spark_13d.htm

0001019056-10-000282.txt : 20100309 0001019056-10-000282.hdr.sgml : 20100309 20100308214448 ACCESSION NUMBER: 0001019056-10-000282 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20100309 DATE AS OF CHANGE: 20100308 GROUP MEMBERS: JOHN H. LEWIS GROUP MEMBERS: OSMIUM CAPITAL II, LP GROUP MEMBERS: OSMIUM CAPITAL, LP GROUP MEMBERS: OSMIUM PARTNERS, LLC GROUP MEMBERS: OSMIUM SPARTAN, LP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SPARK NETWORKS INC CENTRAL INDEX KEY: 0001314475 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 980200628 STATE OF INCORPORATION: X0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-81138 FILM NUMBER: 10665182 BUSINESS ADDRESS: STREET 1: 8383 WILSHIRE BOULEVARD STREET 2: SUITE 800 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 323-658-3000 MAIL ADDRESS: STREET 1: 8383 WILSHIRE BOULEVARD STREET 2: SUITE 800 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 FORMER COMPANY: FORMER CONFORMED NAME: SPARK NETWORKS PLC DATE OF NAME CHANGE: 20050114 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Osmium Partners, LLC CENTRAL INDEX KEY: 0001316729 IRS NUMBER: 550793716 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 388 MARKET, SUITE 920 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 415.362.4484 MAIL ADDRESS: STREET 1: 388 MARKET, SUITE 920 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 SC 13D 1 spark_13d.htm SCHEDULE 13D spark_13d.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 13D

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

RULE 13d-2(a)

(Amendment No. _________)*

Spark Networks, Inc.

(Name of Issuer)

Common Stock, par value $0.001 per share

(Title of Class of Securities)

84651P100

(CUSIP Number)

Osmium Partners, LLC

388 Market Street, Suite 920

San Francisco, CA 94111

Attention: John H. Lewis

Telephone: (415) 362-2845

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

March 8, 2010

(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box x.

Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes.)

Page 1 of 10 pages

CUSIP No.: 84651P100

NAME OF REPORTING PERSON

1	S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	John H. Lewis

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

	(a) o
	(b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS

	PF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) o

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	United States

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER - 19,100
		8	SHARED VOTING POWER - 1,228,053

		9	SOLE DISPOSITIVE POWER - 19,100

		10	SHARED DISPOSITIVE POWER - 1,228,053

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	1,247,153

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES o

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	6.1%

14	TYPE OF REPORTING PERSON

	IN

Page 2 of 10 pages

CUSIP No.: 84651P100

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Osmium Partners, LLC

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

	(a) o
	(b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS

	AF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) o

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER - 0
		8	SHARED VOTING POWER - 1,228,053

		9	SOLE DISPOSITIVE POWER - 0

		10	SHARED DISPOSITIVE POWER - 1,228,053

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	1,228,053

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES o

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	6.0%

14	TYPE OF REPORTING PERSON

	IA, OO

Page 3 of 10 pages

CUSIP No.: 84651P100

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Osmium Capital, LP

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

	(a) o
	(b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS

	WC

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) o

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER - 0
		8	SHARED VOTING POWER - 254,416

