut exercises judgment in determining when to begin capitalizing costs and the period over which it amortizes the capitalized costs. If different judgments were made, it would have an impact on PlanetOut’s results of operations.
 
Stock-based compensation.  PlanetOut has granted stock options to employees and non-employee directors. It recognizes compensation expense for all stock-based payments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“FAS 123R”). Under the fair value recognition provisions of FAS 123R, PlanetOut recognizes stock-based compensation net of an estimated forfeiture rate and only recognizes compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award (normally the vesting period).
 
Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility. PlanetOut uses the Black-Scholes model to value its stock option awards. Management uses an estimate of future volatility for PlanetOut’s stock based on its historical volatility and the volatilities of comparable companies. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, PlanetOut is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the actual forfeiture rate is materially different from the estimate, stock-based compensation expense could be significantly different from what has been recorded in the current period. See Notes 1 and 8 of PlanetOut Inc. Notes to Consolidated Financial Statements for a further discussion on stock-based compensation.
 
Income Taxes. PlanetOut adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. PlanetOut did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing FIN 48.
 
PlanetOut files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. It is no longer subject to U.S. federal tax assessment for years before 2005. State jurisdictions that remain subject to assessment range from 2004 to 2008. PlanetOut does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. It believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48. In addition, PlanetOut did not record a cumulative effect adjustment related to the adoption of FIN 48.
 
PlanetOut’s policy is that it recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, it did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the year. The effective tax rate differs from the federal statutory rate primarily due to increases in the deferred income tax valuation allowance.


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Liquidity and Capital Resources
 
The following sections discuss the effects of changes in PlanetOut’s balance sheet and cash flows, contractual obligations, certain commitments and acquisitions on its liquidity and capital resources.
 
Cash flow from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows, and cash, cash equivalents and short-term investments, as reflected in the Consolidated Balance Sheets, are summarized in the table below:
 
                 
    Year Ended December 31,  
    2007     2008  
 
Net cash provided by (used in):
               
Operating activities
  $ (14,917 )   $ (2,942 )
Investing activities
    796       217  
Financing activities
    12,952       (857 )
Effect of exchange rate on cash and cash equivalents
    29       (9 )
                 
Net decrease in cash and cash equivalents
  $ (1,140 )   $ (3,591 )
                 
Cash, cash equivalents and short-term investments
               
Cash and cash equivalents
  $ 8,534     $ 4,943  
Short-term investments
           
                 
Total cash, cash equivalents and short-term investments
  $ 8,534     $ 4,943  
                 
Percentage of total assets
    20.6 %     29.3 %
                 
 
Cash used in operating activities for 2008 was $2.9 million, due primarily to cash used in operating activities of discontinued operations of $2.8 million and a loss from continuing operations of $7.8 million partially offset by depreciation and amortization of $3.9 million, stock-based compensation expense of $0.5 million and a net decrease in operating assets and liabilities of $3.1 million. Cash used in operating activities for 2007 was $14.9 million, due primarily to a loss from continuing operations of $13.7 million and cash used in operating activities of discontinued operations of $9.5 million, partially offset by impairment of goodwill and intangible assets of $0.4 million, depreciation and amortization expense of $5.5 million, stock-based compensation expense of $0.7 million and a net decrease in operating assets and liabilities of $0.3 million.
 
Cash provided by investing activities for 2008 was $0.2 million, due primarily to $3.4 million in proceeds from the sale of discontinued operations offset by purchases of property and equipment of $1.9 million and an increase in restricted cash of $1.3 million. Cash provided by investing activities for 2007 was $0.8 million, due primarily to sales of short-term investments of $2.1 million and a decrease in restricted cash of $2.7 million, offset partially by purchases of property and equipment of $3.7 million.
 
Net cash used in financing activities for 2008 was $0.9 million, due primarily to principal payments under capital lease obligations. Net cash provided by financing activities for 2007 was $13.0 million, due primarily to the net proceeds from its equity financing of $24.0 million, partially offset by payment of note obligations of $10.2 million to Orix and $0.8 million for principal payments under capital lease obligations.
 
PlanetOut expects that net cash provided by operating activities will be negative during 2009 and may fluctuate in future periods as a result of a number of factors, including fluctuations in its operating results, advertising sales, subscription trends, accounts receivable collections and other general corporate activities.
 
In November 2005, PlanetOut acquired substantially all of the assets of LPI for a purchase price of approximately $32.6 million which consisted of $24.9 million paid in cash and approximately $7.1 million in the form of a note to the sellers secured by the assets of SpecPub, Inc. and payable in three equal installments in May, August and November 2007, and the reimbursement of certain prepaid and other expenses of approximately $0.6 million. The LPI note was repaid in connection with the private placement financing in July 2007.


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In September 2006, PlanetOut entered into a Loan Agreement with Orix, which was amended in February 2007, May 2007 and June 2007. Pursuant to the Loan Agreement, PlanetOut borrowed $7.5 million as a term loan and $3.0 million as a 24-month revolving loan in September 2006. The borrowings under the line of credit were limited to lesser of $3.0 million, which it had already drawn down, or 85% of qualifying accounts receivable. The term loan was payable in 48 consecutive monthly installments of principal beginning on November 1, 2006 together with interest at an initial rate of prime plus 3%. The term loan provided for a prepayment fee equal to 5% of the amount prepaid in connection with any prepayment made prior to September 27, 2007. The revolving loan bore interest at a rate of prime plus 1%. The Loan Agreement contained certain financial ratios, financial tests and liquidity covenants. The loans were secured by substantially all of PlanetOut’s assets and all of the outstanding capital stock of all of its subsidiaries, except for the assets and capital stock of SpecPub, Inc., which were pledged as security for the LPI note.
 
PlanetOut entered into a waiver and amendment to the Loan Agreement in May 2007 (the “May Waiver”), pursuant to which Orix waived defaults associated with PlanetOut’s failure to meet certain financial tests and liquidity covenants. In consideration of the May Waiver, PlanetOut, in addition to other commitments, agreed to maintain certain minimum cash balances, increase the interest rate on the term loan to prime plus 5% and committed to raise at least $15.0 million in new equity or subordinated debt. At that time, it also agreed to apply at least $3.0 million of the proceeds from that transaction to pay down the term loan. As part of the amendment in June 2007, the parties agreed to modify the requirement in the May Waiver for the commitment to raise new equity or subordinated debt to be for gross proceeds of at least $25.0 million, which could be completed in one or more closings, with the first closing for not less than $4.2 million in proceeds, if applicable, occurring no later than July 10, 2007, and the entire financing being completed no later than September 30, 2007. In addition, Orix consented to, among other things, certain limited prepayments with respect to PlanetOut’s other indebtedness in the event of the first closing and prior to the completion of the entire financing. Orix also agreed to defer the payment of principal installments due on July 1, August 1 and September 1 with respect to its term loan for a deferral fee of $0.2 million. In July 2007, PlanetOut completed a private placement financing with a group of investors for approximately $26.2 million in gross proceeds from the sale of approximately 2.3 million shares of its common stock and used a portion of the proceeds to repay, in full, the LPI note, the Orix term loan, the Orix revolving loan, the deferral fee and $0.3 million in prepayment fees.
 
During 2007, PlanetOut invested $4.1 million in property and equipment of which $0.4 million was financed through capital leases. During 2008, it invested $2.0 million in property and equipment of which $0.1 million was financed through capital leases. Greater than 97% of its investments in 2007 and 2008 related to capitalized labor, hardware and software related to enhancements to its website infrastructure and features. For fiscal 2009, PlanetOut expects to continue investing in its technology development as it improves its online technology platform and enhances its features and functionality across its network of websites.
 
PlanetOut’s capital requirements depend on many factors, including the level of its revenues, the resources it devotes to developing, marketing and selling its products and services, the timing and extent of the introduction of new features and services, the extent and timing of potential investments and other factors. In particular, PlanetOut’s subscription services consist of prepaid subscriptions that provide cash flows in advance of the actual provision of services. PlanetOut expects to invest capital resources to continue its product development and marketing efforts and for other general corporate activities.
 
Based on PlanetOut’s current operations, it expects that its available funds and anticipated cash flows from operations will be sufficient to meet its expected needs for working capital and capital expenditures for the next twelve months, although it can provide no assurances in that regard. If PlanetOut does not have sufficient cash available to finance its operations, it may be required to obtain additional public or private debt or equity financing. PlanetOut cannot be certain that additional financing will be available to it on favorable terms when required or at all. If PlanetOut is unable to raise sufficient funds, it may need to reduce its planned operations.
 
PlanetOut has carefully assessed its anticipated cash needs for the next twelve months and adopted an operating plan to manage its costs of capital expenditures and operating activities along with its revenues in order to meet its working capital needs for the next twelve months.


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On January 8, 2009 PlanetOut signed a definitive agreement to combine with Here Networks LLC and Regent Entertainment Media Inc. Under the proposed business combination, the combined entity will be called Here Media Inc. (“Here Media”) and will be effected through a contribution by the owners of Here Networks and Regent Entertainment Media of those businesses and an estimate of $4.7 million of cash into Here Media, a newly formed holding company. PlanetOut incurred a significant net loss in 2007 and 2008 and expects to incur additional losses during 2009. PlanetOut expects that raising additional financing will be very difficult, if it could be obtained at all. Accordingly, if PlanetOut is unsuccessful in completing the proposed business combination, it could be forced to engage in dispositions of its remaining assets or businesses on unfavorable terms, or consider curtailing or ceasing operations. In that event, PlanetOut cannot provide any assurance that its assets will be sufficient to meet its liabilities.
 
