Hi-Media Group Enters into Agreement to Acquire Fotolog, Creating One of Europe’s Largest Publicly-Traded “Pure-Play” Internet Companies

NEW YORK--(BUSINESS WIRE)--Hi-Media Group announced today that it has entered into an agreement to acquire Fotolog, Inc. for a combination of cash and stock valued at approximately $90 million, net of transaction expenses, positioning Hi-Media as a major global online media player by bringing together Hi-Media’s extensive ad network and micro-payments business with Fotolog’s rapidly-growing and highly-engaged audience of over 10 million member accounts.

Cyril Zimmermann, CEO of Hi-Media, stated: “Hi-Media was attracted by Fotolog, which has only just begun converting its strong audience growth into revenues. We think that social networks are one of the pillars of what the Internet is and will be important in the years ahead, especially when underpinned by simple mechanisms. We are also convinced that Hi-Media can benefit substantially from Fotolog’s efforts to generate maximum revenues from its audience thanks to the advertising and micro-payment services that Hi-Media has developed over the past decade. In addition, we believe that the expertise and experience of the Fotolog teams who are joining us will allow us to reinforce and accelerate the development of our publishing division.”

Launched in May 2002, New York-based Fotolog is a leading social network (www.fotolog.com) that provides a platform for members to share experiences and connect with others across the globe through daily photo postings, or “photologs.” Fotolog has experienced strong growth this year, doubling the number of its member accounts to more than 10 million, reaching 15 million unique monthly visitors and logging more than 3.3 billion monthly page views. Fotolog now ranks 20th on the Alexa list of the world’s most-trafficked websites.

Fotolog has also been successful in extending its strong market position in Latin America into Europe, where, according to Comscore, it now has nearly 4 million unique monthly visitors.

Fotolog’s fastest-growing markets include Italy, Portugal and Spain. In Spain, Fotolog has more than 2.2 million unique monthly visitors and has experienced average growth in the number of such visitors of 20% per month since January 2007, increasing the number of members by 199% in the same period (source: Comscore).

Revenue in these markets is anticipated to be facilitated by the recent launches of:

• Sponsored links: a new, improved partnership contract was signed with Google;
• Banners: after tests carried out with a number of the site’s partners, Fotolog entrusted the advertising function of the sites to Hi-Media in three countries; and
• The sale of premium services using micro-payment solutions.

Hi-Media expects these advertising contracts to increase Fotolog’s revenues significantly. Revenues should also be boosted by the unlocking of synergies between the two companies: co-operation in developing audiences in Western Europe, primarily France and Germany, the extension of advertising contracts in all countries where Hi-Media is already present, the introduction of new services and new micro-payment solutions.

Fotolog began to monetize its audience in 2007 and expects that revenues in fiscal year 2007 will reach $2.3 million. While Fotolog has sustained losses since January 2007, its revenue has recently increased sharply (sales have increased by approximately 245% since January 2007), and management anticipates Fotolog will reach break-even within the six months following the acquisition, resulting in a positive contribution to the operating income of Hi-Media in 2008.

John Borthwick, Fotolog Chief Executive Officer, stated, “We found the ideal partner in Hi-Media Group to build on our strong momentum and monetize our fast-growing audience. This will be one of the biggest publicly-traded Internet pure plays in Europe, bringing together Hi-Media’s leading ad network and Fotolog’s large and highly-engaged user base. Hi-Media is committed to investing in Fotolog’s compelling member experience and growing the platform we have created.”

Terms of the Transaction

The transaction is valued at approximately $90 million, net of transaction expenses. Consideration anticipated to be paid to Fotolog shareholders would consist of Hi-Media stock (approximately 77% of total consideration) and cash (approximately 23% of total consideration), giving eligible Fotolog shareholders 7,414,852 newly-issued shares of Hi-Media (anticipated to represent approximately 19% of Hi-Media’s issued and outstanding share capital upon completion of the acquisition). BV Capital and 3i Venture Capital, Fotolog’s largest shareholders, have elected to receive the majority of their consideration in the form of Hi-Media stock and expect to participate in the development of the combined company into a major pan-European online media and services group. A representative of BV Capital is expected to join the Hi-Media board of directors.