		9	SOLE DISPOSITIVE POWER - 0

		10	SHARED DISPOSITIVE POWER - 254,416

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	254,416

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES o

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	1.2%

14	TYPE OF REPORTING PERSON

	PN

Page 4 of 10 pages

CUSIP No.: 84651P100

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Osmium Capital II, LP

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

	(a) o
	(b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS

	WC

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) o

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER - 0

		8	SHARED VOTING POWER - 757,252

		9	SOLE DISPOSITIVE POWER - 0

		10	SHARED DISPOSITIVE POWER - 757,252

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	757,252

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES o

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	3.7%

14	TYPE OF REPORTING PERSON

	PN

Page 5 of 10 pages

CUSIP No.: 84651P100

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON

	Osmium Spartan, LP

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

	(a) o
	(b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS

	WC

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) o

6	CITIZENSHIP OR PLACE OF ORGANIZATION

	Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER - 0

		8	SHARED VOTING POWER - 118,657

		9	SOLE DISPOSITIVE POWER - 0

		10	SHARED DISPOSITIVE POWER - 118,657

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

	118,657

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES o

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

	0.6%

14	TYPE OF REPORTING PERSON

	PN

Page 6 of 10 pages

EXPLANATORY NOTE

This Statement on Schedule 13D (this “Statement”) reflects, that as of March 8, 2010, the Reporting Persons are disclosing their beneficial ownership in Spark Networks, Inc. on Schedule 13D instead of Schedule 13G.

ITEM 1. Security and Issuer.

The class of equity securities to which this Statement on Schedule 13D (this “Statement”) relates is the common stock, par value $0.001 per share (the “Common Stock”), of Spark Networks, Inc. (the “Issuer”), with its principal executive offices located at 8383 Wilshire Boulevard, Suite 800, Beverly Hills, California 90211.

ITEM 2. Identity and Background.

(a)-(c) and (f) The names of the persons filing this statement on Schedule 13D (the “Reporting Persons”) are: (1) Osmium Capital, LP, a Delaware limited partnership (“Fund I”); (2) Osmium Capital II, LP, a Delaware limited partnership (“Fund II”); (3) Osmium Spartan, LP, a Delaware limited partnership (“Fund III”, together with Fund I and Fund II, “Funds”); (4) Osmium Partners, LLC, a Delaware limited liability company (“Osmium Partners”); and (5) John H. Lewis, a United States Citizen (“Lewis”). Osmium Partners serves as the general partner of Fund I, Fund II and Fund III. Mr. Lewis is the controlling member of Osmium Partners.

The principal business of each of Fund I, Fund II and Fund III is that of a private investment vehicle engaged in investing and trading in a wide variety of securities and financial instruments for its own account. The principal business of Osmium Partners is providing investment management services and serving as the general partner of Fund I, Fund II and Fund III. Osmium Partners also manages other accounts on a discretionary basis (“Other Accounts”). Mr. Lewis’ principal occupation is serving as the Managing Member of Osmium Partners.

(d)–(e) During the last five years, none of the Reporting Persons have been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

ITEM 3. Source and Amount of Funds or Other Consideration

The source and amount of funds (excluding commissions) used by the Funds in making their purchase of the shares of Common Stock owned by each of them in aggregate was $2,997,745 from working capital.

The source and amount of funds (excluding commissions) used by the Other Accounts in making their purchase of the shares of Common Stock owned by the Other Accounts was $240,870 from working capital.

The source and amount of funds (excluding commissions) used by Mr. Lewis in making his purchase of the shares of Common Stock owned by him was $53,289 from personal funds.

One or more of the Reporting Persons effect purchases of securities through margin accounts which may extend margin credit to the Reporting Persons as and when required to open or carry positions in the margin accounts, subject to applicable federal margin regulations, stock exchange rules and brokers’ credit policies. In such instances, the positions held in the margin accounts are pledged as collateral security for the repayment of debit balances in the accounts.

ITEM 4. Purpose of Transaction.

On March 8, 2010, Osmium Partners sent a letter to the Board of Directors of the Issuer, which, among other things, recommends that the special committee of independent directors of the Board of Directors refuse Great Hill Partners III, LP’s (“Great Hill”) offer to acquire all of the outstanding shares of Common Stock of the Issuer not owned by Great Hill. Osmium Partners believes that Great Hill’s proposed purchase price of $3.10 per share does not reflect the true value of the Issuer. A copy of the letter from Osmium Partners is attached hereto as Exhibit 2.

Page 7 of 10 pages

All of the shares of Common Stock reported herein as being beneficially owned by the Reporting Persons were acquired for investment purposes. Except as set forth herein, none of the Reporting Persons has any plans or proposals that relate to or would result in any of the transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D.

Also, consistent with their investment purpose, the Reporting Persons may engage in communications with one or more shareholders of the Issuer, one or more officers or employees of the Issuer, one or more members of the board of directors of the Issuer, and/or one or more representatives of the Issuer regarding the Issuer, including but not limited to its management, operations, business, results, plans, and prospects. The Reporting Persons may discuss ideas that, if effected, may result in any of the following: the acquisition by persons of additional Common Stock or other securities of the Issuer, an extraordinary corporate transaction involving the Issuer, and/or changes in the board of directors or management of the Issuer.

ITEM 5. Interest in Securities of the Issuer.

(a) The Reporting Persons beneficially own:

	(i)	Fund I directly owns 254,416 shares of Common Stock representing 1.2% of all of the outstanding shares of Common Stock.

	(ii)	Fund II directly owns 757,252 shares of Common Stock representing 3.7% of all of the outstanding shares of Common Stock.

	(iii)	Fund III directly owns 118,657 shares of Common Stock representing 0.6% of all of the outstanding shares of Common Stock.

	(iv)	Mr. Lewis directly owns 19,100 shares of Common Stock representing 0.09% of all of the outstanding shares of Common Stock.

	(v)	Osmium Partners, as the general partner of each of the Funds and the investment manager of the Other Accounts, may be deemed to beneficially own the 1,228,053 shares of Common Stock held by them, representing 6.0% of all of the outstanding shares of Common Stock.

	(vi)	Mr. Lewis may be deemed to be the beneficial owner of the shares of Common Stock beneficially owned by Osmium Partners.

	(vii)	Collectively, the Reporting Persons beneficially own 1,247,153 shares of Common Stock representing 6.1% of all of the outstanding shares of Common Stock.

Each Reporting Person disclaims beneficial ownership with respect to any shares of Common Stock other than the shares owned directly and of record by such Reporting Person.

The percentages set forth in this response are based on the 20,581,544 shares of Common Stock outstanding as of November 12, 2009, as reported by the Issuer in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009.

(b) Osmium Partners and Mr. Lewis may be deemed to share with Fund I, Fund II, Fund III and the Other Accounts (and not with any third party) the power to vote or direct the vote of and to dispose or direct the disposition of the 254,416, 757,252, 118,657 and 97,728 shares of Common Stock reported herein, respectively. Mr. Lewis has sole power to vote or direct the vote of and to dispose or direct the disposition of the 19,100 shares of Common Stock held by him.

Page 8 of 10 pages

(c) The following Reporting Persons engaged in the following transactions on the open market with respect to the Issuer’s Common Stock:

Osmium Capital, LP

Transaction	Number of	Price		Type of
Date	Shares	per Share		Transaction
1/20/2010	506	$	2.80	Purchase
1/22/2010	500	$	2.95	Purchase
1/25/2010	200	$	2.95	Purchase
1/26/2010	500	$	3.05	Purchase
2/1/2010	112	$	2.90	Purchase
2/11/2010	126	$	3.02	Purchase
2/16/2010	77	$	2.91	Purchase

Osmium Capital II, LP

Transaction	Number of	Price		Type of
Date	Shares	per Share		Transaction
1/20/2010	1,494	$	2.80	Purchase
1/29/2010	1,200	$	2.95	Purchase
2/1/2010	1,888	$	2.90	Purchase
2/2/2010	1,000	$	2.95	Purchase
2/5/2010	200	$	2.99	Purchase
2/10/2010	500	$	2.95	Purchase
2/11/2010	374	$	3.02	Purchase
2/16/2010	226	$	2.91	Purchase
2/26/2010	500	$	2.96	Purchase

John Lewis

Transaction	Number of	Price		Type of
Date	Shares	per Share		Transaction
1/7/2010	2,000	$	2.98	Purchase
1/12/2010	4,500	$	2.71	Purchase
1/14/2010	400	$	2.76	Purchase
1/15/2010	100	$	2.78	Purchase
1/19/2010	200	$	2.90	Purchase

Other than the foregoing, no transactions in the Common Stock have been effected by the Reporting Persons in the last sixty (60) days.

(d) Not applicable.

(e) Not applicable.

ITEM 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer.

Not applicable.

ITEM 7. Material to be Filed as Exhibits.

Exhibit 1 Joint Filing Agreement

Exhibit 2 Letter dated March 8, 2010 to Board of Directors of Issuer

Page 9 of 10 pages

SIGNATURE

After reasonable inquiry and to the best of its knowledge and belief, the undersigned each certifies that the information with respect to it set forth in this Statement is true, complete and correct.

Dated: March 8, 2010

John H. Lewis

Osmium Partners, LLC

Osmium Capital, LP

Osmium Capital II, LP

Osmium Spartan, LP

	By:	/s/ John H. Lewis
	John H. Lewis, for himself and as Managing Member of Osmium Partners, LLC, for itself and as General Partner of Osmium Capital, LP, Osmium Capital II, LP, and Osmium Spartan, LP

Page 10 of 10 pages

EXHIBIT INDEX

Exhibit 1 Joint Filing Agreement

Exhibit 2 Letter dated March 8, 2010 to Board of Directors of Issuer

EX-1 2 ex_1.htm EXHIBIT 1 ex_1.htm

EXHIBIT 1

JOINT FILING AGREEMENT

In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a statement on Schedule 13D (including amendments thereto) with respect to the Common Stock, par value $0.001 per share, of Spark Networks, Inc., and further agree that this Joint Filing Agreement be included as an Exhibit to such joint filing. In evidence thereof, the undersigned hereby execute this Agreement.

Dated: March 8, 2010

John H. Lewis

Osmium Partners, LLC

Osmium Capital, LP

Osmium Capital II, LP

Osmium Spartan, LP

	By:	/s/ John H. Lewis
	John H. Lewis, for himself and as Managing Member of Osmium Partners, LLC, for itself and as General Partner of Osmium Capital, LP, Osmium Capital II, LP, and Osmium Spartan, LP

EX-2 3 ex_2.htm EXHIBIT 2 ex_2.htm

EXHIBIT 2

Osmium Partners Considers Great Hill Partners’ Offer Grossly Inadequate

	·	Urges Special Committee to reject this outrageous offer

	·	Encourages the Board of Directors to hire an investment bank to undertake an open and fair process

	·	Applauds Management’s efforts for growing JDate.com 10% in the Second Half of 2009, and adding 10,000 paying subscribers over the last two quarters outside General Markets segment after 10 quarters of declines

	·	Osmium would reject any offer less than $6 per share

Dear Board Members,

Osmium Partners beneficially owns 6.1% of Spark Networks common stock. We are outraged and deeply disappointed to see that Great Hill Partners (GHP) offered a 5% premium to market to acquire the 56% of Spark Networks that it does not already own, for a paltry 5.2 multiple of enterprise value to heavily depressed adjusted EBITDA. When GHP invested 5 years ago, the valuation equated to $6.95 a share or 11.2x current EBITDA, and after growing EBITDA significantly over that time frame GHP now expects to buy out fellow investors at a multiple of 5.2 times adjusted EBITDA. Recent results are encouraging with Jewish Networks’ subscribers growing 10% over the last two quarters. We believe in a fair sale process that included Match.com, eHarmony, and others potential bidders that the business could sell in the $6-$7 range today.

Spark Networks’ management has in JDate what they term an “iconic” business with a “dominant brand and very high margins” which translates into approximately 92% contribution margins. However, these attractive economics are obscured by management’s investments in the Other Affinity segment, which only has 33% contribution margins. Furthermore, Spark Networks is one of the least efficient operations in the industry, generating only $224,000 per employee versus a peer range of $650,000-$1,000,000. All of the decline in total subscribers over the last three years can be attributed to a management ordered intentional run-off of the General Markets segment. Other factors that have hurt the company’s ability to grow include a 14% price hike on JDate in April 2008, a 50% cut in JDate’s marketing budget, and a large investment in subscale brands with deteriorating economics. Despite all these factors Spark still generates 23% adjusted EBITDA margins.