Off-Balance Sheet Liabilities
 
PlanetOut did not have any off-balance sheet liabilities or transactions as of December 31, 2008.
 
Other Contractual Commitments
 
The following table summarizes PlanetOut’s contractual obligations as of December 31, 2008, and the effect that these obligations are expected to have on its liquidity and cash flows in future periods:
 
                                         
    Payments Due by Period  
    Total     2009     2010     2011     2012-2013  
    (In thousands)  
 
Contractual obligations:
                                       
Capital lease obligations
  $ 1,063     $ 733     $ 272     $ 58     $  
Operating leases
    7,813       2,463       2,386       2,392       572  
                                         
Total contractual obligations
  $ 8,876     $ 3,196     $ 2,658     $ 2,450     $ 572  
                                         
 
Capital Lease Obligations.  PlanetOut holds property and equipment under noncancelable capital leases with varying maturities.
 
Operating Leases.  PlanetOut leases or subleases office space and equipment under cancelable and noncancelable operating leases with various expiration dates through December 31, 2012. Operating lease amounts include minimum rental payments under non-cancelable operating leases for office facilities, as well as limited computer and office equipment that PlanetOut utilizes under operating lease arrangements. The amounts presented are consistent with the contractual terms and are not expected to differ significantly, unless a substantial change in headcount needs requires PlanetOut to exit an office facility early or expand its occupied space.
 
Seasonality and Inflation
 
PlanetOut anticipates that its business may be affected by the seasonality of certain revenue lines. For example, advertising buys are usually higher approaching year-end and lower at the beginning of a new year than at other points during the year.
 
Inflation has not had a significant effect on PlanetOut’s revenue or expenses historically and it does not expect it to be a significant factor in the short-term. However, inflation may affect PlanetOut’s business in the medium-term to long-term.
 
Recent Accounting Pronouncements
 
In May 2008, the FASB issued Statement of Financial Accounting Standard No. 162 (“FAS 162”), The Hierarchy of Generally Accepted Accounting Principles” which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the U.S. PlanetOut is currently evaluating the impact FAS 162 may have on its financial statements.


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In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“FAS 141R”). FAS 141R requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. FAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. PlanetOut has determined that the adoption of FAS 141R may have a material effect on its consolidated financial statements.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“FAS 160”). FAS 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. FAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. PlanetOut has determined the adoption of FAS 160 will not have a material effect on its consolidated financial statements.
 
In September 2006, the FASB issued SFAS No. 157 (“FAS 157”), “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. FAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. PlanetOut has determined that the adoption of FAS 157 will not have a material impact on its consolidated financial position, results of operations or cash flows.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
PlanetOut has not had any disagreements with its auditors on accounting and financial disclosures.


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INFORMATION ABOUT HERE NETWORKS
 
Here Networks’ Business
 
Here Networks offers original movies, series, documentaries and music specials tailored for the LGBT community on a subscription and transactional basis via cable television, DTH satellite television, fiber-optic television and the Internet under the brand name “here!”. Here Networks has agreements with major cable, satellite and fiber-optic television operators in the United States, including Comcast, Cablevision, Time Warner, Charter, DirecTV, EchoStar, Verizon, AT&T and Cox. As of December 31, 2008, Here Networks’ VOD, SVOD and/or linear television channel services were available through cable, satellite and fiber-optic television providers who served approximately 34 million domestic television households in the United States, according to internal data based on reports provided by these operators. Programming highlights on here! in 2008 include Dante’s Cove (original series), The Donald Strachey Mysteries (original motion pictures) and The DL Chronicles (original series).
 
Here Networks also operates a website, www.heretv.com, which features original shows, podcasts, news, blogs and other entertainment as well as a large library of LGBT-themed streaming video. Here Networks recently expanded its Internet distribution channel by making available on its website a pay-SVOD service that allows subscribers to view video content on their computers. In addition, Here Networks syndicates free-to-the-user content to websites including www.msn.com and www.aol.com.
 
Here Networks holds a 25% stake in a holding company that, as of December 31, 2008 owned 56% of OUTtv, a digital specialty television network providing programming of particular interest to the gay and lesbian community across Canada. OUTtv plans to change its name to here! Canada in 2009.
 