The transaction is expected to close before the end of November 2007 and is expected to be submitted for approval by Hi-Media’s shareholders at an extraordinary general meeting. UBS Investment Bank is acting as exclusive financial advisor to Fotolog, and Oddo Corporate Finance is acting as exclusive financial advisor to Hi-Media.

Acquisition Represents a Major Step Forward in Hi-Media Group’s Strategy

The acquisition of Fotolog would further advance Hi-Media’s strategy of transforming itself into an online media player, integrating proprietary content and social networking websites with its extensive ad network and micro-payments business.

As a result of the transaction, Hi-Media would become one of Europe’s leading online publishers and one of its largest publicly traded Internet “pure plays.” The company would rank among the top online publishers globally (source: Comscore), with nearly 4 billion page views per month.

Moreover, management believes that the combination of proprietary and affiliated websites will uniquely position Hi-Media to meet the needs of advertisers and merchants; to develop synergies among and monetize its content, advertising and ecommerce properties; and to increase its profitability in the short and the medium term. In particular, management believes that Hi-Media will be able to leverage Fotolog’s large and highly-engaged member base to promote or launch other websites of its publishing group more cost-efficiently.

While Fotolog would maintain its current headquarters and staff in New York, Fotolog’s technical and product teams would be coordinated and integrated with Hi-Media’s teams in France to optimize their combined skills and advance technology development across the publishing group.

About Hi-Media Group

Hi-Media is a website publishing and services company specializing in online advertising and electronic commerce with operations in eight countries. Europe’s third-ranked interactive advertising agency, the company is also the leading provider of electronic micro-payment solutions in France. Hi-Media also offers a complete range of tools and services in the realm of direct marketing. Hi-Media is listed on Eurolist B of Euronext Paris as well as the SBF 250, CAC IT, and CAC Small 90 indexes. ISIN Code: FR0000075988.

About Fotolog, Inc.

Fotolog, Inc. is the world’s largest photo-blogging community and one of the most actively-used social networks on the Internet. More than 10 million member accounts from more than 200 countries have shared more than 200 million photos since its inception in 2002. Fotolog has grown entirely virally since its founding, with no marketing or member incentives. The site provides a platform for members to share experiences and connect with others across the globe by bringing together the power of digital photography, social networking and blogging to attract and entertain in a unique and captive user experience.

Disclaimer

This communication does not constitute an offer of Hi-Media shares or a solicitation of offers for the shares of the Fotolog. Shares of Hi-Media that will be issued to eligible Fotolog shareholders have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state of the United States and may not be offered or sold within the United States or to U.S. persons (each as defined in Regulation S under the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

Certain statements contained herein are forward-looking statements, including but not limited to statements that are predictions of or indicate future events, trends, plans or objectives, based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements are typically identified by words or phrases such as, without limitation, “anticipate”, “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase” and “may fluctuate” and similar expressions or by future or conditional verbs such as, without limitations, “will”, “should”, “would” and “could.” Undue reliance should not be placed on such statements, because, by their nature, they are subject to known and unknown risks, uncertainties and other factors, which may cause Hi-Media’s actual results, performance, achievements or prospects to differ from any future results, performance, achievements or prospects expressed or implied by such statements, including the risk that the combination of Hi-Media and Fotolog may not be consummated. Such factors include, among others: the costs related to the transaction; the inability to obtain, or meet conditions imposed by, the required governmental and regulatory approvals and consents; the risk that the businesses of Hi-Media and Fotolog will not be integrated successfully; other risks and uncertainties affecting Hi-Media and Fotolog including, without limitation, the risk of future extraordinary events, economic and market developments, regulatory actions and developments, litigation and other proceedings.

Hi-Media and Fotolog operate in a continually changing environment and new risks emerge continually. Hi-Media does not undertake and expressly disclaims any obligation to update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise.