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Indaba Issues Letter to the Board of Directors of Benefitfocus Regarding Recent Governance Lapses

Indaba Capital Management, L.P. (together with its affiliates, “Indaba” or “we”), which beneficially owns approximately 9.9% of the outstanding common shares of Benefitfocus, Inc. (NASDAQ: BNFT) (“Benefitfocus” or the “Company”), and approximately 22.9% of the outstanding issue of the Company’s 1.25% convertible senior notes, today issued the below open letter to the Company’s Board of Directors (the “Board”):

May 13, 2021

The Board of Directors

Benefitfocus, Inc.

100 Benefitfocus Way

Charleston, South Carolina 29492

Dear Members of the Board of Directors,

Indaba Capital is a major holder of the common shares and convertible senior notes issued by Benefitfocus. The Board is well aware of our concerns regarding the Company’s troublesome governance, concerning related party transactions, poor succession planning and weak financial results. The Board is also aware that we recently made a concerted effort to reach a good faith settlement that provided for Indaba withdrawing its nominations and accepting customary settlement terms in exchange for Benefitfocus adding a single shareholder-appointed director, Ronald P. Mitchell, to a Board of seven directors. We find the Company’s refusal of such a modest addition to be extremely unusual and it leaves us questioning why the Company is so fiercely opposed to welcoming an independent shareholder designee into the boardroom. What does Benefitfocus have to hide?

Unfortunately, since we began engaging with Benefitfocus in late 2020, we believe the Board has demonstrated a perpetual disregard for honest shareholder engagement and sound governance. Benefitfocus has failed to enact anything other than incremental, reactionary measures. The decisions to cut ties with long-tenured director Mason Holland Jr., declassify the Board and finally add a diverse director only came after Indaba raised concerns. Likewise, director A. Lanham Napier’s BuildGroup LLC only terminated its off-market voting agreement with Mr. Holland after we sounded the alarm.

The Company’s recently filed preliminary proxy reinforces our view that the Board has no interest in meaningful and substantive governance improvements. Despite the Company’s promise to de-stagger the Board, we suspect that the decision to have common shareholders elect only one Class II director at the 2021 Annual Meeting – after she just recently joined – was made to deter Indaba from pursuing shareholder-driven change at the top of the Company. Further, next year, common shareholders will only be able to vote on three out of seven directors if the declassification proposal passes at the 2021 Annual Meeting and the Board remains at its current size. Once again, we believe Benefitfocus has shown a complete disregard for corporate governance.

In addition to maintaining this seemingly anti-shareholder culture, the Board has also failed to follow through on one of its most fundamental duties: maintaining stability at the management level.

The lawsuit filed last week against now current Chief Executive Officer Matthew Levin by ADP, Inc. (“ADP”) is troubling. It alleges that Mr. Levin breached his contractual obligations to ADP, breached his duty of loyalty and misappropriated trade secrets. Given the vast internal and external resources that Benefitfocus has at its disposal, we find it completely unacceptable that the Board chose to hire (and publicly announce) a leader who has already exposed himself and shareholders to significant risks, distraction and potential liability.

While Mr. Levin may have strong experience and be a good candidate on paper, we question the process that has resulted in this highly concerning situation. The hiring decision seems to reflect a lack of diligence and thoughtfulness on the part of the Company’s directors, especially considering the Board has overseen three other chief executive officers and six chief financial officers since 2015. Mr. Levin’s appointment would make him the Company’s fourth Chief Executive Officer in the past four years.

We believe the Board owes shareholders far more detail than what was included in last week’s sparse 8-K filing. In particular, we want answers to questions that include:

  • Why did Benefitfocus extend an offer to Mr. Levin in January 2021, when Stephen Swad had only held the chief executive position for 5 months at the time?
  • Why did the Company extend a full-time offer (instead of offering an interim one) and an attractive compensation package to Mr. Swad if within months it intended to find a more permanent leader? This only further perpetuates years of high management turnover.
  • Why is the Board providing extensive separation benefits to Mr. Swad, including continued payment of his base salary for 12 months following his separation date and payment of his 2021 annual bonus on a prorated basis of 75%?
  • What is the contingency plan if ADP’s applications for a temporary restraining order and a preliminary injunction against Mr. Levin are granted?
  • Did Mr. Levin acknowledge that he may be in breach of his restrictive covenants as a result of joining Benefitfocus? Were all the directors aware of this or was this just another example of poor judgment by the Board?
  • What efforts did the Company’s internal and external legal counsel make to assess and mitigate the risks associated with hiring Mr. Levin?
  • What are the estimated financial costs associated with indemnifying Mr. Levin and positioning him to “vigorously defend himself” in legal proceedings?

We request that Benefitfocus provides all shareholders with additional information, including answers to the aforementioned questions, within five (5) business days. In our view, these questions should have already been addressed.

It seems shareholders were given a false sense of hope when it was announced earlier this year that Douglas Dennerline would be appointed Chairman of the Board at the 2021 Annual Meeting. Unfortunately, Benefitfocus’ latest management shuffle and excessive executive compensation decisions only make clear that shareholders should expect more of the same from this insular Board. It appears to us that Mr. Dennerline is following in the footsteps of his predecessor.

In closing, we will not proceed with a solicitation to elect our single candidate in light of Benefitfocus only putting one director up for election, but we will continue to hold the Board accountable in other ways. We will also seek boardroom change in the future if the incumbents do not adequately address the current Chief Executive Officer debacle, enact sufficient governance changes and substantially improve performance. We firmly believe this comedy of errors at the hands of a self-interested Board must end in order to stem the ongoing destruction of shareholder value and finally turn around Benefitfocus.


Derek Schrier

Managing Partner

Indaba Capital Management, L.P.


Alex Lerner


Indaba Capital Management, L.P.


About Indaba Capital

Indaba was founded in 2010 to invest opportunistically in corporate equity and debt. Based in San Francisco, Indaba currently has more than $1.5 billion in assets under management. Learn more at


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