Here Networks is a Texas limited liability company. Its membership interests are wholly owned by Here Management LLC, which is 51%-owned by Mr. Jarchow and 35%-owned by Mr. Colichman. Its executive offices are located at 10990 Wilshire Boulevard, Penthouse, Los Angeles, California 90024, and its telephone number is (310) 806-4288.
 
History
 
Here Networks commenced operations in 2004, initially offering pay-per-view services and subsequently adding VOD services. Here Networks currently offers two premium television services offered on an “à la carte” basis: an SVOD service (launched in 2004) and a 24/7 linear television channel service (launched in 2006). Here Networks’ SVOD service offers subscribers unlimited access to approximately 40 hours of designated programming each month from Here Networks’ library of licensed content, while its linear television channel offers subscribers programs at scheduled times.
 
Sources of Revenue
 
Here Networks generates revenue from the receipt of fees paid by its subscribers for its SVOD and linear television channel services and transactional fees paid by viewers of its VOD services. Subscription and transaction revenue totaled 99.4% and 17.7% of revenue for the years ended December 31, 2007 and 2008, respectively. During the year ended December 31, 2008, Here Networks generated 81.6% of revenue from publicity and marketing services provided to Regent Releasing, a related party of Here Networks that is not involved in the proposed business combination. See “— Management’s Discussion and Analysis of Here Networks’ Financial Condition and Results of Operations — Overview.”
 
Generally, under the terms of Here Networks’ agreements with cable, satellite and fiber-optic television operators, Here Networks is paid based on a percentage of the amount charged to subscribers or VOD viewers of the relevant cable, satellite or fiber-optic television operator, typically ranging from 40% to 50% of those charges, subject to a negotiated minimum dollar amount per subscriber and to any additional incentives that Here Networks may offer an operator for carrying its service for a specified period of time. These additional incentives may include the operator effectively retaining the full amount of monthly subscriber fees for a specified period, such as the first three months of a twelve-month period, before fees are paid to Here Networks. The relevant cable, satellite, or fiber-optic television operator collects the fees from Here Networks’ subscribers and viewers and pays to Here Networks its corresponding amount, typically within 90 days of receipt from the customer.


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These agreements, which have typical terms of five years, generally provide the cable, satellite or fiber-optic television operator with a non-exclusive right but not an obligation to distribute Here Networks’ VOD, SVOD and/or linear channel services. For the year ended December 31, 2008, 95.0% of subscription and transaction revenue was attributable to viewers of a total of six cable television operators, while 93.0% was attributable to viewers of five operators for the year ended December 31, 2007. During the year ended December 31, 2008, fees from viewers of Time Warner, Cablevision and Comcast represented 39.5%, 21.4% and 20.7%, respectively, of subscription and transaction revenue. Here Networks’ agreements with these operators expire or are subject to renewal at various times, in 2010 through 2012, unless earlier terminated by the operator. See “Risk Factors — Risks Relating to the Business of the Combined Company— Here Networks depends substantially on a limited number of cable television operators.”
 
Operating Expenses
 
Here Networks’ principal operating costs consist of programming, marketing and personnel related expenses. Here Networks incurs costs to acquire content such as movies, television series and other programming from production and distribution companies. During each of the years ended December 31, 2007 and 2008, Here Networks acquired a substantial majority of its programming from the following related parties:
 
  •  Regent Studios, a motion picture studio which originates, develops, finances and produces theatrical and television motion pictures for the U.S. and international marketplace;
 
  •  Regent Worldwide Sales, a worldwide distributor of theatrical and television motion pictures; and
 
  •  Regent Releasing, which releases independent films to theater venues throughout the United States, including films produced by related and third parties.
 
In the years ended December 31, 2007 and 2008, Here Networks acquired approximately 91% and 79%, respectively, of its programming (measured as a percentage of total programming costs) from these related parties. Here Networks expects to reduce in part its dependence on programming from affiliates and third parties by developing its own content in the future, some of which it also expects to distribute through third parties.
 
New Production Business
 
Here Networks plans to develop a motion picture studio business that originates, develops, finances and produces theatrical and television motion pictures for the U.S. and international marketplace. Here Networks’ production business will be initially run by approximately ten persons. This group of persons has significant experience in the motion picture industry, including with affiliates of Here Networks involved in the motion picture production business.
 
Here Networks plans to debut motion pictures that it produces primarily through its television network and Internet platform. It may also offer motion pictures that it produces for theatrical release and DVD sales.
 
Here Networks expects that it will incur costs in developing its new motion picture production operations, which will consist principally of compensation expenses for the approximately ten persons who will initially be involved in this business activity. Additional costs will be incurred on a production-by-production basis in connection with the production of individual motion pictures.
 
Here Networks’ business model relating to its motion picture busin