Indaba Capital Nominates Two Highly-Qualified Candidates for Election to the Board of Directors of Benefitfocus

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 letter to shareholders regarding its decision to nominate two highly-qualified and independent candidates for election to the Company’s Board of Directors (the “Board”) at the 2021 Annual Meeting of Shareholders (the “2021 Annual Meeting”). Indaba also holds approximately 22.9% of the outstanding issue of the Company’s 1.25% convertible senior notes.

Fellow Shareholders,

Indaba is a significant holder of the common shares and convertible senior notes issued by Benefitfocus. We invested in the Company because it is an attractive, established business that operates in a growing, high-potential market. Unfortunately, despite these tailwinds, Benefitfocus has stagnated for years due, in our view, to an overtly self-interested Board that has consistently flouted the tenets of sound corporate governance. We believe the current Board has fostered an anti-shareholder culture that has been defined by excessive related party transactions, insufficient boardroom diversity and independence, and unjustifiable corporate waste.

In order to facilitate meaningful governance enhancements and help stem the tide of value destruction at Benefitfocus, Indaba initiated a private dialogue with the Company’s leadership in December 2020. We subsequently spent eight weeks trying to convince Benefitfocus to fix its broken governance and refresh the Board with diverse, experienced individuals identified by Indaba. Regrettably, our conversations have been unproductive as the Company’s leadership continues to resist shareholder representation and instead recently chose to unilaterally announce a subset of basic governance changes that we had been advocating for months.

In our view, the incremental changes adopted by Benefitfocus fall woefully short of the substantive enhancements that shareholders deserve. This is why we have nominated two highly-qualified, independent director candidates for election to the Board at the 2021 Annual Meeting: Ronald P. Mitchell and Nicholas K. Pianim. If Benefitfocus takes the appropriate step of making its declassification proposal the first item on the agenda at the 2021 Annual Meeting, shareholders will be able vote to de-stagger the Board and vote to elect two new directors to represent common shareholders with diverse backgrounds and more relevant sector experience.

Messrs. Mitchell and Pianim would bring fresh perspectives and strong independence to the boardroom. In addition to possessing demonstrated integrity, they also have deep experience in technology, software and enterprise solutions. They can help the Board identify operational improvements, evaluate new business channels and explore strategies for repairing relations with the broker community. We firmly believe that Messrs. Mitchell and Pianim are the right director candidates for this pivotal moment in time.

We Believe Benefitfocus Needs Meaningful, Shareholder-Driven Change in the Boardroom

Benefitfocus is at a crossroads after years of prolonged underperformance and value destruction. The Company’s share price deterioration began well before the COVID-19 pandemic hit and has spent most of the past year hovering near all-time lows, leading us to conclude that the investment community has lost a significant amount of confidence in the Board and management team. We suspect that shareholder confidence will continue to erode as long as Benefitfocus lingers on its current path and rejects the input of its shareholders.

It is important for shareholders to understand that the current Board, which refused to proactively add two of our director candidates, is responsible for the following:

• Years of Value Destruction:Benefitfocus has negative total shareholders returns over one-year (-34.0%), three-year (-46.4%) and five-year periods (-60.2%) through December 31, 2020. In addition, the Company has dramatically underperformed its human capital management peers and all relevant indices over those same periods. These results have persisted despite the backdrop of the longest bull market in history.

• A Punishing Trading Price Discount:The Company’s shares trade far below its self-identified peer group average based on 2020 sales and forward sales estimates for 2021.¹ We suspect this persistent gap stems from the fact that Benefitfocus dramatically lags its peers when it comes to top-line growth and perpetuates poor corporate governance.

• Costly Strategic Mistakes: The Company’s attempt to disintermediate brokers through the launch of BenefitStore was a colossal failure. The Board approved the concept despite the fact that brokers are the primary source of leads and customer adoption of benefits administration products. Subsequently, Benefitfocus further alienated the broker community by entering into an unsuccessful strategic partnership with Mercer LLC. While both of these initiatives have been unwound, the broker community has not forgotten and continues to direct revenue away to competitors. We cannot help but wonder whether a more engaged, independently-minded Board would have rejected these poorly-conceived initiatives.

• Highly-Concerning Management Turnover: Benefitfocus has had three Chief Executive Officers and six Chief Financial Officers since 2015. We believe this instability falls squarely on the Board, which has failed in its basic duty to identify and retain qualified executives. We also suspect that retaining Mason Holland Jr. as Executive Chairman for years made it harder to attract qualified external candidates for the Chief Executive Officer role.

• Egregious Related Party Transactions: The Board has rubber stamped a litany of related party transactions over the years, including several involving Mr. Holland. Benefitfocus is party to three lease agreements with entities controlled by Mr. Holland and former Chief Executive Officer Shawn Jenkins. The Company has spent tens of millions of dollars on these agreements. Equally troubling is the fact that the Company’s preferred stock agreement with BuildGroup LLC (“BuildGroup”) initially included a voting agreement between Mr. Holland and Lead Independent Director A. Lanham Napier. The requirement that BuildGroup vote to elect Mr. Holland or his designees to the Board and that Mr. Holland vote to elect Mr. Napier or his designees to the Board was only eliminated after Indaba raised concerns.

• Capital Structure Mismanagement: Benefitfocus had $115 million in cash on its balance sheet as of May 2020. Despite maintaining this stable position and having the ability to prepay millions of dollars in lease payments to Mr. Holland’s entities in March 2020, Benefitfocus chose to raise $80 million via a convertible preferred stock deal with BuildGroup. The terms include an 8% coupon, the right to convert into common equity at $15 per share for a total of 5.3 million shares (13% of the total outstanding shares) and the right to vote with common shareholders on all matters, including the election of directors, in addition to separately electing two directors to the Board. We are confounded by this decision given that Benefitfocus would go on to revise its free cash flow guidance upward by $30 million at the end of Q3 2020 and also repurchase almost $19 million in the Company’s 1.25% convertible senior notes. The Board’s apparent lack of judgement when it comes to financing and capital allocations is truly alarming.

• Concerning and Opaque Governance: Prior to Indaba sharing its