In our opinion, Great Hill Partners is focusing undue attention on overstated negative factors while ignoring the improvement in subscriber growth in an attempt to acquire our stock at a valuation of less than half of what we think an industry buyer would pay. The current valuation reflects only 4.8x an average of the last four years free cash flow.

We believe management considers JDate an “iconic” business with a “dominant brand” due to the following JDate subscriber attributes (from June 2009 investor presentation):

80% come to the site organically

1/3 of members earn over $100K, 2/3 make over $55K

45% have graduate degrees

94% have college degrees

55% women 45% men

90-93% contribution margins (revenue less marketing)

In summary, Spark is an extraordinary business with extremely high returns on capital, a dominant brand in JDate, a recurring revenue subscription model, and strong user demographics.

Let us review recent history:

	·	In December 2004 and June 2005 GHP invested $47 million for a 33% stake in Spark Networks at a $143 million weighted average whole company enterprise valuation. On current numbers GHP entry investment was made at 11.2x EV/EBITDA.

	·	Between 2006 and 2008, Spark used almost $45 million to repurchase shares at a weighted average stock price of $4.20, equating to a 7.4x EV/EBITDA multiple based on 2009 results.

	·	In January 4, 2008 NY Times reporter Andrew Ross Sorkin wrote an article claiming that eHarmony, Yahoo, and Match.com were rumored to be interested in paying up to $185mn to acquire Spark Networks or $9.05 a share which represents a 16.7 EV/EBITDA based on 2009 results.

	·	In June 2008, the current CEO bought 70,500 shares at $4.15 a share ($84.5mn enterprise valuation) or 7.4x EV/EBITDA based on 2009 results.

Finally, GHP now expects to buy the 54% they do not own for a meager enterprise valuation of $55 million or 5.2 EV/EBITDA based on 2009 results.

Industry margins and valuation multiples have remained fairly steady over the last several years. Private transactions have occurred at 9.1x EBITDA, which would equate to $5.43 a share, and public market comparables trade at 11.3x EBITDA, which would imply $6.73 a share. We think both implied valuations are understated due to the current inefficiencies in the business. Please see the valuation exhibits below.

In our opinion the company has not done enough to increase its exposure as a public company, such as seek Wall Street analyst coverage, attend conferences, road shows, or do anything proactive to court prospective investors. These actions have been costly; in fact, since GHP has been an investor with a board seat, the value of the company has dropped from $147mn to $62mn.

Why might a strategic buyer pay more than a financial buyer such as GHP?

	·	From a customer acquisition standpoint the larger the marketing budget the lower the per customer acquisition cost. (Spark Networks’ two largest competitors have 6-9 times the revenue.)

	·	Match.com’s ownership of People Media and Spark’s affinity brands are typically #1 and #2 in each category they compete in. We believe combining these businesses would be extremely accretive.

	·	Subscription fees are typically based on regional subscriber concentration; the bigger the network typically the higher the monthly subscription fees. Competitors have significant membership bases to cross sell and significantly grow the various brands while increasing ARPU.

From September to December 2009 we had several conversations with the management of Spark Networks, in which we conveyed our belief that the company was significantly undervalued and that JDate could be readily sold for $6-7 on a standalone basis. Management agreed that Spark Networks’ valuation at the time was “ridiculous,” but said the company was uncomfortable undertaking a formal investor relations program given the drop in subscribers over the years even if the stock was highly undervalued at around 4x cash flow. Nevertheless, management acknowledged that JDate’s value inside of Spark Networks was significantly higher, but they considered taking action to realize this value “uninteresting” and indicated that they were playing for something significantly greater over time. We were frustrated, but as patient long-term oriented investors we agreed that there was significant upside which would be realized over time.

