Believes Lead Independent Director A. Lanham
Napier Wants to Retain Outsized Influence Over the Company’s
Insular Board Rather Than Add One of Indaba’s Independent
Candidates
Calls on the Company to Finally Commit to
Making the Board De-Classification Proposal the First Agenda Item
at the 2021 Annual Meeting, Especially Given its Willingness to
Privately Concede on This Point to Indaba
Makes Clear That Indaba is Committed to
Taking the Necessary Steps Over the Long-Term to Improve the
Company’s Broken Governance and Help Enhance Shareholder
Value
Indaba Capital Management, L.P. (together with its affiliates,
“Indaba” or “we”), which collectively with the other participants
in its solicitation beneficially owns approximately 9.5% of the
outstanding common shares of Benefitfocus, Inc. (NASDAQ: BNFT)
(“Benefitfocus” or the “Company”), today issued the below open
letter to the Company’s Board of Directors (the “Board”). As a
reminder, Indaba recently nominated two highly-qualified and
independent candidates – Ronald P. Mitchell and Nicholas K. Pianim
– for election to the Company’s Board at the 2021 Annual Meeting of
Shareholders (the “2021 Annual Meeting”).
***
Dear Lead Independent Director A. Lanham Napier and Members of
the Board,
We are writing to you today to express our profound
disappointment with the manner in which Benefitfocus has responded
to our most recent attempt to achieve a settlement that supports
further Board refreshment. It is confounding that the Company once
again demonstrated an unwillingness to compromise with us and
commit to promptly improving its insular Board. Given our status as
one of the Company’s largest shareholders, allowing us to have
input into just one of seven
directors on the go-forward Board seems like something
Benefitfocus should embrace rather than resist. We cannot understand the Board’s unwillingness to agree
to our latest proposal, which provided for Indaba withdrawing its
nominations and accepting customary settlement terms in exchange
for the Board adding Ronald P. Mitchell and committing to basic
governance improvements.
It is important to stress that Indaba has made a significant
effort to compromise with the Board in recent weeks. Despite the
many issues plaguing Benefitfocus, we have not asked the Company to
appoint both of our nominees or immediately establish a committee
to review strategic alternatives. We proposed a consensual
resolution based on the appointment of one director.
Unfortunately, our discussions this week with Mr. Napier and
Chief Executive Officer Stephen M. Swad have led us to conclude
that Benefitfocus continues to lack the necessary respect for
effective governance practices and honest shareholder engagement.
In fact, there was a point in which both individuals were rejecting
Indaba’s input into the settlement framework without even reviewing
our comments and proposed changes. This became apparent when they
failed to realize that we had actually agreed to the Company’s
request to have Mr. Mitchell stand for election at the 2021 Annual
Meeting – even if he was appointed at this point in the year.
In light of this seemingly disingenuous engagement and the
onerous, off-market settlement terms demanded by the Company, we
suspect that the Board never wanted to reach a resolution with
Indaba. Quite frankly, we question whether any engaged shareholder
or director candidate at the Company would ever agree to your “best
and final” terms, which include:
- Requiring us to agree to allow the Company to expand the Board
by three additional directors, despite Mr. Napier having the
ability to already designate two directors as a preferred
shareholder and vote with common shareholders on the remaining
board seats.
- Shareholders are not blind to the fact that Mr. Napier, through
his company BuildGroup LLC, obtained a curious, sweetheart deal
last year that gave him approximately 13% of the Company and the
ability to vote with common shareholders for the remaining
directors, when the Company did not appear to need financing.
- Requiring Mr. Mitchell, an independent nominee, to sign a
letter agreement that we suspect no other independent director on
the Board has ever been asked to sign before, despite Mr. Mitchell
being completely independent of Indaba.
- Forcing Mr. Mitchell to resign before the end of his one-year
term when the settlement agreement terminates, which would
effectively occur 90 days before the 2022 Annual Meeting.
- Demanding that the Company’s obligations and Indaba’s rights
terminate in the event that the Company alleges a breach of the
Agreement – one that is not judicially concluded.
- Demanding we release the Company and its Board from all claims
relating to our investment, whether known or unknown as of the date
of the settlement agreement.
- Requiring us to agree to allow the Company to delay the 2021
Annual Meeting until August 31, 2021 and next year’s meeting until
October 31, 2022, thereby delaying shareholders’ ability to hold
the Board accountable.
