UPDATE 1-Indaba Capital nominates two for Benefitfocus board, company seats one

Adds detail on company's response, stock price

By Svea Herbst-Bayliss

BOSTON, March 16 (Reuters) - Hedge fund Indaba Capital said on Tuesday it had nominated two directors to Benefitfocus Inc's BNFT.O board, and the software company responded a few hours later, saying it had named a veteran human resources executive as a new independent director.

The two sides have been trading barbs for weeks over the company's future, high turnover in its executive suite and who should be sitting on its board.

San Francisco-based Indaba five weeks ago called on Charleston, South Carolina-based Benefitfocus to sell itself following years of poor returns. On Tuesday, it increased the pressure by nominating two men with technology and software expertise to the company's board. Shareholders will vote on whether to add them to the board.

The company in turn seated a woman with human resources experience on the board.

Indaba, which owns a roughly 9.5% stake in Benefitfocus, has criticized the company's sluggish stock price during booming markets and warned that shareholders will lose confidence if nothing changes. The stock price fell by 1% in early trading to $14.95 a share on the Nasdaq.

In a letter to shareholders, Indaba wrote, "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."

Benefitfocus, valued at $490 million, took steps to overhaul corporate governance earlier this year by naming a new director and promising to appoint an independent chairman at the annual meeting. Indaba contends these steps fall short of what investors deserve.

The hedge fund objected to these specific moves, although it had asked for new, diverse, independent board members and for the company to unwind financial transactions with an entity controlled by a current director.

Indaba nominated Ronald Mitchell, managing partner of Low Post Ventures, and Nicholas Pianim, a managing director at venture capital firm DAG Ventures, as directors. Each man is African American. The company seated Coretha Rushing, who previously worked for Equifax and the Coca-Cola Co and is also Black.

In addition to being one of the company's largest stock owners, Indaba holds approximately 22.9% of Benefitfocus’ outstanding issue of 1.25% convertible senior notes.

(Reporting by Svea Herbst-Bayliss; Editing by Cynthia Osterman and Jonathan Oatis)

((svea.herbst@thomsonreuters.com; +617 856 4331; Reuters Messaging: svea.herbst.thomsonreuters.com@reuters.net))