Spark investors have been waiting years to reach this inflection point and in our opinion Great Hill Partners is attempting to acquire our asset without proper compensation including a reasonable change of control premium. How many “iconic” businesses with 92% contribution margins sell for approximately 5x depressed EBITDA or 2x JDate contribution margin? Given ample evidence, we believe Spark Networks is inexpensively valued in the $6-7 dollar range. Therefore, we consider Great Hill Partners’ offer outrageous and grossly inadequate, and intend to aggressively defend our rights as shareholders.

Sincerely,

John H. Lewis

Managing Partner

Osmium Partners

Exhibits

Publicly Traded Comparables

						LTM EV Multiples
Ticker	Company Name	Mkt Cap ($MM)		Ent. Value ($MM)		EBITDAS			Revenue			LTM EBITDAS Margin

ACOM	Ancestry.com	$	728	$	728		11.1	x		3.2	x		29	%

HGRD	Health Grades	$	164	$	145		12.5	x		2.8	x		22	%

TZOO	Travelzoo Inc.	$	196	$	176		11.1	x		1.9	x		17	%

MEET	Meetic	€	504	€	480		11.4	x		2.9	x		26	%

				Median			11.3	x		2.8	x		24	%

LOV	Spark Networks	$	64	$	55		5.2	x		1.2	x		23	%

Precedent Transaction Comparables

LTM EV Multiples

Date

Acquiror

Target

Value

EBITDA

Revenue

12/19/02

USA Interactive

uDate.com

108

9.1

2.9

2/19/09

Meetic

Match.com Intl.

€

10.4

1.5

7/6/09

Match.com

People Media

6.9

2.6

Median

9.1

2.6

3/2/10

Great Hill Partners

Spark Networks

5.2

1.2

Sum of the Parts Valuation

				Multiple Range						Value ($MM)				Value Per Share
	Metric	($MM)		Low			High			Low		High		Low		High

Jewish Networks	EBITDA (1)	$	14.0		8.0	x		10.0	x	$	112.0	$	140.0	$	5.44	$	6.80

Other Affinity	Revenue	$	12.8		0.5	x		1.0	x	$	6.4	$	12.8	$	0.31	$	0.62

General Markets	None	$	0.0		—			—		$	0.0	$	0.0	$	0.00	$	0.00

Real Estate For Sale	Offer Value	$	2.0		1.0	x		1.0	x	$	2.0	$	2.0	$	0.10	$	0.10

Net Cash	Book Value	$	6.2		1.0	x		1.0	x	$	6.2	$	6.2	$	0.30	$	0.30

Deferred Tax Assets	Book Value(2)	$	35.0		0.1	x		0.2	x	$	3.5	$	7.0	$	0.17	$	0.34

Total										$	130.1	$	168.0	$	6.32	$	8.16

Sources: Capital IQ and company press releases.

(1)	Jewish Networks current EBITDA estimated by Osmium assuming an efficient cost structure.
(2)	Current book value of deferred tax asset estimated by Osmium.

DISCLAIMER

Certain factual and statistical (both historical and projected) industry and market data and other information contained herein was obtained by Osmium Partners from independent, third-party sources that it deems to be reliable. However, Osmium Partners has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. Further, many of the statements and assertions contained herein reflect the belief of Osmium Partners, which belief may be based in whole or in part on such data and other information. Osmium Partners recognizes that there may be confidential or otherwise non-public information in the possession of the companies discussed in this letter that could lead these companies or others to disagree with Osmium Partners’ conclusions.

The analyses provided may include certain statements, assumptions, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies. Such statements, assumptions, estimates, and projections reflect various assumptions by Osmium Partners concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, assumptions, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Osmium Partners disclaims any obligation to update this letter.

Funds and separately managed accounts managed by Osmium Partners own Spark Networks common stock. Osmium Partners manages funds that are in the business of actively trading - buying and selling - securities and other financial instruments. Osmium Partners in the future may change its investment position in Spark Networks and possibly increase, decrease, dispose of, or change the form of its investment for any or no reason.

This letter should not be considered a recommendation to buy, sell, or hold any investment. In addition, this letter is neither an offer to purchase nor a solicitation of an offer to sell any securities of Spark Networks or any of the other companies mentioned in this letter.