We believe all shareholders should closely scrutinize the
Company’s unreasonable demands in exchange for adding a diverse,
highly-qualified and independent candidate to this Board. We are
forced to ask: What is the Board hiding
and why is it apparently so afraid of allowing an independent
individual to enter the boardroom?
While we continue to believe that the Board would be enhanced by
the addition of Mr. Mitchell, we would rather forgo a punitive
settlement and remain free to speak publicly in order to hold Mr.
Napier and the rest of the Company’s directors accountable. It
seems our public advocacy has previously compelled the Board to
take steps that include allowing shareholders to vote to de-stagger
the Board at the 2021 Annual Meeting, causing long-tenured leader
Mason Holland Jr. to step down as Executive Chairman and from the
Board at the 2021 Annual Meeting, and terminating certain
problematic provisions under the Company’s advisory agreement with
Mr. Holland. With this context in mind, it is troubling that Mr.
Holland will not step down until the 2021 Annual Meeting – a
meeting it appears the Company is now prepared to delay until
August 31, 2021. This type of feet-dragging seems to only benefit
Mr. Holland at the expense of shareholders, who have suffered
greatly during much of his tenure.
We also believe our advocacy helped drive Mr. Napier’s
BuildGroup LLC to terminate its voting agreement with Mr. Holland,
which would have assured the continued reelection of Mr. Napier,
Mr. Holland or their designees to the Board. However, Mr. Napier
does not deserve an accommodation for terminating what we deem an
alarming agreement. Indaba contends that Mr. Napier is actually
picking up the mantle for Mr. Holland by fostering an
anti-shareholder culture at Benefitfocus and sustaining many
questionable governance practices. We believe his recent dealings
with us support this conclusion.
In closing, we envision these aforementioned moves being the
start – not the end – of a number of necessary boardroom
enhancements at Benefitfocus. Notably, the Company needs to
publicly commit to making the Board de-classification proposal the
first agenda item at the 2021 Annual Meeting, especially in light
of its willingness to finally concede on this point in private
negotiations with us this week. Shareholders can trust that
Indaba will remain a vocal advocate for additional changes and a
new strategic direction at Benefitfocus. If the current Board
believes Indaba can be dismissed or deterred, it is sorely
mistaken.
Sincerely,
Derek Schrier
Managing Partner
Indaba Capital Management, L.P.
Alex Lerner
Partner
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 www.indabacapital.com.
Certain Information Concerning the
Participants
Indaba Capital Management, L.P. (“Indaba Capital”) together with
the other participants named herein (collectively, “Indaba”),
intends to file a preliminary proxy statement and an accompanying
proxy card with the Securities and Exchange Commission (“SEC”) to
be used to solicit votes for the election of its slate of director
nominees at the upcoming 2021 annual general meeting of
shareholders of Benefitfocus, Inc., a Delaware corporation (the
“Company”).
INDABA STRONGLY ADVISES ALL SHAREHOLDERS OF THE COMPANY TO READ
THE PROXY STATEMENT AND OTHER PROXY MATERIALS WHEN AND AS THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S
WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN
THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT
WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST. REQUESTS FOR COPIES
SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY SOLICITOR.
The participants in the proxy solicitation are anticipated to be
Indaba Capital, Indaba Capital Fund, L.P. (“Indaba Fund”), Indaba
Partners, LLC (“Indaba Partners”), IC GP, LLC (“IC GP”), Derek C.
Schrier, Ronald P. Mitchell And Nicholas K. Pianim.
As of the date hereof, Indaba Fund held 3,097,800 shares of the
Company’s Common Stock, par value $0.001 per share (the “Common
Stock”), but by virtue of a certain Investment Management
Agreement, Indaba Fund and Indaba Partners have delegated all
voting and investment power over the securities of the Company
directly held by Indaba Fund to Indaba Capital. Accordingly, Indaba
Fund and Indaba Partners, as the general partner of Indaba Fund, do
not beneficially own any securities of the Company. Each of Indaba
Capital, IC GP, as the general partner of Indaba Capital, and Mr.
Schrier, as the managing member of IC GP, may be deemed to
beneficially own the 3,097,800 shares of Common Stock held directly
by Indaba Fund. In addition, as of the date hereof, Indaba Fund
holds $50,681,000 aggregate principal amount of the Company’s 1.25%
Convertible Senior Notes due December 15, 2023.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210415005592/en/
Profile Greg Marose / Charlotte Kiaie, 347-343-2999
gmarose@profileadvisors.com / ckiaie@profileadvisors.com
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